<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 8, 1998
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
DOBSON WIRELINE COMPANY
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
OKLAHOMA 4813 73-1533356
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of Classification Code Number) Identification
incorporation or organization) No.)
</TABLE>
------------------------
13439 NORTH BROADWAY EXTENSION BRUCE R. KNOOIHUIZEN
SUITE 200 13439 NORTH BROADWAY EXTENSION
OKLAHOMA CITY, OKLAHOMA 73114 SUITE 200
(405) 391-8500 OKLAHOMA CITY, OKLAHOMA 73114
(Address, including Zip Code, and (405) 391-8500
telephone (Name, address, including Zip
number, including area code, of Code, and telephone number,
registrant's principal including area code, of
executive offices) agent for service)
------------------------
COPIES TO:
THEODORE M. ELAM, ESQ.
BRICE TARZWELL, ESQ.
MCAFEE & TAFT A PROFESSIONAL CORPORATION
TENTH FLOOR, TWO LEADERSHIP SQUARE
OKLAHOMA CITY, OKLAHOMA 73102
(405) 235-9621
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
AS SOON AS PRACTICABLE AFTER THIS REGISTRATION STATEMENT BECOMES EFFECTIVE.
------------------------
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box: / /
------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO OFFERING PRICE AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED BE REGISTERED PER UNIT(1) OFFERING PRICE(1) REGISTRATION FEE
<S> <C> <C> <C> <C>
12 1/4% Senior Notes due 2008......... $350,000,000 100% $350,000,000 $103,250(1)
</TABLE>
(1) Estimated solely for the purpose of computing the registration fee in
accordance with Rule 457(f)(2).
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8 OF THE
SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8, MAY
DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PRELIMINARY PROSPECTUS (SUBJECT TO COMPLETION)
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE>
ISSUED JULY , 1998
OFFER TO EXCHANGE
ALL OUTSTANDING
12 1/4% SENIOR NOTES DUE 2008
($350,000,000 PRINCIPAL AMOUNT OUTSTANDING)
FOR
12 1/4% SENIOR NOTES DUE 2008
WHICH HAVE BEEN REGISTERED UNDER THE SECURITIES ACT
OF
DOBSON WIRELINE COMPANY
----------------
The Exchange Offer will expire at 5:00 p.m., New York City time, on
, 1998, unless extended (if and as extended, the "Expiration Date").
The Company will accept for exchange any and all validly tendered Old Notes on
or prior to 5:00 p.m., New York City time, on the Expiration Date. Tenders of
Old Notes may be withdrawn at any time prior to 5:00 p.m., New York City time,
on the Expiration Date. See "The Exchange Offer."
------------------------
SEE "RISK FACTORS" BEGINNING ON PAGE 17 FOR A DISCUSSION OF CERTAIN FACTORS
WHICH INVESTORS SHOULD CONSIDER IN CONNECTION WITH THE EXCHANGE OFFER AND AN
INVESTMENT IN THE NEW NOTES OFFERED HEREBY.
------------------------
Dobson Wireline Company, an Oklahoma corporation (the "Company" or
"Dobson"), hereby offers (the "Exchange Offer"), upon the terms and subject to
the conditions set forth in this Prospectus and the accompanying Letter of
Transmittal to exchange $1,000 principal amount of its 12 1/4% Senior Notes Due
2008 (the "New Notes"), which have been registered under the Securities Act of
1933, as amended (the "Securities Act"), pursuant to a Registration Statement of
which this Prospectus is a part, for each
$1,000 principal amount of its outstanding 12 1/4% Senior Notes Due 2008 (the
"Old Notes"), of
which an aggregate of $350,000,000 in principal amount is outstanding as of July
, 1998. (COVER CONTINUED ON PAGE II.)
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
------------------------
Interest on the New Notes will be paid in cash at a rate of 12 1/4% per
annum on each June 15 and December 15, commencing December 15, 1998. The New
Notes may be redeemed at the option of the Company, in whole or in part, at any
time on or after June 15, 2003 at 106.125% of their principal amount, plus
accrued interest, declining ratably to 100% of their principal amount, plus
accrued interest, on or after June 15, 2006. In addition, at any time prior to
June 15, 2001, the Company may redeem up to 35% of the aggregate principal
amount of the New Notes with the net proceeds of one or more sales of capital
stock of the Company, at 112.250% of their principal amount, plus accrued
interest; provided that after any such redemption at least $227.5 million
aggregate principal amount of Notes remains outstanding. See "Description of the
Notes."
This Prospectus, together with the Letter of Transmittal, is being sent to
all registered holders of Old Notes as of , 1998. As of such date,
there were registered holders of the Old Notes.
The Company will not receive any proceeds from this Exchange offer. No
dealer-manager is being used in connection with this Exchange Offer. See "Use of
Proceeds" and "Plan of Distribution."
WE ARE NOT ASKING YOU FOR A PROXY AND YOU ARE REQUESTED NOT TO SEND US A
PROXY.
------------------------
THE DATE OF THIS PROSPECTUS IS , 1998.
<PAGE>
The New Notes will be obligations of the Company entitled to the benefits of
the Indenture (as defined herein). The New Notes will be unsubordinated
indebtedness of the Company, ranking pari passu in right of payment with the Old
Notes and all other unsubordinated indebtedness of the Company and senior in
right of payment to all subordinated indebtedness of the Company. The Old Notes
and the New Notes (together, the "Notes") will be effectively subordinated to
all existing and future liabilities (including trade payables) of the Company's
subsidiaries at March 31, 1998, on a pro forma basis. After giving pro forma
effect to the offering and sale of the Old Notes and the American Telco
Acquisition (as defined herein) (the "Transactions"), the Company would have
had, on a consolidated basis, $378.4 million of indebtedness outstanding and the
Company's subsidiaries would have had $38.7 million of liabilities in addition
to the Notes (excluding intercompany payables and including $28.4 million of
indebtedness, all of which is secured), all of which effectively would rank
senior to the Notes, and the Company would have had no indebtedness ranking
junior to the Notes. The form and terms of the New Notes are identical in all
material respects to the form and terms of the Old Notes except that the New
Notes have been registered under the Securities Act. Any Old Notes not tendered
and accepted in the Exchange Offer will remain outstanding and will be entitled
to all the rights and preferences and will be subject to the limitations
applicable thereto under the Indenture. Following consummation of the Exchange
Offer, the holders of the Old Notes will continue to be subject to the existing
restrictions upon transfer thereof and the Company will have no further
obligation to such holders to provide for the registration under the Securities
Act of the Old Notes held by them. Following the completion of the Exchange
Offer, none of the Notes will be entitled to the contingent increase in interest
rate provided pursuant to the Old Notes. The Exchange Offer is being made
pursuant to the terms of the registration rights agreement (the "Registration
Rights Agreement") entered into between the Company and Morgan Stanley & Co.
Incorporated, and NationsBanc Montgomery Securities LLC (the "Placement Agents")
pursuant to the terms of the Placement Agreement dated June 10, 1998 between the
Company and the Placement Agents. The New Notes and the Old Notes are
collectively referred to herein as the "Notes." See "The Exchange Offer--Purpose
and Effect of the Exchange Offer."
Based on interpretations by the staff of the Securities and Exchange
Commission (the "Commission") set forth in no-action letters issued to third
parties, the Company believes the New Notes issued pursuant to the Exchange
Offer in exchange for Old Notes may be offered for resale, resold and otherwise
transferred by any holder thereof (other than broker-dealers, as set forth
below, and any such holder that is an "affiliate" of the Company within the
meaning of Rule 405 under the Securities Act) without compliance with the
registration and prospectus delivery provisions of the Securities Act, provided
that such New Notes are acquired in the ordinary course of such holder's
business and that such holder has no arrangement or understanding with any
person to participate in the distribution of such New Notes. Any holder who
tenders in the Exchange Offer with the intention to participate, or for the
purpose of participating, in a distribution of the New Notes or who is an
affiliate of the Company may not rely upon such interpretations by the staff of
the Commission and, in the absence of an exemption therefrom, must comply with
the registration and prospectus delivery requirements of the Securities Act in
connection with any secondary resale transaction. Holders of Old Notes wishing
to accept the Exchange offer must represent to the Company in the Letter of
Transmittal that such conditions have been met.
Each broker-dealer (other than an affiliate of the Company) that receives
New Notes for its own account pursuant to the Exchange Offer must acknowledge
that it will deliver a prospectus meeting the requirements of the Securities Act
in connection with any resale of such New Notes. The Letter of Transmittal
states that by so acknowledging and by delivering a prospectus, a broker-dealer
will not be deemed to admit that it is an "underwriter" within the meaning of
the Securities Act. This Prospectus, as it may be amended or supplemented from
time to time, may be used by a broker-dealer in connection with resales of New
Notes received in exchange for Old Notes where such Old Notes were acquired by
such broker-dealer as a result of market-making activities or other trading
activities. The Company has agreed that, for a period of 180 days after the last
date Old Notes are accepted for exchange pursuant to the Exchange Offer (the
"Exchange Date"), it will make this Prospectus available to any broker-dealer
for use in connection with any such resale. See "Plan of Distribution." Any
broker-dealer who is an affiliate of the Company may not rely on such no-action
letters and must comply with the registration and prospectus delivery
requirements of the Securities Act in connection with a secondary resale
transaction.
ii
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Periodic Reports........................................................................................... iv
Available Information...................................................................................... iv
Summary.................................................................................................... 1
Risk Factors............................................................................................... 13
The Exchange Offer......................................................................................... 28
Selected Consolidated Financial and Other Data............................................................. 36
Pro Forma Condensed Consolidated Financial Data............................................................ 38
Management's Discussion and Analysis of Financial Condition and Results of Operations...................... 45
Business................................................................................................... 56
Management................................................................................................. 74
Principal Shareholders..................................................................................... 80
Description of Certain Indebtedness........................................................................ 81
Description of the Notes................................................................................... 82
Certain U.S. Federal Tax Consequences...................................................................... 110
Legal Matters.............................................................................................. 115
Experts.................................................................................................... 115
Glossary................................................................................................... 116
Index to Financial Statements.............................................................................. F-1
</TABLE>
------------------------
NO PERSON IS AUTHORIZED IN CONNECTION WITH THE OFFERING MADE HEREBY TO GIVE
ANY INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS
OR THE ACCOMPANYING LETTER OF TRANSMITTAL AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATION NOT CONTAINED HEREIN MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED BY THE COMPANY.
------------------------
THE EXCHANGE OFFER IS NOT BEING MADE TO, NOR WILL THE COMPANY ACCEPT
SURRENDERS FOR EXCHANGE FROM, HOLDERS OF OLD SHARES IN ANY JURISDICTION IN WHICH
THIS EXCHANGE OFFER OR THE ACCEPTANCE THEREOF WOULD NOT BE IN COMPLIANCE WITH
THE SECURITIES OR BLUE SKY LAWS OF SUCH JURISDICTION. NEITHER THE DELIVERY OF
THIS PROSPECTUS NOR THE ACCOMPANYING LETTER OF TRANSMITTAL, NOR ANY EXCHANGE
MADE HEREUNDER SHALL UNDER ANY CIRCUMSTANCES IMPLY THAT THE INFORMATION HEREIN
IS CORRECT AS OF ANY DATE SUBSEQUENT TO THE DATE HEREOF.
iii
<PAGE>
PERIODIC REPORTS
The Company has agreed that, whether or not required by the rules and
regulations of the Commission, so long as any Old Notes or New Notes are
outstanding, the Company will file with the Commission all such reports and
other information as it would be required to file with the Commission by Section
13(a) or 15(d) under the Securities Exchange Act of 1934 (the "Securities
Exchange Act") as if it were subject thereto. The Company will supply the
Trustee appointed with respect to the Old Notes or New Notes and each holder of
Old Notes or New Notes, without cost, copies of such report and other
information.
------------------------
AVAILABLE INFORMATION
The Company has filed with the Commission a Registration Statement on Form
S-4 (the "Registration Statement"), which term includes all amendments,
exhibits, annexes and schedules thereto) pursuant to the Securities Act, and the
rules and regulations promulgated thereunder, covering the New Notes being
offered hereby. This Prospectus does not contain all the information set forth
in the Registration Statement, certain parts of which are omitted in accordance
with the rules and regulations of the Commission. Statements made in this
Prospectus as to the contents of any contracts, agreement or other document
referred to are not necessarily complete. With respect to each such contract,
agreement or other document filed as an exhibit to the Registration Statement,
reference is made to the exhibit for a more complete description of the matter
involved, and each such statement shall be deemed qualified in its entirety by
such reference.
The Company is not currently subject to the informational reporting
requirements of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"). Upon effectiveness of a registration statement with respect to an
exchange offer or a shelf registration statement with respect to resales of the
Notes (see "Description of the Notes--Registration Rights"), the Company will
become subject to the informational requirements of the Exchange Act.
------------------------
THIS PROSPECTUS INCLUDES "FORWARD-LOOKING STATEMENTS" WITHIN THE MEANING OF
SECTION 27A OF THE SECURITIES ACT AND SECTION 21E OF THE SECURITIES EXCHANGE ACT
OF 1934, AS AMENDED. ALL STATEMENTS REGARDING THE COMPANY'S AND ITS
SUBSIDIARIES' EXPECTED FINANCIAL POSITION, BUSINESS AND FINANCING PLANS ARE
FORWARD-LOOKING STATEMENTS. ALTHOUGH THE COMPANY AND ITS SUBSIDIARIES BELIEVE
THAT THE EXPECTATIONS REFLECTED IN SUCH FORWARD-LOOKING STATEMENTS ARE
REASONABLE, THEY CAN GIVE NO ASSURANCE THAT SUCH EXPECTATIONS WILL PROVE TO HAVE
BEEN CORRECT. IMPORTANT FACTORS THAT COULD CAUSE ACTUAL RESULTS TO DIFFER
MATERIALLY FROM SUCH EXPECTATIONS ("CAUTIONARY STATEMENTS") ARE DISCLOSED IN
THIS PROSPECTUS, INCLUDING, WITHOUT LIMITATION, IN CONJUNCTION WITH THE
FORWARD-LOOKING STATEMENTS INCLUDED IN THIS PROSPECTUS AND UNDER "RISK FACTORS."
ALL SUBSEQUENT WRITTEN AND ORAL FORWARD-LOOKING STATEMENTS ATTRIBUTABLE TO THE
COMPANY, ITS SUBSIDIARIES OR PERSONS ACTING ON THEIR BEHALF ARE EXPRESSLY
QUALIFIED IN THEIR ENTIRETY BY THE CAUTIONARY STATEMENTS.
iv
<PAGE>
SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED
INFORMATION AND FINANCIAL STATEMENTS, THE NOTES THERETO AND THE OTHER FINANCIAL
DATA CONTAINED ELSEWHERE IN THIS PROSPECTUS. UNLESS OTHERWISE INDICATED, (I)
OPERATING DATA IN THIS PROSPECTUS ARE PROVIDED AS OF MARCH 31, 1998, (II) THE
INFORMATION IN THIS PROSPECTUS FOR THE "COMPANY", OTHER THAN THE HISTORICAL
FINANCIAL INFORMATION, IS FOR DOBSON WIRELINE COMPANY AND ITS SUBSIDIARIES AFTER
GIVING EFFECT TO THE AMERICAN TELCO ACQUISITION (AS DEFINED HEREIN) AND THE
OFFERING, (III) REFERENCES HEREIN TO "DOBSON WIRELINE" REFER TO DOBSON WIRELINE
COMPANY AND ITS SUBSIDIARIES WITHOUT GIVING EFFECT TO THE AMERICAN TELCO
ACQUISITION OR THE OFFERING, AND (IV) REFERENCES HEREIN TO "AMERICAN TELCO"
REFER COLLECTIVELY TO AMERICAN TELCO, INC. AND AMERICAN TELCO NETWORK SERVICES,
INC. CERTAIN OTHER TERMS USED IN THIS PROSPECTUS ARE DEFINED IN THE "GLOSSARY"
APPEARING ELSEWHERE HEREIN.
THE COMPANY
Dobson Wireline Company seeks to be the leading provider of integrated
local, long distance, data and other telecommunications services to small and
medium-sized business customers throughout the Southwest United States. Since
1936, the Company has provided incumbent local exchange carrier ("ILEC")
services in Oklahoma. In addition, Dobson Wireline operates long-haul fiber
optic facilities in Oklahoma, Texas and Colorado, providing wholesale long-haul
services. Dobson Wireline recently began offering switch-based competitive local
exchange carrier ("CLEC") services in Oklahoma City and Tulsa under its
LOGIX-SM- brand name and expects to commence offering these services in Amarillo
in mid-1998. Dobson Wireline's management team is led by Everett R. Dobson, the
Chairman of the Board, President and Chief Executive Officer of Dobson
Communications Corporation ("Dobson Communications"), Dobson Wireline's parent
company. For the year ended December 31, 1997 and three months ended March 31,
1998, Dobson Wireline had revenues of $20.2 million and $5.3 million, and EBITDA
of $8.2 million and $(.1) million, respectively. As of March 31, 1998, Dobson
Wireline had 14,007 access lines and total assets of $49.8 million.
In order to accelerate the expansion of its CLEC business, on June 15, 1998,
Dobson Wireline acquired Houston-based American Telco for $130.3 million.
American Telco provides long distance and local telecommunications services to
approximately 22,400 customers in Houston, Dallas, Fort Worth, San Antonio and
Austin, of which approximately 16,400 are business customers. Management
believes there is a significant opportunity to market Dobson Wireline's
integrated LOGIX-SM- product line to the existing American Telco customers and
to other small and medium-sized business customers in Texas. With approximately
100 direct sales professionals, American Telco has one of the largest direct
sales forces of alternative communications services in Texas. On a pro forma
basis after giving effect to the American Telco Acquisition, for the year ended
December 31, 1997 and three months ended March 31, 1998, the Company would have
had revenues of $72.2 million and $21.0 million, and EBITDA of $12.2 million and
$1.9 million, respectively, and as of March 31, 1998 the Company would have had
27,417 access lines and total assets of $407.1 million.
On June 12, 1998, the Company consummated an offering of the Old Notes (the
"Offering"). The Company financed the American Telco Acquisition with proceeds
of the Offering.
SERVICES STRATEGY
The Company's objective is to be the dominant alternative provider of
integrated local, long distance and data services packaged with wireless
offerings to small and medium-sized business customers in the Southwest. The
Company has developed customer focused strategies to build market share in
existing and new markets while utilizing innovative and efficient network
deployment techniques to maximize customer satisfaction and financial returns.
The principal elements of the Company's services strategy include:
DELIVERING INNOVATIVE TELECOMMUNICATIONS SOLUTIONS FOR BUSINESS
CUSTOMERS. The Company believes that there is substantial demand from small and
medium-sized businesses for bundled telecommunications
1
<PAGE>
services provided on a single monthly bill and with a single point of contact
for all sales and service. The Company offers under its LOGIX-SM- brand name
local, long distance, enhanced data, Internet, wireless and systems integration
services to customers with convenient integrated billing through its "DIRECT
T"-SM- bundled service offering. The Company believes that its DIRECT T-SM-
products allow the Company to improve customer retention, increase sales force
productivity and rapidly increase penetration in its target markets. The
Company's sales professionals are trained to provide customers with sales and
customer service relating to all of the Company's DIRECT T-SM- products. Once a
customer contracts with LOGIX for services, the Company assigns a single account
relations manager who has the responsibility of proactively contacting the
customer to confirm satisfaction with existing products and to promote new
services and programs.
FOCUSING ON THE SOUTHWEST. In order to leverage its extensive
telecommunications networks and long-standing customer and business
relationships in the region, the Company intends to continue to focus on the
Southwest, initially targeting Oklahoma and Texas. The Company believes that
this regional focus will enable it to take advantage of economies of scale in
management, network operations, sales and marketing. This regional concentration
of the Company's network is also expected to result in improved profit margins
based on management's belief that a significant percentage of the Company's
customers' telecommunications traffic will originate and terminate within the
region. The Company expects to expand primarily through internal growth, though
it will consider acquisitions to extend either its product line or geographic
footprint or expand its customer base. The Company recently acquired (the "Zenex
Acquisition") certain long distance customers and related assets of Zenex
Communications, Inc. ("Zenex"), an Oklahoma City based reseller of long distance
and value-added services, for approximately $4.5 million.
BUILDING MARKET SHARE THROUGH DIRECT SALES AND SUPERIOR CUSTOMER
SERVICE. The Company believes that the key to revenue growth in its target
markets is to acquire customers through direct sales efforts and retain those
customers by offering a high level of customer service. The Company believes
that, in servicing the small and medium-sized business market, using a
consultative, face-to-face sales and service strategy with a single point of
contact is a highly effective method of acquiring customers and developing
long-term customer relationships. The Company's branch offices provide
comprehensive support to the Company's customers. As a result of the American
Telco Acquisition, the Company has 16 branch offices with approximately 120
direct sales professionals in markets in Oklahoma City, Tulsa, Houston, Dallas,
Austin, Ft. Worth and San Antonio, which will accelerate the Company's direct
sales strategy. In the future, the Company expects to significantly expand its
direct sales force and open additional branch offices in the Southwest. The
Company also seeks to build market share by installing its own
telecommunications networks in new real estate projects so that it can become
the local phone company for the tenants of that project.
INCREASING PRODUCTIVITY AND EFFICIENCY THROUGH CONTINUED ENHANCEMENT OF
OSS. The Company believes that fully integrated and scalable operations support
systems ("OSS") will increase productivity and efficiency and provide a
competitive advantage. An integrated approach to OSS will allow the Company to
synchronize multiple tasks such as provisioning, order taking, customer service
and billing and provide management with timely operating and financial data to
allow it to efficiently direct network, sales and customer service resources.
The Company currently deploys tailored systems and procedures for its OSS and
other back office systems and customer service, and intends to replace its
existing OSS with a fully integrated, scalable system which can be expanded as
the Company grows its customer base.
2
<PAGE>
NETWORK STRATEGY
The Company will seek to efficiently expand its network infrastructure to
offer facilities-based services in attractive markets while minimizing its up
front capital expenditures. The Company believes that its facilities-based
services will enable it to achieve higher gross network margins than could be
obtained by reselling such services, accelerate provisioning and to maintain
better control over the quality of the services provided to its customers. The
principal elements of the Company's network strategy include:
MAXIMIZING OPERATING MARGINS WITH A TARGETED SERVICE AREA. The Company
targets customers within a specified geographic zone surrounding its network
infrastructure, thereby controlling the cost of services. By focusing its sales
efforts on customers within these zones and bypassing the ILEC's switch and
directly connecting these customers to a LOGIX switch using unbundled loops or
high capacity circuits, the Company believes it can generate higher gross
margins than could be obtained by reselling ILEC services.
EMPLOYING ADVANCED REMOTE SWITCHING TECHNOLOGY. In entering new markets the
Company intends to deploy an advanced network presence ("ANP") unit (i.e., a
smaller switch) that is linked via leased lines to the Company's switches. The
ANP unit enables the Company to provide digital local and long distance switched
services and ATM-based data services to customers in the market area at
significantly lower initial capital costs than is required for a Class V switch.
As customer telecommunications traffic warrants, the Company will install a
Class V switch and redeploy the ANP to a new market area. By using ANP units and
Class V switches, the Company believes it will have lower operating costs than
reselling. This strategy enables the Company to optimize its capital
expenditure, rapidly expand into new markets, and generate the operating margins
and quality of service provided by dedicated facilities.
CONTROLLING SERVICE QUALITY. The Company's strategy is to have direct
control of the quality of service and responsiveness to its customers by
utilizing the Company's own switches and providing a direct connection which
eliminates the reliance on other switching providers, in contrast to reselling.
LEVERAGING EXISTING OPERATIONS AND PROVEN MANAGEMENT TEAM
The Company believes that its ability to leverage its existing local
exchange and fiber operations and to draw upon its senior management's extensive
experience and expertise in facilities-based telecommunications services will
provide it with a competitive advantage. Everett R. Dobson, the Company's
Chairman of the Board and Chief Executive Officer and Chairman, President and
Chief Executive Officer of Dobson Communications Corporation ("Dobson
Communications"), the Company's parent, directed Dobson Communications' rural
cellular expansion. Stephen T. Dobson, President of Dobson Wireline, has
operated Dobson Wireline's ILEC business since 1990 and initiated the Company's
expansion into CLEC services. William J. Hoffman, Jr., the Company's Chief
Operating Officer, joined Dobson Communications in October 1997 from Intermedia
Communications, where he was Division Vice President of its Florida markets.
Collectively, the executives of the Company have in excess of 125 years of
telecommunications experience.
3
<PAGE>
THE EXCHANGE OFFER
TERMS OF THE EXCHANGE OFFER
This Exchange Offer is being made pursuant to the terms of the registration
rights agreement (the "Registration Rights Agreement") entered into between the
Company and Morgan Stanley & Co. Incorporated, and NationsBanc Montgomery
Securities LLC (the "Placement Agents") pursuant to the terms of the Placement
Agreement dated June 10, 1998 between the Company and the Placement Agents. See
"The Exchange Offer--Purpose and Effect of the Exchange Offer."
<TABLE>
<S> <C>
The Exchange Offer................ Pursuant to the Exchange Offer, $1,000 principal amount
of New Notes will be issued in exchange for each $1,000
principal amount of Old Notes that are validly tendered
and not withdrawn. As of , 1998, there are
registered holders of Old Notes and $350,000,000
aggregate principal amount of Old Notes are outstanding.
Holders of Old Notes whose Old Notes are not tendered
and accepted in the Exchange Offer will continue to hold
such Old Notes and will be entitled to all the rights
and preferences and will be subject to the limitations
applicable thereto under the Indenture governing the Old
Notes and the New Notes. Following consummation of the
Exchange Offer, the holders of Old Notes will continue
to be subject to the existing restrictions upon transfer
thereof and the Company will have no further obligation
to such holders to provide for the registration under
the Securities Act of the Old Notes held by them.
Following the completion of the Exchange Offer, none of
the Notes will be entitled to the contingent increase in
interest rate provided with respect to the Old Notes.
Resale............................ Based on interpretations by the staff of the Commission
set forth in no-action letters issued to third parties,
the Company believes the New Notes issued pursuant to
the Exchange Offer may be offered for resale, resold and
otherwise transferred by any holder thereof (other than
broker-dealers, as set forth below, and any such holder
that is an affiliate of the Company within the meaning
of Rule 405 under the Securities Act) without compliance
with the registration and prospectus delivery provisions
of the Securities Act, provided that such New Notes are
acquired in the ordinary course of such holder's
business and that such holder has no arrangement or
understanding with any person to participate in the
distribution of such New Notes. Any holder who tenders
in the Exchange Offer with the intention to participate,
or for the purpose of participating, in a distribution
of the New Notes or who is an affiliate of the Company
may not rely upon such interpretations by the staff of
the Commission and, in the absence of an exemption
therefrom, must comply with the registration and
prospectus delivery requirements of the Securities Act
in connection with any secondary resale transaction.
Failure to comply with such requirements in such
instance may result in such holder incurring liabilities
under the Securities Act for which the holder is not
indemnified by the Company. Each broker-dealer (other
than an affiliate of the Company) that receives New
Notes for its own account pursuant to the Exchange Offer
must acknowledge that it will deliver a
</TABLE>
4
<PAGE>
<TABLE>
<S> <C>
prospectus meeting the requirements of the Securities
Act in connection with any resale of such New Notes. The
Letter of Transmittal states that by so acknowledging
and by delivering a prospectus, a broker-dealer will not
be deemed to admit that it is an underwriter within the
meaning of the Securities Act. The Company has agreed
that, for a period of [180] days after the Exchange
Date, it will make this Prospectus available to any
broker-dealer for use in connection with any such
resale. See "Plan of Distribution."
The Exchange Offer is not being made to, nor will the
Company accept surrenders for exchange from, holders of
Old Notes in any jurisdiction in which this Exchange
Offer or the acceptance thereof would not be in
compliance with the securities or blue sky laws of such
jurisdiction.
Expiration Date................... The Exchange Offer will expire at 5:00 p.m., New York
City time, on , 1998, unless extended, in
which case the term Expiration Date shall mean the
latest date and time to which the Exchange Offer is
extended. Any extension, if made, will be publicly
announced through a release to the Dow Jones News
Service and as otherwise required by applicable law or
regulations.
Conditions to the Exchange
Offer........................... The Exchange Offer is subject to certain conditions,
which may be waived by the Company. See "The Exchange
Offer-- Conditions of the Exchange Offer." The Exchange
Offer is not conditioned upon any minimum principal
amount of Old Notes being tendered.
Procedures for Tendering
Old Notes....................... Each holder of Old Notes wishing to accept the Exchange
Offer must complete, sign and date the Letter of
Transmittal, or a facsimile thereof, in accordance with
the instructions contained herein and therein, and mail
or otherwise deliver such Letter of Transmittal, or a
facsimile thereof, together with such Old Notes and any
other required documentation to United States Trust
Company of New York, the Exchange Agent, at the address
set forth herein and therein. By executing the Letter of
Transmittal, each holder will represent to the Company
that, among other things, the New Notes acquired
pursuant to the Exchange Offer are being obtained in the
ordinary course of business of the person receiving such
New Notes, whether or not such person is the holder,
that neither the holder nor any such other person has an
arrangement or understanding with any person to
participate in the distribution of such New Notes and
that neither the holder nor any such other person is an
affiliate of the Company within the meaning of Rule 405
under the Securities Act. See "The Exchange Offer--Terms
of the Exchange Offer--Procedures for Tendering Old
Notes" and "The Exchange Offer--Terms of the Exchange
Offer--Guaranteed Delivery Procedures."
Special Procedures for Beneficial
Owners.......................... Any beneficial owner whose Old Notes are registered in
the name of a broker, dealer, commercial bank, trust
company or other nominee and who wishes to tender such
Old Notes in the Exchange Offer should contact such
registered holder promptly
</TABLE>
5
<PAGE>
<TABLE>
<S> <C>
and instruct such registered holder to tender on such
beneficial owner's behalf. If such beneficial owner
wishes to tender on its own behalf, such owner must,
prior to completing and executing the Letter of
Transmittal and delivering its Old Notes, either make
appropriate arrangements to register ownership of the
Old Notes in such owner's name or obtain a properly
completed stock power from the registered holder. The
transfer of registered ownership may take considerable
time and may not be able to be completed prior to the
Expiration Date. See "The Exchange Offer--Terms of the
Exchange Offer--Procedures for Tendering Old Notes."
Guaranteed Delivery Procedures.... Holders of Old Notes who wish to tender their Old Notes
and whose Old Notes are not immediately available or who
cannot deliver their Old Notes, the Letter of
Transmittal or any other documents required by the
Letter of Transmittal to the Exchange Agent prior to the
Expiration Date, must tender their Old Notes according
to the guaranteed delivery procedures set forth in "The
Exchange Offer--Terms of the Exchange Offer-- Guaranteed
Delivery Procedures."
Acceptance of Old Notes and
Delivery of New Notes........... Subject to certain conditions (as described more fully
in "The Exchange Offer--Conditions of the Exchange
Offer"), the Company will accept for exchange any and
all Old Notes which are properly tendered in the
Exchange Offer and not withdrawn prior to 5:00 p.m., New
York City time, on the Expiration Date. The New Notes
issued pursuant to the Exchange Offer will be delivered
as promptly as practicable following the Expiration
Date.
Withdrawal Rights................. Except as otherwise provided herein, tenders of Old
Notes may be withdrawn at any time prior to 5:00 p.m.,
New York City time, on the Expiration Date. See "The
Exchange Offer--Terms of the Exchange Offer--Withdrawal
of Tenders of Old Notes."
Certain Federal Income Tax
Considerations.................. For a discussion of certain federal income tax
considerations relating to the exchange of New Notes for
Old Notes, see "Certain U.S. Federal Income Tax
Consequences."
Exchange Agent.................... United States Trust Company of New York is the Exchange
Agent. The address, telephone number and facsimile
number of the Exchange Agent are set forth in "The
Exchange Offer-- Exchange Agent."
</TABLE>
6
<PAGE>
TERMS OF THE NEW NOTES
The Exchange Offer applies to $350,000,000 aggregate principal amount of Old
Notes. The form and terms of the New Notes will be identical in all material
respects to the form and terms of the Old Notes except that the New Notes will
be registered under the Securities Act and, therefore, will not bear legends
restricting the transfer thereof. The New Notes will evidence the same debt as
the Old Notes, will be entitled to the benefits of the Indenture and will be
treated as a single class thereunder with any Old Notes that remain outstanding.
Following the Exchange Offer, none of the Notes will be entitled to the
contingent increase in interest rate provided for in accordance with the terms
of the Registration Rights Agreement which rights will terminate upon
consummation of the Exchange Offer. See "Description of the Notes."
<TABLE>
<S> <C>
Issuer............................ Dobson Wireline Company.
Securities Offered................ $350 million aggregate principal amount of 12 1/4%
Senior Notes due 2008.
Maturity.......................... June 15, 2008.
Interest.......................... Interest on the Notes is payable semiannually in cash on
June 15 and December 15 of each year commencing December
15, 1998.
Optional Redemption............... The Notes are redeemable at the option of the Company,
in whole or in part, at any time or from time to time on
or after June 15, 2003, initially at 106.125% of their
principal amount, plus accrued interest, declining to
100% of their principal amount, plus accrued interest,
on or after June 15, 2006. In addition, at any time
prior to June 15, 2001, the Company may redeem up to 35%
of the aggregate principal amount of the Notes with the
proceeds of one or more sales of Capital Stock of the
Company (other than Disqualified Stock), at 112.250% of
their principal amount, plus accrued and unpaid
interest; PROVIDED, HOWEVER, that after any such
redemption at least 65% of the aggregate principal
amount of Notes originally issued remains outstanding.
See "Description of the Notes--Optional Redemption."
Security.......................... A portion of the proceeds from the Old Notes was placed
in escrow and invested in a portfolio of securities (the
"Pledged Securities"), consisting of U.S. government
securities, which secure the payment in full of the
first six scheduled interest payments due on the Notes.
After the first six interest payments, the Notes will be
unsecured. The Pledged Securities will be held by the
Trustee for the benefit of the holders of the Notes
under an escrow and security agreement pending
disbursement. See "'Description of the Notes--Security."
Change of Control................. Upon a Change of Control (as defined herein), the
Company will be required to make an offer to purchase
the Notes at a purchase price equal to 101% of their
principal amount, plus accrued interest to the date of
purchase. There can be no assurance that the Company
will have sufficient funds available at the time of any
Change of Control to make any required debt repayment
(including repurchases of the Notes). See "Description
of the Notes--Repurchase of Notes upon a Change of
Control."
</TABLE>
7
<PAGE>
<TABLE>
<S> <C>
Ranking........................... The Notes are unsecured (except as described above under
"-- Security"), unsubordinated indebtedness of Dobson
Wireline Company ranking PARI PASSU with Dobson Wireline
Company's unsecured, unsubordinated indebtedness and
senior in right of payment to all subordinated
indebtedness of Dobson Wireline Company. The Notes are
effectively subordinated to all liabilities of the
Company's subsidiaries, including trade payables. At
March 31, 1998, on a pro forma basis, after giving
effect to the Offering and the American Telco
Acquisition, the Company would have had approximately
$378.4 million of indebtedness outstanding and the
Company's subsidiaries would have had approximately
$38.7 million of liabilities, including approximately
$28.4 million of indebtedness, all of which is secured.
See "Risk Factors--Leverage; Ability to Meet Required
Debt Service" and "--Holding Company Structure; Ability
to Incur Additional Secured Indebtedness."
Certain Covenants................. The Indenture contains certain covenants that, among
other things, limit the ability of the Company and its
Restricted Subsidiaries (as defined herein) to incur
indebtedness, pay dividends, prepay subordinated
indebtedness, repurchase capital stock, make
investments, create liens, engage in transactions with
stockholders and affiliates, sell assets and engage in
mergers and consolidations. However, these limitations
will be subject to a number of important qualifications
and exceptions. See "Description of the
Notes--Covenants."
Book-Entry; Delivery
and Form........................ Transfers of Notes between participants and The
Depository Trust Company ("DTC") will be effected in the
ordinary way in accordance with DTC rules and will be
settled in same-day funds. See "Description of the
Notes."
</TABLE>
USE OF PROCEEDS
The Company will not receive any proceeds from the issuance of the New Notes
pursuant to this Prospectus.
RISK FACTORS
See "Risk Factors," immediately following this Summary, for a discussion of
certain factors relating to the Company, its business and an investment in the
Notes.
8
<PAGE>
SUMMARY HISTORICAL FINANCIAL DATA
The following tables set forth certain historical financial data for Dobson
Wireline and American Telco. The summary historical financial data for Dobson
Wireline as of and for the years ended December 31, 1995, 1996 and 1997 were
derived from Dobson Wireline's audited consolidated financial statements. The
summary historical financial data for Dobson Wireline as of and for the three
months ended March 31, 1997 and 1998 were derived from Dobson Wireline's
unaudited consolidated financial statements which, in the opinion of management,
have been prepared on the same basis as Dobson Wireline's audited consolidated
financial statements and include all adjustments (consisting only of normal
recurring adjustments) necessary for a fair presentation of Dobson Wireline's
results of operations and financial position for such periods and as of such
dates. The summary historical financial data for American Telco as of and for
the years ended December 31, 1995, 1996 and 1997 were derived from American
Telco's audited combined financial statements. The summary historical financial
data for American Telco as of and for the three months ended March 31, 1997 and
1998 were derived from American Telco's unaudited combined financial statements
which, based on information available to Dobson Wireline from American Telco,
Dobson Wireline believes, have been prepared on the same basis as American
Telco's audited financial statements and include all adjustments (consisting
only of normal recurring adjustments) necessary for a fair presentation of the
information set forth therein. Operating results for the three months ended
March 31, 1998 are not necessarily indicative of results that may be expected
for the full year. The summary historical financial data should be read in
conjunction with "Use of Proceeds," "Selected Consolidated Financial and Other
Data," "Pro Forma Condensed Consolidated Financial Data," "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the financial statements and the related notes thereto included elsewhere in
this Prospectus.
DOBSON WIRELINE
<TABLE>
<CAPTION>
THREE
MONTHS
ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
------------------------------- ---------
1995 1996 1997 1997
--------- --------- --------- ---------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE
DATA)
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue......................................................................... $ 16,265 $ 17,908 $ 20,177 $ 4,780
Operating expenses:
Cost of service............................................................... 2,471 2,823 3,269 778
Selling, general and administrative........................................... 6,532 7,815 8,735 1,720
Depreciation and amortization................................................. 4,124 4,479 4,931 1,169
--------- --------- --------- ---------
Total operating expenses.................................................... 13,127 15,117 16,935 3,667
--------- --------- --------- ---------
Operating income (loss)......................................................... 3,138 2,791 3,242 1,113
Interest expense, net........................................................... (1,975) (2,194) (2,444) (605)
Other income (expense), net..................................................... (272) (83) 88 33
--------- --------- --------- ---------
Income (loss) before income taxes, extraordinary items and cumulative effect of
change in accounting principle................................................ 891 514 886 541
Income tax (provision) benefit.................................................. (391) (183) (337) (206)
--------- --------- --------- ---------
Income (loss) before extraordinary items and cumulative effect of change in
accounting principle.......................................................... 500 331 549 335
Extraordinary item (1).......................................................... -- -- (217) (217)
--------- --------- --------- ---------
Income (loss) before cumulative effect of change in accounting principle........ 500 331 332 118
Cumulative effect of change in accounting principle (2)......................... -- -- -- --
--------- --------- --------- ---------
Net income (loss)............................................................... $ 500 $ 331 $ 332 $ 118
--------- --------- --------- ---------
--------- --------- --------- ---------
Basic net income (loss) per common share........................................ $ 4,995 $ 3,311 $ 3,321 $ 1,177
--------- --------- --------- ---------
--------- --------- --------- ---------
Basic weighted average common shares outstanding................................ 100 100 100 100
--------- --------- --------- ---------
--------- --------- --------- ---------
OTHER FINANCIAL DATA:
Revenue:
ILEC.......................................................................... $ 13,697 $ 14,365 $ 15,361 $ 3,701
Fiber......................................................................... 2,501 3,430 4,589 1,041
CLEC (3)...................................................................... 67 113 227 38
--------- --------- --------- ---------
Total....................................................................... $ 16,265 $ 17,908 $ 20,177 $ 4,780
--------- --------- --------- ---------
--------- --------- --------- ---------
EBITDA (4):
ILEC.......................................................................... $ 5,550 $ 5,532 $ 7,031 $ 1,669
Fiber......................................................................... 1,733 2,013 3,104 705
CLEC.......................................................................... (21) (275) (1,962) (92)
--------- --------- --------- ---------
Total....................................................................... $ 7,262 $ 7,270 $ 8,173 $ 2,282
--------- --------- --------- ---------
--------- --------- --------- ---------
Ratio of earnings to fixed charges (5).......................................... 1.45x 1.23x 1.36x 1.53x
Capital expenditures............................................................ $ 2,357 $ 3,902 $ 5,442 $ 430
OTHER DATA (AT PERIOD END):
Access lines.................................................................... 11,806 11,959 12,724 12,214
Route miles (6)................................................................. 516 545 545 545
Fiber miles (7)................................................................. 11,189 11,537 11,554 11,554
Switches........................................................................ 12 12 13 12
<CAPTION>
1998
---------
<S> <C>
STATEMENT OF OPERATIONS DATA:
Revenue......................................................................... $ 5,290
Operating expenses:
Cost of service............................................................... 1,699
Selling, general and administrative........................................... 3,683
Depreciation and amortization................................................. 1,297
---------
Total operating expenses.................................................... 6,679
---------
Operating income (loss)......................................................... (1,389)
Interest expense, net........................................................... (316)
Other income (expense), net..................................................... 35
---------
Income (loss) before income taxes, extraordinary items and cumulative effect of
change in accounting principle................................................ (1,670)
Income tax (provision) benefit.................................................. 635
---------
Income (loss) before extraordinary items and cumulative effect of change in
accounting principle.......................................................... (1,035)
Extraordinary item (1).......................................................... --
---------
Income (loss) before cumulative effect of change in accounting principle........ (1,035)
Cumulative effect of change in accounting principle (2)......................... (700)
---------
Net income (loss)............................................................... $ (1,735)
---------
---------
Basic net income (loss) per common share........................................ $ (17,346)
---------
---------
Basic weighted average common shares outstanding................................ 100
---------
---------
OTHER FINANCIAL DATA:
Revenue:
ILEC.......................................................................... $ 3,769
Fiber......................................................................... 1,153
CLEC (3)...................................................................... 368
---------
Total....................................................................... $ 5,290
---------
---------
EBITDA (4):
ILEC.......................................................................... $ 2,021
Fiber......................................................................... 792
CLEC.......................................................................... (2,905)
---------
Total....................................................................... $ (92)
---------
---------
Ratio of earnings to fixed charges (5).......................................... --
Capital expenditures............................................................ $ 2,335
OTHER DATA (AT PERIOD END):
Access lines.................................................................... 14,007
Route miles (6)................................................................. 545
Fiber miles (7)................................................................. 11,554
Switches........................................................................ 13
</TABLE>
9
<PAGE>
<TABLE>
<CAPTION>
MARCH 31, 1998
---------------
(IN THOUSANDS)
<S> <C>
BALANCE SHEET DATA:
Cash and cash equivalents........................................................................................ $ 1,377
Property, plant and equipment, net............................................................................... 37,017
Total assets..................................................................................................... 49,826
Total debt....................................................................................................... 28,363
Stockholder's equity............................................................................................. 18,376
</TABLE>
- ----------------------------------
(1) Extraordinary items reflect expense associated with early extinguishment of
debt, net of income tax benefit.
(2) Cumulative effect of change in accounting principle reflects the charge
taken, net of income tax benefit, as a result of the implementation of AICPA
Statement of Position 98-5 "Reporting on the Costs of Start-up Activities,"
effective January 1, 1998.
(3) CLEC revenue includes network management services provided to affiliates of
Dobson Wireline. For 1995 and 1996 and the three months ended March 31,
1997, the network management services account for all of the CLEC revenue
and for 1997 and the three months ended March 31, 1998, for $124,000 and
$21,000 of the CLEC revenue, respectively.
(4) EBITDA represents earnings before interest expense, income taxes,
depreciation, amortization, extraordinary items and changes in accounting
principles. EBITDA is provided because it is a measure commonly used in the
industry to determine a company's ability to incur or service debt. EBITDA
is not derived pursuant to generally accepted accounting principles and
should not be construed as an alternative to net income, as a measure of
performance, or to cash flows, as a measure of liquidity. The calculation of
EBITDA does not include the Company's commitments for capital expenditures
or payments of debts and should not be deemed to represent funds available
to the Company.
(5) For the three months ended March 31, 1998, earnings were insufficient to
cover fixed charges by $1.7 million. "Earnings" is defined as earnings
before extraordinary items, accounting changes and fixed charges. Fixed
charges consist of interest expense, amortization of deferred financing
costs, income taxes and a portion of rent expense under operating leases
representative of interest.
(6) Route miles refers to the number of miles over which fiber optic cables are
installed.
(7) Fiber miles refers to the number of route miles multiplied by the number of
fibers installed along that path.
AMERICAN TELCO
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
---------------------------------- ----------------------
1995 1996 1997 1997 1998
---------- ---------- ---------- ---------- ----------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Revenue.......................................................... $ 39,409 $ 44,276 $ 52,041 $ 12,133 $ 15,742
Operating expenses:
Cost of service................................................ 21,583 22,982 29,454 6,825 9,406
Selling, general and administrative............................ 12,636 15,701 18,540 4,480 4,309
Depreciation and amortization.................................. 1,758 1,938 2,601 615 715
---------- ---------- ---------- ---------- ----------
Total operating expenses..................................... 35,977 40,621 50,595 11,920 14,430
---------- ---------- ---------- ---------- ----------
Operating income................................................. 3,432 3,655 1,446 213 1,312
Interest expense, net............................................ (201) (36) (196) (29) (62)
Other income (expense), net...................................... (57) 34 228 13 (2)
---------- ---------- ---------- ---------- ----------
Net income (1)................................................... $ 3,174 $ 3,653 $ 1,478 $ 197 $ 1,248
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
OTHER FINANCIAL DATA:
EBITDA (2)..................................................... $ 5,190 $ 5,593 $ 4,047 $ 828 $ 2,027
Capital expenditures........................................... 918 3,174 4,081 1,150 676
OTHER DATA (AT PERIOD END):
Access lines................................................... -- -- 7,950 250 13,410
Switches....................................................... 1 2 3 2 3
</TABLE>
<TABLE>
<CAPTION>
MARCH 31, 1998
-----------------
(IN THOUSANDS)
<S> <C>
BALANCE SHEET DATA:
Cash and cash equivalents....................................................................................... $ 280
Property and equipment, net..................................................................................... 7,898
Total assets.................................................................................................... 16,259
Total debt...................................................................................................... 1,272
Stockholders' equity............................................................................................ 7,692
</TABLE>
- ------------------------------
(1) American Telco has elected to be treated as an S-corporation for federal
income tax purposes. As such, no provision for federal income taxes has been
presented, as taxes are paid by the shareholders individually. Following the
American Telco Acquisition, American Telco will be consolidated with Dobson
Communications and its subsidiaries for tax purposes.
(2) EBITDA is provided because it is a measure commonly used in the industry to
determine a company's ability to incur or service debt. EBITDA is not
derived pursuant to generally accepted accounting principles and should not
be construed as an alternative to net income, as a measure of performance,
or to cash flows, as a measure of liquidity. The calculation of EBITDA does
not include American Telco's commitments for capital expenditures or
payments of debts and should not be deemed to represent funds available to
American Telco.
10
<PAGE>
SUMMARY PRO FORMA CONSOLIDATED FINANCIAL DATA
The following summary unaudited pro forma consolidated financial data were
derived from the pro forma condensed consolidated financial statements included
elsewhere in this Prospectus. The pro forma statement of operations data give
effect to the Offering and the American Telco Acquisition as if they occurred on
January 1, 1997 and the pro forma balance sheet data give effect to the Offering
and the American Telco Acquisition as if they occurred on March 31, 1998. The
summary unaudited pro forma consolidated financial data are based on currently
available information and certain assumptions that management believes are
reasonable. The pro forma financial information does not purport to represent
what the Company's results of operations would have been if the Offering and the
American Telco Acquisition had been completed on such dates, nor does it purport
to indicate the future financial position or results of future operations of the
Company. The pro forma consolidated financial data should be read in conjunction
with "Use of Proceeds," "Selected Consolidated Financial and Other Data," "Pro
Forma Condensed Consolidated Financial Data," "Management's Discussion Analysis
of Financial Condition and Result of Operations" and the financial statements
and related notes thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
YEAR ENDED THREE MONTHS ENDED
DECEMBER 31, 1997 MARCH 31, 1998
----------------- -------------------
<S> <C> <C>
(DOLLARS IN THOUSANDS, EXCEPT PER
SHARE DATA)
STATEMENT OF OPERATIONS DATA:
Revenue............................................................... $ 72,218 $ 21,032
Operating expenses:
Cost of service..................................................... 32,723 11,105
Selling, general and administrative................................. 27,275 7,992
Depreciation and amortization....................................... 16,572 4,306
----------------- ----------
Total operating expenses.......................................... 76,570 23,403
----------------- ----------
Operating income (loss)............................................... (4,352) (2,371)
Interest expense...................................................... (46,534) (11,340)
Other income (expense), net........................................... 335 38
Income tax (provision) benefit........................................ 1,245 --
----------------- ----------
Income (loss) before extraordinary items and cumulative effect of
change in accounting principle...................................... $ (49,306) $ (13,673)
----------------- ----------
----------------- ----------
Basic net income (loss) per common share.............................. $ (493,060) $ (136,730)
----------------- ----------
----------------- ----------
Basic weighted average common shares outstanding...................... 100 100
----------------- ----------
----------------- ----------
OTHER FINANCIAL DATA:
Revenue:
ILEC................................................................ $ 15,361 $ 3,769
Fiber............................................................... 4,589 1,153
CLEC................................................................ 52,268 16,110
----------------- ----------
Total............................................................. $ 72,218 $ 21,032
----------------- ----------
----------------- ----------
EBITDA (1):
ILEC................................................................ $ 7,031 $ 2,021
Fiber............................................................... 3,104 792
CLEC................................................................ 2,085 (878)
----------------- ----------
Total............................................................. $ 12,220 $ 1,935
----------------- ----------
----------------- ----------
Ratio of earnings to fixed charges (2)................................ -- --
Capital expenditures.................................................. $ 9,524 $ 3,011
OTHER DATA (AT PERIOD END):
Access lines........................................................ 20,674 27,417
Route miles (3)..................................................... 545 545
Fiber miles (4)..................................................... 11,554 11,554
Switches............................................................ 16 16
</TABLE>
11
<PAGE>
<TABLE>
<CAPTION>
MARCH 31, 1998
-----------------------------------------------
DOBSON WIRELINE AMERICAN TELCO PRO FORMA(5)
--------------- --------------- -------------
<S> <C> <C> <C>
(IN THOUSANDS)
BALANCE SHEET DATA:
Cash and cash equivalents........................................ $ 1,377 $ 280 $ 96,444
Restricted cash.................................................. -- -- 117,692
Property, plant and equipment, net............................... 37,017 7,898 44,915
Total assets..................................................... 49,826 16,259 407,122
Total debt....................................................... 28,363 1,272 378,363
Stockholder's equity............................................. 18,376 7,692 18,376
</TABLE>
- --------------------------
(1) EBITDA is provided because it is a measure commonly used in the industry to
determine a company's ability to incur or service debt. EBITDA is not
derived pursuant to generally accepted accounting principles and should not
be construed as an alternative to net income, as a measure of performance,
or to cash flows, as a measure of liquidity. The calculation of EBITDA does
not include the Company's commitments for capital expenditures or payments
of debts and should not be deemed to represent funds available to the
Company.
(2) On a pro forma basis for the year ended December 31, 1997, and the three
months ended March 31, 1998, the Company's earnings would have been
insufficient to cover its fixed charges by $50.6 million and $13.7 million,
respectively. "Earnings" is defined as earnings before extraordinary items,
accounting changes and fixed charges. Fixed charges consist of interest
expense, amortization of deferred financing costs, income taxes and a
portion of rent expense under operating leases representative of interest.
(3) Route miles refers to the number of miles over which fiber optic cables are
installed.
(4) Fiber miles refers to the number of route miles multiplied by the number of
fibers installed along that path.
(5) Reflects the issuance of the Old Notes and the consummation of the American
Telco Acquisition.
12
<PAGE>
RISK FACTORS
IN ADDITION TO THE OTHER INFORMATION CONTAINED IN THIS PROSPECTUS, THE
FOLLOWING RISK FACTORS SHOULD BE CAREFULLY CONSIDERED BY PROSPECTIVE INVESTORS
IN EVALUATING THE COMPANY AND ITS BUSINESS.
LEVERAGE; ABILITY TO MEET REQUIRED DEBT SERVICE
The Company is highly leveraged. At March 31, 1998, on a pro forma basis
after giving effect to the American Telco Acquisition and the Offering, the
Company would have had $378.4 million of indebtedness and stockholder's equity
of $18.4 million and on the same pro forma basis, for the year ended December
31, 1997, and the three months ended March 31, 1998, the Company's EBITDA minus
interest expense and capital expenditures other than acquisition costs incurred
in the American Telco Acquisition would have been $(43.8) million and $(12.4)
million, respectively. For the year ended December 31, 1997, and the three
months ended March 31, 1998, on a pro forma basis, after giving effect to the
American Telco Acquisition and the Offering, the Company's earnings would have
been insufficient to cover fixed charges by $50.6 million and $13.7 million,
respectively, and EBITDA would have been insufficient to cover interest expense
by $34.3 million and $9.4 million, respectively. See "Description of Certain
Indebtedness."
The Company will experience a substantial increase in total indebtedness and
debt service requirements as a result of the American Telco Acquisition and the
Offering. The successful implementation of the Company's strategies, including
the expansion of its network, operations and systems, and sustained growth in
its cash flow will be necessary for the Company to meet its debt service
requirements, including those under the Notes. There can be no assurance that
the Company will successfully implement its strategies or that the Company will
be able to generate sufficient cash flow from operating activities to meet its
debt service and working capital requirements.
If the Company is unable to generate sufficient cash flow or otherwise
obtain funds necessary to make required payments, or if the Company otherwise
fails to comply with the various covenants in its existing or future debt
obligations, it would be in default under the terms thereof, which would permit
the holders of such indebtedness to accelerate the maturity of such indebtedness
and could cause defaults under other indebtedness of the Company. Such defaults
could result in a default on the Notes and could delay or preclude payment of
interest on or principal of the Notes. The Company's ability to meet its
obligations will depend upon the future performance of the Company, which will
be subject to prevailing economic conditions and to financial, business and
other factors.
The level of the Company's indebtedness could adversely affect the Company
in a number of ways. For example, (i) the ability of the Company to obtain any
necessary financing in the future for working capital, capital expenditures,
debt service requirements or other purposes may be limited; (ii) the level of
its indebtedness could limit the Company's flexibility in planning for, or
reacting to, changes in its business; (iii) the Company will be more highly
leveraged than some of its competitors, which may place it at a competitive
disadvantage; (iv) the Company's degree of indebtedness may make it more
vulnerable to a downturn in its business or the economy generally; (v) the debt
service requirements of any additional indebtedness could make it more difficult
for the Company to make payments required by the Notes; and (vi) a substantial
portion of the Company's cash flow from operations must be dedicated to the
payment of principal and interest on its indebtedness and will not be available
for other purposes.
SIGNIFICANT CAPITAL REQUIREMENTS
Expansion of the Company's network, operations and services will require
significant capital. The Company has budgeted capital expenditures of
approximately $58.1 million in 1998 and approximately $23.5 million in 1999, and
anticipates substantial capital expenditures thereafter. Budgeted capital
expenditures will be primarily for: (i) the expansion of the Company's
facilities-based CLEC services including acquisition and installation of
switches; (ii) market expansion; and (iii) infrastructure enhancements,
principally for OSS. The Company believes that cash on hand, cash flow from
operations and borrowings
13
<PAGE>
under the RUS/RTB Facility (as defined herein), will provide sufficient funds to
enable the Company to fund the replacement of its OSS and the expansion of its
business as currently planned, including its negative cash flows from its CLEC
services. The actual amount and timing of the Company's future capital
requirements may differ materially from the Company's estimate depending on the
demand for the Company's services and as a result of regulatory, technological
and competitive developments (including new market developments and new
opportunities) in the Company's industry. The Company may also require
additional capital in the future (or sooner than currently anticipated) for new
business activities related to its current and planned businesses, or in the
event it decides to make additional acquisitions or enter into joint ventures
and strategic alliances. Sources of additional capital may include cash flow
from operations and public and private equity and debt financings, including
vendor financing. There can be no assurance, however, that the Company will be
successful in producing sufficient cash flows or raising sufficient debt or
equity capital to meet its strategic objectives or that such funds, if available
at all, will be available on a timely basis and within the limitations contained
in the Indenture and the terms of the Company's other existing or future
indebtedness or on terms that are acceptable to the Company. Failure to generate
or raise sufficient funds would require the Company to delay or abandon some or
all of its future expansion plans or expenditures, which could limit the ability
of the Company to meet its debt service obligations (including obligations under
the Notes) and could have a material adverse effect on the Company. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources" and "Description of Certain
Indebtedness."
COVENANT RESTRICTIONS
The existing and future instruments governing the indebtedness of the
Company and its subsidiaries impose or may impose significant operating and
financial restrictions on the Company and its subsidiaries. Such restrictions
will affect, and in many respects significantly limit or prohibit, among other
things, the ability of the Company and its subsidiaries to incur additional
indebtedness, pay dividends, repay indebtedness prior to stated maturities, sell
assets, make investments, engage in transactions with stockholders and
affiliates, issue capital stock, create liens or engage in mergers or
acquisitions. In addition, the indebtedness of Dobson Telephone Company ("Dobson
Telephone") under the RUS/RTB Facility is secured by liens upon substantially
all of Dobson Telephone's assets, and requires the maintenance of certain
financial ratios. See "Description of Certain Indebtedness." These restrictions
could also limit the ability of the Company and its subsidiaries to effect
future financings. A failure by the Company or its subsidiaries to comply with
these restrictions could lead to a default under the terms of such indebtedness
notwithstanding the ability of the Company to meet its debt service and dividend
obligations. In the event of a default, the holders of such indebtedness could
elect to declare all such indebtedness to be due and payable together with
accrued and unpaid interest. In such event, a significant portion of the
Company's other indebtedness may become immediately due and payable and there
can be no assurance that the Company and its subsidiaries would be able to make
such payments or borrow sufficient funds from alternative sources to make any
such payment. Even if additional financing could be obtained, there can be no
assurance that it would be on terms that are acceptable to the Company.
NEGATIVE IMPACT ON EBITDA FROM CLEC SERVICES
On a pro forma basis, after giving effect to the American Telco Acquisition
and the Offering, the Company would have incurred operating losses of
approximately $4.4 million and $2.4 million and EBITDA of approximately $12.2
million and $1.9 million for the year ended December 31, 1997 and for the three
months ended March 31, 1998, respectively. As a result of the continued
expansion of its CLEC services, the Company has and will continue to incur
significant increases in expenses associated with these activities which will
significantly reduce its EBITDA until it can develop and expand its CLEC service
customer base. There can be no assurance that an adequate customer base will be
achieved or sustained or that the Company will be able to achieve positive cash
flow or positive EBITDA with respect to its CLEC services. The Company does not
expect to achieve a significant market share for its services.
14
<PAGE>
HOLDING COMPANY STRUCTURE; ABILITY TO INCUR ADDITIONAL SECURED INDEBTEDNESS
Dobson Wireline Company is a holding company with no direct operations and
no significant assets other than the stock of its subsidiaries. Dobson Wireline
Company is dependent on the cash flows of its subsidiaries to meet its
obligations, including the payment of interest on and principal of the Notes.
Receipt of funds from its subsidiaries will be restricted by the terms of
existing and future indebtedness including the RUS/RTB Facility. See
"Description of Certain Indebtedness." Dobson Wireline Company's subsidiaries
are separate legal entities that have no obligation to pay any amounts due with
respect to the Notes or to make any funds available therefor, whether by
dividends, loans or other payments. Because Dobson Wireline Company's
subsidiaries have not guaranteed Dobson Wireline Company's obligations on the
Notes, any right of Dobson Wireline Company to receive assets of any of its
subsidiaries upon its liquidation or reorganization (and the right of the
holders of the Notes to participate in the distribution or realize proceeds from
those assets) will be effectively subordinated to the claims of the creditors of
such subsidiary (including trade creditors and holders of indebtedness of such
subsidiary), except if and to the extent the Company is itself a creditor of
such subsidiary, in which case the claims of the Company would still be
effectively subordinated to any security interest in the assets of such
subsidiary senior to that held by the Company. The indebtedness of Dobson
Telephone, the Company's subsidiary that conducts it ILEC business, under the
RUS/RTB Facility is secured by substantially all of Dobson Telephone's assets.
Accordingly, the Notes will be effectively subordinated to the liabilities
(including trade payables and indebtedness under the RUS/RTB Facility) of the
subsidiaries of the Company. See "Description of Certain Indebtedness."
The Notes will be general unsecured, unsubordinated indebtedness of the
Company. At March 31, 1998, on a pro forma basis, after giving effect to the
American Telco Acquisition and the Offering, the Company and its subsidiaries
would have had outstanding approximately $378.4 million aggregate principal
amount of indebtedness. In the event the Company obtains additional funds
through the incurrence of secured indebtedness and a default were to occur with
respect to any such indebtedness, the holders of such indebtedness would be
entitled to payment out of the proceeds of their collateral prior to the holders
of general unsecured indebtedness, including the Notes, notwithstanding the
existence of an event of default with respect to the Notes. In the event of a
bankruptcy, liquidation or reorganization of the Company, holders of secured
indebtedness would have a claim, prior to the holders of the Notes, on the
assets of the Company securing such indebtedness. In addition, to the extent
that the value of the collateral is insufficient to satisfy such secured
indebtedness, holders of amounts remaining outstanding on such secured
indebtedness would be entitled to share with respect to any other assets of the
Company on a pro rata basis with the Notes. Assets remaining after satisfaction
of the claims of holders of secured indebtedness may not be sufficient to pay
amounts due on any or all of the Notes then outstanding. The Indenture will
permit the Company to incur additional indebtedness and to secure such
indebtedness.
RISKS ASSOCIATED WITH ACQUISITIONS; ABILITY TO MANAGE GROWTH
The Company is subject to risks that acquired businesses, including American
Telco, will not perform as expected and that the returns from such acquisitions
will not support indebtedness incurred to effect such acquisition or the capital
expenditures needed to develop and expand the systems acquired in the
acquisitions. Expansion of the Company's operations may also place a significant
strain on the Company's management, financial and other resources, and in the
case of acquisitions, divert the resources and management time of the Company.
In addition, the integration of acquired systems with existing operations may
cause the Company to incur considerable expense in advance of anticipated
revenues and may cause substantial fluctuations in the Company's operating
results. This integration will involve, among other things, integration of
switching, transmission, technical, sales, marketing, billing, accounting,
quality control, management, personnel, payroll, regulatory compliance and other
systems and operating hardware and software, some of which may be incompatible
with the Company's existing systems. Other integration risks include the
difficulty in assimilating the acquired operations and personnel, the potential
disruption
15
<PAGE>
of the Company's ongoing business, the possible inability of management to
maintain uniform standards, controls, procedures and policies and the potential
impairment of relationships with employees or customers as a result of changes
in management.
The expansion and development of the Company's business will depend on,
among other things, the Company's ability to successfully implement its sales
and marketing strategy, evaluate markets, secure financing, obtain required
government authorizations, implement interconnection to, and collocation with,
facilities owned by ILECs, obtain appropriately priced unbundled network
elements and wholesale services from the ILECs, purchase and install switches in
new markets, provision new customers, and implement efficient operating support
systems and other back office systems, all in a timely manner, at reasonable
cost, and on satisfactory terms and conditions. The Company's ability to
continue to successfully manage its growth will require the Company to enhance
its operational, management, financial and information systems and controls and
to hire and retain qualified sales, marketing, administrative, operating and
technical personnel, all of which will result in higher operating expenses. In
addition, as the Company increases its service offerings and expands its
targeted markets, there will be additional demands on customer support, sales
and marketing, administrative resources and network infrastructure. Any failure
to expand these areas and to implement and improve the acquired and existing
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. There
can be no assurance that the Company will be able to successfully integrate the
American Telco Acquisition or any other businesses it may acquire, that any
acquired business will perform as expected or that any such acquired business
will not experience high employee or customer turnover rates after the
acquisition. The Company's inability to manage its growth effectively or
implement its expansion and growth strategy successfully could have a material
adverse effect on the Company's business, results of operations and financial
condition.
DEPENDENCE ON ILECS
The Company is dependent on ILECs to provide access service for the
origination and termination of its toll long distance traffic and interexchange
private lines. Historically, charges for such access service have represented a
significant percentage of the overall cost of providing long distance service.
In May 1997, the FCC adopted changes to its interstate access rules that, among
other things, will reduce per-minute access charges and substitute new per-line,
flat rate monthly charges. The FCC also approved reductions in overall access
rates, and established new rules to recover subsidies to support universal
service and other public policies. The impact of these changes on the Company or
its competitors is not yet clear. The Company could be adversely affected if it
does not experience access cost reductions or is not charged per-line monthly
charges in a manner proportionally equivalent to those of its competitors.
The Company, generally, will be dependent on ILECs for provision of local
telephone service through access to local loops and origination and termination
service and, in some markets, central office switches of such carriers. Any
successful effort by the ILECs to deny, delay or substantially limit the
Company's access to these unbundled network elements or wholesale services would
have a material adverse effect on the Company's ability to provide local
telephone services. Although the Telecommunications Act of 1996 (the
"Telecommunications Act") imposes interconnection obligations on ILECs, there
can be no assurance that the Company will be able to obtain access to such
network elements or services at rates, and on terms and conditions, that permit
the Company to offer local services at rates that are both profitable and
competitive. The Eighth Circuit Court of Appeals recently struck down certain
FCC rules intended to govern such rates, terms and conditions. See
"--Regulation." One result of this decision is to give state utility commissions
a significantly larger role in implementing the Telecommunications Act. It is
uncertain whether such commissions will adopt and enforce rules or take other
actions that will permit new carriers to have economical use of incumbent local
exchange carrier networks and facilities. The Company's interconnection
agreements with SBC and GTE (the "Interconnection Agreements") allow the Company
16
<PAGE>
to provide local service on a resale basis or by purchasing all unbundled
network elements required to provide local service on a facilities basis. The
terms of the Interconnection Agreements, including interim pricing terms agreed
to by the Company and SBC and GTE, have been approved by state regulatory
authorities in Oklahoma and Texas, although they remain subject to review and
modification by such authorities. In addition, the Interconnection Agreements do
not resolve all operational issues which issues the Company and SBC and GTE
continue to negotiate to resolve. Also, many issues relevant to the terms and
conditions by which competitors may use the incumbent local exchange carrier
network and wholesale services remain to be resolved. For example, SBC and
certain other ILECs have taken the position that when a carrier seeking to
provide local service obtains all necessary elements (loops and switches) from
the ILEC, the ILEC retains the right to receive the access revenues associated
with the service to the customers served on that basis. Although the FCC has
rejected this position, further legal challenges are in progress and other
important issues related to this form of interconnection remain open. Many new
carriers, including the Company, have experienced problems with respect to
provisioning, interconnection and the operational support systems used by new
carriers to order and receive network elements and wholesale services from the
ILECs. These systems are necessary for new carriers like the Company to provide
local service to customers on a timely and competitive basis. The FCC has
created a task force to examine problems that have slowed the development of
local telephone competition. The Telecommunications Act creates incentives for
the Regional Bell Operating Companies ("RBOCs") such as SBC to permit access to
their facilities by denying such carriers the ability to provide long distance
services until there is adequate competition at the local level. However, the
U.S. District Court for the Northern District of Texas has found these
provisions unconstitutional, but this order has been stayed pending appeal. SBC
is not yet permitted to offer long distance services in any state in its region.
There can be no assurance, however, that SBC or other RBOCs will be
accommodating to the Company once they are permitted to offer in-region long
distance service. Should the Company be unable to obtain the cooperation of an
ILEC in a region, whether or not such ILEC has been authorized to offer long
distance service, the Company's ability to offer local services in such region
on a timely and cost-effective basis would be adversely affected. See
"Business--Services" and "--Regulation."
RISKS RELATED TO LOCAL SERVICES STRATEGY
The Company has recently entered the local telecommunications services
industry. The local telephone services market has only recently been opened to
competition through the passage of the Telecommunications Act and subsequent
state and federal regulatory actions designed to implement the
Telecommunications Act. Regulatory bodies, including state commissions and the
FCC, have not completed all actions needed to implement local service
competition, and there is little experience under those decisions that have been
made to date. The Company must continue to make significant operating and
capital investments and marketing and advertising expenditures in order to
implement its local exchange services strategy. There are numerous operating
complexities associated with providing these services. The Company will be
required to develop new products, services and systems, and new marketing
initiatives, and to train its sales force in connection with selling these
services. The Company is replacing its existing OSS with a scalable OSS to
manage the expanding business as well as to stay competitive. The Company will
face significant competition from ILECs, whose core business is providing local
dial tone service. The ILECs, who currently are the dominant providers of
services in their markets, are expected to mount a significant competitive
response to new entrants in their markets such as the Company. The Company also
will face significant competitive product and pricing pressures from other ILECs
and from other firms seeking to compete in the local services market outside of
their respective regions and historical markets.
The Company expects that the continued roll-out of its CLEC services will
have an adverse impact on its gross margin because the gross margin on its CLEC
services is lower than the gross margin on its fiber and ILEC services. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Revenue."
17
<PAGE>
PRICING PRESSURES AND RISKS RELATING TO LONG DISTANCE BUSINESS
The long distance transmission industry has generally been characterized by
over-capacity and declining prices since shortly after the AT&T divestiture in
1984. The long distance business is extremely competitive, and prices have
declined substantially in recent years and are expected to continue to decline.
The Company is aware that certain long distance carriers are expanding their
capacity and believes that other long distance carriers, as well as potential
new entrants to the industry, are constructing new fiber optic and other long
distance transmission networks in the southern and southwestern United States.
In addition, the long distance industry has historically had a high average
churn rate, as customers frequently change long distance providers in response
to the offering of lower rates or promotional incentives by competitors. Since
the cost of the actual fiber (as opposed to construction costs) is a relatively
small portion of the cost of building new transmission lines, persons building
such lines are likely to install fiber that provides substantially more
transmission capacity than will be needed over the short or medium term.
Further, recent technological advances may greatly expand the capacity of
existing and new fiber optic cable. Although such technological advances may
enable the Company to increase its capacity, an increase in the capacity of the
Company's competitors could adversely affect the Company's long-haul fiber
business. If industry capacity expansion results in capacity that exceeds
overall demand along any of the Company's long-haul fiber routes, severe
additional pricing pressure could develop. In addition, strategic alliances or
similar transactions, such as the long distance capacity purchasing alliance
among certain RBOCs announced in the spring of 1996, could result in additional
pricing pressure on long distance carriers. Furthermore, the marginal cost of
carrying an additional call over existing fiber optic cable is extremely low. As
a result, within a few years, there may be dramatic and substantial price
reductions. See "--Competition."
In addition to supplying long-haul fiber capacity, the Company relies on
other carriers to provide transmission and termination services for its long
distance traffic. Dobson Wireline has, and in connection with the American Telco
Acquisition will have, resale agreements with long distance carriers to provide
it with transmission services. Such agreements typically provide for the resale
of long distance services on a per minute basis, with some agreements containing
minimum volume commitments. Negotiation of these agreements involves estimates
of future supply and demand for transmission capacity as well as estimates of
the calling pattern and traffic levels of the Company's future customers. In the
event the Company fails to meet its minimum volume commitments, it may be
obligated to pay underutilization charges, and in the event it underestimates
its need for transmission capacity, the Company may be required to obtain
capacity through more expensive means. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations--Costs and Expenses."
DEPENDENCE ON LEASED TRUNKING CAPACITY; FUTURE NEED TO OBTAIN PERMITS,
RIGHTS-OF-WAY, AND OTHER THIRD-PARTY AGREEMENTS
Under its local services strategy, the Company will initially lease from
ILECs and other CLECs local fiber trunking capacity connecting the Company
switch to particular ILEC central offices. In some instances, the Company may
replace this leased trunk capacity in the future with its own fiber if warranted
by traffic volume growth. There can be no assurance that all such required
trunking capacity will be available to the Company on a timely basis or on terms
acceptable to the Company. The failure to obtain such leased fiber could delay
the Company's ability to penetrate certain market areas or require it to make
additional, unexpected up-front capital expenditures to install its own fiber
and could have a material adverse effect on the Company and its ability to meet
its obligations on the Notes. If and when the Company seeks to install its own
fiber, the Company must obtain local franchises and other permits, as well as
rights-of-way to utilize underground conduit and aerial pole space and other
rights-of-way from entities such as ILECs and other utilities, railroads, long
distance companies, state highway authorities, local government and transit
authorities. There can be no assurance that the Company will be able to obtain
and maintain the franchises, permits and rights needed to implement its network
buildout on acceptable terms.
18
<PAGE>
The failure to enter into and maintain any such required arrangements for a
particular network may affect the Company's ability to develop that network and
may have a material adverse effect on the Company.
DEPENDENCE ON BILLING, CUSTOMER SERVICE AND INFORMATION SYSTEMS
Sophisticated information and processing systems are vital to the Company's
growth and its ability to monitor costs, bill customers, provision customer
orders and achieve operating efficiencies. Billing and customer service and
information systems for Dobson Wireline's ILEC and CLEC services are provided by
third party vendors. The inability of the Company to obtain these services from
third parties or the failure of these third parties to provide adequate services
could have a material adverse effect on the Company. As the Company expands its
CLEC operations and integrates the operations of American Telco with existing
operations, the need for enhanced billing, customer service and information
systems will increase significantly. The Company's plans for the replacement of
its OSS, for the most part, depend on the Company's retention of appropriate
third party vendors that can provide products and services that meet the
Company's needs and deliver such products and services. Integrating American
Telco's customers into a new billing system and implementing any new OSS
involves inherent risks and often there are delays and errors. For example, in
connection with the commencement of its CLEC services, American Telco initially
experienced problems with its billing systems resulting in customer billings
which were less than 100% of charges. Errors or delays in integrating and
implementing a new billing program or OSS, failure of the Company's vendors to
deliver proposed products and services in a timely and effective manner and at
acceptable costs or the inability of the Company to identify adequately all of
its information and processing needs, or to upgrade systems as necessary, could
have a material adverse impact on the ability of the Company to reach its
objectives and on its financial condition and results of operations and on its
ability to pay interest and principal on the Notes.
RISKS ASSOCIATED WITH THE YEAR 2000 ISSUE
The Year 2000 issue is the result of computer programs using two digits
rather than four to define the applicable year. Date-sensitive software may
recognize a date using "00" as the year 1900 rather than the Year 2000. This
could result in system failures or miscalculations causing disruptions of
operations, including, among others, a temporary inability to process
transactions, send invoices, or engage in similar normal business activities.
Dobson Wireline has undertaken and expects to continue to undertake capital
projects with respect to its information systems, including upgrades or
replacements of the Company's accounting, OSS and personal computer and
networking systems. Dobson Wireline has established processes for evaluating and
managing the risks and costs associated with Year 2000 software failures.
Management is in the process of taking steps to facilitate a smooth Year 2000
transition, including working with its software vendors. Dobson Wireline has
identified and analyzed and continues to analyze both internally developed and
acquired software that utilizes date embedded codes that may experience
operational problems upon Year 2000. Management has evaluated the software
systems of American Telco as they relate to Year 2000 and has determined that
American Telco's OSS is not Year 2000 compliant. The Company believes its new
OSS, which will replace American Telco's OSS, will be Year 2000 compliant and
will be in place by 2000. Dobson Wireline is also communicating with third party
vendors of systems software and equipment, suppliers of telecommunications
capacity and equipment, customers and others with which it does business to
coordinate Year 2000 compliance. Management is currently unable to predict the
full extent to which the Year 2000 issue will affect the Company's internal
systems or those of its vendors and third party network service providers. Any
failure by such vendors or third party network service providers to resolve the
Year 2000 issues on a timely basis, or in a manner that is compatible with the
Company's systems, could have a material adverse effect on the Company. The
Company may incur substantial costs, particularly costs resulting from charges
by its vendors or third party network service providers, in correcting the Year
19
<PAGE>
2000 issues; however, such costs cannot currently be estimated. Additionally,
such costs will be expensed as incurred, which will have an adverse effect on
the current operating results.
COMPETITION
The Company operates in a highly competitive environment, and the level of
competition, particularly with respect to pricing, is increasing. Local
telephone and intraLATA long distance services substantially similar to those
offered by the Company are also offered by the ILECs serving the markets that
the Company currently serves and plans to serve. SBC is the ILEC and a
particularly strong competitor in most of the markets currently served by the
Company. SBC and other ILECs already have long standing relationships with their
customers and can marshall greater technical and financial resources. SBC and
other ILECs have the potential to subsidize services of the type offered by the
Company from service revenues not subject to effective competition, which could
result in even more intense price competition. The Company also faces, and
expects to continue to face, competition from other current and potential market
entrants, including long distance carriers seeking to enter, reenter or expand
entry into the local exchange marketplace (such as AT&T, MCI, Sprint and
WorldCom), from RBOCs operating outside their current local service regions,
other CLECs, resellers, competitive access providers ("CAPs"), cable television
companies, electric utilities, microwave carriers, wireless telephone system
operators and private networks built by large end users. In addition, the
development of new technologies could give rise to significant new competitors
to the Company. See "--Dependence on ILECs."
The Company competes with long distance carriers in the provision of
interLATA long distance retail and carriers' carrier services. The interLATA
long distance market consists of numerous competitors including AT&T, MCI,
Sprint and WorldCom, IXC Communications, Inc., Qwest, Excel and LCI. Other
competitors of the Company in the retail and carrier services markets are likely
to include RBOCs providing out-of-region (and, with the future removal of
regulatory barriers, in-region) long distance services, other competitive local
exchange carriers, microwave and satellite carriers, and private networks owned
by large end-users. The Company also may increasingly face competition from
firms offering long distance data and voice services over the Internet. Such
firms could enjoy a significant cost advantage because at this time they are not
required to pay carrier access charges or universal service fees. In addition,
the Company competes with direct marketers, equipment vendors and installers,
and telecommunications management companies with respect to certain portions of
its business. Many of the Company's existing and potential competitors have
financial, technical and other resources and customer bases and name recognition
far greater than those of the Company. The long distance business is extremely
competitive and prices have declined substantially in recent years and are
expected to continue to decline, which will adversely affect the Company's gross
margins as a percentage of revenues. In 1997, the FCC announced changes to its
interstate access rules that will reduce per-minute access charges and
substitute new per-line flat-rate monthly charges. These actions are expected to
reduce access rates. AT&T has committed to reducing its long distance rates to
reflect access cost reductions, and other competitors of the Company are likely
to make similar reductions. In such event, the Company may need to reduce its
rates to respond to competitive pressures. See "Business--Regulation."
The Telecommunications Act, other recent state legislative actions, and
current federal and state regulatory initiatives provide increased business
opportunities for the Company by removing or substantially reducing barriers to
local exchange competition. However, these new competitive opportunities are
expected to be accompanied by new competitive opportunities for the ILECs. It is
also expected that increased local competition will result in increased pricing
flexibility for, and relaxation of regulatory oversight of, the ILECs. If the
ILECs are permitted to engage in increased volume and discount pricing practices
or charge competitive local exchange carriers increased fees for interconnection
to their networks, or if the ILECs seek to delay implementation of
interconnection by competitors to their networks, the Company's results of
operations and financial condition could be adversely affected. For example, the
FCC recently provided that PIC-C charges would be required to be paid by long
distance carriers to the
20
<PAGE>
local exchange carriers which are intended to offset lowered interstate access
rates. There can be no assurance that the Company will be able to achieve or
maintain adequate market share or revenues, or compete effectively in any of its
markets.
The Company believes that the principal competitive factors affecting its
business operations are price, quality, reliability, billing and customer
service and responsiveness, and service features. The ability of the Company to
compete effectively will depend upon its continued ability to maintain high
quality, market-driven services at prices generally equal to or below those
charged by its competitors. To maintain its competitive posture, the Company
believes that it must be in a position to reduce its prices in order to meet
reductions in rates, if any, offered by others. Any such reductions could
adversely affect the Company.
In addition, the recent trend toward mergers and strategic alliances among
RBOCs and larger telecommunications carriers since passage of the
Telecommunications Act raises serious questions about the adverse effect of
these mergers and alliances upon the development of competition in the
telecommunications industry. On June 24, 1998, AT&T announced its proposed
acquisition of Tele-Communications, Inc. On May 11, 1998, SBC and Ameritech
announced their merger which, if approved, would reduce the seven original RBOCs
to four. If approved, this merger would leave one RBOC, SBC, with control of a
significant portion of local exchange and business access lines in the U.S. It
also will significantly reduce competition between RBOCs, such as Ameritech's
previously announced plans to launch local service in Texas and St. Louis,
Missouri in 1998 and in other markets within SBC's region. At the same time,
SBC's competitors have won less than two percent of SBC's market share in its
local markets as a whole. SBC already has merged with Pacific Bell, and a merger
with Southern New England Telecommunications in Connecticut is pending. Two
other RBOCs, Bell Atlantic and NYNEX, have also merged. Worldcom has acquired
MFS Communications Co., Inc. and Brooks Fiber Properties, Inc., and has a merger
agreement with MCI for which it is seeking regulatory approvals. In January
1998, AT&T announced plans to acquire another CLEC, Teleport Communications
Group Inc. ("Teleport"). In March 1998, Qwest announced that it would acquire
LCI. On May 6, 1998 US West Communications, Inc. ("US West") announced that it
had entered into a marketing arrangement with Qwest whereby US West would market
Qwest long distance services to US West's in-region customers. One week later,
Ameritech announced a similar marketing arrangement with Qwest to market long
distance services to Ameritech's in-region customers. On May 14 and 15, 1998 a
coalition of CLECs and interexchange carriers filed suits in federal district
courts in Seattle and Chicago seeking a declaratory ruling that US West and
Ameritech are providing long distance services in violation of the
Telecommunications Act. The plaintiffs are seeking a preliminary and final
injunction prohibiting US West and Ameritech from marketing in their regions the
long distance services of Qwest or any other long distance carrier. On June 4,
1998, the federal district court in Seattle granted the coalition's request for
a preliminary injunction preventing US West from marketing to additional
customers under its Qwest teaming agreement. On June 10, 1998, the federal
district court in Chicago denied a preliminary injunction of the Ameritech/Qwest
joint marketing agreement; however, on June 30, 1998, the FCC ordered Ameritech
to cease marketing Qwest long distance service for 90 days while the FCC rules
on the legality of the joint marketing agreement. In March 1997 BellSouth and
International Business Machines Corporation ("IBM") also announced an alliance
to provide Internet and intranet services to businesses in the southern United
States.
To complement its telecommunications services offerings, the Company offers
data transmission services. The data transmission business is extremely
competitive and prices have declined substantially in recent years and are
expected to continue to decline. The Company's competitors in this market
include Internet service providers ("ISPs"), other telecommunications companies,
online service providers and Internet software providers. Many of the Company's
competitors have greater financial, technological, marketing, personnel and
other resources than those available to the Company. The profitability of the
Company's Internet access services may be adversely affected by its ability to
obtain "peering" arrangements with ISPs. In recent years, major ISPs routinely
exchanged traffic with other ISPs that met certain
21
<PAGE>
technical criteria on a "peering" basis, meaning that each ISP accepted traffic
routed to Internet addresses on its system from its "peers" on a reciprocal
basis, without payment of compensation. In 1997, however, UUNET Technologies,
Inc. ("UUNET"), the largest ISP, announced that it intends to greatly restrict
its use of peering arrangements with other providers, and would impose charges
for accepting traffic from providers other than its "peers." Other major ISPs
have reportedly adopted similar policies. There can be no assurance that the
Company will be able to negotiate "peer" status with any of the major nationwide
ISPs, or that it will be able to terminate traffic on ISPs' networks at
favorable prices. In addition, the pending merger between WorldCom (UUNET's
parent) and MCI (another major ISP) is expected to increase the concentration of
market power to ISP backbone services, and may adversely affect the Company's
ability to obtain favorable peering terms.
In February 1998, US West, Bell Atlantic and Ameritech, petitioned the FCC
under Section 706 of the Telecommunications Act to allow them to build and
operate packet- and cell-switched data networks across LATA boundaries, to
permit them to carry interLATA data traffic incident to their provision of
digital subscriber line services, to not require them to make those data
services available on a discounted resale basis, and to not require them to make
the non-bottleneck elements of such services available on an unbundled basis.
The Company provides or may provide certain services with which these proposed
services (or similar services offered by other RBOCs) would compete if these
petitions are granted by the FCC.
The recent World Trade Organization ("WTO") agreement on basic
telecommunications services could increase the level of competition faced by the
Company. Under this agreement, the United States and 72 other members of the WTO
committed themselves to opening their telecommunications markets to competition
and foreign ownership and to adopting regulatory measures to protect against
anticompetitive behavior by dominant telephone companies effective in some cases
as early as January 1, 1998.
The Company also believes that providers of wireless services increasingly
will offer, in addition to products that supplement a customer's wireline
communications (similar to cellular telephone services in use today), wireline
replacement products that may result in wireless services becoming the
customer's primary mode of communications. Competition with providers of
wireless telecommunications services may be intense. Many of the Company's
potential wireless competitors have substantially greater financial, technical,
marketing, sales, manufacturing and distribution resources than those of the
Company. Furthermore, the FCC has made spectrum available through public auction
over the past several years and most recently in early 1998 for use in wireless
communications. This additional spectrum is intended by the FCC to be used for
broadband, data and video and transmission but its use in wireless local loop is
also possible.
In connection with the Company's fiber business, its competitors may build
additional fiber capacity in the geographic areas served by the Company's fiber
optic operations. The Company believes that other companies are building new
nationwide long-haul fiber optic networks. In addition, many telecommunications
companies are acquiring switches, and users of switches will have an increasing
number of alternative providers of switched long-distance services. The Company
competes primarily on the basis of price, availability, transmission quality,
customer service and a variety of other services. The ability of the Company to
compete effectively in the fiber business will depend on its ability to maintain
high-quality services at prices generally equal to or below those charged by its
competitors.
RAPID TECHNOLOGICAL CHANGES
The telecommunications industry is subject to rapid and significant changes
in technology. The effect of technological changes on the business of the
Company, such as changes relating to emerging wireline and wireless transmission
technologies and the use of the Internet for traditional voice, data or
broadband technology cannot be predicted, and there can be no assurance that
technological developments will not have a material adverse effect on the
Company. In addition, the Company may be required to select in advance one
technology over another, but it will be impossible to predict with any
certainty, at the time the
22
<PAGE>
Company is required to make its investment, which technology will prove to be
the most economic, efficient or capable of attracting customer usage. There can
be no assurance that the Company will be able to obtain access to new technology
on a timely basis or on satisfactory terms. Any failure by the Company to obtain
new technology could have a material adverse effect on the Company.
DEPENDENCE ON KEY PERSONNEL
The Company's businesses are managed by a small number of management and
operating personnel, the loss of certain of whom could have a material adverse
effect on the Company. The Company believes that its ability to manage its
planned growth successfully will depend in large part on its continued ability
to attract and retain highly skilled and qualified operating, marketing,
financial, sales and technical personnel. The competition for qualified
personnel in the telecommunications industry is intense and there can be no
assurance that the Company will be able to hire or retain necessary personnel.
See "--Risks Associated with Acquisitions; Ability to Manage Growth."
REGULATION
The Company is required to obtain certain authorizations from the FCC and
state public utility commissions ("PUCs") to offer certain of its
telecommunications services, as well as file tariffs for many of its services.
In October 1996, the FCC approved an order that eliminated the tariff filing
requirements for interstate domestic long distance provided by non-dominant
carriers, such as the Company. In February 1997, the U.S. Court of Appeals for
the District of Columbia Circuit stayed the FCC order pending appeal on the
merits. If the stay is lifted and the FCC order becomes effective,
telecommunications carriers such as the Company will no longer be able to rely
on the filing of tariffs with the FCC as a means of providing notice to
customers of prices, terms and conditions on which they offer interstate
services. To date the Company has not experienced significant difficulties in
receiving certification, maintaining tariffs or otherwise complying with its
regulatory obligations. The Company will face new regulatory obligations as it
enters new local telephone markets. It also is likely that state PUCs will
regulate the local telephone services offered by the Company and other
competitive local exchange carriers more heavily than competitive long distance
services have been regulated in the past. Because the FCC and the states have
yet to adopt many of the rules and policies necessary to fully implement local
telephone competition, or to respond to other related issues, it is uncertain
how burdensome these requirements will be for the Company. There can be no
assurance that the FCC or state commissions will continue to grant required
authority as the Company expands its business. If authority is not obtained or
if tariffs are not filed, or are not updated, or otherwise do not fully comply
with the tariff filing rules of the FCC or state regulatory agencies, third
parties or regulators could challenge these actions. Such challenges could cause
the Company to incur substantial legal and administrative expenses. In addition,
the Company must obtain prior FCC authorization for the provision (including
resale) of international long distance services.
In addition, the Company's ability to provide local telephone service is
heavily dependent upon implementation of the provisions of the
Telecommunications Act. The Telecommunications Act preempted state and local
laws to the extent that they prohibited local telephone competition, and imposed
a variety of new duties on ILECs intended to advance such competition, including
the duty to negotiate in good faith with competitors requesting interconnection
to the incumbent local exchange carrier's network. However, negotiations with
ILECs have sometimes involved considerable delays and the resulting negotiated
agreements may not necessarily be obtained on terms and conditions that are
acceptable to the Company. In such instances, the Company may petition the
proper state commission to arbitrate disputed issues. There can be no assurance
that the Company will be able to negotiate acceptable new interconnection
agreements with ILECs or that commission-arbitrated terms and conditions on the
parties in arbitration will be acceptable to the Company. Interconnection
agreements are also subject to approval by state commissions, often before the
Company can begin to utilize such agreements in that state. The Company also
faces issues related to implementation of the Interconnection Agreements.
23
<PAGE>
On August 8, 1996, the FCC adopted rules and policies implementing the local
competition provisions of the Telecommunications Act, including interconnection
obligations of all telecommunications carriers, including obligations of CLECs
and LECs, and ILEC pricing of interconnection, unbundled elements and resold
services ("Local Competition Order"). These rules, in general, were considered
favorable to new competitive entrants, but these rules have not been fully
implemented. The FCC's rules were challenged in the federal courts by the RBOCs,
GTE, large independent ILECs and state regulatory commissions. In October 1996,
the U.S. Court of Appeals for the Eighth Circuit ("Eighth Circuit") issued a
stay of the implementation of certain of the FCC's rules, and on July 18 and
October 14, 1997, the Eighth Circuit issued decisions finding that the FCC
lacked statutory authority under the Telecommunications Act for a major portion
of its rules. In particular, the Eighth Circuit found that the FCC was not
empowered to establish national pricing standards governing unbundled local
network elements or wholesale local services of the ILECs, or to require such
carriers to provide network elements in a combined form. The Eighth Circuit also
struck down an FCC rule that would have enabled new entrants to "pick and
choose" from provisions of established interconnection agreements between the
ILECs and other carriers. The overall impact of the Eighth Circuit's decision is
to limit the obligations of ILECs as originally interpreted by the FCC,
materially reduce the jurisdictional role of the FCC in fostering local
competition, including its ability to take enforcement action if the
Telecommunications Act is violated, and increase the role of state utility
commissions. On January 26, 1998, the Supreme Court granted a request by the FCC
and other parties to review the Eighth Circuit decisions. A decision from the
Supreme Court is not expected until early 1999. Meanwhile, certain state
commissions have asserted that they will be active in promoting local telephone
competition using the authority they have under the Eighth Circuit decisions,
lessening the significance of the reduced FCC role. At this time it is premature
to assess the impact of the Eighth Circuit decisions and there can be no
assurance that those decisions and related developments will not have a material
adverse effect on the Company. Indeed, a number of state commissions have set
prices for unbundled network elements that are substantially higher and
wholesale discount rates lower for resale services than the Local Competition
Orders provided on an interim basis. Furthermore, other FCC rules related to
local telephone competition remain the subject of legal challenges, and there
can be no assurance that decisions affecting those rules will not be adverse to
companies seeking to enter the local telephone market.
In a related development, the FCC is considering proposed new policies and
rules that would grant the ILECs additional flexibility in the pricing of
interstate access services, and states are considering or are expected to
consider incumbent local exchange carrier requests for similar regulatory relief
with respect to intrastate services. Such flexibility is likely to come first
for services offered in the business market. Any pricing flexibility or other
significant deregulation of the ILECs could have a material adverse effect on
the Company. The Company also could be adversely affected by FCC or state
regulatory decisions affecting access charges and universal service. See
"Business--Regulation."
On May 8, 1997, the FCC released an order establishing a significantly
expanded federal universal service subsidy regime (the "Universal Service
Order"). For example, the FCC established new subsidies for telecommunications
and information services provided to qualifying schools and libraries with an
annual cap of $2.3 billion and for services provided to rural health care
providers with an annual cap of $400.0 million. The FCC also expanded the
federal subsidies for local exchange telephone service provided to low-income
consumers. Providers of interstate telecommunications services, such as the
Company, as well as certain other entities, must pay for these programs. The
Company's share of these federal subsidy funds will be based on intrastate,
interstate and international "end user" gross telecommunications revenues
effective January 1, 1998. For the first two quarters of 1998, the assessment
for the rural, high cost and low income fund has been 3.19% and 3.14% of
interstate and international end user telecommunications revenues. For the same
period, the assessment for schools and libraries and rural health care funds
("S/L") was 0.76% of intrastate, interstate, and international end user
telecommunications services. However, while the FCC has proposed a slightly
lower assessment for the rural, high cost and low income fund for the third
quarter of 1998 (3.08%), the proposed S/L factor of 1.54% is more than double
the
24
<PAGE>
comparable rate for the second quarter. In the May 8th order, the FCC also
announced that it will soon revise its rules for subsidizing service provided to
consumers in high cost areas, which may result in further substantial increases
in the overall cost of the subsidy program. Several parties have appealed the
May 8th order. Such appeals have been consolidated and transferred to the United
States Court of Appeals for the Fifth Circuit where they are currently pending.
In addition, on July 3, 1997, several ILECs filed a petition for a stay of the
May 8th order with the FCC. That petition is pending, as well as several other
petitions for administrative reconsideration.
On May 16, 1997, the FCC released an order revising its access charge rate
structure (the "Access Charge Reform Order"). The Access Charge Reform Order
substantially increases the costs that local exchange carriers which are subject
to the FCC's price cap rules ("price cap LECs"), recover through monthly,
non-traffic sensitive access charges and substantially decrease the costs that
price cap LECs recover through traffic sensitive access charges. In the order,
the FCC also announced its plan to bring interstate access rate levels more in
line with cost. The FCC has stated that this plan will grant price cap LECs
increased pricing flexibility upon demonstrations of increased competition (or
potential competition) in relevant markets. The manner in which the FCC further
implements this approach to the lowering access charge levels could have a
material effect on the Company's ability to compete in providing interstate
access services and on the Company's ILEC operations. An October 1997 FCC access
charge decision, for example, requires local exchange carriers to provide
interexchange carriers with certain information about the number and types of
charges they impose on interexchange carriers' presubscribed customers. Several
parties have appealed the Access Charge Reform Order. Those appeals have been
consolidated and transferred to the United States Court of Appeals for the
Eighth Circuit where they are currently pending.
The Telecommunications Act potentially impacts the Company's ILEC
operations. Under previous regulations access charges contained implicit support
for high-cost areas. The FCC has initiated proceedings to overhaul the
contribution mechanism for federal support revenue. On May 16, 1997, the FCC
issued the Access Charge Reform Order that would remove implicit universal
service support from access revenues and place more emphasis for such support on
high cost support funds ("HCF") from state jurisdictions and federal universal
service funds ("USF"). To the extent reductions in access charges are not offset
by explicit universal service subsidies, this could have a material adverse
effect upon the Company's operations. Until such time as the appeals of the
Universal Service Order and/or Access Charge Reform Order are decided, there can
be no assurance of how either of these Orders will be implemented or enforced or
what effect the Orders will have on competition within the telecommunications
industry generally, or on the competitive position of the Company, in
particular.
The Company's rural ILEC operations are regulated by the Oklahoma
Corporation Commission (the "OCC"). The OCC sets rates, terms and conditions of
service and mandates minimum service and quality of service requirements.
Changes in the regulation of its rural local exchanges could have a material
adverse effect on the Company. Dobson Telephone, like other companies which
operate in areas where, due to factors such as geographical conditions or
subscriber density, the cost to provide service is higher than normal, receives
support revenue from federal and state agencies. For the years ended December
31, 1995, 1996 and 1997, and three months ended March 31, 1997 and 1998, support
revenue accounted for, $4.3 million (30.9%), $5.2 million (36.1%), $5.5 million
(35.6%), $1.4 million (37.3%) and $1.2 million (32.3%), respectively, of the
Company's ILEC revenue.
In July 1997 the Oklahoma Telecommunications Act of 1997 (the "Oklahoma
Telecom Act") became effective. The Oklahoma Telecom Act created the Oklahoma
Universal Service Fund ("OUSF") with one of its stated purposes to promote and
ensure the availability of both primary universal services, at rates that are
reasonable and affordable, and special universal services, and to provide for
reasonably comparable services at affordable rates in rural areas as well as in
urban areas. The OUSF has been implemented so that funds can be made available
to eligible local exchange telecommunications service providers. The Company's
local exchange operations have been determined by the OCC to be eligible to
receive both
25
<PAGE>
federal universal funds and OUSF funds. The Oklahoma Telecom Act specifically
provides that eligible local exchange telecommunications service providers are
to receive OUSF funding to reimburse them for their reasonable investment and
expenses incurred in providing universal services which are not recovered from
the federal universal service fund or any other state or federal fund, for
infrastructure expenditures or costs incurred in response to facility or service
requirements established by governmental mandate and for other purposes deemed
necessary by the OCC to preserve and advance universal service. The OCC is
promulgating rules to implement the Oklahoma Telecom Act. The interpretation of
the Oklahoma Telecom Act and application of the OCC rules implementing the OUSF
could have a material effect on Company's wireline operations. With respect to
federal support revenue, the FCC has adopted changes that may, over time, reduce
or eliminate subsidies to telephone companies in areas where the cost of
connecting and maintaining phone lines is higher than the norm. Such changes
could have a material adverse effect on the Company's rural local exchange
operations.
FRAUDULENT CONVEYANCE STATUTES
Various laws enacted for the protection of creditors may apply to Dobson
Wireline's incurrence of indebtedness and other obligations in connection with
the American Telco Acquisition, including the issuance of the Notes. If a court
were to find in a lawsuit by an unpaid creditor or representative of creditors
of the Company that the Company did not receive fair consideration or reasonably
equivalent value for incurring such indebtedness or obligation and, at the time
of such incurrence, the Company: (i) was insolvent; (ii) was rendered insolvent
by reason of such incurrence; (iii) was engaged in a business or transaction for
which the assets remaining in the Company constituted unreasonably small
capital; or (iv) intended to incur or believed it would incur obligations beyond
its ability to pay such obligations as they mature, such court, subject to
applicable statutes of limitation, could determine to invalidate, in whole or in
part, such indebtedness and obligations as fraudulent conveyances or subordinate
such indebtedness and obligations to existing or future creditors of the
Company.
The measure of insolvency for purposes of the foregoing will vary depending
on the law of the jurisdiction which is being applied. Generally, however, the
Company would be considered insolvent at a particular time if the sum of its
debts was then greater than all of its property at a fair valuation or if the
present fair saleable value of its assets was then less than the amount that
would be required to pay its probable liabilities on its existing debts as they
became absolute and matured. On the basis of its historical financial
information, its recent operating history and other factors, the Company's
management believes that, after giving effect to indebtedness incurred in
connection with the American Telco Acquisition, the Company will not be rendered
insolvent, will have sufficient capital for the business in which it will be
engaged and will be able to pay its debts as they mature; however, management
has not obtained any independent opinion regarding such issues. In addition,
there can be no assurance as to what standard a court would apply in making such
determination. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations."
LACK OF PUBLIC MARKET FOR THE NOTES; RESTRICTIONS ON TRANSFERABILITY
The Notes are a new issue of securities for which there is currently no
active trading market. If the Notes are traded after their initial issuance,
they may trade at a discount from their initial offering price, depending upon
prevailing interest rates, the market for similar securities, the financial
condition and prospects of the Company and other factors beyond the control of
the Company, including general economic conditions. The Company does not intend
to apply for a listing or quotation of the Notes. Although the Placement Agents
have informed the Company that they currently intend to make a market in the
Notes, they are not obligated to do so, and any such market making may be
discontinued at any time without notice. Accordingly, no assurance can be given
as to the development or liquidity of any trading market for the Notes.
26
<PAGE>
The Notes have not been registered under the Securities Act or any state
securities laws and may not be offered or sold, except pursuant to an exemption
from, or in a transaction not subject to, the registration requirements of the
Securities Act and applicable state securities laws, or pursuant to an effective
registration statement. The Company is obligated to use its best efforts to
complete an exchange offer for the Notes or register resales of the Notes under
the Securities Act, but no assurance can be given as to the development of or
liquidity of the trading market of the notes thereafter. See "Description of the
Notes--Registration Rights."
CONTROL BY DOBSON COMMUNICATIONS CORPORATION
Dobson Communications is the ultimate parent of the Company. Substantially
all of Dobson Communications' outstanding Class A Common Stock is beneficially
owned by Everett R. Dobson, Dobson Communications' Chairman of the Board,
President and Chief Executive Officer, and his affiliates. Certain decisions
concerning the operations and financial structure of the Company may present a
conflict of interest between the holders of the capital stock of Dobson
Communications and the holders of the Notes. For example, if the Company
encounters financial difficulty or is unable to pay its debts as they mature,
the interests of the holders of the capital stock of Dobson Communications might
conflict with those of holders of the Notes. In addition, equity investors may
have an interest in the Company pursuing acquisitions, divestitures, financings
or other transactions that, in their judgment, could enhance their equity
investment in the Company, even though such transactions might involve risk to
the holders of the Notes.
FORWARD-LOOKING STATEMENTS
The description of the Company's plans set forth herein, including the
Company's plans and strategies, its anticipation of revenues from designated
markets, the markets for the Company's services and products, planned capital
expenditures and possible regulatory requirements, and other statements which
predict or forecast future events which are dependent on future events for their
accuracy, are forward-looking statements made pursuant to the safe harbor
provisions of the Private Securities Litigation Reform Act of 1995. These plans
involve a number of risks and uncertainties. Important factors that could cause
actual capital expenditures, or the Company's performance to differ materially
from such plans include, without limitation, the Company's ability to satisfy
the financial covenants of its existing debt instruments and to raise additional
capital; the Company's ability to integrate acquired operations with existing
operations, to manage its rapid growth successfully and to compete effectively
in its ILEC, fiber and CLEC businesses against competitors with greater
financial, technical, marketing and other resources; changes in end-user
requirements and preferences; the development of other technologies and products
that may gain more commercial acceptance than those of the Company; the
Company's ability to successfully market its services to current and new
customers, interconnect with ILECs, expand or replace its OSS and other back
office systems, provision new customers, access markets, install facilities,
including switching electronics, and obtain leased trunking capacity,
rights-of-way, building access rights and any required governmental
authorizations, franchises and permits, all in a timely manner, at reasonable
costs and on satisfactory terms and conditions; as well as unexpected
regulatory, legislative and judicial developments. No assurance can be given
that the future results will be achieved; actual events or results may differ
materially as a result of risks facing the Company. Readers are cautioned not to
place undue reliance on these forward-looking statements which speak only as of
the date hereof. The Company undertakes no obligation to update or revise these
forward-looking statements to reflect events or circumstances after the date
hereof including, without limitation, changes in the Company's business strategy
or planned capital expenditures, or to reflect the occurrence of unanticipated
events.
27
<PAGE>
THE EXCHANGE OFFER
PURPOSE AND EFFECT OF THE EXCHANGE OFFER
The Old Notes were sold by the Company on June 12, 1998 to Morgan Stanley &
Co. Incorporated and NationsBanc Montgomery Securities LLC (together, the
"Placement Agents") in reliance on Section 4(2) of the Securities Act. The
Placement Agents offered and sold the Old Notes only (i) to "qualified
institutional buyers" (as defined in Rule 144A) in compliance with Rule 144A and
(ii) outside the United States to persons other than U.S. Persons, which term
includes dealers or other professional fiduciaries in the United States acting
on a discretionary basis for foreign beneficial owners (other than an estate or
trust), in reliance upon Regulation S under the Securities Act.
In connection with the sale of the Old Notes, the Company and the Placement
Agents entered into a Registration Rights Agreement dated as of June 12, 1998
(the "Registration Rights Agreement"), which requires the Company (i) to cause
the Old Notes to be registered under the Securities Act, or (ii) to file with
the Commission a registration statement under the Securities Act with respect to
an issue of New Notes of the Company identical in all material respects to the
Old Notes and use its best efforts to cause such registration statement to
become effective under the Securities Act and, upon the effectiveness of that
registration statement, to offer to the holders of the Old Notes the opportunity
to exchange their Old Notes for a like principal amount of New Notes, which will
be issued without a restrictive legend and which may be reoffered and resold by
the holder without restrictions or limitations under the Securities Act. A copy
of the Registration Rights Agreement has been filed as an exhibit to the
Registration Statement of which this Prospectus is a part. The Exchange Offer is
being made pursuant to the Registration Rights Agreement to satisfy the
Company's obligations thereunder. The term "holder" with respect to the Exchange
Offer means any person in whose name Old Notes are registered on the Company's
books or any other person who has obtained a properly completed stock power from
the registered holder, or any person whose Old Notes are held of record by The
Depository Trust Company ("DTC") who desires to deliver such Old Notes by
book-entry transfer at DTC.
The Company has not requested, and does not intend to request, an
interpretation by the staff of the Commission with respect to whether the New
Notes issued pursuant to the Exchange Offer in exchange for the Old Notes may be
offered for sale, resold or otherwise transferred by any holder without
compliance with the registration and prospectus delivery provisions of the
Securities Act. Based on interpretations by the staff of the Commission set
forth in no-action letters issued to third parties, the Company believes the New
Notes issued pursuant to the Exchange Offer in exchange for Old Notes may be
offered for resale, resold and otherwise transferred by any holder thereof
(other than broker-dealers, as set forth below, and any such holder that is an
"affiliate" of the Company within the meaning of Rule 405 under the Securities
Act) without compliance with the registration and prospectus delivery provisions
of the Securities Act, provided that such New Notes are acquired in the ordinary
course of such holder's business and that such holder has no arrangement or
understanding with any person to participate in the distribution of such New
Notes. Any holder who tenders in the Exchange Offer with the intention to
participate, or for the purpose of participating, in a distribution of the New
Notes or who is an affiliate of the Company may not rely upon such
interpretations by the staff of the Commission and, in the absence of an
exemption therefrom, must comply with the registration and prospectus delivery
requirements of the Securities Act in connection with any secondary resale
transaction. Failure to comply with such requirements in such instance may
result in such holder incurring liabilities under the Securities Act for which
the holder is not indemnified by the Company. Each broker-dealer (other than an
affiliate of the Company) that receives New Notes for its own account pursuant
to the Exchange Offer must acknowledge that it will deliver a prospectus meeting
the requirements of the Securities Act in connection with any resale of such New
Notes. The Letter of Transmittal states that by so acknowledging and by
delivering a prospectus, a broker-dealer will not be deemed to admit that it is
an "underwriter" within the meaning of the Securities Act. The Company has
agreed that, for a period of 180 days after the Exchange Date, it will make the
Prospectus available to any broker-dealer for use in connection with any such
resale. See "Plan of Distribution."
28
<PAGE>
The Exchange Offer is not being made to, nor will the Company accept
surrenders for exchange from, holders of Old Notes in any jurisdiction in which
this Exchange Offer or the acceptance thereof would not be in compliance with
the securities or blue sky laws of such jurisdiction.
By tendering in the Exchange Offer, each holder of Old Notes will represent
to the Company that, among other things, (i) the New Notes acquired pursuant to
the Exchange Offer are being obtained in the ordinary course of business of the
person receiving such New Notes, whether or not such person is the holder, (ii)
neither the holder of Old Notes nor any such other person has an arrangement or
understanding with any person to participate in the distribution of such New
Notes, (iii) if the holder is not a broker-dealer, or is a broker-dealer but
will not receive New Shares for its own account in exchange for Old Notes,
neither the holder nor any such other person is engaged in or intends to
participate in the distribution of such New Notes, and (iv) neither the holder
nor any such other person is an "affiliate" of the Company within the meaning of
Rule 405 under the Securities Act or, if such holder is an "affiliate," that
such holder will comply with the registration and prospectus delivery
requirements of the Securities Act to the extent applicable.
Following the completion of the Exchange Offer, none of the Old Notes will
be entitled to the contingent increase in interest rate applicable to the Old
Notes. Following the consummation of the Exchange Offer, holders of Old Notes
will not have any further registration rights, and the Old Notes will continue
to be subject to certain restrictions on transfer. See "--Consequences of
Failure to Exchange." Accordingly, the liquidity of the market for the Old Notes
could be adversely affected. See "Risk Factors-- Consequences of the Exchange
Offer on Non-Tendering Holders of the Old Notes."
Participation in the Exchange Offer is voluntary and holders should
carefully consider whether to accept. Holders of the Old Notes are urged to
consult their financial and tax advisors in making their own decisions on
whether to participate in the Exchange Offer.
TERMS OF THE EXCHANGE OFFER
GENERAL. Upon the terms and subject to the conditions set forth in this
Prospectus and in the Letter of Transmittal, the Company will accept any and all
Old Notes validly tendered and not withdrawn prior to 5:00 p.m., New York City
time, on the Expiration Date. The Company will issue $1,000 principal amount of
New Notes in exchange for each $1,000 principal amount of Old Notes accepted in
the Exchange Offer. Holders may tender some or all of their Old Notes pursuant
to the Exchange Offer. However, Old Notes may be tendered only in amounts that
are integral multiples of $1,000 principal amount.
The form and terms of the New Notes will be identical in all material
respects to the form and terms of the Old Notes except that the New Notes will
be registered under the Securities Act and, therefore, certificates representing
New Notes will not bear legends restricting the transfer thereof. The New Notes
will evidence the same debt as the Old Notes, will be entitled to the benefits
of the Indenture and will be treated as a single class thereunder with any Old
Notes that remain outstanding. The Exchange Offer is not conditioned upon any
minimum number of Old Notes being tendered for exchange.
As of , 1998, $350,000,000 aggregate principal amount of the
Old Notes were outstanding, and there were registered Holders. This
Prospectus, together with the Letter of Transmittal, is being sent to all
registered holders.
Holders of Old Notes do not have any appraisal or dissenters' rights under
the Oklahoma General Corporation Act or the Indenture in connection with the
Exchange Offer. The Company intends to conduct the Exchange Offer in accordance
with the provisions of the Registration Rights Agreement and the applicable
requirements of the Exchange Act, and the rules and regulations of the
Commission thereunder. Old Notes which are not tendered for exchange in the
Exchange Offer will remain outstanding and interest thereon will continue to
accrue, but such Old Notes will not be entitled to any rights or benefits under
the Registration Rights Agreement.
29
<PAGE>
The Company will be deemed to have accepted validly tendered Old Notes when,
as and if the Company has given oral or written notice thereof to the Exchange
Agent. The Exchange Agent will act as agent for the tendering holders for the
purposes of receiving the New Notes from the Company. If any tendered Old Notes
are not accepted for exchange because of an invalid tender, the occurrence of
certain other events set forth herein or otherwise, certificates for any such
unaccepted Old Notes will be returned, without expense, to the tendering holder
thereof as promptly as practicable after the Expiration Date.
Holders who tender Old Notes in the Exchange Offer will not be required to
pay brokerage commissions or fees or, subject to the instructions in the Letter
of Transmittal, transfer taxes with respect to the exchange of Old Notes
pursuant to the Exchange Offer. The Company will pay all charges and expenses,
other than certain applicable taxes described below, in connection with the
Exchange Offer. See "--Fees and Expenses."
EXPIRATION DATE; EXTENSIONS; AMENDMENTS. The term "Expiration Date" shall
mean 5:00 p.m., New York City time, on , 1998, unless the Company,
in its sole discretion, extends the Exchange Offer, in which case the term
"Expiration Date" shall mean the latest date and time to which the Exchange
Offer is extended. Although the Company has no current intention to extend the
Exchange Offer, the Company reserves the right to extend the Exchange Offer at
any time and from time to time by giving oral or written notice to the Exchange
Agent and by timely public announcement communicated, unless otherwise required
by applicable law or regulation, by making a release to the Dow Jones News
Service. During any extension of the Exchange Offer, all Old Notes previously
tendered pursuant to the Exchange Offer and not withdrawn will remain subject to
the Exchange Offer. The date of the exchange of the New Notes for Old Notes will
be as soon as practicable following the Expiration Date.
The Company reserves the right, in its sole discretion, (i) to delay
accepting any Old Notes, to extend the Exchange Offer or to terminate the
Exchange Offer if any of the conditions set forth below under "--Conditions of
the Exchange Offer" shall not have been satisfied, by giving oral or written
notice of such delay, extension or termination to the Exchange Agent, or (ii) to
amend the terms of the Exchange Offer in any manner. Any such delay in
acceptance, extension, termination or amendment will be followed as promptly as
practicable by oral or written notice thereof to the registered holders. If the
Exchange Offer is amended in any manner determined by the Company to constitute
a material change, the Company will promptly disclose such amendment by means of
a prospectus supplement that will be distributed to the registered holders, and
the Company will extend the Exchange Offer for a period of time, depending upon
the significance of the amendment and the manner of disclosure to the registered
holders, if the Exchange Offer would otherwise expire during such period.
In all cases, issuance of the New Notes for Old Notes that are accepted for
exchange pursuant to the Exchange Offer will be made only after timely receipt
by the Exchange Agent of a properly completed and duly executed Letter of
Transmittal and all other required documents; provided, however, that the
Company reserves the absolute right to waive any conditions of the Exchange
Offer or defects or irregularities in the tender of Old Notes. If any tendered
Old Notes are not accepted for any reason set forth in the terms and conditions
of the Exchange Offer or if Old Notes are submitted for a greater principal
amount than the holder desires to exchange, such unaccepted or non-exchanged Old
Notes or substitute Old Notes evidencing the unaccepted portion, as appropriate,
will be returned without expense to the tendering holder, unless otherwise
provided in the Letter of Transmittal, as promptly as practicable after the
expiration or termination of the Exchange Offer.
INTEREST ON THE NEW NOTES. Holders of Old Notes that are accepted for
exchange will not receive accrued interest thereon at the time of exchange.
However, each New Note will bear interest from the most recent date to which
interest has been paid on the Old Notes or New Notes, or if no interest has been
paid on the Old Notes or the New Notes, from June 12, 1998.
30
<PAGE>
PROCEDURES FOR TENDERING OLD NOTES. The tender to the Company of Old Notes
by a holder thereof pursuant to one of the procedures set forth below will
constitute an agreement between such holder and the Company in accordance with
the terms and subject to the conditions set forth herein and in the Letter of
Transmittal. A holder of the Old Notes may tender such Old Notes by (i) properly
completing and signing a Letter of Transmittal or a facsimile thereof (all
references in this Prospectus to a Letter of Transmittal shall be deemed to
include a facsimile thereof) and delivering the same, together with any
corresponding certificate or certificates representing the Old Notes being
tendered (if in certificated form) and any required signature guarantees, to the
Exchange Agent at its address set forth in the Letter of Transmittal on or prior
to the Expiration Date (or complying with the procedure for book-entry transfer
described below), or (ii) complying with the guaranteed delivery procedures
described below.
If tendered Old Notes are registered in the name of the signer of the Letter
of Transmittal and the New Notes to be issued in exchange therefor are to be
issued (and any untendered Old Notes are to be reissued) in the name of the
registered holder (which term, for the purposes described herein, shall include
any participant in DTC (also referred to as a book-entry facility) whose name
appears on a security listing as the owner of Old Notes), the signature of such
signer need not be guaranteed. In any other case, the tendered Old Notes must be
endorsed or accompanied by written instruments of transfer in form satisfactory
to the Company and duly executed by the registered holder and the signature on
the endorsement or instrument of transfer must be guaranteed by an eligible
guarantor institution which is a member of one of the following recognized
signature guarantee programs (an "Eligible Institution"): (i) The Securities
Transfer Agents Medallion Program (STAMP), (ii) The New York Stock Exchange
Medallion Signature Program (MSF), or (iii) The Stock Exchange Medallion Program
(SEMP). If the New Notes or Old Notes not exchanged are to be delivered to an
address other than that of the registered holder appearing on the note register
for the Old Notes, the signature in the Letter of Transmittal must be guaranteed
by an Eligible Institution.
THE METHOD OF DELIVERY OF OLD NOTES, THE LETTER OF TRANSMITTAL AND ALL OTHER
REQUIRED DOCUMENTS TO THE EXCHANGE AGENT IS AT THE ELECTION AND RISK OF THE
HOLDER. IF SUCH DELIVERY IS BY MAIL, IT IS RECOMMENDED THAT REGISTERED MAIL,
PROPERLY INSURED, WITH RETURN RECEIPT REQUESTED, BE USED. IN ALL CASES,
SUFFICIENT TIME SHOULD BE ALLOWED TO ASSURE DELIVERY TO THE EXCHANGE AGENT
BEFORE THE EXPIRATION DATE. NO LETTER OF TRANSMITTAL OR OLD NOTES SHOULD BE SENT
TO THE COMPANY. HOLDERS MAY REQUEST THEIR RESPECTIVE BROKERS, DEALERS,
COMMERCIAL BANKS, TRUST COMPANIES OR NOMINEES TO EFFECT THE ABOVE TRANSACTIONS
FOR SUCH HOLDERS.
The Company understands that the Exchange Agent has confirmed with DTC that
any financial institution that is a participant in DTC's system may utilize
DTC's Automated Tender Offer Program ("ATOP") to tender Old Notes. The Company
further understands that the Exchange Agent will request, within two business
days after the date the Exchange Offer commences, that DTC establish an account
with respect to the Old Notes for the purpose of facilitating the Exchange
Offer, and any participant may make book-entry delivery of Old Notes by causing
DTC to transfer such Old Notes into the Exchange Agent's account in accordance
with DTC's ATOP procedures for transfer. However, the exchange of the Old Notes
so tendered will only be made after timely confirmation (a "Book-Entry
Confirmation") of such book-entry transfer and timely receipt by the Exchange
Agent of an Agent's Message (as defined in the next sentence), and any other
documents required by the Letter of Transmittal. The term "Agent's Message"
means a message, transmitted by DTC and received by the Exchange Agent and
forming part of Book-Entry Confirmation, which states that DTC has received an
express acknowledgment from a participant tendering Old Notes which are the
subject of such Book-Entry Confirmation and that such participant has received
and agrees to be bound by the terms of the Letter of Transmittal and that the
Company may enforce such agreement against such participant.
31
<PAGE>
A tender will be deemed to have been received as of the date when (i) the
tendering holder's properly completed and duly signed Letter of Transmittal
accompanied by the Old Notes (or a confirmation of book-entry transfer of such
Old Notes into the Exchange Agent's account at DTC), is received by the Exchange
Agent, or (ii) a Notice of Guaranteed Delivery or letter, telegram or facsimile
transmission to similar effect (as provided below) from an Eligible Institution
is received by the Exchange Agent. Issuances of New Notes in exchange for Old
Notes tendered pursuant to a Notice of Guaranteed Delivery or letter, telegram
or facsimile transmission to similar effect (as provided below) by an Eligible
Institution will be made only against submission of a duly signed Letter of
Transmittal (and any other required documents) and deposit of the tendered Old
Notes.
All questions as to the validity, form, eligibility (including time of
receipt) and acceptance for exchange of any tender of Old Notes will be
determined by the Company, whose determination will be final and binding. The
Company reserves the absolute right to reject any or all tenders not in proper
form or the acceptance for exchange of which may, in the opinion of the
Company's counsel, be unlawful. The Company also reserves the absolute right to
waive any of the conditions of the Exchange Offer or any defect or irregularity
in the tender of any Old Notes. None of the Company, the Exchange Agent or any
other person will be under any duty to give notification of any defects or
irregularities in tenders or incur any liability for failure to give any such
notification. Any Old Notes received by the Exchange Agent that are not validly
tendered and as to which the defects or irregularities have not been cured or
waived, or if Old Notes are submitted in principal amount greater than the
principal amount of Old Notes being tendered by such tendering holder, such
unaccepted or non-exchanged Old Notes will be returned by the Exchange Agent to
the tendering holder, unless otherwise provided in the Letter of Transmittal, as
soon as practicable following the Expiration Date.
In addition, the Company reserves the right in its sole discretion (a) to
purchase or make offers for any Old Notes that remain outstanding subsequent to
the Expiration Date, and (b) to the extent permitted by applicable law, to
purchase Old Notes in the open market, in privately negotiated transactions or
otherwise. The terms of any such purchases or offers will differ from the terms
of the Exchange Offer.
GUARANTEED DELIVERY PROCEDURES. If the holder desires to accept the
Exchange Offer and time will not permit a Letter of Transmittal or Old Notes to
reach the Exchange Agent before the Expiration Date or the procedure for
book-entry transfer cannot be completed on a timely basis, a tender may be
effected if the Exchange Agent has received at its office, on or prior to the
Expiration Date, a letter, telegram or facsimile transmission from an Eligible
Institution setting forth the name and address of the tendering holder, the
name(s) in which the Old Notes are registered and the certificate number(s) of
the Old Notes to be tendered, and stating that the tender is being made thereby
and guaranteeing that, within three New York Stock Exchange trading days after
the date of execution of such letter, telegram or facsimile transmission by the
Eligible Institution, such Old Notes, in proper form for transfer (or a
confirmation of book-entry transfer of such Old Notes into the Exchange Agent's
account at DTC), will be delivered by such Eligible Institution together with a
properly completed and duly executed Letter of Transmittal (and any other
required documents). Unless Old Notes being tendered by the above-described
method are deposited with the Exchange Agent within the time period set forth
above (accompanied or preceded by a properly competed Letter of Transmittal and
any other required documents), the Company may, at its option, reject the
tender. Copies of a Notice of Guaranteed Delivery which may be used by Eligible
Institutions for the purposes described in this paragraph are available from the
Exchange Agent.
TERMS AND CONDITIONS OF THE LETTER OF TRANSMITTAL. The Letter of
Transmittal contains, among other things, the following terms and conditions,
which are part of the Exchange Offer.
The party tendering Old Notes for exchange (the "Transferor") exchanges,
assigns and transfers the Old Notes to the Company and irrevocably constitutes
and appoints the Exchange Agent as the Transferor's agent and attorney-in-fact
to cause the Old Notes to be assigned, transferred and exchanged. The Transferor
represents and warrants that it has full power and authority to tender,
exchange, assign and
32
<PAGE>
transfer the Old Notes and to acquire New Notes issuable upon the exchange of
such tendered Old Notes, and that, when the same are accepted for exchange, the
Company will acquire good and unencumbered title to the tendered Old Notes, free
and clear of all liens, restrictions, charges and encumbrances and not subject
to any adverse claim. The Transferor also warrants that it will, upon request,
execute and deliver any additional documents deemed by the Company to be
necessary or desirable to complete the exchange, assignment and transfer of
tendered Old Notes or to transfer ownership of such Old Notes on the account
books maintained by DTC. All authority conferred by the Transferor will survive
the death, bankruptcy or incapacity of the Transferor and every obligation of
the Transferor shall be binding upon the heirs, personal representatives,
executors, administrators, successors, assigns, trustees in bankruptcy and other
legal representatives of such Transferor.
By executing a Letter of Transmittal, each holder will make to the Company
the representations set forth above under the heading "--Purpose and Effect of
the Exchange Offer."
WITHDRAWAL OF TENDERS OF OLD NOTES. Except as otherwise provided herein,
tenders of Old Notes may be withdrawn at any time prior to 5:00 p.m., New York
City time, on the Expiration Date.
To withdraw a tender of Old Notes in the Exchange Offer, a written or
facsimile transmission notice of withdrawal must be received by the Exchange
Agent at its address set forth herein prior to 5:00 p.m., New York City time, on
the Expiration Date. Any such notice of withdrawal must (i) specify the name of
the person having deposited the Old Notes to be withdrawn (the "Depositor"),
(ii) identify the Old Notes to be withdrawn (including the certificate number or
numbers and principal amount of such Old Notes), (iii) contain a statement that
such holder is withdrawing its election to have such Old Notes exchanged, (iv)
be signed by the holder in the same manner as the original signature on the
Letter of Transmittal by which such Old Notes were tendered (including any
required signature guarantees) or be accompanied by documents of transfer
sufficient to have the Trustee with respect to the Old Notes register the
transfer of such Old Notes in the name of the person withdrawing the tender, and
(v) specify the name in which any such Old Notes are to be registered, if
different from that of the Depositor. If Old Notes have been tendered pursuant
to the procedure for book-entry transfer, any notice of withdrawal must specify
the name and number of the account at the book-entry transfer facility. All
questions as to the validity, form and eligibility (including time of receipt)
of such notices will be determined by the Company, whose determination shall be
final and binding on all parties. Any Old Notes so withdrawn will be deemed not
to have been validly tendered for purposes of the Exchange Offer and no New
Notes will be issued with respect thereto unless the Old Notes so withdrawn are
validly retendered. Any Old Notes which have been tendered but which are not
accepted for exchange will be returned to the holder thereof without cost to
such holder as soon as practicable after withdrawal, rejection of tender or
termination of the Exchange Offer. Properly withdrawn Old Notes may be
retendered by following one of the procedures described above under
"--Procedures for Tendering Old Notes" at any time prior to the Expiration Date.
CONDITIONS OF THE EXCHANGE OFFER
Notwithstanding any other term of the Exchange Offer, or any extension of
the Exchange Offer, the Company shall not be required to accept for exchange, or
exchange New Notes for, any Old Notes, and may terminate the Exchange Offer as
provided herein before the acceptance of such Old Notes, if:
(a) any statute, rule or regulation shall have been enacted, or any
action shall have been taken by any court or governmental authority which,
in the reasonable judgment of the Company, would prohibit, restrict or
otherwise render illegal consummation of the Exchange Offer; or
(b) any change, or any development involving a prospective change, in
the business or financial affairs of the Company or any of its subsidiaries
has occurred which, in the sole judgment of the Company, might materially
impair the ability of the Company to proceed with the Exchange Offer or
materially impair the contemplated benefits of the Exchange Offer to the
Company; or
33
<PAGE>
(c) there shall occur a change in the current interpretations by the
staff of the Commission which, in the Company's reasonable judgment, might
materially impair the Company's ability to proceed with the Exchange Offer.
If the Company determines in its sole discretion that any of the above
conditions are not satisfied, the Company may (i) refuse to accept any Old Notes
and return all tendered Old Notes to the tendering holders, (ii) extend the
Exchange Offer and retain all Old Notes tendered prior to the Expiration Date,
subject, however, to the right of holders to withdraw such Old Notes (see
"--Terms of the Exchange Offer--Withdrawal of Tenders of Old Notes"), or (iii)
waive such unsatisfied conditions with respect to the Exchange Offer and accept
all validly tendered Old Notes which have not been withdrawn. If such waiver
constitutes a material change to the Exchange Offer, the Company will promptly
disclose such waiver by means of a prospectus supplement that will be
distributed to the registered holders, and the Company will extend the Exchange
Offer for a period of time, depending upon the significance of the waiver and
the manner of disclosure to the registered holders, if the Exchange Offer would
otherwise expire during such period.
EXCHANGE AGENT
United States Trust Company of New York has been appointed as Exchange Agent
for the Exchange Offer. Questions and requests for assistance, requests for
additional copies of this Prospectus or of the Letter of Transmittal and
requests for Notices of Guaranteed Delivery should be directed to the Exchange
Agent addressed as follows:
<TABLE>
<S> <C> <C>
By Mail: By Overnight Courier: By Hand:
United States Trust Company United States Trust Company United States Trust Company
of New York of New York of New York
P. O. Box 844 Corporate Trust Operations 111 Broadway
Cooper Station Department Lower Level
New York, NY 10276-0844 770 Broadway - 13th Floor New York, NY 10006
Attn: Corporate Trust New York, NY 10003 Attn: Corporate Trust
Services Services
(registered or certified mail
recommended)
By Facsimile:
(212) 420-6152
(For Eligible Institutions Only)
Confirm by Telephone:
(800) 548-6565
</TABLE>
FEES AND EXPENSES
The expenses of soliciting tenders will be borne by the Company. The
principal solicitation is being made by mail; however, additional solicitation
may be made by telecopy, telephone or in person by officers and regular
employees of the Company and its affiliates. No additional compensation will be
paid to any such officers and employees who engage in soliciting tenders.
The Company has not retained any dealer-manager or other soliciting agent in
connection with the Exchange Offer and will not make any payments to brokers,
dealers or others soliciting acceptance of the Exchange Offer. The Company,
however, will pay the Exchange Agent reasonable and customary fees for its
services and will reimburse it for its reasonable out-of-pocket expenses in
connection therewith. The Company may also pay brokerage houses and other
custodians, nominees and fiduciaries the reasonable out-of-pocket expenses
incurred by them in forwarding copies of this Prospectus, the Letter of
Transmittal
34
<PAGE>
and related documents to the beneficial owners of the Old Notes and in handling
or forwarding tenders for exchange.
The expenses to be incurred in connection with the Exchange Offer will be
paid by the Company. Such expenses include fees and expenses of the Exchange
Agent and transfer agent and registrar, accounting and legal fees and printing
costs, among others.
The Company will pay all transfer taxes, if any, applicable to the exchange
of the Old Notes pursuant to the Exchange Offer. If, however, New Notes, or Old
Notes for principal amounts not tendered or accepted for exchange, are to be
delivered to, or are to be issued in the name of, any person other than the
registered holder of the Old Notes tendered or if a transfer tax is imposed for
any reason other than the exchange of the Old Notes pursuant to the Exchange
Offer, then the amount of any such transfer taxes (whether imposed on the
registered holder or any other persons) will be payable by the tendering holder.
If satisfactory evidence of payment of such taxes or exemption therefrom is not
submitted with the Letter of Transmittal, the amount of such transfer taxes will
be billed directly to such tendering holder.
CONSEQUENCES OF FAILURE TO EXCHANGE
The Old Notes that are not exchanged for New Notes pursuant to the Exchange
Offer will remain restricted securities within the meaning of Rule 144 of the
Securities Act. Accordingly, such Old Notes may be resold only (i) to the
Company or any subsidiary thereof, (ii) to a qualified institutional buyer in
compliance with Rule 144A, (iii) to an institutional accredited investor that,
prior to such transfer, furnishes to the Trustee a signed letter containing
certain representations and agreements relating to the restrictions on transfer
of the Old Notes (the form of which letter can be obtained from the Trustee)
and, if such transfer is in respect of an aggregate principal amount of Old
Notes at the time of transfer of less than $100,000, an opinion of counsel
acceptable to the Company that such transfer is in compliance with the
Securities Act, (iv) outside the United States in compliance with Rule 904 under
the Securities Act, (v) pursuant to the exemption from registration provided by
Rule 144 under the Securities Act (if available), or (vi) pursuant to an
effective registration statement under the Securities Act. The liquidity of the
Old Notes could be adversely affected by the Exchange Offer. Following the
consummation of the Exchange Offer, holders of the Senior Preferred Stock will
have no further registration rights under the Registration Rights Agreement and
will not be entitled to the contingent increase in the dividend rate applicable
to the Old Notes.
35
<PAGE>
SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA
The following table sets forth certain historical consolidated financial
data for Dobson Wireline. The selected consolidated financial data as of and for
the years ended December 31, 1993, 1994, 1995, 1996 and 1997 were derived from
Dobson Wireline's audited consolidated financial statements which have been
audited by Arthur Andersen LLP, independent public accountants. The selected
consolidated financial data as of and for the three months ended March 31, 1997
and 1998 were derived from the unaudited consolidated financial statements of
Dobson Wireline, which in the opinion of management, have been prepared on the
same basis as Dobson Wireline's audited consolidated financial statements and
include all adjustments (consisting only of normal recurring adjustments)
necessary for a fair presentation of Dobson Wireline's result of operations and
financial position for such periods and as of such dates. Operating results for
the three months ended March 31, 1998 are not necessarily indicative of results
that may be expected for the full year. The selected consolidated financial data
should be read in conjunction with "Use of Proceeds," "Pro Forma Condensed
Consolidated Financial Data," "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and the financial statements and the
related notes thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED DECEMBER 31, ENDED MARCH 31,
------------------------------------------- -----------------
1993 1994 1995 1996 1997 1997 1998
------- ------- ------- ------- ------- ------- --------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue................................................... $12,247 $13,871 $16,265 $17,908 $20,177 $ 4,780 $ 5,290
Operating expenses:
Cost of service......................................... 1,970 2,195 2,471 2,823 3,269 778 1,699
Selling, general and administrative..................... 5,119 6,158 6,532 7,815 8,735 1,720 3,683
Depreciation and amortization........................... 2,926 3,649 4,124 4,479 4,931 1,169 1,297
------- ------- ------- ------- ------- ------- --------
Total operating expenses.............................. 10,015 12,002 13,127 15,117 16,935 3,667 6,679
------- ------- ------- ------- ------- ------- --------
Operating income (loss)................................... 2,232 1,869 3,138 2,791 3,242 1,113 (1,389)
Interest expense, net..................................... (1,530) (1,771) (1,975) (2,194) (2,444) (605) (316)
Other income (expense), net............................... (77) (257) (272) (83) 88 33 35
------- ------- ------- ------- ------- ------- --------
Income (loss) before income taxes, extraordinary items and
cumulative effect of change in accounting principle..... 625 (159) 891 514 886 541 (1,670)
Income tax (provision) benefit............................ (232) 49 (391) (183) (337) (206) 635
------- ------- ------- ------- ------- ------- --------
Income (loss) before extraordinary items and cumulative
effect of change in accounting principle................ 393 (110) 500 331 549 335 (1,035)
Extraordinary item (1).................................... -- -- -- -- (217) (217) --
------- ------- ------- ------- ------- ------- --------
Income (loss) before cumulative effect of change in
accounting principle.................................... 393 (110) 500 331 332 118 (1,035)
Cumulative effect of change in accounting principle (2)... 873 -- -- -- -- -- (700)
------- ------- ------- ------- ------- ------- --------
Net income (loss)......................................... $ 1,266 $ (110) $ 500 $ 331 $ 332 $ 118 $ (1,735)
------- ------- ------- ------- ------- ------- --------
------- ------- ------- ------- ------- ------- --------
Basic net income (loss) per common share.................. $12,663 $ 1,102 $ 4,985 $ 3,311 $ 3,321 $ 1,177 $(17,346)
------- ------- ------- ------- ------- ------- --------
------- ------- ------- ------- ------- ------- --------
Basic weighted average common shares outstanding.......... 100 100 100 100 100 100 100
------- ------- ------- ------- ------- ------- --------
------- ------- ------- ------- ------- ------- --------
OTHER FINANCIAL DATA:
Revenue:
ILEC.................................................... $11,182 $12,316 $13,697 $14,365 $15,361 $ 3,701 $ 3,769
Fiber................................................... 1,065 1,455 2,501 3,430 4,589 1,041 1,153
CLEC (3)................................................ -- 100 67 113 227 38 368
------- ------- ------- ------- ------- ------- --------
Total................................................. $12,247 $13,871 $16,265 $17,908 $20,177 $ 4,780 $ 5,290
------- ------- ------- ------- ------- ------- --------
------- ------- ------- ------- ------- ------- --------
EBITDA (4):
ILEC.................................................... $ 4,772 $ 4,791 $ 5,550 $ 5,532 $ 7,031 $ 1,669 $ 2,021
Fiber................................................... 386 773 1,733 2,013 3,104 705 792
CLEC.................................................... -- (46) (21) (275) (1,962) (92) (2,905)
------- ------- ------- ------- ------- ------- --------
Total................................................. $ 5,158 $ 5,518 $ 7,262 $ 7,270 $ 8,173 $ 2,282 $ (92)
------- ------- ------- ------- ------- ------- --------
------- ------- ------- ------- ------- ------- --------
Ratio of earnings to fixed charges (5).................... 1.41x -- 1.45x 1.23x 1.36x 1.53x --
Capital expenditures...................................... $ 4,569 $ 2,648 $ 2,357 $ 3,902 $ 5,442 $ 430 $ 2,335
OTHER DATA (AT PERIOD END):
Access lines.............................................. 10,899 11,322 11,806 11,959 12,724 12,214 14,007
Route miles (6)........................................... 485 485 516 545 545 545 545
Fiber miles (7)........................................... 10,817 10,817 11,189 11,537 11,554 11,554 11,554
Switches.................................................. 12 12 12 12 13 12 13
</TABLE>
36
<PAGE>
<TABLE>
<CAPTION>
MARCH 31, 1998
-----------------
(IN THOUSANDS)
<S> <C>
BALANCE SHEET DATA:
Cash and cash equivalents...................................................................................... $ 1,377
Property, plant and equipment, net............................................................................. 37,017
Total assets................................................................................................... 49,826
Total debt..................................................................................................... 28,363
Stockholder's equity........................................................................................... 18,376
</TABLE>
- ------------------------------
(1) Extraordinary items reflect expense associated with early extinguishment of
debt, net of income tax benefit.
(2) Cumulative effect of change in accounting principle reflects the charge
taken, net of income tax benefit, as a result of the implementation of AICPA
Statement of Position 98-5 "Reporting on the Costs of Start-up Activities,"
effective January 1, 1998, and the benefit, net of income tax expense, from
implementation of Statement of Financial Accounting Standards No. 109
"Accounting for Income Taxes," in 1993.
(3) CLEC revenue includes network management services provided to affiliates of
Dobson Wireline. For 1994, 1995 and 1996 and the three months ended March
31, 1997, network management services account for all of the CLEC revenue
and for 1997 and the three months ended March 31, 1998, for $124,000 and
$21,000 of CLEC revenue, respectively.
(4) EBITDA is provided because it is a measure commonly used in the industry to
determine a company's ability to incur or service debt. EBITDA is not
derived pursuant to generally accepted accounting principles and should not
be construed as an alternative to net income, as a measure of performance,
or to cash flows, as a measure of liquidity. The calculation of EBITDA does
not include the Company's commitments for capital expenditures or payments
of debts and should not be deemed to represent funds available to the
Company.
(5) For the year ended December 31, 1994 and three months ended March 31, 1998,
earnings were insufficient to cover fixed charges by $.2 million and $1.7
million, respectively. "Earnings" is defined as earnings before
extraordinary items, accounting changes and fixed charges. Fixed charges
consist of interest expense, amortization of deferred financing costs,
income taxes and a portion of rent expense under operating leases
representative of interest.
(6) Route miles refers to the number of miles over which fiber optic cables are
installed.
(7) Fiber miles refers to the number of route miles multiplied by the number of
fibers installed along that path.
37
<PAGE>
PRO FORMA CONDENSED CONSOLIDATED FINANCIAL DATA
The following unaudited pro forma condensed consolidated financial
statements have been prepared to give effect to the American Telco Acquisition
and the Offering. The accompanying unaudited pro forma condensed consolidated
statements of operations of the Company for the year ended December 31, 1997 and
for the three months ended March 31, 1998 give effect to the American Telco
Acquisition and the Offering as if they occurred on January 1, 1997. The
accompanying unaudited pro forma condensed consolidated balance sheet as of
March 31, 1998 give effect to the American Telco Acquisition and the Offering as
if they had occurred as of that date. The American Telco Acquisition has been
accounted for using the purchase method of accounting.
The unaudited pro forma condensed consolidated financial statements have
been prepared on the basis of currently available information and certain
assumptions that Dobson Wireline believes are reasonable, including assumptions
relating to the allocation of the purchase price to the assets and liabilities
acquired, based on estimates of fair value using available information provided
by the management of American Telco.
The unaudited pro forma condensed consolidated financial statements and
notes thereto are provided for informational purposes only and do not purport to
be indicative of the results that would have actually been obtained had the
American Telco Acquisition and Offering been completed on the dates indicated or
that may be expected to occur in the future. The unaudited pro forma condensed
consolidated financial statements and notes thereto should be read in
conjunction with "Selected Consolidated Financial and Other Data," "Management's
Discussion and Analysis of Financial Condition and Results of Operations,"
"Business" and the historical financial statements and notes thereto included
elsewhere in this Prospectus.
38
<PAGE>
DOBSON WIRELINE COMPANY
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1998
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
DOBSON
WIRELINE AMERICAN
COMPANY TELCO ADJUSTMENTS PRO FORMA
---------- ----------- ------------------ -----------
<S> <C> <C> <C> <C>
Revenue:
ILEC revenue........................................... $ 3,769 $ -- $ -- $ 3,769
Fiber revenue.......................................... 1,153 -- -- 1,153
CLEC revenue........................................... 368 15,742 -- 16,110
---------- ----------- ------------------ -----------
Total revenue........................................ 5,290 15,742 -- 21,032
---------- ----------- ------------------ -----------
Operating expenses:
Cost of service........................................ 1,699 9,406 -- 11,105
Selling, general and administrative.................... 3,683 4,309 -- 7,992
Depreciation and amortization.......................... 1,297 715 2,294(1) 4,306
---------- ----------- ------------------ -----------
Total operating expenses............................. 6,679 14,430 2,294 23,403
---------- ----------- ------------------ -----------
Operating income (loss).................................. (1,389) 1,312 (2,294) (2,371)
Other income (expenses):
Interest income........................................ 5 -- -- 5
Equity in losses of unconsolidated
partnership.......................................... 25 -- -- 25
Interest expense....................................... (321) (62) (10,957)(2) (11,340)
Other.................................................. 10 (2) -- 8
---------- ----------- ------------------ -----------
Income (loss) before income taxes........................ (1,670) 1,248 (13,251) (13,673)
Income tax (provision) benefit........................... 635 -- (635)(3) --
---------- ----------- ------------------ -----------
Income (loss) before extraordinary items and cumulative
effect of change in accounting principle............... $ (1,035) $ 1,248 $ (13,886) $ (13,673)
---------- ----------- ------------------ -----------
---------- ----------- ------------------ -----------
Basic income (loss) before extraordinary items and
cumulative effect of change in accounting principles
per share.............................................. $ (10,350) $ (136,730)
---------- -----------
---------- -----------
Basic weighted average common shares outstanding......... 100 100
---------- -----------
---------- -----------
</TABLE>
See accompanying notes to the unaudited pro forma
condensed consolidated statement of operations.
39
<PAGE>
NOTES TO UNAUDITED PRO FORMA
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1998
(1) To reflect the additional depreciation and amortization resulting from the
allocation of the purchase price of American Telco. Property and equipment
is being depreciated over one to seven years and goodwill costs over fifteen
years. The fifteen-year period used for goodwill costs is based primarily on
the Company's internal analysis of the recovery period for its investment in
American Telco. Other factors considered include the competitive nature of
the CLEC industry, the rate of technological change and risk of
obsolescence, and the specific terms and characteristics of the business
operations. See "Risk Factors--Competition" and "--Rapid Technological
Changes" and "Business--Competition" and "--Regulation."
(2) To reflect (i) the elimination of $.1 million of interest expense associated
with indebtedness of American Telco, which was repaid by the sellers of
American Telco upon consummation of the American Telco Acquisition, (ii)
$10.7 million of interest expense relating to the Notes and (iii) $.3
million of amortization expense relating to amortization of the deferred
financing costs incurred in connection with the Offering.
(3) To reflect an adjustment to income tax expense for effects of the American
Telco Acquisition. Net operating loss carryforwards generated have been
recognized as an income tax benefit, assuming a 38% effective tax rate, to
the extent that the Company had a previously recorded deferred tax
liability. For the three months ended March 31, 1998, no benefit is
recognized, as the previously recorded deferred tax liability is assumed to
be fully utilized in 1997.
40
<PAGE>
DOBSON WIRELINE COMPANY
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1997
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
DOBSON
WIRELINE AMERICAN
COMPANY TELCO ADJUSTMENTS PRO FORMA
----------- ----------- -------------- -----------
<S> <C> <C> <C> <C>
Revenue:
ILEC revenue................................................ $ 15,361 $ -- $ -- $ 15,361
Fiber revenue............................................... 4,589 -- -- 4,589
CLEC revenue................................................ 227 52,041 -- 52,268
----------- ----------- -------------- -----------
Total revenue............................................. 20,177 52,041 -- 72,218
----------- ----------- -------------- -----------
Operating expenses:
Cost of service............................................. 3,269 29,454 -- 32,723
Selling, general and administrative......................... 8,735 18,540 -- 27,275
Depreciation and amortization............................... 4,931 2,601 9,040(1) 16,572
----------- ----------- -------------- -----------
Total operating expenses.................................. 16,935 50,595 9,040 76,570
----------- ----------- -------------- -----------
Operating income (loss)....................................... 3,242 1,446 (9,040) (4,352)
Other income (expenses):
Interest income............................................. 15 4 -- 19
Equity in losses of unconsolidated partnership.............. 98 -- -- 98
Interest expense............................................ (2,459) (200) (43,875)(2) (46,534)
Other....................................................... (10) 228 -- 218
----------- ----------- -------------- -----------
Income (loss) before income taxes............................. 886 1,478 (52,915) (50,551)
Income tax (provision) benefit................................ (337) -- 1,582(3) 1,245
----------- ----------- -------------- -----------
Income (loss) before extraordinary items...................... $ 549 $ 1,478 $ (51,333) $ (49,306)
----------- ----------- -------------- -----------
----------- ----------- -------------- -----------
Basic income (loss) before extraordinary items per
share....................................................... $ 5,490 $ (493,060)
----------- -----------
----------- -----------
Basic weighted average common shares outstanding.............. 100 100
----------- -----------
----------- -----------
</TABLE>
See accompanying notes to the unaudited pro forma
condensed consolidated financial statement of operations.
41
<PAGE>
NOTES TO UNAUDITED PRO FORMA
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1997
(1) To reflect the additional depreciation and amortization resulting from the
allocation of the purchase price of American Telco. Property and equipment
is being depreciated over one to seven years and goodwill costs over fifteen
years. The fifteen-year period used for goodwill costs is based primarily on
the Company's internal analysis of the recovery period for its investment in
American Telco. Other factors considered include the competitive nature of
the CLEC industry, the rate of technological change and risk of
obsolescence, and the specific terms and characteristics of the business
operations. See "Risk Factors--Competition" and "--Rapid Technological
Changes" and "Business--Competition" and "--Regulation."
(2) To reflect (i) the elimination of $.2 million of interest expense associated
with indebtedness of American Telco, which was repaid by the sellers of
American Telco upon consummation of the American Telco Acquisition, (ii)
$42.9 million of interest expense relating to the Notes, and (iii) $1.2
million of amortization expense relating to amortization of the deferred
financing costs incurred in connection with the Offering.
(3) To reflect an adjustment to income tax expense for effects of the American
Telco Acquisition. Net operating loss carryforwards generated have been
recognized as an income tax benefit, assuming a 38% effective tax rate, to
the extent that the Company had a previously recorded deferred tax
liability.
42
<PAGE>
DOBSON WIRELINE COMPANY
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
AS OF MARCH 31, 1998
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
DOBSON
WIRELINE AMERICAN
COMPANY TELCO ADJUSTMENTS PRO FORMA
------------ ------------ ------------------ -----------
<S> <C> <C> <C> <C>
ASSETS
Cash and cash equivalents............................ $ 1,377 $ 280 $ 94,983(1) $ 96,640
Restricted cash - current............................ -- -- 18,224(2) 18,224
Other current assets................................. 2,605 7,507 -- 10,112
Property, plant and equipment, net................... 37,017 7,898 -- 44,915
Goodwill, net........................................ 2,652 -- 121,699(3) 124,351
Restricted cash - non-current........................ -- -- 99,468 99,468
Intangible assets, net............................... 125 -- 12,000(4) 12,125
Other assets......................................... 6,050 574 (5,337)(3)(5) 1,287
------------ ------------ -------- -----------
Total assets....................................... $ 49,826 $ 16,259 $ 341,037 $ 407,122
------------ ------------ -------- -----------
------------ ------------ -------- -----------
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities.................................. $ 2,525 $ 8,248 $ (952)(6) $ 9,821
Payables - affiliate................................. 497 -- -- 497
Long-term debt, net of current portion............... 27,165 319 349,681(6) 377,165
Deferred credits..................................... 1,263 -- -- 1,263
Stockholder's equity................................. 18,376 7,692 (7,692)(7) 18,376
------------ ------------ -------- -----------
Total liabilities and stockholder's equity....... $ 49,826 $ 16,259 $ 341,037 $ 407,122
------------ ------------ -------- -----------
------------ ------------ -------- -----------
</TABLE>
See accompanying notes to the unaudited pro forma
condensed consolidated balance sheet.
43
<PAGE>
NOTES TO UNAUDITED PRO FORMA
CONDENSED CONSOLIDATED BALANCE SHEET
(1) To reflect proceeds from the Offering, net of approximately $117.7 million
in restricted cash held in a pledged account, the assumed offering costs of
$12.0 million, and the $130.0 million cash purchase price for the American
Telco Acquisition, net of the $5.0 million deposit previously paid for the
American Telco Acquisition, and $.3 million of working capital adjustments.
(2) To reflect approximately $117.7 million in restricted cash held in a pledged
account to secure the Notes until payment of the first six scheduled
interest payments on the Notes.
(3) To allocate the purchase price of the American Telco Acquisition to the
assets acquired.
(4) To reflect an estimated $12.0 million of offering costs incurred with the
Offering.
(5) To reflect the application of the previously paid $5.0 million deposit to
the purchase price for the American Telco Acquisition.
(6) To reflect the issuance of the old Notes and the elimination of
approximately $1.3 million of American Telco's indebtedness that was repaid
by the sellers of American Telco upon consummation of the American Telco
Acquisition.
(7) To eliminate the stockholders' equity of American Telco.
44
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
Dobson Wireline Company seeks to be the leading provider of integrated
local, long distance, data and other telecommunications services to small and
medium-sized business customers throughout the Southwest United States. Since
1936, the Company has provided ILEC services in Oklahoma. In addition, Dobson
Wireline operates long-haul fiber optic facilities in Oklahoma, Texas and
Colorado. Dobson Wireline recently began offering facilities-based CLEC services
in Oklahoma City and Tulsa under its LOGIX-TM- brand name, and expects to
commence offering these services in Amarillo in mid-1998. Following consummation
of the American Telco Acquisition, the Company also offers CLEC services in
Houston, Dallas, Fort Worth, San Antonio and Austin.
REVENUE
DOBSON WIRELINE
ILEC OPERATIONS. Dobson Wireline has provided ILEC services since 1936, and
currently owns and operates nine contiguous exchanges in western Oklahoma and
three contiguous exchanges adjacent to and east of the Oklahoma City
metropolitan area. Dobson Wireline's local exchange revenues consist of (i) end
user revenue, which includes charges for local service and enhanced services
such as call waiting and call forwarding; (ii) access revenue, which is paid by
IXCs for providing access from the IXCs point of presence to the end user who
makes or receives a long distance call; and (iii) support revenue, which is paid
by federal and state agencies to companies, such as Dobson Wireline, which
operate in areas where, due to factors such as geographic conditions or
subscriber density, the cost to provide service is higher than normal. For the
years December 31, 1995, 1996 and 1997 and the three months ended March 31, 1997
and 1998, the ILEC operations served 11,806, 11,959, 12,633, 12,214 and 12,812
access lines, respectively.
Support revenue, which consists of high cost funds ("HCF") from state
agencies and universal service funds ("USF") from federal and state agencies,
accounted for approximately 30.9%, 36.1%, 35.6%, 37.3% and 32.3% of Dobson
Wireline's revenue from its ILEC operations, or $4.3 million, $5.2 million, $5.5
million, $1.4 million and $1.2 million, for the years ended December 31, 1995,
1996 and 1997 and the three-months ended March 31, 1997 and 1998, respectively.
The Telecommunications Act potentially impacts the Company's sources of
support revenue. Under previous regulation, access charges contained implicit
support for high cost areas. Regulations adopted pursuant to the
Telecommunications Act would remove implicit support from access charges and
place more emphasis for such support on HCF/USF. In May 1997, the FCC adopted
changes that may, over time, reduce or eliminate subsidies to telephone
companies in areas where the cost of connecting and maintaining phone lines is
demonstrated to be above the industry or area norm. The Company will continue to
pursue its strategy to lessen the impact of any future regulatory changes by
reducing its operating costs through consolidation of operational functions at
the Company level in order to achieve economies of scale. See "Risk
Factors--Regulation."
FIBER OPERATIONS. Dobson Wireline's revenues from its fiber services are
generated from three different sources of long-haul transport services: (1) as a
"carrier's carrier," (2) to private businesses and government agencies requiring
network services, and (3) for Dobson Communications' other subsidiaries. For the
year ended December 31, 1997 and the three months ended March 31, 1998,
approximately 41% and 35%, respectively, of Dobson Wireline's gross fiber
revenue was attributable to NTS and Vyvx and approximately 25% and 25%,
respectively, of its fiber revenue was attributable to Dobson Communications'
other subsidiaries. The total number of DS3 equivalent fiber lines leased as of
December 31, 1995, 1996, and 1997 and as of March 31, 1997 and 1998 were 20, 46,
53, 48, and 61, respectively.
Although Dobson Wireline currently has excess capacity and does not
currently plan to add more fiber optic lines, the Company will seek to expand
its network through interconnect agreements to access other
45
<PAGE>
major population centers (including routes which may be attractive to major
carriers). The Company believes that the pricing of fiber will remain relatively
constant in the near future. While the pricing of the Company's fiber services
has remained relatively constant, the Company is entering into more long term
contracts which give discounts to the customer and the Company may be required
to give discounts to high volume customers.
CLEC OPERATIONS. Dobson Wireline began offering facilities-based CLEC
services in October 1997 and currently provides these services in Oklahoma City
and Tulsa. CLEC revenue includes network management services provided to
affiliates of Dobson Wireline. For 1995 and 1996 and the three months ended
March 31, 1997 network management services accounted for all CLEC revenue and
for 1997 and the three months ended March 31, 1998, for $124,000 and $21,000,
respectively. Dobson Wireline services include local exchange, long distance,
enhanced data, Internet, intranet and extranet services, private line and
integration services. As of March 31, 1998, Dobson Wireline's CLEC operations
served 1,195 access lines. Dobson Wireline typically obtains a one-year contract
with minimum monthly usage from its business CLEC customers.
Dobson Wireline expects to commence offering CLEC services in other
metropolitan areas in the region, including Amarillo in mid-1998. Dobson
Wireline has entered into interconnection agreements with SBC and GTE, pursuant
to which Dobson Wireline may resell local exchange and other services in all
markets served by SBC and GTE in Oklahoma and Texas. On June 15, 1998, Dobson
Wireline purchased the outstanding common stock of American Telco for $130.3
million. American Telco is based in Houston, Texas and operates in five major
Texas markets: Houston, Dallas, Fort Worth, San Antonio and Austin. In addition,
on June 22, 1998, Dobson Wireline purchased certain long distance customers and
related assets of Zenex for approximately $4.5 million.
Dobson Wireline incurred operating losses and negative cash flows related to
its CLEC services in 1997, which are expected to increase in 1998 and continue
until it develops and expands its CLEC subscriber base. These losses were
primarily a result of selling, general and administrative ("SG&A") expenses. As
a result of the continued expansion of its CLEC services the Company will
continue to incur significant increases in expenses associated with these
activities. Also, the Company expects that the addition of CLEC services will
have an adverse impact on its gross margins, because the gross margins on the
CLEC services are expected to be lower than the gross margins on its ILEC and
fiber operations.
The Company offers services at prices that are competitive to the ILECs. The
Company believes that while pricing is an important element in the marketing of
their services, small and medium-sized businesses are also focused on the
benefits from customer care, bundled telecommunications services with one point
of contact for sales and service, and consistent quality of service when making
their purchase decisions.
During the past several years the market prices for many telecommunications
services have been declining. The Company believes that this trend is likely to
continue and will have a negative effect on the Company's gross margins that may
not be offset completely by savings from the decrease in the Company's cost of
service.
Current industry statistics demonstrate that there is a significant churn
for customers within the industry. The Company believes that the churn is
especially high when customers are buying resold services or only long distance
services. The Company believes that by offering an integrated package of
telecommunications services, and by providing superior customer care, it will be
able to minimize customer churn.
AMERICAN TELCO
American Telco derived most of its revenue from the sale of long distance
service to small and medium-sized businesses and residential customers in Texas.
American Telco launched the sale of local service in March 1997, but only on a
limited basis until August 1997, while developing its back office systems and
infrastructure to support local service. As of March 31, 1998, American Telco
had approximately 16,400 business customers and approximately 6,000 residential
customers and served 13,410 local
46
<PAGE>
access lines. Business customers represented approximately 95% of revenues for
the year ended December 31, 1997 and three months ended March 31, 1998. The
business customers are diversified and no one customer accounted for more than
.7% of total revenues and substantially all of American Telco revenue is derived
from providing long distance services. In addition, the Company believes that
American Telco's average revenue per minute of use will continue to decline as
the Company adds a higher proportion of business customers who generally have a
higher volume of usage and are therefore charged lower rates per minute than
residential customers. American Telco's customer base has been shifting as
American Telco has deemphasized its residential services.
American Telco's contracts for long distance services generally provide for
payment in arrears based on minutes of use. American Telco offers flat rate
plans with incentives for customers who commit to a term of one or two years.
Discounts are provided to customers based on the volume of usage.
COST AND EXPENSES
The Company's primary expense categories include cost of service, SG&A, and
depreciation and amortization.
Cost of service for Dobson Wireline's ILEC and fiber operations consists
primarily of costs associated with operating and maintaining the Company's
facilities and for the fiber operations, costs associated with leasing lines
from third party providers.
Cost of service for the CLEC operations (including American Telco's)
consists of fixed costs for leased lines, the variable costs of origination,
termination and access services provided through ILECs and other
telecommunications companies, and internal costs associated with operating and
maintaining the Company's facilities. The Company intends to deploy digital
switching platforms with local and long distance capability and initially lease
fiber trunking capacity from ILECs and other CLECs to connect the Company's
switches with its transmission equipment collocated in ILEC central offices. The
Company will lease unbundled loop and high capacity digital lines from the ILECs
to connect its customers and other carriers' networks to the Company's network.
These charges vary by ILEC and are regulated by state authorities pursuant to
the Telecommunications Act. ILECs typically charge both a startup fee as well as
a monthly recurring fee for use of their central offices for collocation. The
Company will use its own fiber network, where available, to carry long distance
traffic and will also enter into resale agreements with long distance carriers
for transmission services. Such agreements typically provide for the resale of
long distance services on a per-minute basis and may contain minimum volume
commitments. The Company may be obligated to pay underutilization charges in the
event it over-estimates its requirements; however, in the event it
underestimates its need for transmission capacity, the Company may be required
to obtain capacity through more expensive means. Also, the Company will need to
increase the capacity of its switches and add additional ANP devices and
switches as market demand warrants.
SG&A includes all infrastructure costs such as selling, customer support,
corporate administration, personnel, and network maintenance. Selling expenses
include commissions for the Company's sales program. Commissions are paid to
direct sales persons for new business generated with additional incentives for
multiple service offerings and long-term contracts. Independent sales agents
receive commissions for generating new sales and ongoing sales to existing
customers. As the Company's customer base grows, and as the Company continues to
expand into new geographic markets, adds new sales offices and facilities and
enlarges its current product offerings, the cost of services and SG&A are
expected to increase substantially.
Depreciation and amortization relates primarily to switching equipment,
facilities, computers and software, and is expected to increase as the Company
incurs significant capital expenditures to install additional switches.
Depreciation and amortization will include amortization of goodwill acquired in
the American Telco Acquisition.
47
<PAGE>
DOBSON WIRELINE'S RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1997 COMPARED TO THREE MONTHS ENDED MARCH 31,
1998
REVENUE. For the three months ended March 31, 1998, total revenue increased
$.5 million, or 10.7%, to $5.3 million from $4.8 million in the first three
months of 1997. The following table sets forth the components of Dobson
Wireline's revenue for the three months ended March 31:
<TABLE>
<CAPTION>
1997 1998
--------- ---------
<S> <C> <C>
($ IN THOUSANDS)
ILEC................................................................................. $ 3,702 $ 3,769
Fiber................................................................................ 1,041 1,153
CLEC................................................................................. 37 368
--------- ---------
$ 4,780 $ 5,290
--------- ---------
--------- ---------
</TABLE>
ILEC. ILEC revenue increased $.1 million, or 1.8%, to $3.8 million for the
three months ended March 31, 1998 compared to $3.7 million for the three months
ended March 31, 1997 due primarily to an increase in toll charges and an
increase in the number of access lines from 12,214 as of March 31, 1997 to
12,812 as of March 31, 1998 offset by a $.2 million decrease in support revenue.
FIBER. Dobson Wireline's revenue from its fiber operations increased $.1
million, or 10.8%, to $1.1 million in the three months ended March 31, 1998 from
$1.0 million in the first three months of 1997 due primarily to increased
revenue from existing customers.
CLEC. CLEC revenue increased $331,000 to $368,000 for the three months
ended March 31, 1998 from $37,000 for the three months ended March 31, 1997.
CLEC revenue in the first quarter of 1998 consists primarily of charges for
local and long-distance service and equipment sales. CLEC revenue includes
network management services provided to affiliates of Dobson Wireline. For the
three months ended March 31, 1997 network management services accounted for all
CLEC revenue and $21,000 for the three months ended March 31, 1998.
COST OF SERVICE. For the three months ended March 31, 1998, the total cost
of service increased $.9 million, or 118%, to $1.7 million from $.8 million in
comparable period in 1997.
The following table sets forth the components of the Dobson Wireline's cost
of service for the three months ended March 31:
<TABLE>
<CAPTION>
1997 1998
--------- ---------
<S> <C> <C>
($ IN THOUSANDS)
ILEC................................................................................... $ 447 $ 531
Fiber.................................................................................. 153 215
CLEC................................................................................... 178 953
--------- ---------
Total.............................................................................. $ 778 $ 1,699
--------- ---------
--------- ---------
</TABLE>
ILEC. Cost of ILEC service increased $.1 million or 18.8% to $.5 million
for the three months ended March 31, 1998 from $.4 million for the three months
ended March 31, 1997. As a percentage of ILEC revenue, cost of ILEC service
increased slightly from 12.1% in the three months ended March 31, 1997 to 14.1%
in the three months ended March 31, 1998 as a result of increased maintenance
costs of plant and costs associated with customer growth.
FIBER. Cost of fiber service increased to $215,000 in the first quarter of
1998 from $153,000 in the first quarter of 1997. The increase was the result of
increased costs for technical personnel for maintenance and
48
<PAGE>
monitoring, and costs associated with networking, including service provided by
certain third party carriers incurred as a result of increased revenues in 1998.
CLEC. Cost of CLEC service increased $.8 million to $1.0 million for the
three months ended March 31, 1998 from $.2 million for the first three months of
1997. These costs primarily consisted of costs associated with the operations
and maintenance of Company facilities and, to a lesser extent, wholesale charges
from third party service providers. Included in CLEC cost of service for the
three months ended March 31, 1998 is $.1 million of costs related to network
management services provided to affiliates of Dobson Communications.
SELLING, GENERAL AND ADMINISTRATIVE. For the three months ended March 31,
1998, SG&A costs increased $2.0 million, or 114.2%, to $3.7 million compared to
$1.7 million in the first quarter of 1997. The increase was primarily due to
increased salary costs resulting from additional sales, administrative and
marketing personnel in the Company's CLEC operations.
DEPRECIATION AND AMORTIZATION EXPENSE. For the three months ended March 31,
1998, depreciation and amortization expense increased $.1 million, or 10.9%, to
$1.3 million from $1.2 million in the first quarter of 1997. This increase is
primarily a result of fixed asset additions in the Company's CLEC and fiber
businesses.
OTHER EXPENSE. For the three months ended March 31, 1998, total other
expense (consisting of equity in income of unconsolidated partnership, interest
income, interest expense, and other income/expense) decreased $.3 million to $.3
million from $.6 million in the first quarter of 1997. Interest expense
decreased in the first quarter of 1998 as a result of the extinguishment of
approximately $11.5 million of debt at December 31, 1997.
EXTRAORDINARY EXPENSE. Extraordinary expense in the first quarter of 1997
of $.2 million is due to the write-off of deferred debt costs associated with
the Dobson Wireline's fiber operations.
CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE. Cumulative effect of
change in accounting principle in the three months ended March 31, 1998 reflects
the charge taken as a result of implementation of AICPA Statement of Position
98-5 "Reporting on the Costs of Start-up Activities."
YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1997
REVENUE. For the year ended December 31, 1997, total revenue increased $2.3
million, or 12.7%, to $20.2 million from $17.9 million in 1996. The following
table sets forth the components of Dobson Wireline's revenue for the years ended
December 31:
<TABLE>
<CAPTION>
1996 1997
--------- ---------
($ IN THOUSANDS)
<S> <C> <C>
ILEC.................................................................... $ 14,365 $ 15,361
Fiber................................................................... 3,430 4,589
CLEC.................................................................... 113 227
--------- ---------
$ 17,908 $ 20,177
--------- ---------
--------- ---------
</TABLE>
ILEC. ILEC revenue increased $1.0 million, or 6.9%, to $15.4 million for
1997 compared to $14.4 million for 1996 due primarily to a $.3 million increase
in support revenue, an increase in toll charges and an increase in the number of
access lines from 11,959 as of December 31, 1996 to 12,633 as of December 31,
1997.
FIBER. Dobson Wireline's revenue from its fiber operations increased $1.2
million, or 33.8%, to $4.6 million in 1997 from $3.4 million in 1996 due
primarily to the addition of a new customer that
49
<PAGE>
generated $.7 million of revenue and additional revenue of $.5 million from
existing customers in 1997. At December 31, 1997, the number of leased fiber
lines was equivalent to a total of 53 DS3s compared to 46 at December 31, 1996.
CLEC. Dobson Wireline launched its LOGIX operations in October 1997,
generating $.1 million of service revenue primarily related to equipment, local
and long distance sales. The remaining $.1 million in CLEC revenue in 1997,
relates to network management services provided to affiliates of Dobson
Communications.
COST OF SERVICE. For the year ended December 31, 1997, the total cost of
service increased $.5 million, or 15.8%, to $3.3 million from $2.8 million in
1996.
The following table sets forth the components of Dobson Wireline's cost of
service for the years ended December 31:
<TABLE>
<CAPTION>
1996 1997
--------- ---------
($ IN THOUSANDS)
<S> <C> <C>
ILEC....................................................................... $ 1,877 $ 1,868
Fiber...................................................................... 578 650
CLEC....................................................................... 368 750
--------- ---------
Total.................................................................... $ 2,823 $ 3,268
--------- ---------
--------- ---------
</TABLE>
ILEC. Cost of ILEC service remained consistent at $1.9 million for both
1997 and 1996. As a percentage of ILEC revenue, cost of ILEC service decreased
slightly from 13.1% in 1996 to 12.2% in 1997.
FIBER. Cost of fiber service increased $.1 million to $.7 million in 1997
from $.6 million in 1996. The increase was the result of costs associated with
networking, including service provided by certain third party carriers, incurred
as a result of the customers added during 1997.
CLEC. Cost of CLEC service increased $.4 million or 104.0%, to $.8 million
in 1997 from $.4 million in 1996. Cost of CLEC service associated with the
Dobson Wireline's October 1997 launch of its LOGIX operations totaled $.4
million. These costs primarily consisted of wholesale charges from third party
services providers and salaries for technical personnel. Included in the cost of
services for the CLEC operations is $.4 million for both 1996 and 1997,
respectively, relating to network management services provided to affiliates of
Dobson Communications.
SELLING, GENERAL AND ADMINISTRATIVE. For the year ended December 31, 1997,
SG&A costs increased $.9 million, or 11.8%, to $8.7 million in 1997 from $7.8
million in 1996. The increase was primarily due to increased salary costs
resulting from additional administrative and marketing personnel in the
Company's CLEC operations. As a percentage of total revenue, SG&A costs
decreased to 43.3% in 1997 from 43.6% in 1996.
DEPRECIATION AND AMORTIZATION EXPENSE. For the year ended December 31,
1997, depreciation and amortization expense increased $.4 million, or 10.1%, to
$4.9 million from $4.5 million in 1996. This increase is primarily a result of
1997 fixed asset additions in the Company's CLEC and fiber businesses.
OTHER EXPENSE. For the year ended December 31, 1997, total other expense
(consisting of equity in income/losses of unconsolidated partnership, interest
income, interest expense, and other income/expense) increased $.1 million, or
3.4%, to $2.4 million from $2.3 million in 1996. Interest expense increased $.3
million, or 12.1%, to $2.5 million in 1997 from $2.2 million in 1996. The
increase in interest expense is a result of the full year impact in 1997 of the
Company incurring approximately $1.5 million of additional debt and refinancing
approximately $12 million of debt at a higher interest rate during 1996.
50
<PAGE>
EXTRAORDINARY EXPENSE. Extraordinary expense in 1997 of $.2 million is due
to the write-off of deferred debt costs associated with the Company's fiber
operations.
YEAR ENDED DECEMBER 31, 1995 COMPARED TO YEAR ENDED DECEMBER 31, 1996.
REVENUE. For the year ended December 31, 1996, total revenue increased $1.6
million, or 10.1%, to $17.9 million from $16.3 million in 1995. The following
table sets forth the components of Dobson Wireline's revenue for the years ended
December 31:
<TABLE>
<CAPTION>
1995 1996
--------- ---------
<S> <C> <C>
($ IN THOUSANDS)
ILEC.................................................................... $ 13,697 $ 14,365
Fiber................................................................... 2,501 3,430
CLEC.................................................................... 67 113
--------- ---------
Total............................................................... $ 16,265 $ 17,908
--------- ---------
--------- ---------
</TABLE>
ILEC. ILEC revenue increased $.7 million, or 4.9%, to $14.4 million for the
year ended December 31, 1996 from $13.7 million in 1995. The increase is
primarily due to reimbursement received from a new state fund created in 1996
designed to provide additional support revenue to high cost providers of local
telephone service.
FIBER. The Company's revenue from its fiber operations increased $.9
million, or 37.2%, to $3.4 million in 1996 from $2.5 million in 1995 primarily
as a result of additional revenue of $.8 million from an existing customer in
1996. The number of fiber lines leased increased by an equivalent of 26 DS3
lines, bringing the total lines leased to an equivalent of 46 DS3s at December
31, 1996.
CLEC. CLEC revenue increased $46,000 to $113,000 for the year ended
December 31, 1996 from $67,000 in 1995 due to increases in services provided to
Dobson Communications' wireless operations. CLEC revenue for 1995 and 1996 is
attributable to network management services provided to affiliates of Dobson
Wireline.
COST OF SERVICE. For the year ended December 31, 1996, the total cost of
service increased $.3 million, or 14.2%, to $2.8 million from $2.5 million in
1995.
The following table sets forth the components of the Company's cost of
service for the years ended December 31:
<TABLE>
<CAPTION>
1995 1996
--------- ---------
<S> <C> <C>
($ IN THOUSANDS)
ILEC....................................................................... $ 1,730 $ 1,877
Fiber...................................................................... 422 578
CLEC....................................................................... 319 368
--------- ---------
Total.................................................................. $ 2,471 $ 2,823
--------- ---------
--------- ---------
</TABLE>
ILEC. Cost of ILEC service increased $.2 million, or 8.5%, to $1.9 million
in 1996 from $1.7 million in 1995. Cost of ILEC service in 1996 increased as a
percentage of ILEC revenue to 13.1% from 12.6% in 1995 as a result of increased
maintenance costs of plant and costs associated with customer growth.
FIBER. Cost of fiber service increased $.2 million, or 36.8%, to $.6
million in 1996, from $.4 million in 1995. The increase was the result of
increased costs for technical personnel for maintenance and operations of
Company facilities.
51
<PAGE>
CLEC. Cost of CLEC service increased $.1 million, or 15.3%, to $.4 million
in 1996 from $.3 million in 1995. The increase is primarily related to increased
personnel costs related to network management services.
SELLING, GENERAL AND ADMINISTRATIVE. For the year ended December 31, 1996,
SG&A costs increased $1.3 million, or 19.7%, to $7.8 million in 1996 from $6.5
million in 1995. As a percentage of total revenue, SG&A costs increased to 43.6%
in 1996 from 40.2% in 1995. The increase was primarily due to increased
personnel charges attributable to increased sales and administrative staff, as
well as additional corporate overhead expenses.
DEPRECIATION AND AMORTIZATION EXPENSE. For 1996, depreciation and
amortization expense increased $.4 million to $4.5 million in 1996 from $4.1
million in 1995. The increase was due to fixed asset additions in the Company's
ILEC and fiber businesses.
OTHER EXPENSE. For 1996, other expense (consisting of equity in income/loss
of unconsolidated partnership, interest income, interest expense, and other
income/expense) increased $.1 million or 1.4% to $2.3 million from $2.2 million
in 1995 primarily as a result of a $.2 million increase in interest expense. The
increase in interest expense is a result of the incurrence of approximately $1.5
million of additional debt and refinancing at a higher interest rate
approximately $12 million of debt during 1996.
IMPACT OF YEAR 2000 ISSUE
The Year 2000 issue is the result of computer programs using two digits
rather than four to define the applicable year. Date-sensitive software may
recognize a date using "00" as the year 1900 rather than the Year 2000. This
could result in system failures or miscalculations causing disruptions of
operations, including, among others, a temporary inability to process
transactions, send invoices, or engage in similar normal business activities.
Dobson Wireline has undertaken and expects to continue to undertake capital
projects with respect to its information systems, including upgrades or
replacements of the Company's accounting, OSS and personal computer and
networking systems. Dobson Wireline has established processes for evaluating and
managing the risks and costs associated with Year 2000 software failures.
Management is in the process of taking steps to facilitate a smooth Year 2000
transition, including working with its software vendors. Dobson Wireline has
identified and analyzed and continues to analyze both internally developed and
acquired software that utilizes date embedded codes that may experience
operational problems upon Year 2000. Management has evaluated the software
systems of American Telco as they relate to Year 2000 and has determined that
American Telco's OSS is not Year 2000 compliant. The Company believes its new
OSS which will replace American Telco's OSS, will be Year 2000 compliant and
will be in place by 2000. Dobson Wireline is also communicating with third party
vendors of systems software and equipment, suppliers of telecommunications
capacity and equipment, customers and others with which it does business to
coordinate Year 2000 compliance. Management is currently unable to predict the
full extent to which the Year 2000 issue will affect the Company's internal
systems or those of its vendors and third party network service providers. Any
failure by such vendors or third party network service providers to resolve the
Year 2000 issues on a timely basis, or in a manner that is compatible with the
Company's systems, could have a material adverse effect on the Company. The
Company may incur substantial costs, particularly costs resulting from charges
by its vendors or third party network service providers, in correcting the Year
2000 issues; however, such costs cannot currently be estimated. Additionally,
such costs will be expensed as incurred, which will have a negative adverse
effect on the current operating results.
52
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
The Company has historically generated positive cash flow from operations
from its ILEC and fiber businesses and has historically financed its ILEC
business through government loans. With the commencement of its CLEC business in
October 1997, the Company has experienced negative cash flow in 1997 and expects
negative cash flow to increase in its CLEC business in 1998 and to continue as
the Company expands its CLEC operations. Continued expansion of the Company's
CLEC business will require substantial capital to purchase and install switches
and other transmission equipment, to replace the Company's OSS and other back
office systems and to fund operating requirements. The successful implementation
of the Company's strategy, including the expansion of its networks and customer
base, and significant and sustained growth in the Company's cash flows is
necessary for the Company to meet its debt service requirements, including its
obligations on the Notes.
Dobson Wireline's net cash provided by operating activities was $.2 million,
$3.7 million, $6.3 million and $3.7 million for the three months ended March 31,
1998, and the years ended December 31, 1997, 1996 and 1995, respectively. Dobson
Wireline's net cash used in investing activities was $1.2 million, $3.4 million,
$5.5 million and $4.2 million for the three months ended March 31, 1998 and the
years ended December 31, 1997, 1996 and 1995, respectively, primarily related to
capital expenditures, and more recently, the funding of an escrow deposit
related to the American Telco Acquisition. Net cash used in financing activities
was $.3 million, $.6 million, $.6 million and $.2 million for the three months
ended March 31, 1998, and the years ended December 31, 1997, 1996 and 1995,
respectively, primarily representing repayments of long-term debt.
On December 31, 1997 Dobson Communications made a capital contribution to
Dobson Wireline in the form of assumption of Dobson Wireline's fiber
subsidiary's obligation under a Dobson Communication's credit facility. The
amount of such capital contribution was $11.5 million.
Capital expenditures for the three months ended March 31, 1998 and 1997 and
the years ended December 31, 1997 and 1996 were $2.3 million, $.4 million, $5.4
million and $3.9 million, respectively. The Company expects its capital
expenditures (excluding the purchase price and related costs incurred to
consummate the American Telco Acquisition and the Zenex Acquisition) to total
approximately $58.1 million for 1998 and approximately $23.5 million for 1999,
of which $48.8 million and $15.8 million, respectively, relate to the CLEC
operations. The capital expenditures will be primarily for the purchase of
switches and related equipment and infrastructure enhancements, including the
replacement of its OSS and back office systems. The Company currently does not
plan to add additional fiber optic lines to its long-haul network, although it
will seek to expand to additional cities through interconnection agreements with
other carriers. Continued significant capital expenditures for the CLEC
operations are expected to be made after 1999. The amount and timing of capital
expenditures may differ materially from the foregoing estimate depending on
numerous factors, including the rate at which the Company expands and develops
its networks and customer base, the Company's ability to negotiate favorable
prices for purchases of equipment and to acquire and integrate necessary OSS and
other back office systems, whether the Company consummates additional
acquisitions and factors beyond the Company's control, such as economic
condition, competition, market and regulatory developments and availability of
capital. The Company entered into a two year agreement with Sprint for the lease
of long distance capacity which provides for a minimum commitment of $3.75
million in year one and $6.0 million in year two, subject to upward adjustment
depending on actual use. In connection with the Zenex Acquisition, the Company
entered into a an agreement with WorldCom whereby the Company will lease long
distance capacity for thirty-six months with an aggregate minimum commitment
during the term of the lease of $36 million.
Upon consummation of the American Telco Acquisition, the Company purchased
$122.0 million of Pledged Securities, consisting of U.S. government securities,
that will be held as security for the payment of the first six scheduled
payments of interest on the Notes. The Pledged Securities will be held by the
Trustee as security for the benefit of the holders of the Notes. Upon
consummation of the Exchange Offer, the
53
<PAGE>
Company will withdraw $4.3 million of the Pledged Securities from the escrow
account. See "Description of the Notes--Security." The Trustee will hold the
Pledged Securities pursuant to an escrow and security agreement pending
disbursement.
As of March 31, 1998, on a pro forma basis after giving effect to the
Offering and the American Telco Acquisition, the Company would have had $378.4
million of indebtedness (including $28.4 million of secured indebtedness under
the RUS/RTB Facility) and stockholder's equity of $18.4 million. See
"Description of Certain Indebtedness." The RUS/RTB loans have scheduled
maturities between 1998 and 2028. Although there can be no assurance, management
believes that cash flow from operations and borrowings under the RUS/RTB
Facility will be sufficient to fund the replacement of its OSS and the expansion
of its business as currently planned, including its negative cash flow from its
CLEC operations. The Company has and will continue to incur significant
increases in expenses associated with these activities which will significantly
reduce its EBITDA until it can develop and expand its CLEC service customer
base. Thereafter, the Company expects to require additional financing. In the
event that the Company's plans or assumptions change or prove to be inaccurate,
or its cash resources prove to be insufficient to fund the Company's growth and
operations, or if the Company consummates additional acquisitions, the Company
may be required to seek additional sources of capital (or seek additional
sources of capital sooner than currently anticipated). The Company may also seek
to raise additional capital to take advantage of favorable conditions in the
capital markets. Sources of additional capital may include public or private
debt or equity financings, including vendor financing. Because of the
restrictions in the lending agreements and note indentures of Dobson
Communications, capital contributions to Dobson Wireline will be essentially
prohibited. There can be no assurance that any additional financing will be
available to the Company, or if available, that it can be obtained on terms
acceptable to the Company or within the limitations contained within the
Company's financing arrangements, including the Indenture. Failure to obtain
such financing could result in the delay or abandonment of some or all of the
Company's development or expansion plans and could have a material adverse
effect on the Company's business. Such failure could also limit the ability of
the Company to make principal and interest payments on its outstanding
indebtedness, including the Notes. The Company has no credit facility under
which it may borrow for working capital and other general corporate purposes.
There can be no assurance that such a facility will be available to the Company
in the future or that if such a facility were available, that it would be
available on terms and conditions acceptable to the Company. See "Risk
Factors--Leverage; Ability to Meet Required Debt Service."
RECENT ACCOUNTING PRONOUNCEMENTS
In April 1998, the Accounting Standards Executive Committee issued Statement
of Position ("SOP") 98-5, "Reporting on the Costs of Start-Up Activities,"
effective for fiscal years beginning after December 15, 1998. The Company
adopted this SOP as of January 1, 1998. SOP 98-5 requires costs of start-up
activities and organization costs to be expensed as incurred. The Company
recognized a pretax loss of approximately $1.1 million in the first quarter of
1998 as cumulative effect of accounting change as a result of adopting this SOP.
FORWARD-LOOKING STATEMENTS
The description of the Company's plans set forth herein, including the
Company's plans and strategies, its anticipation of revenues from designated
markets, the markets for the Company's services and products, planned capital
expenditures and possible regulatory requirements, and other statements which
predict or forecast future events which are dependent on future events for their
accuracy, are forward-looking statements made pursuant to the safe harbor
provisions of the Private Securities Litigation Reform Act of 1995. These plans
involve a number of risks and uncertainties. Important factors that could cause
actual capital expenditures, or the Company's performance to differ materially
from plans include, without limitation, the Company's ability to satisfy the
financial covenants of its existing debt
54
<PAGE>
instruments and to raise additional capital; the Company's ability to integrate
acquired operations with existing operations, to manage its rapid growth
successfully and to compete effectively in its ILEC, fiber and CLEC businesses
against competitors with greater financial, technical, marketing and other
resources; changes in end-user requirements and preferences; the development of
other technologies and products that may gain more commercial acceptance than
those of the Company; the Company's ability to successfully market its services
to current and new customers, interconnect with ILECs, expand or replace its OSS
and other back office systems, provision new customers, access markets, install
facilities, including switching electronics, and obtain leased trunking
capacity, rights-of-way, building access rights and any required governmental
authorizations, franchises and permits, all in a timely manner, at reasonable
costs and on satisfactory terms and conditions; as well as unexpected
regulatory, legislative and judicial developments. No assurance can be given
that the future results will be achieved; actual events or results may differ
materially as a result of risks facing the Company. Readers are cautioned not to
place undue reliance on these forward-looking statements which speak only as of
the date hereof. The Company undertakes no obligation to update or revise these
forward-looking statements to reflect events or circumstances after the date
hereof including, without limitation, changes in the Company's business strategy
or planned capital expenditures, or to reflect the occurrence of unanticipated
events.
55
<PAGE>
BUSINESS
OVERVIEW
Dobson Wireline Company seeks to be the leading provider of integrated
local, long distance, data and other telecommunications services to small and
medium-sized business customers throughout the Southwest United States. Since
1936, the Company has provided ILEC services in Oklahoma. In addition, Dobson
Wireline operates long-haul fiber optic facilities in Oklahoma, Texas and
Colorado, providing wholesale long-haul services. Dobson Wireline recently began
offering switch-based CLEC services in Oklahoma City and Tulsa under its
LOGIX-SM- brand name and expects to commence offering these services in Amarillo
in mid-1998. Dobson Wireline's management team is led by Everett R. Dobson, the
Chairman of the Board, President and Chief Executive Officr of Dobson
Communications.
In order to accelerate the expansion of its CLEC business, Dobson Wireline
acquired Houston-based American Telco on June 15, 1998 for $130.3 million.
American Telco provides long distance and local telecommunications services to
approximately 22,400 customers in Houston, Dallas, Fort Worth, San Antonio and
Austin, of which approximately 16,400 are business customers. Management
believes there is a significant opportunity to market Dobson Wireline's
integrated LOGIX-SM- product line to the existing American Telco customers and
to other small and medium-sized business customers in Texas. With approximately
100 direct sales professionals, American Telco has one of the largest direct
sales forces of alternative communications services in Texas. On a pro forma
basis after giving effect to the American Telco Acquisition, for the year ended
December 31, 1997 and three months ended March 31, 1998, the Company would have
had revenues of $72.2 million and $21.0 million, and EBITDA of $12.2 million and
$1.9 million, respectively, and as of March 31, 1998 the Company would have had
27,417 access lines and total assets of $407.1 million.
SERVICES STRATEGY
The Company's objective is to be the dominant alternative provider of
integrated local, long distance and data services packaged with wireless
offerings to small and medium-sized business customers in the Southwest. The
Company has developed customer focused strategies to build market share in
existing and new markets while utilizing innovative and efficient network
deployment techniques to maximize customer satisfaction and financial returns.
The principal elements of the Company's services strategy include:
DELIVERING INNOVATIVE TELECOMMUNICATIONS SOLUTIONS FOR BUSINESS
CUSTOMERS. The Company believes that there is substantial demand from small and
medium-sized businesses for bundled telecommunications services provided on a
single monthly bill and with a single point of contact for all sales and
service. The Company offers under its LOGIX-SM- brand name local, long distance,
enhanced data, Internet, wireless and systems integration services to customers
with convenient integrated billing through its "DIRECT T"-SM- bundled service
offering. The Company believes that its DIRECT T-SM- products allow the Company
to improve customer retention, increase sales force productivity and rapidly
increase penetration in its target markets. The Company's sales professional are
trained to provide customers with sales and customer service relating to all of
the Company's DIRECT T-SM- products. Once a customer contracts with LOGIX-SM-
for services, the Company assigns a single account relations manager who has the
responsibility of proactively contacting the customer to confirm satisfaction
with existing products and to promote new services and programs.
FOCUSING ON THE SOUTHWEST. In order to leverage its extensive
telecommunications networks and long-standing customer and business
relationships in the region, the Company intends to continue to focus on the
Southwest, initially targeting Oklahoma and Texas. The Company believes that
this regional focus will enable it to take advantage of economies of scale in
management, network operations, sales and marketing. This regional concentration
of the Company's network is also expected to result in improved profit margins
based on management's belief that a significant percentage of the Company's
customers' telecommunications traffic will originate and terminate within the
region. The Company expects to expand primarily through internal growth, though
it will consider acquisitions to extend either its product line or geographic
footprint or expand its customer base. The Company recently acquired certain
long distance customers and related assets of Zenex, an Oklahoma City based
reseller of long distance and value added
56
<PAGE>
services, for approximately $4.5 million. In connection with the Zenex
Acquisition, the Company entered into a long term contract with WorldCom for the
resale of long distance services. This contract with WorldCom provides for a
minimum volume commitment of $36.0 million over its 36 month term.
BUILDING MARKET SHARE THROUGH DIRECT SALES AND SUPERIOR CUSTOMER
SERVICE. The Company believes that the key to revenue growth in its target
markets is to acquire customers through direct sales efforts and retain those
customers by offering a high level of customer service. The Company believes
that, in servicing the small and medium-sized business market using, a
consultative, face-to-face sales and service strategy with a single point of
contact is a highly effective method of acquiring customers and developing
long-term customer relationships. The Company's branch offices provide
comprehensive support to the Company's customers. Following the American Telco
Acquisition, the Company has 16 branch offices with approximately 120 direct
sales professionals in markets in Oklahoma City, Tulsa, Houston, Dallas, Austin,
Ft. Worth and San Antonio, which will accelerate the Company's direct sales
strategy. In the future, the Company expects to significantly expand its direct
sales force and open additional branch offices in the Southwest. The Company
also seeks to build market share by installing its own telecommunications
networks in new real estate projects so that it can become the local phone
company for the tenants of that project.
INCREASING PRODUCTIVITY AND EFFICIENCY THROUGH CONTINUED ENHANCEMENT OF
OSS. The Company believes that fully integrated and scalable OSS will increase
productivity and efficiency and provide a competitive advantage. An integrated
approach to OSS will allow the Company to synchronize multiple tasks such as
provisioning, order taking, customer service and billing and provide management
with timely operating and financial data to allow it to efficiently direct
network, sales and customer service resources. The Company currently deploys
tailored systems and procedures for its OSS and other back office systems and
customer service, and intends to replace its existing OSS with a fully
integrated, scalable system which can be expanded as the Company grows its
customer base.
NETWORK STRATEGY
The Company will seek to efficiently expand its network infrastructure to
offer facilities-based services in attractive markets while minimizing its up
front capital expenditures. The Company believes that its facilities-based
services will enable it to achieve higher gross network margins than could be
obtained by reselling such services, accelerate provisioning and to maintain
better control over the quality of the services provided to its customers. The
principal elements of the Company's network strategy include:
MAXIMIZING OPERATING MARGINS WITH A TARGETED SERVICE AREA. The Company
targets customers within a specified geographic zone surrounding its network
infrastructure, thereby controlling the cost of services. By focusing its sales
efforts on customers within these zones and bypassing the ILEC's switch and
directly connecting these customers to a LOGIX switch using unbundled loops or
high capacity circuits, the Company believes it can generate higher gross
margins than could be obtained by reselling ILEC services.
EMPLOYING ADVANCED REMOTE SWITCHING TECHNOLOGY. In entering new markets the
Company intends to deploy an ANP unit (i.e., a smaller switch) that is linked
via leased lines to the Company's switches. The ANP unit enables the Company to
provide digital local and long distance switched services and ATM-based data
services to customers in the market area at significantly lower initial capital
costs than is required for a Class V switch. As customer telecommunications
traffic warrants, the Company will install a Class V switch and redeploy the ANP
to a new market area. By using ANP units and Class V switches, the Company
believes it will have lower operating costs than reselling. This strategy
enables the Company to optimize its capital expenditure, rapidly expand into new
markets, and generate the operating margins and quality of service provided by
dedicated facilities.
CONTROLLING SERVICE QUALITY. The Company's strategy is to have direct
control of the quality of service and responsiveness to its customers by
utilizing the Company's own switches and providing a direct connection which
eliminates the reliance on other switching providers, in contrast to reselling.
57
<PAGE>
LEVERAGING EXISTING OPERATIONS AND PROVEN MANAGEMENT TEAM
The Company believes that its ability to leverage its existing local
exchange and fiber operations and to draw upon its senior management's extensive
experience and expertise in facilities-based telecommunications services will
provide it with a competitive advantage. Everett R. Dobson, the Company's
Chairman of the Board and Chief Executive Officer, and Chairman, President and
Chief Executive Officer of Dobson Communications, the Company's parent, directed
Dobson Communications' rural cellular expansion. Stephen T. Dobson, President of
Dobson Wireline, has operated Dobson Wireline's ILEC business since 1990 and
initiated the Company's expansion into CLEC services. William J. Hoffman, Jr.,
the Company's Chief Operating Officer, joined Dobson Communications in October
1997 from Intermedia Communications, where he was Division Vice President of its
Florida markets. Collectively, the executives of the Company have in excess of
125 years of telecommunications experience.
MARKET OPPORTUNITIES
The Company seeks to be the leading provider of integrated local, long
distance, data and wireless telecommunications services to small and
medium-sized businesses in the Southwest United States, initially focusing on
Texas and Oklahoma. The FCC estimates that the total United States interstate
and intrastate telephone revenues (including wireless revenues) in 1996 were
over $220 billion, of which Texas and Oklahoma accounted for $15.1 billion and
$2.3 billion, respectively. Texas was the third highest state by total revenue,
behind California and New York. Texas' revenue was split $9.5 billion intrastate
and $5.6 billion interstate, while Oklahoma's revenue was split $1.3 billion
intrastate and $1.0 billion interstate.
Historically, businesses throughout the United States have purchased their
telecommunication services from different vendors: local services from RBOCs,
long distance and wide area data services from IXCs, internet services from
internet service providers, and wireless services from a wireless service
providers. The use of multiple vendors and the lack of availability of bundled
services have resulted in customers receiving multiple invoices for these
services.
The Company believes that small and medium-sized businesses desire a fully
integrated package of services, with one monthly invoice and a single point of
contact for all sales and service. The Company further believes that regulatory
changes introduced by the Telecommunications Act, advances in technology, and
its experience and expertise in providing facilities-based communications
services place it in a unique position to take advantage of the large
telecommunications market in the Southwest United States.
THE AMERICAN TELCO ACQUISITION
Dobson Wireline currently provides CLEC services in Oklahoma City and Tulsa,
Oklahoma and plans to expand these operations into the major markets in Texas,
including Amarillo in mid-1998. The acquisition of American Telco will
significantly accelerate Dobson Wireline's expansion into the Texas market.
American Telco provides telecommunications services, primarily to business
customers, in the five largest markets in Texas: Houston, Dallas, Austin, Fort
Worth and San Antonio. It provides a unique complement to the Company's Texas
expansion strategy with 11 sales offices, approximately 100 sales
representatives, and switches in Houston and Dallas. American Telco has
approximately 22,400 customers to whom it sells primarily long distance
services, of which approximately 16,400 are business customers. The Company
believes there is a significant opportunity to market its integrated LOGIX-SM-
product line to the existing American Telco business customers and to other
small and medium-sized business customers in Texas.
SERVICES
ILEC
Since 1936, the Company has provided ILEC services and currently owns and
operates nine contiguous local exchanges in western Oklahoma and three
contiguous local exchanges adjacent to and east of the Oklahoma City
metropolitan area. At March 31, 1998 the Company's local telephone exchanges
served
58
<PAGE>
approximately 12,812 access lines. The Company provides local and long distance
telecommunications services with enhanced and value-added calling and billing
features.
The Company's ILEC operations receive HCF from state jurisdictions and the
federal USF due to factors such as the geographic conditions and subscriber
density in the areas in which it provides service. Approximately 35.6% and 32.3%
of the Company's ILEC revenues for the year ended December 31, 1997 and the
three months ended March 31, 1998, respectively, were from these two sources.
The Company's other primary sources of ILEC revenues consisted of end user and
access revenues. End user revenues consist of charges for local service and
enhanced services such as call waiting and call forwarding. Access revenue
represents amounts charged to IXCs for providing access from the IXC's point of
presence to the end user who makes or receives a long distance call.
FIBER
The Company provides long-haul transport services in Texas, Oklahoma and
Colorado (i) on a wholesale basis as a "carriers' carrier", (ii) to private
business and government end-users, and (iii) for Dobson Communication's other
subsidiaries. The Company has long-haul service contracts with various
long-distance carriers, including AT&T, SWBT, Sprint and NTS. NTS, which, in
turn, resells to MCI and WorldCom, is the largest customer of the Company's
fiber services, accounting for approximately 41% and 49% of its gross fiber
revenue for the years ended December 31, 1997 and 1996, respectively, and
approximately 35% for the three months ended March 31, 1998. The Company also
provides services to the State of Oklahoma and Vyvx.
CLEC
Dobson Wireline's CLEC services include: (i) local exchange services, (ii)
enhanced data services, (iii) Internet, intranet and extranet services, (iv)
interexchange (long distance) services, (v) private line services, and (vi)
integration services.
LOCAL EXCHANGE SERVICES. These include telephone services that connect a
customer's telephone or PBX to the public network and provide the customer
with access to long distance services, operator and directory assistance
services, 911 service, ISDN, voice mail and other enhanced local features.
ENTERPRISE NETWORK SERVICES. These include the switching and transport of
digitized data (and voice) over a network designed to provide highly
reliable, flexible service and support of many data transmission protocols.
The Company's enterprise network services are provided over a network of
frame relay and ATM data switches owned and leased by the Company. The
Company is also able to provide remote access to businesses providing
connectivity to corporate networks.
INTERNET AND INTRANET SERVICES. The Company offers dedicated access to the
Internet and web page hosting, and provides additional services such as
intranet services. Examples of the Company's services are listed below:
<TABLE>
<CAPTION>
SERVICE OR FEATURE DESCRIPTION
- --------------------------------- -----------------------------------------------------
<S> <C>
Dedicated Internet Access Connection to the Internet via the Company's frame
relay network.
Web Page Hosting The Company provides and maintains a World Wide Web
presence for its customers.
Intranet Service The Company provides customers with "private"
equivalents of the Internet allowing secure, closed
user access to the customer's private web sites, file
transfer capabilities, etc.
</TABLE>
INTEREXCHANGE (LONG DISTANCE) SERVICES. These services include the
origination and termination of telephone calls between users in different
cities or exchanges. The Company provides these services
59
<PAGE>
on a usage basis, utilizing its local/long distance switches, its inter-city
network and services provided by other carriers. The Company also offers
inbound "800" and "888" long distance services and nationwide calling card
services.
PRIVATE LINE SERVICES. The Company provides dedicated communications
channels connecting discreet end points. These non-switched services can be
provided to two locations within the same city, or between locations in
different cities (interexchange private lines). The Company also provides
special access services connecting a customer to an IXC for the purpose of
delivering long distance calls to the IXC. The Company provides "carriers'
carrier" wholesale long-haul services to other telecommunications companies.
INTEGRATION SERVICES. These services include initial evaluation of a
customer's needs, the provision and custom configuration of network devices,
normally located at the customer's premises, which may include any special
engineering, installation, or service functions provided by the Company and
ongoing maintenance and training.
NETWORK INFRASTRUCTURE
CLEC
The Company installed a Nortel DMS 500 supernode switch in Oklahoma City in
1997 for its CLEC services in Oklahoma City and Tulsa. American Telco has a DSC
DEX-600 long distance switch and a Siemens-Stromberg Carlson DCO local switch in
Houston, and a Siemens-Stromberg Carlson DCO local switch in Dallas. The Company
will continue to utilize American Telco's switches for an interim period after
consummation of the American Telco Acquisition, but intends to replace such
switches with more efficient ones and redeploy the old switches to areas better
suited for their specifications. Some of American Telco's customers utilize call
processors which belong to the Company but are located at the customer premises.
These call processors have enhanced routing, disaster recovery and accounting
features and can be remotely managed by American Telco.
The Company's Interconnection Agreements with SBC and GTE allow it to (i)
resell SBC's and GTE's local exchange services in Oklahoma and Texas and (ii)
interconnect the Company's network with SBC's and GTE's networks for the purpose
of immediately gaining access to all of SBC's and GTE's unbundled network
elements. Based on these agreements, the Company is able to deploy its network
to enter new markets and offer local exchange services.
The Company has agreements with various long-haul transport carriers to
transport the data and voice signals of its customers through its switches. The
Company also enters into agreements with various carriers to provide
transmission and termination services for its long distance traffic. Such
agreements typically provide for the resale of long distance services on a per
minute basis, with some agreements containing minimum volume commitments.
In entering new markets the Company intends to deploy an ANP unit that is
linked via leased lines to the Company's switches. As customer
telecommunications traffic warrants, the Company will install a Class V switch
and redeploy the ANP to a new market area. The Company will install its ANP unit
or switch and related equipment at a central location in each market and deploy
transmission equipment in ILEC central offices. The Company will initially lease
local network trunking facilities from the ILEC and/or one or more CLECs in
order to connect the Company's ANP unit or switch to major ILEC central offices
serving the target market area. As each customer is obtained, service will be
provisioned by leasing unbundled loops from the ILEC.
In connection with the Company's enterprise network services, the Company
will expand its ATM network by installing ATM data switches and related
equipment in the Southwest. This expanded network will enable the Company to
market its enterprise network services to businesses with branch offices
throughout the Southwest. The Company will lease additional fiber capacity to
connect these ATM switches.
60
<PAGE>
ILEC
Dobson Wireline serves 12,812 access lines in western Oklahoma and east of
the Oklahoma City metropolitan area with 13 switches located in Oklahoma.
FIBER
The Company operates over 545 miles of long-haul fiber optic facilities. The
Company entered the fiber business in 1990 when it joined with AT&T to place
fiber between Oklahoma City and Amarillo, which links the Company's local
exchanges. The Company and AT&T each has its own cable, sharing in all legal
rights to the private right-of-way where the cables are located. The Company's
cable covers approximately 360 route miles and consists of 36 strands of fiber.
In 1991, the Company acquired a 20% interest in Forte of Colorado Partnership
which has 24 strands of fiber from Springfield, Colorado, to Colorado Springs,
approximately 185 miles in length. One of the Company's partners in Forte of
Colorado is NTS. To enhance the revenue potential for the above segments, the
Company, Forte of Colorado and other segment providers have interconnected their
networks and currently offer fiber-based transport services among Albuquerque,
Amarillo, Cheyenne, Colorado Springs, Dallas, Denver, Des Moines, El Paso,
Kansas City, Las Cruces, Lubbock, Oklahoma City, Omaha, Midland, Wichita and
Wichita Falls. Other segment providers have expressed interest in
interconnecting to this network and expansion may occur north to Chicago, south
to Houston and San Antonio, and east toward Atlanta. There can be no assurance
that such expansion will occur to all or any of these cities, or if such
expansion does occur, when it may occur or on what terms and conditions. While
the Company currently has no plans to add additional fiber optic lines, it will
seek to expand its network to additional cities through new interconnection
agreements.
SALES AND MARKETING
The Company believes there is substantial demand from small and medium-sized
business for bundled telecommunications services provided with a single monthly
bill and a single point of contact. While the Company's customer focus is on
small and medium-sized businesses, it also markets to large corporations,
financial services companies, government departments and agencies, and academic,
scientific and other major institutions. The Company also seeks to build market
share by installing its own telecommunications networks in new real estate
projects so that it can become the local phone company for the tenants of that
project.
The Company's CLEC services, are sold through the Company's existing sales
force supported by sales engineers, and often in cooperation with agents and
value added resellers (independent providers of communications hardware to
customers) and other business associates. This approach enables the Company to
emphasize the applications solutions aspects of its services and utilize the
expertise and resources of other vendors. The Company intends to continue
expanding its sales and engineering support staff and other technical
specialists in order to meet the expected demand for CLEC services.
The Company's sales force includes specialized professionals who focus on
sales to commercial and carrier consumers and alternate channels (agents and
value added resellers). The Company's sales staff works to gain a better
understanding of the customer's operations in order to develop innovative,
application-specific solutions to each customer's needs. Sales personnel locate
potential business customers by several methods, including customer referral,
market research, cold calling and other networking alliances. The Company's
sales group also seeks to obtain building entry agreements with owners of
multiple office building complexes.
As a result of the acquisition of American Telco, the Company has 16 branch
offices with approximately 120 sales professionals located in Oklahoma City,
Tulsa, Houston, Dallas, Austin, Fort Worth and San Antonio. Each branch office
will be staffed by personnel capable of marketing all of the Company's products
and providing comprehensive support to the Company's customers. Adding this
number of sales professionals located at various branch offices in target
markets will allow the Company to accelerate its strategy of face-to-face sales
and a single point of contact for all its customers. The Company believes there
61
<PAGE>
is a significant opportunity to market its integrated LOGIX-SM- product line to
the existing American Telco business customers and to other small and
medium-sized business customers in Texas.
The Company markets its fiber services through its direct and indirect sales
force. The Company intends to initiate additional marketing programs to increase
its customer base and the use of its fiber network by its existing customers.
The Company believes that it has a competitive advantage in the market area
that it serves because it has the only long-haul fiber network between Oklahoma
City and Amarillo, other than AT&T. AT&T's network, however, does not branch off
to small communities between Oklahoma City and Amarillo. By expanding its
network through interconnect agreements to access other major population centers
(including routes which may be attractive to major carriers) and providing
high-quality, reliable transmission services on a fixed-cost basis at
competitive rates, the Company believes it can increase its fiber revenue.
CUSTOMER SERVICE
The Company's sales and marketing approach is to build long-term business
relationships with its customers, with the intent of becoming the single source
provider of all of their telecommunications services. To this end, the Company
assigns a dedicated account relations manager to each business account who is
responsible for proactively contacting the customer on a monthly basis. These
managers ensure that customers are satisfied with their current services and
promote new services and programs. Management believes that this activity
improves customer retention, enhances penetration within the existing customer
base and provides the Company with qualified sales leads through referrals.
The Company's service delivery staff is primarily responsible for
coordinating service and installation activities. Service delivery activities
include surveying the site to assess ambient conditions and power, and space
requirements, as well as coordinating installation dates and equipment delivery
and testing. The Company's customer service and technical staff plans,
engineers, monitors and maintains the integrity, quality and availability of the
Company's networks. The Company's customer service and technical staff are
available to customers 24 hours every day.
COMPETITION
GENERAL. The telecommunications industry is highly competitive and the
Company faces intense current and potential competition with respect to its
services offerings. Many of the Company's current and potential competitors have
financial, technical, personnel and other resources, including brand name
recognition, substantially greater than those of the Company. There has also
been, and the Company believes there will continue to be, significant merger and
joint venture activity and the creation of strategic alliances within the
telecommunications industry that will result in competitors with even greater
financial resources and other competitive advantages. In addition, rapidly
evolving technology, and new applications of existing technology, may also
provide competitors in the Company's markets with significant competitive
advantages over the Company. The Company believes that various legislative
initiatives, including the Telecommunications Act and certain state initiatives,
will facilitate the ability of RBOCs, other ILECs and IXCs to offer bundled
services, allowing such entities to leverage their extensive existing networks
and provide customers with single source telecommunications services similar to
the services provided by the Company. There can be no assurance that the Company
will be able to respond to such competitive pressures or that competition will
not have a material adverse effect on the Company. See "Risk Factors--
Competition."
LOCAL SERVICES. In each of its markets where the Company operates as a
CLEC, the Company faces significant competition for the local services it offers
from RBOCs and other ILECs, which currently dominate their local
telecommunications markets. In particular, SBC is the ILEC and the dominant
local services provider in most of the markets currently served by the Company.
These companies all have long-standing relationships with their customers and
have financial, personnel and technical resources substantially greater than
those of the Company. As a recent CLEC market entrant, the Company has not
achieved, and does not expect to achieve a significant market share for its
services.
62
<PAGE>
In the Texas markets, the Company also faces competition in most markets in
which it operates from one or more CLECs, including GTE, ACSI, ICG, Allegiance
Telecom and Intermedia. Other local service providers have operations or are
initiating operations within one or more of the Company's service areas. The
Company expects long distance carriers, including AT&T, MCI, Sprint and
WorldCom, to offer local services together with their long distance services in
certain markets. At least two of these competitors, AT&T and WorldCom, have
entered or announced plans to enter a number of the Company's service areas.
In addition, the recent trend toward mergers and strategic alliances among
RBOCs and larger telecommunications carriers since passage of the
Telecommunications Act raises serious questions about the adverse effect of
these mergers and alliances upon the development of competition in the
telecommunications industry. On June 24, 1998, AT&T announced its proposed
acquisition of Tele-Communications, Inc. On May 11, 1998, SBC and Ameritech
announced their merger which, if approved, would reduce the seven original RBOCs
to four. If approved, this merger would leave one RBOC, SBC, with control of a
significant portion of the local exchange and business access lines in the U.S.
It also will significantly reduce competition between RBOCs, such as Ameritech's
previously announced plans to launch local service in Texas and St. Louis,
Missouri in 1998 and in other markets within SBC's region. At the same time,
SBC's competitors have won less than two percent of SBC's market share in its
local markets as a whole. SBC already has merged with Pacific Bell, and a merger
with Southern New England Telecommunications in Connecticut is pending. Two
other RBOCs, Bell Atlantic and NYNEX have merged. WorldCom has acquired MFS
Communications Co., Inc. and Brooks Fiber Properties, Inc., and has a merger
agreement with MCI for which it is seeking regulatory approvals. In January
1998, AT&T announced plans to acquire another CLEC, Teleport. In March 1998
Qwest announced that it would acquire LCI.
On May 6, 1998, US West announced that it had entered into a marketing
arrangement with Qwest whereby US West would market Qwest long distance services
to US West's in-region customers. One week later, Ameritech announced a similar
marketing arrangement with Qwest to market long distance services to Ameritech's
in-region customers. On May 14 and 15, 1998 a coalition of CLECs and
interexchange carriers filed suits in federal district courts in Seattle and
Chicago seeking a declaratory ruling that US West and Ameritech are providing
long distance services in violation of the Telecommunications Act. The
plaintiffs are seeking a preliminary and final injunction prohibiting US West
and Ameritech from marketing in their regions the long distance services of
Qwest or any other long distance carrier. On June 4, 1998, the federal district
court in Seattle granted the coalition's request for a preliminary injunction
preventing US West from marketing to additional customer under its Qwest teaming
agreement. On June 10, 1998, the federal district court in Chicago denied a
preliminary injunction of the Ameritech/Qwest joint marketing agreement;
however, on June 30, 1998, the FCC ordered Ameritech to cease marketing Qwest
long distance service for 90 days while the FCC rules on the legality of the
joint marketing agreement. In March 1997 BellSouth and IBM also announced an
alliance to provide Internet and intranet services to businesses in the southern
United States.
The Company also expects certain cable television providers to enter its
local service markets. Other potential competitors of the Company include
utility companies and wireless telephone systems operators and private networks
built by large end-users. The Company cannot predict the number of competitors
that will emerge as a result of existing or any new federal and state regulatory
or legislative actions.
In the market areas where the Company operates as an ILEC, the Company is
the sole provider of local services. The Telecommunications Act requires the
Company to interconnect its ILEC networks with the networks of other CLECs at
rates that are reasonable and non-discriminatory. As a result, other CLECs,
including SBC, could negotiate interconnection agreements with the Company and
resell the Company's local exchange services in its market areas.
Competition in all of the Company's geographic market areas is based on
price, quality, reliability, customer service and responsiveness and service
features. The Company has kept its prices at levels competitive with those of
the ILECs while providing, in the opinion of the Company, a higher level of
service and responsiveness to its customers.
63
<PAGE>
Although the ILECs are generally subject to greater pricing and regulatory
constraints than other local network service providers, ILECs are achieving
increasing pricing flexibility for their local services as a result of recent
legislative and regulatory developments. The ILECs have continued to lower
rates, resulting in downward pressure on certain dedicated and switched access
transport rates. This price erosion has decreased operating margins for these
services. However, the Company believes this effect will be more than offset by
the increased revenues available as a result of access to customers provided
through interconnection co-carrier agreements and the opening of local exchange
service to competition. In addition, the Company believes that lower rates for
dedicated access will benefit other services offered by the Company.
ENHANCED DATA SERVICES. The Company faces competition in its enhanced data
services business from ILECs, IXCs, very small aperture terminal ("VSAT")
providers, ISPs, Internet software providers and others. Many of the Company's
existing and potential competitors have financial and other resources
significantly greater than those of the Company.
The Company competes with the larger IXCs on the basis of price, service
responsiveness and a rapid response to technology and service trends. All of the
major IXCs, including AT&T, MCI, Sprint and WorldCom offer frame relay services
and several of the major IXCs have announced plans to provide Internet services.
The Company believes it competes favorably with these providers in its markets,
based on the features and functions of its services and its experience and
in-house expertise. Continued aggressive pricing is expected to support
continued rapid growth, but will place increasing pressure on operating margins.
The Company also competes with VSAT services on the basis of price and data
capacity. The Company believes that the relatively low bandwidth of each VSAT
terminal and the cost of purchasing and installing VSAT equipment limits the
ability of VSAT to compete with the frame relay services provided by the
Company.
Many of the ILECs now offer services similar to the Company's enhanced data
services, but offer them only on an intraLATA basis. While the ILECs generally
cannot interconnect their frame relay networks with each other, the Company has
interconnected its frame relay network with those of various ILECs. As a result,
the Company can use certain ILEC services to keep its own costs down when
distributing into areas that cannot be more economically serviced on its own
network. The Company expects the ILECs to aggressively expand their enhanced
data services as regulatory developments permit them to deploy interLATA long
distance networks. When the ILECs are permitted to provide such services, they
will be in a position to offer single source service similar to that being
offered by the Company. In February 1998, the RBOCs, US West, Bell Atlantic and
Ameritech, petitioned the FCC under Section 706 of the Telecommunications Act to
allow them to build and operate packet- and cell-switched data networks across
LATA boundaries, to permit them to carry interLATA data traffic incident to
their provision of digital subscriber line services, to not require them to make
those data services available on a discounted resale basis, and to not require
them to make the non-bottleneck elements of such services available on an
unbundled basis. The Company provides or may provide certain services with which
these proposed services (or similar services offered by other RBOCs) would
compete if these petitions are granted by the FCC.
LONG DISTANCE. The long distance market has relatively insignificant
barriers to entry, high average churn rate, numerous entities competing for the
same customers and prices that have declined and are expected to continue to
decline. The Company believes that it competes on the basis of price, customer
service, accurate billing, clear pricing policies and, to a lesser extent,
variety of services. The numerous current and potential competitors in the
market include AT&T, MCI, Sprint, WorldCom, Excel, LCI, other CLECs, microwave
and satellite carriers and private networks owned by large end-users. The
Company also may increasingly face competition from firms offering long distance
data and voice services over the Internet, which firms could enjoy a significant
cost advantage because they currently do not pay carrier access charges or
universal service fees.
RBOCs, such as SBC, are currently allowed to provide interLATA long distance
services outside their regions, as well as interLATA mobile services within
their regions. Under the Telecommunications Act, the
64
<PAGE>
RBOCs will be allowed to provide interLATA long distance services within their
regions after meeting certain requirements intended to foster opportunities for
local telephone competition. While some RBOCs have applied for in region,
interLATA approval, no such applications have been approved to date. If the SBC
Decision, however, which ruled that the provisions of the Telecommunications Act
restricting interLATA service by the RBOCs are unconstitutional is upheld,
RBOCs, including SBC, would be allowed immediately to enter the interLATA market
on a region-wide basis irrespective of the progress towards local telephone
competition. See "--Regulation."
In providing interexchange services, the Company focuses on quality service
and economy to distinguish itself in a very competitive marketplace. The Company
has built a loyal customer base by emphasizing its customer service. The
additional new services that are offered as the Company implements its local
exchange services should further support this position by allowing the Company
to market a wide array of fully integrated telecommunications services. While
these services are subject to highly competitive pricing pressures, the
Company's cost to provide these services is decreasing as it deploys more
local/long distance voice switches and interexchange network facilities.
FIBER
In providing bulk long-haul fiber capacity the Company's primary competitors
are IXC Communications, Inc., Qwest and AT&T. AT&T is the largest supplier of
long distance voice and data transmission services in the United States and has
a transmission line adjacent to the Company's between Oklahoma City and
Amarillo. The Company also competes with other facilities-based IXCs, such as
MCI, WorldCom and Sprint, all of which have substantially greater financial
resources than the Company and a far more extensive transmission network than
the Company's network. In Oklahoma, the Company's principal competitor is a
subsidiary of SBC. The Company may also face competition from the RBOCs, GTE and
others such as electric utilities and cable television companies.
REGULATION
OVERVIEW. The Company's services are subject to federal, state and local
regulation. The Company, through its subsidiaries, holds various federal and
state regulatory authorizations. The FCC exercises jurisdiction over
telecommunications common carriers to the extent they provide, originate or
terminate interstate or international communications. The FCC also establishes
rules and has other authority over certain issues related to local telephone
competition. State regulatory commissions retain jurisdiction over
telecommunications carriers to the extent they provide, originate or terminate
intrastate communications. Local governments may require the Company to obtain
licenses, permits or franchises in order to use the public rights of way
necessary to install and operate its networks.
FEDERAL REGULATION. The Company is categorized as a non-dominant carrier by
the FCC, and as a result is subject to relatively limited regulation of its
interstate and international services. Certain general policies and rules apply,
as well as certain reporting requirements, but the Company's rates are not
reviewed. The Company has all the operating authority required by the FCC to
conduct its long distance business. As a non-dominant carrier, the Company may
install and operate additional facilities for the transmission of domestic and
international interstate communications without prior FCC authorization, except
to the extent that radio licenses are required.
The FCC also imposes prior approval requirements on transfers of control and
assignments of radio and microwave licenses and operating authorizations for the
provision of international communications services. The FCC has the authority
generally to condition, modify, cancel, terminate or revoke licenses and
operating authority for failure to comply with federal laws and/or the rules,
regulations and policies of the FCC. Fines or other penalties also may be
imposed for such violations. There can be no assurance that the FCC or third
parties will not raise issues with regard to the Company's compliance with
applicable laws and regulations.
The FCC also regulates the interstate access rates charged by ILECs for the
origination and termination of interstate long distance traffic. Those access
rates make up a significant portion of the cost of providing long distance
service. The FCC has recently implemented changes to its interstate access rules
65
<PAGE>
that result in restructuring of the access charge system and changes in access
charge rate levels. These changes reduce per-minute access charges and
substitute new per-line flat-rate monthly charges. These actions, and additional
anticipated access charge reductions ordered by regulatory commissions in the
future, are expected to reduce access rates, and hence the cost of providing
long distance service, especially to business customers. However, the full
impact of the FCC's new decisions will not be known until those decisions are
implemented over the next several years, during which time those decisions may
be revised. In a related proceeding, the FCC has adopted changes to the
methodology by which access has been used in part to subsidize universal
telephone service and other public policy goals. Telecommunications providers
like the Company will pay a fee calculated as a percentage of their revenues to
support these goals. The full implications of this decision also remain
uncertain and subject to change. In addition, the FCC and the courts are
considering related questions regarding the applicability of access charge, and
universal service fees to Internet service providers. Currently such providers
are not subject to these expenses. ILECs and other parties argue that this
exemption unfairly advantages Internet service providers, particularly when they
provide data, voice or other services in direct competition with conventional
telecommunications. The Company is not in a position to determine how these
access and universal service matters will be resolved, and whether or not such
resolution will be harmful to its competitive position.
In October 1996, the FCC adopted an order in which it eliminated the
requirement that non-dominant interstate carriers such as the Company maintain
tariffs on file with the FCC for domestic interstate services. This order
applies to all non-dominant interstate carriers, including AT&T. The order does
not apply to the switched and special access services of the RBOCs or other
local exchange providers. The FCC order was issued pursuant to authority granted
to the FCC in the Telecommunications Act to "forbear" from regulating any
telecommunications services provider if the FCC determines that the public
interest will be served. After a nine-month transition period, relationships
between interstate carriers and their customers will be set by contract. At that
point long distance companies may no longer file with the FCC tariffs for
interstate, domestic, interexchange services. Carriers have the option to
immediately cease filing tariffs. Several parties have filed notices for
reconsideration of the FCC order and other parties appealed the decision. On
February 13, 1997, the United States Court of Appeals for the District of
Columbia Circuit stayed the implementation of the FCC order pending its review
of the order on the merits. Currently, that temporary stay remains in effect.
If the stay is lifted and the FCC order becomes effective,
telecommunications carriers such as the Company will no longer be able to rely
on the filing of tariffs with the FCC as a means of providing notice to
customers of prices, terms and conditions on which they offer their interstate
services. The obligation to provide non-discriminatory, just and reasonable
prices remains unchanged under the Communications Act of 1934, as amended by the
Telecommunications Act (the "Communications Act"). While tariffs provided a
means of providing notice of prices, terms and conditions, the Company intends
to rely primarily on its sales force and direct marketing to provide such
information to its customers.
The Telecommunications Act also gives the FCC a role, working with the state
PUCs, in establishing rules for the implementation of local telephone
competition. The Telecommunications Act imposes a variety of new duties on ILECs
in order to promote competition in local exchange and access services, and the
FCC has authority to develop rules to implement these duties. Some smaller
independent ILECs may seek suspension or modification of these obligations, and
some companies serving rural areas are exempt from them.
In that regard, on August 8, 1996, the FCC released the Local Competition
Order to implement the interconnection, network unbundling and resale provisions
of the Telecommunications Act. The Local Competition Order establishes rules
pursuant to which ILECs interconnect their networks with the networks of
competitive local exchange carriers at rates that are reasonable and
non-discriminatory. The Local Competition Order also establishes rules governing
the rights of CLECs to obtain and use elements of the ILECs' networks at
cost-based rates either to supplement or substitute for alternative local
network facilities that the CLEC would otherwise be required to install. The
Local Competition Order sets rules
66
<PAGE>
governing competitive local exchange carrier access to wholesale versions of the
ILECs' retail local services for resale. The ILECs are required to establish
administrative support systems so that these services and functionalities can be
made available to other carriers on a nondiscriminatory basis. The Local
Competition Order also created rules to deal with reciprocal compensation for
the transport and termination of local telecommunications, non-discriminatory
access to rights of way, and related matters. A related FCC order adopted the
same day established rules implementing the Telecommunications Act with respect
to local and toll dialing parity among competitors; nondiscriminatory access to
telephone numbers, operator services, directory assistance and listings, and
network information; and reform of numbering administration.
The Local Competition Order was challenged in the federal courts by GTE, the
RBOCs, large independent ILECs and state regulatory commissions. On October 15,
1996, the U.S. Court of Appeals for the Eighth Circuit issued a stay of the
implementation of certain of the FCC's rules and on July 18 and October 14,
1997, the Eighth Circuit issued decisions finding that the FCC lacked statutory
authority under the Telecommunications Act for a major portion of its rules. In
particular, the Eighth Circuit found that the FCC was not empowered to establish
national pricing standards governing unbundled local network elements or
wholesale local services of the ILECs, or to require such carriers to provide
network elements in a combined form. The Eighth Circuit also struck down other
FCC rules, including one that would have enabled new entrants to "pick and
choose" from provisions of approved interconnection agreements between the ILECs
and other carriers. The Eighth Circuit, however, rejected certain other
objections to the FCC rules brought by the ILECs or the states, including
challenges to the FCC's definition of unbundled elements, and to the FCC's rules
allowing new competitors to create their own networks by combining incumbent
local exchange carrier network elements together without adding additional
facilities of their own. The overall impact of the Eighth Circuit's decisions
are to limit the obligations of ILECs as originally interpreted by the FCC,
materially reduce the role of the FCC in fostering local competition, including
its ability to take enforcement action if the Telecommunications Act is
violated, and increase the role of state utility commissions. On January 26,
1998, the Supreme Court granted a request by the FCC and other parties to review
the Eighth Circuit decisions. A decision from the Supreme Court is not expected
until early 1999. Meanwhile, certain state commissions have asserted that they
will be active in promoting local telephone competition under the authority of
the Eighth Circuit decisions, which have not been stayed, and this may minimize
some of the significance of the reduced FCC role. However, at this time, it is
premature to assess the impact of the Eighth Circuit's decisions and there can
be no assurance that these decisions and related developments will not have a
material adverse effect on the Company. Indeed, a number of state commissions
have set prices for unbundled network elements that are substantially higher and
wholesale discount rates lower for resold services than the Local Competition
Order provided on an interim basis. Furthermore, other FCC rules related to
local telephone competition remain the subject of legal challenges, and there
can be no assurance that decisions affecting those rules will not be adverse to
companies seeking to enter the local telephone market.
There can be no assurance that the FCC's remaining rules (including such
rules that may be reinstated by the Supreme Court, if any), together with rules
adopted by state public utility commissions, will be implemented in a manner
that will permit local telephone competition to develop to a substantial extent
and without significant delays. For example, many new carriers, including the
Company, have experienced problems with respect to the operational support
systems used by new carriers to order and receive network elements and wholesale
services from the ILECs. These systems are necessary for new carriers like the
Company to provide local service to customers on a timely and competitive basis.
The FCC created a task force to examine problems that have slowed the
development of local telephone competition.
In connection with offering local exchange services, the Company has entered
into approved interconnection agreements with SBC and GTE in Texas and Oklahoma
permitting the Company to (i) resell SBC's and GTE's local exchange services in
Oklahoma and Texas, (ii) interconnect the Company's network with SBC's and GTE's
networks for the purpose of exchanging local traffic with ILEC customers, and
67
<PAGE>
(iii) immediately gain access to all of SBC's and GTE's unbundled network
elements. The Company is also negotiating interconnection agreements with SBC in
Arkansas, Kansas and Missouri, and with BellSouth in Louisiana and Tennessee.
As a general matter, no assurance is possible regarding how quickly or how
adequately the Company will be able to take advantage of the opportunities
created by the Telecommunications Act. The Company could be adversely affected
if the Eighth Circuit's decisions reversing some of the FCC's local competition
rules, or problems in the related arbitration and negotiation process, result in
increasing the cost of using incumbent local exchange carrier network elements
or services, or if such actions otherwise result in delays in the implementation
of the Telecommunications Act or impediments to the development of local
telephone competition.
The Telecommunications Act also imposes certain duties on non-ILECs, such as
the Company. These duties include the obligation to complete calls originated by
competing carriers under reciprocal arrangements or through mutual exchange of
traffic without explicit payment; the obligation to permit resale of their
telecommunications services without unreasonable restrictions or conditions; and
the duty to provide dialing parity, number portability, and access to rights of
way. The Company does not anticipate that these obligations will impose a
material burden on its operations. However, in view of the fact that local
telephone competition is still in its infancy and implementation of the
Telecommunications Act has just begun, there can be no assurance in this regard.
The Telecommunications Act also establishes the foundation for substantial
new future competition for the Company's long distance operations through
elimination or modification of previous prohibitions on the provision of
interLATA long distance services by the RBOCs. The RBOCs are now permitted to
provide interLATA long distance service outside those states in which they offer
local exchange service ("out-of-region long distance service") upon receipt of
any necessary state and/or federal regulatory approvals. They also are allowed
to provide long distance services for their cellular and other mobile services
within the regions in which they also provide local exchange service ("in-region
service"). Under the Telecommunications Act, the RBOCs will be allowed to
provide wireline in-region services upon specific approval of the FCC and
satisfaction of other conditions, including a checklist intended to facilitate
competitive entry into local exchange markets. GTE is permitted to enter the
long distance market without regard to limitations by region. GTE is also
subject to the provisions of the Telecommunications Act that impose
interconnection and other requirements on local exchange carriers. SBC and other
RBOCs have begun to take actions directed towards obtaining authority from the
FCC to offer in-region long distance services in certain of the states in their
respective regions. The FCC forced the withdrawal of the first RBOC request for
in-region long distance authority, and rejected the next four applications.
However, there can be no assurance that the RBOC's will be prevented from
offering in-region long distance service until local competition is established.
The Eighth Circuit recently rejected the FCC's attempt to condition interLATA
entry on compliance with certain pricing principles that the Court had
previously found were outside the jurisdiction of the FCC to mandate as a
general matter. Other court actions are now pending challenging the terms under
which the FCC has denied an in-region application. Furthermore, on December 31,
1997, the U.S. District Court for the Northern District of Texas granted an SBC
request to rule that the Telecommunications Act provisions restricting interLATA
services by the RBOCs were unconstitutional. Although that decision has been
stayed pending appeal, it would, if sustained on appeal, allow SBC to enter the
interLATA market on a region-wide basis irrespective of the state of local
competition.
If the RBOCs are allowed to enter the long distance market prior to
establishing local competition, it would remove the incentive RBOCs have to
cooperate with the Company's efforts to offer local exchange services.
The ability of the RBOCs to provide interLATA services will enable them to
provide customers with a full range of local and long distance
telecommunications services. The provision of InterLATA services by
68
<PAGE>
RBOCs is expected to reduce the market share of the major long distance
carriers, which are the Company's networks' primary customers. Consequently, the
entry of the RBOCs into the long distance market may have adverse consequences
on the ability of CLECs both to generate access revenues from the IXCs and to
compete in offering a package of local and long distance services. To date FCC
authority to provide in-region interLATA service has been sought by Ameritech in
Michigan, SBC in Oklahoma and BellSouth in South Carolina and Louisiana. In
March 1998, the U.S. Court of Appeals for the District of Columbia Circuit
affirmed the FCC's denial of SBC's application for long distance authority in
Oklahoma. The Department of Justice opposed each of these requests, and the FCC
denied them. More RBOC requests to provide in-region interLATA service are
expected to be filed with state commissions and the FCC in the near future. SBC
has applications pending with state commissions through its region, including in
Oklahoma. On June 3, 1998, the Texas PUC rejected SBC's application to provide
in-region interLATA service. Although SBC can be expected to refile its
application with the Texas PUC, this is a significant short-term development for
IXCs and CLECs operating in Texas and in neighboring states in SBC's region.
The FCC has granted ILECs certain flexibility in pricing their interstate
special and switched access services. Under this pricing scheme, local exchange
carriers may establish pricing zones based on access traffic density and charge
different prices for access provided in each zone. The Company anticipates that
the FCC will grant ILECs increasing pricing flexibility as the number of
interconnection agreements and competitors increases. In a pending rulemaking
proceeding scheduled for completion soon, the FCC is expected to announce new
and more specific policies regarding the conditions and timing under which ILECs
will be eligible for such increased pricing flexibility. There can be no
assurance that such pricing flexibility will not place the Company at a
competitive disadvantage, either as a purchaser of access for its long distance
operations, or as a vendor of access to other carriers or end user customers.
The Telecommunications Act repeals the telco/cable cross-ownership
prohibition and permits ILECs to provide cable television service. Prior to the
Telecommunications Act repeal, some ILECs were investing in fiber optic networks
on a limited basis through the FCC's "video dialtone" regulatory regime. With
the telco/cable cross ownership prohibition removed, ILECs are more likely to
invest in fiber optic networks because those facilities will be able to generate
a revenue stream previously unavailable on a widespread basis to the ILECs.
While ILEC entry into the video market may be a motivating factor for
construction of new facilities, these facilities also can be used by an ILEC to
provide services that compete with the Company's networks.
On May 8, 1997, the FCC released the Universal Service Order establishing a
significantly expanded federal telecommunications subsidy regime. For example,
the FCC established new subsidies for telecommunications and information
services provided to qualifying schools and libraries with an annual cap of $2.3
billion and for services provided to rural health care providers with an annual
cap of $400.0 million. The FCC also expanded the federal subsidies to low-income
consumers. Providers of interstate telecommunications service, such as the
Company, as well as certain other entities, must pay for these programs. The
Company's share of these federal subsidy funds will be based on intrastate,
interstate and international "end user" gross telecommunications revenues
effective January 1, 1998. For the first two quarters of 1998, the assessment
for the rural, high cost and low income fund has been 3.19% and 3.14% of
interstate and international end user telecommunications revenues. For the same
period, the assessment for schools and libraries and rural health care funds
("S/L") was 0.76% of intrastate, interstate, and international end user
telecommunications services. However, while the FCC has proposed a slightly
lower assessment for the rural, high cost and low income fund for the third
quarter of 1998 (3.08%), the proposed S/L factor of 1.54% is more than double
the comparable rate for the second quarter. In the May 8th order, the FCC also
announced that it will soon revise its rules for subsidizing service provided to
consumers in high cost areas, which may result in further substantial increases
in the overall cost of the subsidy program. Several parties have appealed the
May 8th order. Such appeals have been consolidated and transferred to the United
States Court of Appeals for the Fifth Circuit where they are currently pending.
In addition, on July 3, 1997,
69
<PAGE>
several ILECs filed a petition for stay of the May 8th order with the FCC. That
petition is pending as well as several other petitions for reconsideration.
In addition, on May 16, 1997, the FCC released the Access Charge Reform
Order revising its access charge rate structure. The new rules substantially
increase the costs that local exchange carriers which are subject to the FCC's
price cap rules, recover through monthly, non-traffic sensitive access charges
and substantially decrease the costs that price cap LECs recover through traffic
sensitive access charges. In the order, the FCC also announced its plan to bring
interstate access rate levels more in line with cost. The FCC has stated that
this plan will grant price cap LECs increased pricing flexibility upon
demonstrations of increased competition (or potential competition) in relevant
markets. The manner in which the FCC further implements this approach to
lowering access charge levels could have a material effect on the Company's
ability to compete in providing interstate access services and on the Company's
ILEC operations. An October 1997 FCC access charge decision, for example,
requires local exchange carriers to provide interexchange carriers with certain
information about the number and types of charges they impose on interexchange
carriers' presubscribed customers. Several parties have appealed the Access
Charge Reform Order. Those appeals have been consolidated and transferred to the
United States Court of Appeals for the Eighth Circuit where they are currently
pending.
The Telecommunications Act potentially impacts the Company's ILEC
operations. Under previous regulations access charges contained implicit support
for high-cost areas. The FCC has initiated proceedings to overhaul the
contribution mechanism for federal support revenue. On May 16, 1997, the FCC
issued the Access Charge Reform Order that would remove implicit universal
service support from access revenues and place more emphasis for such support on
HCF/USF. To the extent reductions in access charges are not offset by explicit
universal service subsidies, this could have a materially adverse effect upon
the Company's operations. Until such time as the appeals of the Universal
Service Order and/or Access Charge Reform Order are decided, there can be no
assurance of how either of these Orders will be implemented or enforced or what
effect the Orders will have on competition within the telecommunications
industry generally, or on the competitive position of the Company, in
particular.
A number of ILECs, including SBC and BellSouth, have been contesting whether
the obligation to pay reciprocal compensation to CLEC's should apply to local
telephone calls terminating to Internet service providers ("ISPs"). The ILECs
claim that this traffic is interstate in nature and therefore should be exempt
from compensation arrangements applicable to local, intrastate calls. The FCC,
however, has determined on a number of occasions, most recently in its May 16,
1997, access charge reform order, that calls to ISPs should be exempt from
interstate access charges and should be governed by local exchange tariffs.
Currently, the commissions of nineteen states, including Maryland, Michigan, New
York, Oklahoma, Tennessee, Texas and Virginia, have ruled that reciprocal
compensation arrangements do apply to ISP traffic. On June 16, 1998, a federal
district court in Texas denied SBC's appeal of the Texas commission's decision
that local calls to ISPs are entitled to payment of reciprocal compensation.
Disputes over the appropriate treatment of ISP traffic are pending in other
states.
STATE REGULATION. The Company is also subject to various state laws and
regulations. Most public utility commissions require providers such as the
Company to obtain authority from the commission prior to the initiation of
service. The Company has been certified to provide telecommunications services
in Oklahoma and Texas. The certification permits the Company to provide a range
of local communications services, including basic local exchange service, resold
inter-exchange service, and competitive access service. In most states,
including Texas and Oklahoma, the Company also is required to file tariffs
setting forth the terms, conditions and prices for services that are classified
as intrastate. The Company also is required to update or amend its tariffs when
it adjusts its rates or adds new products, and is subject to various reporting
and record-keeping requirements.
Dobson Telephone is subject to the regulatory authority of the OCC, which
sets rates, terms and conditions of service, and mandates minimum service and
quality of service requirements for telephone
70
<PAGE>
companies in Oklahoma. Telephone companies in Oklahoma have elected to be access
providers, providing long distance service only between their own exchanges.
Interexchange carriers, including SBC, provide all other long distance services
for other customers. Dobson Wireline has received authority to provide
competitive local exchange telecommunications services and to resell intrastate
long distance services within Oklahoma and has received authority to resell
intrastate long distance services within Texas. American Telco has received
authority to provide competitive local exchange telecommunication services and
to resell intrastate long distance services within Texas.
Many states also require prior approval for transfers of control of
certified carriers, corporate reorganizations, acquisitions of
telecommunications operations, assignment of carrier assets, carrier stock
offerings and incurrence by carriers of significant debt obligations.
Certificates of authority can generally be conditioned, modified, canceled,
terminated or revoked by state regulatory authorities for failure to comply with
state law and/or the rules, regulations and policies of state regulatory
authorities. Fines or other penalties also may be imposed for such violations.
There can be no assurance that state utilities commissions or third parties will
not raise issues with regard to the Company's compliance with applicable laws or
regulations.
Many issues remain open regarding how new local telephone carriers will be
regulated at the state level. For example, although the Telecommunications Act
preempts the ability of states to forbid local service competition, the
Telecommunications Act preserves the ability of states to impose reasonable
terms and conditions of service and other regulatory requirements. However,
these statutes and related questions arising from the Telecommunications Act
will be elaborated further through rules and policy decisions made by PUCs in
the process of addressing local service competition issues.
The Company also will be heavily affected by state commission decisions
related to the ILECs, particularly in view of the decisions of the Eighth
Circuit noted above which recognize a larger role for state commissions and a
reduced role for the FCC. For example, state commissions have significant
responsibility under the Telecommunications Act to oversee relationships between
ILECs and CLECs with respect to use of the ILECs' network elements and wholesale
local services. State commissions arbitrate interconnection agreements between
the incumbent local exchange carrier pricing issues in major proceedings now
underway. They will also determine how competitors can take advantage of the
terms and conditions of interconnection agreements that ILECs reach with other
carriers. It is too early to evaluate how these matters will be resolved, or
their impact on the ability of the Company to pursue its business plan.
States also regulate the intrastate carrier access services of the ILECs.
The Company is required to pay such access charges to originate and terminate
its intrastate long distance traffic. The Company could be adversely affected by
high access charges, particularly to the extent that the ILECs do not incur the
same level of costs with respect to their own intrastate long distance services.
In a related development, states also will be developing intrastate universal
service charges parallel to the interstate charges created by the FCC. For
example, ILECs such as SBC are proposing that states create funds that would be
supported by potentially large payments by firms such as the Company based on
their total intrastate revenues. Another issue is use by certain ILECs, with the
approval of PUCs, of extended local area calling that converts otherwise
competitive intrastate toll service to flat rate local service. States also are
or will be addressing various intraLATA dialing parity issues that may affect
competition. The Company's business could be adversely affected by these or
other developments.
The Company's ILEC operations have been determined by the OCC to be eligible
to receive both federal universal funds and OUSF and HCF funds. The Oklahoma
Telecom Act specifically provides that eligible local exchange
telecommunications service providers are to receive OUSF funding to reimburse
them for their reasonable investment and expenses incurred in providing
universal services which are not recovered from the federal universal service
fund or any other state or federal fund, for infrastructure expenditures or
costs incurred in response to facility or service requirements established by
governmental
71
<PAGE>
mandate and for other purposes deemed necessary by the OCC to preserve and
advance universal service. The OCC is promulgating rules to implement the
Oklahoma Telecom Act. The interpretation of the Oklahoma Telecom Act and
application of the OCC rules implementing the OUSF could have a material effect
on Company's operations.
The Company also will be affected by how states regulate the retail prices
of the ILECs with which it competes. The Company believes that, as the degree of
intrastate competition increases, the states will offer the ILECs increasing
pricing flexibility. This flexibility may present the ILECs with an opportunity
to subsidize services that compete with the Company's services with revenues
generated from non-competitive services, thereby allowing ILECs to offer
competitive services at lower prices than they otherwise could. In a related
development, certain RBOCs are seeking authority to create "CLEC" affiliates
that would operate on a much less regulated basis and therefore could provide
significant competition in the business market whether or not the traditional
ILEC local business receives more pricing flexibility. The Company cannot
predict the extent to which these developments may occur or their impact on the
Company's business.
LOCAL GOVERNMENT AUTHORIZATIONS AND RELATED RIGHTS OF WAY. The Company is
required to obtain street use and construction permits and licenses and/or
franchises to install and expand its fiber optic networks using municipal rights
of way. In some municipalities where the Company has installed or anticipates
constructing networks, it will be required to pay license or franchise fees
based on a percentage of gross revenues or on a per linear foot basis. There can
be no assurance that, following the expiration of existing franchises, fees will
remain at their current levels. In many markets, the ILECs do not pay such
franchise fees or pay fees that are substantially less than those required to be
paid by the Company, although the Telecommunications Act requires that in the
future such fees be applied in a competitively neutral manner. To the extent
that, notwithstanding the Telecommunications Act, competitors do not pay the
same level of fees as the Company, the Company could be at a competitive
disadvantage. Termination of the existing franchise or license agreements prior
to their expiration dates or a failure to renew the franchise or license
agreements and a requirement that the Company remove its facilities or abandon
its network in place could have a material adverse effect on the Company. In
addition, the Company would be adversely affected if it is unable to obtain
additional authorization for new construction on reasonable terms. Furthermore,
open issues exist regarding the ability of new local service providers to gain
access to commercial office buildings to serve tenants.
GENERAL. The telecommunications market is in a period of substantial change
and uncertainty. As the Telecommunications Act and related FCC and state actions
are implemented, new issues are likely to arise that can affect the Company and
its business plan. No assurance can be given that future regulatory developments
will not have a materially adverse impact on the Company.
EMPLOYEES AND AGENTS
As of March 31, 1998, Dobson Wireline had approximately 140 employees and
American Telco had approximately 280 employees. In addition, Dobson Wireline
also enters into agreements with independent sales agents to market its
products. None of the Company's employees are represented by a labor
organization, and the Company considers its employee relations to be good.
PROPERTIES
Dobson Communications maintains its corporate headquarters in Oklahoma City,
Oklahoma. The Company leases a portion of this space, which is approximately
6,025 square feet, from an affiliate of the Company at a monthly rental of
approximately $5,800. See "Management--Certain Transactions." The Company also
owns 12 switch sites and leases 18 sales and administrative offices and three
switch sites at aggregate annual rentals of approximately $1.2 million. The
Company anticipates that it will review these leases from time to time and may,
in the future, lease or acquire new facilities as needed. The Company expects to
lease or purchase additional sales and administrative office spaces and switch
sites in connection
72
<PAGE>
with the expansion of its business. The Company does not anticipate that it will
encounter any material difficulties in meeting its future needs for any leased
space.
LEGAL PROCEEDINGS
The Company is not currently involved in any pending legal proceedings that
individually or in the aggregate are material to the Company. The Company is a
party to routine filings and customary regulatory proceedings with the FCC, OCC
and state PUCs relating to its operations.
73
<PAGE>
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The directors and executive officers of the Company are set forth below.
Certain of the officers and directors hold or have held positions in Dobson
Communications and several of its subsidiaries. The ages of the persons set
forth below are as of June 30, 1998.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ----------------------------------- --- -------------------------------------------------------
<S> <C> <C>
Everett R. Dobson (1).............. 38 Chairman of the Board, President and Chief Executive
Officer of Dobson Communications and Chairman of the
Board, Chief Executive Officer, Treasurer and
Secretary and Director of Dobson Wireline
Stephen T. Dobson (1).............. 34 Treasurer, Secretary and Director of Dobson
Communications and President and Director of Dobson
Wireline
William J. Hoffman, Jr............. 35 Vice President of Dobson Communications and Vice
President and Chief Operating Officer of Dobson
Wireline
James R. Rutherford................ 41 President of Dobson Telephone Company
Bruce R. Knooihuizen............... 41 Vice President and Chief Financial Officer of Dobson
Communications and Vice President and Chief Financial
Officer of Dobson Wireline
John W. Gray, Jr................... 35 Vice President of Regulations of Logix Communications
Corporation
Robert L. Scott.................... 35 Vice President of Network and Technology Systems of
Logix Communications Corporation
Glenn D. Hall...................... 54 Vice President of Network Development and Distribution
of Logix Communications Corporation
Russell L. Dobson(1)............... 62 Director of Dobson Wireline
Justin L. Jaschke.................. 40 Director of Dobson Wireline
Thadeus J. Mocarski................ 36 Director of Dobson Wireline
</TABLE>
- ------------------------
(1) Everett R. Dobson and Stephen T. Dobson are sons of Russell L. Dobson.
Dobson Wireline was incorporated in December 1997 in connection with a
corporate reorganization (the "Reorganization") pursuant to which Dobson
Communications segregated its wireline and wireless activities and became the
holding company parent of Dobson Operating Company ("DOC").
EVERETT R. DOBSON has served as a Chairman and Chief Executive Officer of
the Company since its formation in December 1997 and as a director and officer
of Dobson Communications since 1982. From 1990 to 1996, he served as a director,
President and Chief Operating Officer of Dobson Communications and President of
Dobson Communications' cellular subsidiaries. He was elected Chairman of the
Board and Chief Executive Officer of Dobson Communications in April 1996. Mr.
Dobson served on the board of the Cellular Telecommunications Industry
Association ("CTIA") in 1993 and 1994. He holds a B.A. in Economics from
Southwestern Oklahoma State University ("SWOSU") where he currently sits on the
SWOSU Foundation Board and chairs the investment committee.
74
<PAGE>
STEPHEN T. DOBSON has been President and a director of the Company since
March 1998, and has served as an officer of the Company since its inception. He
has been a director of Dobson Communications since 1990. He has served as
Treasurer and Secretary of Dobson Communications since 1990 and General Manager
and Secretary of Dobson Telephone since 1994 and 1990, respectively. He became
President of Logix Communications Corporation ("LOGIX") in January 1997. Mr.
Dobson is a member of the Western Rural Cellular Association ("WRTA"), National
Telephone Cooperative Association and Telecommunications Resellers Association.
He holds a B.S. in business administration from the University of Central
Oklahoma.
WILLIAM J. HOFFMAN, JR. joined Dobson Communications as Vice President and
Chief Operating Officer and Vice President and Chief Operating Officer of the
Company in October 1997. Prior to joining Dobson Communications, Mr. Hoffman was
employed by Intermedia Communications, Inc. as Division Vice President--Florida
Division from 1995 to 1997 and from 1987 to 1995 by Sprint Communications,
serving as Branch Manager, Senior National Account Manager, Product Marketing
Manager and National Account Consultant. He was a Captain in the U.S. Army in
Europe working in military intelligence from 1983 to 1987. Mr. Hoffman holds a
B.S. in electrical engineering from Auburn University.
JAMES R. RUTHERFORD became President of Dobson Telephone Company in March
1998. Mr. Rutherford has been employed by Dobson Communications and its
subsidiaries since 1988 and has worked in various capacities, including manager
and coordinator of contract engineering and construction, outside plant manager,
general manager, and assisted in the start-up and development of the Dobson
Wireline's CLEC operations. Prior to joining Dobson Telephone, Mr. Rutherford
was employed by C.H. Guernsey & Co., a telecommunications engineering firm, for
ten years working in outside plant engineering and design, and project
coordination. He serves as a director of the Oklahoma High Cost Fund Board and
is actively involved in the OTA & WRTA industry organizations. In addition, Mr.
Rutherford serves on the Oklahoma Rural Telephone Companies technical and
regulatory committees.
BRUCE R. KNOOIHUIZEN joined Dobson Communications as Vice President and
Chief Financial Officer in July 1996, and has held the same positions at the
Company since its formation. From 1994 to 1996, Mr. Knooihuizen was Chief
Financial Officer and Secretary for The Westlink Co. in San Diego, a wireless
provider which was formerly an operating unit of U S WEST. Previously, he was
Treasurer and Controller of Ameritech Cellular from 1990 to 1994, Director,
Accounting Operations of Ameritech Applied Technologies from 1988 to 1990, and
Controller of Ameritech Properties in 1988, all located in Chicago. From 1980 to
1988 he held various financial and accounting positions with The Ohio Bell
Telephone Company. Mr. Knooihuizen received a B.S. in finance from Miami
University in Oxford, Ohio and an M.B.A. in finance from the University of
Cincinnati.
JOHN W. GRAY, JR. has been Vice President of Regulations of LOGIX since
March 1998. Prior to joining LOGIX, he served as lead counsel for the OCC from
July 1989 to March 1998. With the OCC, Mr. Gray's duties included representing
the Telecommunications Section of the Public Utility Division, Oklahoma
Corporation Commission in federal and state, administrative, legislative and
judicial proceedings. Mr. Gray also served as the OCC contact person with the
FCC and Department of Justice. He received his J.D. from the University of Tulsa
College of Law and holds a Bachelor of Criminal Justice from the University of
Nebraska.
ROBERT L. SCOTT has been Vice President of Network Development and
Distribution of LOGIX since March 1998. Mr. Scott served as the director of
strategic planning and project delivery of Janssen Pharmaceutics, a subsidiary
of Johnson & Johnson, from January 1997 until joining LOGIX. From November 1994
until January 1997 Mr. Scott served as manager of network systems and strategies
for Johnson & Johnson and was an internal program manager for General Electric
for two years prior to joining Johnson & Johnson. He has also worked in network
strategies for Johnson & Johnson, General Electric and ABC Television Network.
Prior to those positions, he served in the military for six years.
GLENN D. HALL joined LOGIX as Vice President of Network Development and
Distribution in March 1998. Prior to that, Mr. Hall served as the director of
access management at Sprint from
75
<PAGE>
September 1991 to March 1998. Other positions at Sprint held by Mr. Hall
included the director of access technologies and product support manager. Prior
to joining Sprint, Mr. Hall was a network staff manager for AT&T. He received
his AA in Communication Technologies at Hinds Community College and a BA in
Business at Ottowa University.
RUSSELL L. DOBSON has been a director of Dobson Communications since 1990
and was Chairman of the Board and Chief Executive Officer from 1990 to 1996. Mr.
Dobson joined his father at Dobson Telephone in 1956 and became the controlling
owner and Chief Executive Officer in 1975 when he purchased his father's
interest. He has been active in many industry-related groups, including the OTA,
WRTA and Organization for the Protection and Advancement of Small Telephone
Companies.
JUSTIN L. JASCHKE has been a director of Dobson Communications since October
1996 and of the Company since its formation. Mr. Jaschke has been the Chief
Executive Officer of Verio, Inc., a privately held Internet access provider,
since its inception in March 1996. He is also a member of Verio, Inc.'s Board of
Directors. Prior to forming Verio, Inc., Mr. Jaschke served as Chief Operating
Officer for Nextel Communications, Inc. ("Nextel") following its merger with
OneComm Corporation ("OneComm") in July of 1995. Mr. Jaschke served as OneComm's
President and a member of its Board of Directors from the time that he joined
that company in April 1993 until the merger with Nextel. Mr. Jaschke currently
serves as Chairman of the Board of Directors of V-I-A Internet, Inc. and also
serves on the Board of Directors of Metricom, Inc., a leading wireless data
communications provider. From May 1990 to April 1993, Mr. Jaschke served as
President and CEO of Bay Area Cellular Telephone Company. From November 1987 to
May 1990, Mr. Jaschke was Vice President of Corporate Development of PacTel
Cellular, and from 1985 to 1987 was Director of Mergers and Acquisitions of
PacTel Corporation. Prior to that, Mr. Jaschke was a management consultant with
Marakon Associates. Mr. Jaschke has a B.S. in mathematics from the University of
Puget Sound and an M.S. in management from the Massachusetts Institute of
Technology Sloan School of Management.
THADEUS J. MOCARSKI has been a director of Dobson Communications since April
1996 and of the Company since its formation. Mr. Mocarski has been a partner of
Fleet Equity Partners a private equity fund located in Providence, Rhode Island,
since 1994. Affiliates of Fleet Equity Partners (the "Fleet Investors") own all
of the outstanding Class B and Class C Preferred Stock of Dobson Communications.
From 1989 to 1994, Mr. Mocarski was employed by the law firm Edwards & Angell in
Providence, Rhode Island, where he represented various private equity capital
firms in their investment and acquisition activities, including Fleet Equity
Partners. Mr. Mocarski received a B.A. from Colby College and a J.D. from the
Washington College of Law. Mr. Mocarski is a director of Exodus Communications,
Inc., an operator of internet data centers headquartered in Santa Clara,
California.
COMPOSITION OF BOARD OF DIRECTORS
The Company's Board of Directors presently consists of five directors.
Directors and executive officers of the Company are elected to serve until they
resign or are removed, or are otherwise disqualified to serve, or until their
successors are elected and qualified. Directors of the Company are elected for
one-year terms at the annual meeting of stockholders which is held in April of
each year. Officers of the Company are appointed at the Board's first meeting
after each annual meeting of stockholders.
DIRECTOR COMPENSATION
Directors receive no additional compensation for services rendered as
directors but are reimbursed for any out-of-pocket expenses incurred in
attending meetings.
EXECUTIVE COMPENSATION
The following table sets forth the cash and non-cash compensation during
1997 earned by the Company's chief executive officer and its other three most
highly compensated executive officers as of December 31, 1997 (the "Named
Executive Officers").
76
<PAGE>
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
SECURITIES
UNDERLYING
ANNUAL COMPENSATION OPTION AWARDS
---------------------------- OTHER ANNUAL (# OF ALL OTHER
NAME AND PRINCIPAL POSITION(1) SALARY($) BONUS($) COMPENSATION($)(2) SHARES)(3) COMPENSATION($)(4)
- --------------------------------- ------------- ------------- ------------------ --------------- ------------------
<S> <C> <C> <C> <C> <C>
Everett R. Dobson................ $ 69,000 $ 46,000 $ 12,600(5) -- $ 2,200
Chairman of the Board and Chief
Executive Officer
Stephen T. Dobson................ 100,000 75,000 13,800(6) -- 6,500
President
Robert J. Mirabito(7)............ 85,000 25,000 -- 1,207 4,400
President of fiber subsidiaries
James R. Rutherford.............. 71,400 20,000 -- 1,207 9,000
President of
Dobson Telephone
</TABLE>
- ------------------------
(1) Officers of Dobson Wireline are also officers of Dobson Communications and
various of its other subsidiaries. Stephen T. Dobson and James R. Rutherford
are full-time employees of Dobson Wireline as was Robert Mirabito prior to
May 29, 1998. As a result, all of the compensation paid to these
individuals, whether by Dobson Communications or Dobson Wireline is included
in the above summary compensation table. With respect to Everett R. Dobson,
the Chief Executive Officer, the above table only includes that portion of
his annual compensation which is allocated to Dobson Wireline. See
"--Certain Transactions."
(2) Represents the value of perquisites and other personal benefits in excess of
10% of annual salary and bonus.
(3) Represents options to purchase shares of Dobson Communications Class B
common stock. Upon his resignation, Mr. Mirabito forfeited his non-vested
options.
(4) Includes the matching contributions made by Dobson Communications to the
account of the executive officer under Dobson Communications' 401(k) Profit
Sharing Plan.
(5) Includes $8,400 for personal use of Dobson Communications aircraft and
$4,200 for a company-provided vehicle.
(6) Includes $10,400 for personal use of Dobson Communications aircraft and
$3,400 for a company-provided vehicle.
(7) Mr. Mirabito resigned effective May 29, 1998.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Dobson Wireline does not have a separate compensation committee of its board
of directors. The board of directors sets the compensation for its executive
officers and Everett R. Dobson, Chairman of the Board, and Stephen T. Dobson,
President, are directors and participate in these deliberations concerning
executive officer compensation. Each of the directors of Dobson Wireline also
serve on the board of directors of Dobson Communications and on the boards of
directors of various subsidiaries of Dobson Communications. As such, each of the
directors participates in the deliberations concerning executive officers'
compensation for Dobson Communications and its subsidiaries.
EMPLOYMENT AGREEMENTS
In connection with the employment of Robert J. Mirabito in 1992 and William
J. Hoffman, Jr. in 1997, Dobson Communications agreed to provide them
compensation in the form of a combination of some or all of the following:
salary, bonus, stock options and/or other benefits. The terms of Mr. Mirabito's
77
<PAGE>
employment are an initial annual salary of $70,000 plus an unspecified bonus.
The terms of Mr. Hoffman's employment are a $10,000 payment upon acceptance of
employment, an initial annual salary of $110,000, an annual bonus ranging from
30% to 50% of his annual salary, country club initiation fees and dues, a
five-year option to purchase 664 shares of Dobson Communications' Class B Common
Stock at an exercise price equal to its fair market value at date of grant, with
60% of the options vesting ratably over five years and 40% vesting over five
years based on the achievement of annual performance objectives. Mr. Hoffman is
also entitled to a severance payment equal to one year's salary in the event of
termination of employment of Mr. Hoffman without cause. The options to purchase
shares of Class B Common Stock held by Mr. Hoffman become fully vested upon a
change of control of Dobson Communications.
Dobson Communications employs Russell L. Dobson on an as-needed basis to
assist the Company in connection with the Company's operations for annual
compensation not to exceed $250,000, which is payable irrespective of the time
required for Mr. Dobson's services.
STOCK OPTION PLANS
Dobson Wireline intends to adopt a Stock Option Plan (the "Dobson Wireline
Plan"). The purpose of the Dobson Wireline Plan will be to encourage key
employees of the Company by providing opportunities to participate in the
ownership of Dobson Wireline and its future growth through the grant of
incentive stock options and nonqualified stock options. The Dobson Wireline Plan
will permit the grant of options to directors. The Dobson Wireline Plan is
intended to be administered by the Board of Directors, but may be administered
by a committee of the Board (whether the Board or a committee, the "Committee")
The maximum number of shares of common stock for which options may be
granted is expected to be between 5% and 10% of the outstanding shares. The
shares to be issued under the Dobson Wireline Plan will be newly issued shares.
The number of shares and other terms of each grant will be determined by the
Committee. The price payable upon the exercise of an incentive stock option will
not be less than 100% of the fair market value of the common stock at the time
of grant. The price payable upon the exercise of a nonqualified stock option
will be at least the minimum legal consideration required under the laws of
Oklahoma.
Key employees of the Company may also participate in the Dobson
Communications 1996 Stock Option Plan (the "Dobson Communications Plan"). The
Dobson Communications Plan permits the grant of stock options to purchase Class
B Common Stock of Dobson Communications.
CERTAIN TRANSACTIONS
The Company has adopted a policy requiring that any material transaction
between the Company and persons or entities affiliated with officers, directors,
or principal stockholders of Dobson Communications be on terms no less favorable
to the Company than reasonably could have been obtained in an arm's length
transaction with independent third parties. Any other matters involving
potential conflicts of interests are to be resolved on a case-by-case basis.
Dobson Communications leases its headquarters from WillRuss Limited
Liability Company ("WillRuss") pursuant to a 10-year lease expiring in 2005.
WillRuss is owned by Russell L. Dobson, a director of the Company, and his wife.
Monthly rent under the lease is approximately $23,000, or $.93 per square foot.
The Company utilizes a portion of the space leased by Dobson Communications, and
is allocated a portion of the rent. The amount allocated to the Company in 1997
was $194,000. The Company believes that the terms of this lease are no less
favorable to the Company than could be obtained in a lease from an unrelated
party.
Dobson Communications owns approximately 15% of the outstanding common stock
of Zenex. Everett R. Dobson was a director of Zenex from August 1995 to
September 1997. On January 6, 1998, a subsidiary of the Company purchased
contractual rights, information data and other rights with respect to certain of
Zenex's long distance customers located in areas served by Dobson Telephone for
$105,000. In
78
<PAGE>
addition, the Company recently purchased certain long distance customers and
related assets for approximately $4.5 million. In connection with the purchase
of these assets of Zenex, a note payable in the amount of $284,765, including
accrued interest, from Zenex to Everett R. Dobson was paid in full.
Beginning in 1997 Dobson Communications began to provide certain
administrative services, including accounting, information systems management,
human resources management and marketing. Additionally, officers of Dobson
Wireline are also officers of Dobson Communications and various of its other
subsidiaries. These officers perform functions for all of the Dobson
Communications subsidiaries, including Dobson Wireline. Dobson Wireline
reimburses Dobson Communications based on Dobson Communications' cost of
providing the services. In 1997, the total amount charged to Dobson Wireline for
these administrative services and officer compensation was $1,448,000.
Dobson Wireline provides telephone services to Dobson Communications and its
subsidiaries. These services amounted to $338,000, $421,000 and $480,000 in
1995, 1996 and 1997, respectively.
Dobson Wireline, through its fiber optic network, provides long-haul
transport services to Dobson Communications' cellular subsidiaries. These
services are provided on a market rate basis. For each of 1995, 1996 and 1997,
these services amounted to $1.1 million.
Dobson Wireline is a party to a tax sharing agreement with Dobson
Communications and its other subsidiaries. Dobson Wireline, as a member of the
affiliated group with Dobson Communications joins with Dobson Communications and
its other subsidiaries in filing a consolidated federal income tax return. Under
the tax sharing agreement, each subsidiary's contribution toward the group's
consolidated federal income tax liability is determined as if such party were at
all times a separate taxpayer not included in the group. Based on this
determination of separate tax liability, each subsidiary pays to Dobson
Communications an amount in lieu of taxes equal to the amount the subsidiary
would be obligated to pay if it filed returns as a separate taxpayer. If, but
only to the extent that, the group realizes a tax benefit for any taxable year
as a result of the inclusion of a subsidiary's tax items in the determination of
tax liability of the group, Dobson Communications will pay to the subsidiary an
amount equal to such tax benefits realized. As a result of the tax sharing
agreement, Dobson Wireline's liability to Dobson Communications for income taxes
$.4 million, $.4 million and $1.1 million in 1995, 1996 and 1997, respectively.
As a result of various intercompany activities, Dobson Wireline has
receivables from Dobson Communications and its subsidiaries totaling $11.5
million and $8.2 million at December 31, 1996 and 1997, respectively, and a
payable to Dobson Communications of $.5 million at March 31, 1998.
On December 31, 1997 Dobson Communications made a capital contribution to
Dobson Wireline in the form of assumption of Dobson Wireline's fiber
subsidiary's obligation under a Dobson Communication's credit facility. The
amount of such capital contribution was $11.5 million.
79
<PAGE>
PRINCIPAL SHAREHOLDERS
All of the issued and outstanding capital stock of Dobson Wireline is owned
beneficially and of record by Dobson Operating Company which is a wholly-owned
subsidiary of Dobson Communications. The following table provides information,
as of March 31, 1998, concerning beneficial ownership of Dobson Communication
Class A Common Stock and Class B Preferred Stock by (a) each person known by the
Company to beneficially own more than 5% of such stock, (b) each director and
named executive officer of Dobson Communications who beneficially owns any Class
A Common Stock or Class B Preferred Stock of Dobson Communications, and (c) all
directors and executive officers as a group:
<TABLE>
<CAPTION>
CLASS A COMMON STOCK CLASS B PREFERRED
STOCK PERCENT OF
---------------------- ---------------------- TOTAL
NAME AND ADDRESS NUMBER OF PERCENT NUMBER OF PERCENT VOTING
OF BENEFICIAL OWNER SHARES OF CLASS SHARES OF CLASS POWER(1)
- -------------------------------------------------------- ----------- --------- ----------- --------- -----------
<S> <C> <C> <C> <C> <C>
Everett R. Dobson ...................................... 469,998(2) 99.3% 40,000(3) 40.0% 89.0%
13439 N. Broadway Ext.
Oklahoma City, OK 73114
Russell L. Dobson ...................................... 3,154 * -- -- *
13439 N. Broadway Ext.
Oklahoma City, OK 73114
Thadeus J. Mocarski .................................... -- -- 100,000(4) 100.0 17.4
50 Kennedy Plaza
Providence, RI 02903
Fleet Venture Resources, Inc. .......................... -- -- 69,446 69.4 12.1
50 Kennedy Plaza
Providence, RI 02903
Fleet Equity Partners VI, L.P. ......................... -- -- 29,762 29.8 5.2
50 Kennedy Plaza
Providence, RI 02903
All directors and executive officers as a group ........ 473,152 100.0 100,000 100.0 100.0
(8 persons)
</TABLE>
- ------------------------
* Less than 1%.
(1) In calculating the percent of total voting power, the voting power of shares
of Class A Common Stock (one vote per share) and Class B Preferred Stock of
Dobson Communications (presently equivalent to one vote per share) is
aggregated.
(2) All such shares are held by Dobson CC Limited Partnership. As the president
and sole director and shareholder of RLD, Inc., the general partner of the
partnership, Everett R. Dobson has voting and investment power with respect
to such shares.
(3) Includes an option, presently exercisable, to purchase 27,778 shares from
Fleet Venture Resources, Inc. ("FVR"), an indirect subsidiary of Fleet
Financial Group, 11,905 shares from Fleet Equity Partners VI, L.P. ("FEP6")
and 317 shares from Kennedy Plaza Partners ("KPP").
(4) Includes 69,446 shares held by FVR, 29,762 shares held by FEP6 and 792
shares held by KPP. Mr. Mocarski has shared voting and investment power with
respect to such shares in his capacity as Senior Vice President of FVR, as
Senior Vice President of Fleet Growth Resources II, Inc., an indirect
subsidiary of Fleet Financial Group and a general partner of FEP6, and as a
general partner of KPP. Mr. Mocarski disclaims beneficial ownership of all
such shares, except to the extent of his pecuniary interest therein.
80
<PAGE>
DESCRIPTION OF CERTAIN INDEBTEDNESS
RUS/RTB FACILITY
Dobson Telephone is a party to loan agreements with the United States of
America, Rural Utilities Services ("RUS") and the Rural Telephone Bank ("RTB")
pursuant to which the RUS and RTB have agreed to loan the Company an aggregate
maximum of $75 million at any time outstanding (the "RUS/ RTB Facility"). At
March 31, 1998, the aggregate outstanding principal balance of these loans was
$28.4 million. The loans bear interest at annual rates varying from 2% to
10 3/4% and with scheduled maturities until 2028.
No loans under the RUS/RTB Facility may mature after May 2043. All advances
under the RUS/RTB Facility are secured by substantially all of Dobson
Telephone's assets, including its licenses and other intangible assets.
The RUS/RTB Facility contains covenants which, among other things, require
prior approval of the applicable lending agencies before Dobson Telephone can
declare or pay dividends, make distributions to or investments in affiliates or
stockholders or redeem its capital stock, unless after such payments, Dobson
Telephone's current assets equal or exceed current liabilities and its adjusted
net worth meets specified requirements. In addition, the RUS/RTB Facility limits
Dobson Telephone's ability to merge or consolidate or sell its assets or enter
into any contracts for the operation or maintenance of its property for use by
others or for toll traffic, operator assistance, extended scope or switching
services to be furnished by or for connecting or other companies other than
contracts generally used in the telephone industry. Dobson Telephone is
restricted from advancing payments or loans to any stockholders or affiliates,
other than for certain wireline related investments unless if after such
investment, the aggregate of investments does not exceed one-third of Dobson
Telephone's net worth and its net worth is at least 20% of its total assets.
The RUS/RTB Facility also provides that while Dobson Telephone's adjusted
net worth is less than 10% of its total assets, Dobson Telephone is restricted
from increasing salaries of officers or directors without the prior consent of
the majority of the noteholders. In addition, if retained earnings decrease as a
result of operations, Dobson Telephone must increase its charges for telephone
service or execute a plan for reducing expenses, each with the approval of the
noteholders. Dobson Telephone is also required to maintain a ratio of net income
or net margins plus interest expense of 1.50 to 1.
Failure to satisfy any of the covenants constitutes an event of default
under the RUS/RTB Facility permitting the applicable lending agencies to
accelerate payment of the outstanding indebtedness or sell or take possession of
the mortgaged property notwithstanding Dobson Telephone's ability to meet its
debt obligations. In the event of a default in the payment of principal or
interest on the outstanding indebtedness, if in the opinion of the holders of a
majority of outstanding indebtedness, Dobson Telephone's operations are not
being efficiently operated, the Company may be required to terminate operating
contracts or the employment of certain managers. The RUS/RTB Facility also
contains certain other events of default, including forfeiture of permits or
licenses required to carry on a material portion of its business, and customary
events of default, including, without limitation, material undischarged
judgments and bankruptcy.
81
<PAGE>
DESCRIPTION OF THE NOTES
The Old Notes were issued under an Indenture dated as of June 12, 1998
between the Company, as issuer, and United States Trust Company of New York (the
"Trustee"). A copy of the Indenture is available upon request from the Company.
The New Notes will be issued under the Indenture, which will be qualified under
the Trust Indenture Act of 1939, as amended (the "Trust Indenture Act"), upon
effectiveness of the Registration Statement of which this Prospectus is a part.
The form and terms of the New Notes are identical in all material respects to
the form and terms of the Old Notes except that the New Notes will be registered
under the Securities Act and, therefore, will not bear legends restricting a
transfer thereof. Upon consummation of the Exchange Offer, holders of the Notes
will not be entitled to registration rights under, or the contingent increase in
interest rate provided pursuant to, the Old Notes. The New Notes will evidence
the same debt as the Old Notes and will be treated as a single class under the
Indenture with any Old Notes that remain outstanding. The Old Notes and New
Notes are herein collectively referred to as the "Notes."
The terms of the Notes include those stated in the Indenture and those made
part of the Indenture by reference to the Trust Indenture Act as in effect on
the date of the Indenture. The Notes are subject to all such terms and
references made to the Indenture and the Trust Indenture Act for a statement
thereof. A copy of the Indenture has been filed with the Commission as an
exhibit to the Registration Statement of which this Prospectus is a part. The
following summary of certain provisions of the Indenture does not purport to be
complete and is subject to, and is qualified in its entirety by reference to,
all the provisions of the Indenture, including the definitions of certain terms
therein and those terms made a part thereof by reference to the Trust Indenture
Act. Whenever particular defined terms of the Indenture not otherwise defined
herein are referred to, such defined terms are incorporated herein by reference.
For definitions of certain capitalized terms used in the following summary, see
"--Certain Definitions."
GENERAL
The Notes will be unsecured (except to the extent described under
"--Security") unsubordinated obligations of the Company, initially limited to
$350 million aggregate principal amount, and will mature on June 15, 2008. Each
Note will bear interest at the rate shown on the front cover of this Prospectus
from the Closing Date or from the most recent Interest Payment Date to which
interest has been paid or provided for, payable semiannually (to Holders of
record at the close of business on the June 1 or December 1 immediately
preceding the Interest Payment Date) on June 15 and December 15 of each year,
commencing December 15, 1998. Interest will be computed on the basis of a
360-day year of twelve 30-day months.
If by the date that is six months after the Closing Date, the Company has
not consummated a registered exchange offer for the Notes or caused a shelf
registration statement with respect to resales of the Notes to be declared
effective, the interest rate on the Notes shall be increased by .5% per annum
until the consummation of a registered exchange offer or the effectiveness of a
shelf registration statement. See "--Registration Rights."
Principal of, premium, if any, and interest on the Notes will be payable,
and the Notes may be exchanged or transferred, at the office or agency of the
Company in the Borough of Manhattan, the City of New York (which initially will
be the corporate trust office of the Trustee at 114 W. 47th Street, New York,
New York 10036); provided that, at the option of the Company, payment of
interest may be made by check mailed to the Holders at their addresses as they
appear in the Security Register.
The Notes will be issued only in fully registered form, without coupons, in
denominations of $1,000 of principal amount and any integral multiple thereof.
See "--Book-Entry; Delivery and Form." No service charge will be made for any
registration of transfer or exchange of Notes, but the Company may require
payment of a sum sufficient to cover any transfer tax or other similar
governmental charge payable in connection therewith.
82
<PAGE>
Subject to the covenants described below under "Covenants" and applicable
law, the Company may issue additional Notes under the Indenture. The Notes
offered hereby and any additional Notes subsequently issued would be treated as
a single class for all purposes of the Indenture.
OPTIONAL REDEMPTION
The Notes will be redeemable, at the Company's option, in whole or in part,
at any time or from time to time, on or after June 15, 2003 and prior to
maturity, upon not less than 30 nor more than 60 days' prior notice mailed by
first class mail to each Holder's last address as it appears in the Security
Register, at the Redemption Prices (expressed in percentages of principal
amount) set forth below, plus accrued and unpaid interest to the Redemption Date
(subject to the right of Holders of record on the relevant Regular Record Date
that is prior to the Redemption Date to receive interest due on an Interest
Payment Date), if redeemed during the 12-month period commencing June 15 of the
years set forth below:
<TABLE>
<CAPTION>
YEAR REDEMPTION PRICE
- -------------------------------------------------------------------------------- ----------------
<S> <C>
2003............................................................................ 106.125%
2004............................................................................ 104.083
2005............................................................................ 102.042
2006 and thereafter............................................................. 100.000
</TABLE>
In addition, at any time prior to June 15, 2001, the Company may redeem up
to 35% of the aggregate principal amount of the Notes with the Net Cash Proceeds
of one or more sales of Capital Stock of the Company (other than Disqualified
Stock), at any time as a whole or from time to time in part, at a Redemption
Price (expressed as a percentage of principal amount) of 112.250%, plus accrued
and unpaid interest; PROVIDED that at least 65% of the aggregate principal
amount of the Notes originally issued on the Closing Date remains outstanding
after each such redemption and notice of any such redemption is mailed within 60
days after the related sale of Capital Stock.
In the case of any partial redemption, selection of the Notes for redemption
will be made by the Trustee in compliance with the requirements of the principal
national securities exchange, if any, on which the Notes are listed or, if the
Notes are not listed on a national securities exchange, by lot or by such other
method as the Trustee in its sole discretion shall deem to be fair and
appropriate; PROVIDED that no Note of $1,000 in principal amount or less shall
be redeemed in part. If any Note is to be redeemed in part only, the notice of
redemption relating to such Note shall state the portion of the principal amount
thereof to be redeemed. A new Note in principal amount equal to the unredeemed
portion thereof will be issued in the name of the Holder thereof upon
cancellation of the original Note.
SECURITY
Immediately prior to the closing of the Offering, the Company entered into
an escrow and security agreement (the "Escrow and Security Agreement") with the
Placement Agents and The United States Trust Company of New York, escrow agent
(in such capacity, the "Escrow Agent"), pursuant to which the Company, on the
Closing Date, deposited with the Escrow Agent the net proceeds from the Offering
which were pledged to the Trustee for the benefit of the Holders of the Notes to
secure the payment of principal, premium if any, and interest on the Notes.
The escrowed proceeds which remain subject to the Escrow and Security
Agreement have been invested in Pledged Securities held in a Pledge Account. The
Pledged Securities consist of U.S. Government obligations having scheduled
interest and principal payments which exceed the amount sufficient, in the
opinion of a nationally recognized firm of independent public accountants
selected by the Company, to provide for payment in full of the first six
scheduled interest payments due on all Notes then outstanding.
83
<PAGE>
Pursuant to the Escrow and Security Agreement, immediately prior to an
Interest Payment Date, the Company may either deposit with the Trustee from
funds otherwise available to the Company cash sufficient to pay the interest
scheduled to be paid on such date or the Company may direct the Trustee to
release from the Pledge Account proceeds sufficient to pay interest then due on
the Notes. In the event the Company exercises the former option, the Company may
direct the Trustee to release a like amount of proceeds from the Pledge Account.
A failure to pay interest on the Notes in a timely manner through the first six
scheduled interest payment dates will constitute an immediate Event of Default
under the Indenture, with no grace or cure period. The Pledged Securities and
Pledge Account will also secure the repayments of the principal amount and
premium on the Notes.
Under the Escrow and Security Agreement, once the Company makes the first
six scheduled interest payments on the Notes, all of the remaining Pledged
Securities, if any, will be released from the Pledge Account and thereafter the
Notes will be unsecured.
SINKING FUND
There are no sinking fund payments for the Notes.
RANKING
The Notes are unsubordinated indebtedness of Dobson Wireline Company, and
will rank PARI PASSU in right of payment with all existing and future
unsubordinated indebtedness of Dobson Wireline Company and senior in right of
payment to all subordinated indebtedness of Dobson Wireline Company. After
giving PRO FORMA effect to the American Telco Acquisition and the Offering, as
of March 31, 1998, the Company would have had (on an unconsolidated basis) no
indebtedness outstanding other than the Notes. In addition, Dobson Wireline
Company is a holding company and the Notes will be effectively subordinated to
all existing and future liabilities (including trade payables) of the Company's
subsidiaries. As of March 31, 1998, on the same pro forma basis, the
subsidiaries of the Company would have had approximately $38.7 million of
liabilities (excluding intercompany payables), including approximately $28.4
million of indebtedness, all of which indebtedness would have been secured. See
"Risk Factors-- Leverage; Ability to Meet Required Debt Service."
CERTAIN DEFINITIONS
Set forth below is a summary of certain of the defined terms used in the
covenants and other provisions of the Indenture. Reference is made to the
Indenture for the definition of any other capitalized term used herein for which
no definition is provided.
"Acquired Indebtedness" means Indebtedness of a Person existing at the time
such Person becomes a Restricted Subsidiary or assumed in connection with an
Asset Acquisition by a Restricted Subsidiary and not Incurred in connection
with, or in anticipation of, such Person becoming a Restricted Subsidiary or
such Asset Acquisition.
"Adjusted Consolidated Net Income" means, for any period, the aggregate net
income (or loss) of the Company and its Restricted Subsidiaries for such period
determined in conformity with GAAP; PROVIDED that the following items shall be
excluded in computing Adjusted Consolidated Net Income (without duplication):
(i) the net income (or loss) of any Person that is not a Restricted Subsidiary,
except (x) with respect to net income, to the extent of the amount of dividends
or other distributions actually paid to the Company or any of its Restricted
Subsidiaries by such Person during such period and (y) with respect to net
losses, to the extent of the amount of Investments made by the Company or any
Restricted Subsidiary in such Person during such period; (ii) solely for the
purposes of calculating the amount of Restricted Payments that may be made
pursuant to clause (C) of the first paragraph of the "Limitation on Restricted
Payments" covenant described below (and in such case, except to the extent
includable pursuant to clause (i) above), the net income (or loss) of any Person
accrued prior to the date it becomes a Restricted
84
<PAGE>
Subsidiary or is merged into or consolidated with the Company or any of its
Restricted Subsidiaries or all or substantially all of the property and assets
of such Person are acquired by the Company or any of its Restricted
Subsidiaries; (iii) the net income of any Restricted Subsidiary to the extent
that the declaration or payment of dividends or similar distributions by such
Restricted Subsidiary of such net income is not at the time permitted by the
operation of the terms of its charter or any agreement, instrument, judgment,
decree, order, statute, rule or governmental regulation applicable to such
Restricted Subsidiary; (iv) any gains or losses (on an after-tax basis)
attributable to Asset Sales; (v) except for purposes of calculating the amount
of Restricted Payments that may be made pursuant to clause (C) of the first
paragraph of the "Limitation on Restricted Payments" covenant described below,
any amount paid or accrued as dividends on Preferred Stock of the Company or any
Restricted Subsidiary owned by Persons other than the Company and any of its
Restricted Subsidiaries; (vi) all extraordinary gains and extraordinary losses,
net of tax; and (vii) any compensation expense paid or payable solely with
Capital Stock (other than Disqualified Stock) of the Company or any options,
warrants or other rights to acquire Capital Stock (other than Disqualified
Stock) of the Company.
"Adjusted Consolidated Net Tangible Assets" means the total amount of assets
of the Company and its Restricted Subsidiaries (less applicable depreciation,
amortization and other valuation reserves), except to the extent resulting from
write-ups of capital assets (excluding write-ups in connection with accounting
for acquisitions in conformity with GAAP), after deducting therefrom (i) all
current liabilities of the Company and its Restricted Subsidiaries (excluding
intercompany items) and (ii) all goodwill, trade names, trademarks, patents,
unamortized debt discount and expense and other like intangibles, all as set
forth on the most recent quarterly or annual consolidated balance sheet of the
Company and its Restricted Subsidiaries, prepared in conformity with GAAP and
filed with the Commission.
"Affiliate" means, as applied to any Person, any other Person directly or
indirectly controlling, controlled by, or under direct or indirect common
control with, such Person. For purposes of this definition, "control"
(including, with correlative meanings, the terms "controlling," "controlled by"
and "under common control with"), as applied to any Person, means the
possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of such Person, whether through the
ownership of voting securities, by contract or otherwise.
"Asset Acquisition" means (i) an investment by the Company or any of its
Restricted Subsidiaries in any other Person pursuant to which such Person shall
become a Restricted Subsidiary or shall be merged into or consolidated with the
Company or any of its Restricted Subsidiaries; PROVIDED that such Person's
primary business is related, ancillary or complementary to the businesses of the
Company and its Restricted Subsidiaries on the date of such investment or (ii)
an acquisition by the Company or any of its Restricted Subsidiaries of the
property and assets of any Person other than the Company or any of its
Restricted Subsidiaries that constitute substantially all of a division or line
of business of such Person; provided that the property and assets acquired are
related, ancillary or complementary to the businesses of the Company and its
Restricted Subsidiaries on the date of such acquisition.
"Asset Disposition" means the sale or other disposition by the Company or
any of its Restricted Subsidiaries (other than to the Company or another
Restricted Subsidiary) of (i) all or substantially all of the Capital Stock of
any Restricted Subsidiary or (ii) all or substantially all of the assets that
constitute a division or line of business of the Company or any of its
Restricted Subsidiaries.
"Asset Sale" means any sale, transfer or other disposition (including by way
of merger, consolidation or sale-leaseback transaction) in one transaction or a
series of related transactions by the Company or any of its Restricted
Subsidiaries to any Person other than the Company or any of its Restricted
Subsidiaries of (i) all or any of the Capital Stock of any Restricted
Subsidiary, (ii) all or substantially all of the property and assets of an
operating unit or business of the Company or any of its Restricted Subsidiaries
or (iii) any other property and assets (other than the Capital Stock or other
Investment in an Unrestricted Subsidiary) of the Company or any of its
Restricted Subsidiaries outside the ordinary course of business of the
85
<PAGE>
Company or such Restricted Subsidiary and, in each case, that is not governed by
the provisions of the Indenture applicable to mergers, consolidations and sales
of all or substantially all of the assets of the Company; PROVIDED that "Asset
Sale" shall not include (a) sales or other dispositions of inventory,
receivables and other current assets, (b) sales, transfers or other dispositions
of assets constituting a Restricted Payment permitted to be made under the
"Limitation on Restricted Payments" covenant, (c) sales, transfers or other
dispositions of assets with a fair market value (as certified in an Officers'
Certificate) not in excess of $10 million in any transaction or series of
related transactions, or (d) sales or other dispositions of assets for
consideration at least equal to the fair market value of the assets sold or
disposed of, to the extent that the consideration received consists of property
or assets (other than current assets) of a nature or type or that are used in a
business (or a company having property or assets of a nature or type, or engaged
in a business) similar or related to the nature or type of the property and
assets of, or business of, the Company and its Restricted Subsidiaries existing
on the date of such sale or other disposition.
"Average Life" means, at any date of determination with respect to any debt
security, the quotient obtained by dividing (i) the sum of the products of (a)
the number of years from such date of determination to the dates of each
successive scheduled principal payment of such debt security and (b) the amount
of such principal payment by (ii) the sum of all such principal payments.
"Capital Stock" means, with respect to any Person, any and all shares,
interests, participations or other equivalents (however designated, whether
voting or non-voting) in equity of such Person, whether outstanding on the
Closing Date or issued thereafter, including, without limitation, all Common
Stock and Preferred Stock.
"Capitalized Lease" means, as applied to any Person, any lease of any
property (whether real, personal or mixed) of which the discounted present value
of the rental obligations of such Person as lessee, in conformity with GAAP, is
required to be capitalized on the balance sheet of such Person.
"Capitalized Lease Obligations" means the discounted present value of the
rental obligations under a Capitalized Lease.
"Change of Control" means such time as (i) (a) prior to the occurrence of a
Public Market, a "person" or "group" (within the meaning of Section 13(d) or
14(d)(2) under the Exchange Act) becomes the ultimate "beneficial owner" (as
defined in Rule 13d-3 under the Exchange Act) of Voting Stock representing a
greater percentage of the total voting power of the Voting Stock of (x) Dobson
Communications, on a fully diluted basis, than is beneficially owned by Everett
R. Dobson and the Fleet Investors and their Affiliates on such date or (y) the
Company, on a fully diluted basis, than is beneficially owned by the Existing
Stockholders on such date and (b) after the occurrence of a Public Market, a
"person" or "group" (within the meaning of Section 13(d) or 14(d)(2) under the
Exchange Act) becomes the ultimate "beneficial owner" (as defined in Rule 13d-3
under the Exchange Act) of more than 35% of the total voting power of the Voting
Stock of the Company on a fully diluted basis and such ownership represents a
greater percentage of the total voting power of the Voting Stock of the Company,
on a fully diluted basis, than is held by the Existing Stockholders on such
date; or (ii) individuals who on the Closing Date constitute the Board of
Directors (together with any new directors (x) whose election by the Board of
Directors or whose nomination by the Board of Directors for election by the
Company's stockholders was approved by a vote of at least a majority of the
members of the Board of Directors then in office who either were members of the
Board of Directors on the Closing Date or whose election or nomination for
election was previously so approved or (y) so long as no "person" or "group"
(within the meaning of Section 13(d) or 14(d)(2) under the Exchange Act) becomes
the ultimate "beneficial owner" (as defined in Rule 13d-3 under the Exchange
Act) of a greater percentage of the total voting power of the Voting Stock of
Dobson Communications, on a fully diluted basis, than is held by Everett R.
Dobson and the Fleet Investors and their Affiliates on such date, whose election
was approved by Dobson Communications) cease for any reason to constitute a
majority of the members of the Board of Directors then in office.
86
<PAGE>
"Closing Date" means the date on which the Notes are originally issued under
the Indenture.
"Common Stock" means, with respect to any Person, any and all shares,
interests, participations or other equivalents (however designated, whether
voting or non voting) of such Person's equity, other than Preferred Stock of
such Person, whether outstanding on the Closing Date or issued thereafter,
including without limitation, all series and classes of such common stock.
"Consolidated EBITDA" means, for any period, Adjusted Consolidated Net
Income for such period plus, to the extent such amount was deducted in
calculating such Adjusted Consolidated Net Income, (i) Consolidated Interest
Expense, (ii) income taxes (other than income taxes (either positive or
negative) attributable to extraordinary and non-recurring gains or losses or
sales of assets), (iii) depreciation expense, (iv) amortization expense and (v)
all other non-cash items reducing Adjusted Consolidated Net Income (other than
items that will require cash payments and for which an accrual or reserve is, or
is required by GAAP to be, made), less all non-cash items increasing Adjusted
Consolidated Net Income, all as determined on a consolidated basis for the
Company and its Restricted Subsidiaries in conformity with GAAP; PROVIDED that,
if any Restricted Subsidiary is not a Wholly Owned Restricted Subsidiary,
Consolidated EBITDA shall be reduced (to the extent not otherwise reduced in
accordance with GAAP) by an amount equal to (A) the amount of the Adjusted
Consolidated Net Income attributable to such Restricted Subsidiary multiplied by
(B) the percentage ownership interest in the income of such Restricted
Subsidiary not owned on the last day of such period by the Company or any of its
Restricted Subsidiaries.
"Consolidated Interest Expense" means, for any period, the aggregate amount
of interest in respect of Indebtedness (including, without limitation,
amortization of original issue discount on any Indebtedness and the interest
portion of any deferred payment obligation, calculated in accordance with the
effective interest method of accounting; all commissions, discounts and other
fees and charges owed with respect to letters of credit and bankers' acceptance
financing; the net costs associated with Interest Rate Agreements; and
Indebtedness that is Guaranteed or secured by the Company or any of its
Restricted Subsidiaries) and all but the principal component of rentals in
respect of Capitalized Lease Obligations paid, accrued or scheduled to be paid
or to be accrued by the Company and its Restricted Subsidiaries during such
period; EXCLUDING, HOWEVER, (i) any amount of such interest of any Restricted
Subsidiary if the net income of such Restricted Subsidiary is excluded in the
calculation of Adjusted Consolidated Net Income pursuant to clause (iii) of the
definition thereof (but only in the same proportion as the net income of such
Restricted Subsidiary is excluded from the calculation of Adjusted Consolidated
Net Income pursuant to clause (iii) of the definition thereof) and (ii) any
premiums, fees and expenses (and any amortization thereof) payable in connection
with the offering of the Notes, all as determined on a consolidated basis
(without taking into account Unrestricted Subsidiaries) in conformity with GAAP.
"Consolidated Leverage Ratio" means, on any Transaction Date, the ratio of
(i) the aggregate amount of Indebtedness of the Company and its Restricted
Subsidiaries on a consolidated basis outstanding on such Transaction Date to
(ii) the aggregate amount of Consolidated EBITDA for the then most recent four
fiscal quarters for which financial statements of the Company have been filed
with the Commission (such four fiscal quarter period being the "Four Quarter
Period"); PROVIDED that, in making the foregoing calculation, (A) PRO FORMA
effect shall be given to any Indebtedness that is to be Incurred or repaid on
the Transaction Date as if such Incurrence or repayment had occurred on the
first day of such Four Quarter Period; (B) PRO FORMA effect shall be given to
Asset Dispositions and Asset Acquisitions (including giving PRO FORMA effect to
the application of proceeds of any Asset Disposition) that occur during the
period beginning on the first day of the Four Quarter Period and ending on the
Transaction Date (the "Reference Period"), as if they had occurred and such
proceeds had been applied on the first day of such Reference Period; and (C) PRO
FORMA effect shall be given to asset dispositions and asset acquisitions
(including giving PRO FORMA effect to the application of proceeds of any asset
disposition) that have been made by any Person that has become a Restricted
Subsidiary or has been merged with or into the Company or any Restricted
Subsidiary during such Reference Period and that would have constituted Asset
Dispositions or Asset Acquisitions had such transactions occurred when such
Person was a Restricted Subsidiary as if such asset
87
<PAGE>
dispositions or asset acquisitions were Asset Dispositions or Asset Acquisitions
that occurred on the first day of such Reference Period; PROVIDED that to the
extent that clause (B) or (C) of this sentence requires that PRO FORMA effect be
given to an Asset Acquisition or Asset Disposition, such PRO FORMA calculation
shall be based upon the four full fiscal quarters immediately preceding the
Transaction Date of the Person, or division or line of business of the Person,
that is acquired or disposed of for which financial information is available.
"Consolidated Net Worth" means, at any date of determination, stockholders'
equity as set forth on the most recently available quarterly or annual
consolidated balance sheet of the Company and its Restricted Subsidiaries (which
shall be as of a date not more than 90 days prior to the date of such
computation, and which shall not take into account Unrestricted Subsidiaries),
less any amounts attributable to Disqualified Stock or any equity security
convertible into or exchangeable for Indebtedness, the cost of treasury stock
and the principal amount of any promissory notes receivable from the sale of the
Capital Stock of the Company or any of its Restricted Subsidiaries, each item to
be determined in conformity with GAAP (excluding the effects of foreign currency
exchange adjustments under Financial Accounting Standards Board Statement of
Financial Accounting Standards No. 52).
"Currency Agreement" means any foreign exchange contract, currency swap
agreement or other similar agreement or arrangement.
"Default" means any event that is, or after notice or passage of time or
both would be, an Event of Default.
"Disqualified Stock" means any class or series of Capital Stock of any
Person that by its terms or otherwise is (i) required to be redeemed prior to
the Stated Maturity of the Notes, (ii) redeemable at the option of the holder of
such class or series of Capital Stock at any time prior to the Stated Maturity
of the Notes or (iii) convertible into or exchangeable for Capital Stock
referred to in clause (i) or (ii) above or Indebtedness having a scheduled
maturity prior to the Stated Maturity of the Notes; PROVIDED that any Capital
Stock that would not constitute Disqualified Stock but for provisions thereof
giving holders thereof the right to require such Person to repurchase or redeem
such Capital Stock upon the occurrence of an "asset sale" or "change of control"
occurring prior to the Stated Maturity of the Notes shall not constitute
Disqualified Stock if the "asset sale" or "change of control" provisions
applicable to such Capital Stock are no more favorable to the holders of such
Capital Stock than the provisions contained in "Limitation on Asset Sales" and
"Repurchase of Notes upon a Change of Control" covenants described below and
such Capital Stock, or the agreements or instruments governing the redemption
rights thereof, specifically provides that such Person will not repurchase or
redeem any such stock pursuant to such provision prior to the Company's
repurchase of such Notes as are required to be repurchased pursuant to the
"Limitation on Asset Sales" and "Repurchase of Notes upon a Change of Control"
covenants described below.
"Dobson Communications" means Dobson Communications Corporation, an Oklahoma
corporation.
"Existing Stockholders" means (i) Everett R. Dobson and the Fleet Investors
and their respective Affiliates and (ii) Dobson Communications, so long as no
"person" or "group" (within the meaning of Section 13(d) or 14(d)(2) under the
Exchange Act) becomes the ultimate "beneficial owner" (as defined in Rule 13d-3
under the Exchange Act) of more than 35% of the total voting power of the Voting
Stock of Dobson Communications on a fully diluted basis and such ownership
represents a greater percentage of the total voting power of the Voting Stock of
Dobson Communications, on a fully diluted basis than is held by the Existing
Stockholders in clause (i) on such date.
"fair market value" means the price that would be paid in an arm's-length
transaction between an informed and willing seller under no compulsion to sell
and an informed and willing buyer under no compulsion to buy, as determined in
good faith by the Board of Directors, whose determination shall be conclusive if
evidenced by a Board Resolution; PROVIDED that for purposes of clause (viii) of
the second paragraph of the "Limitation on Indebtedness" covenant, (x) the fair
market value of any security
88
<PAGE>
registered under the Exchange Act shall be the average of the closing prices,
regular way, of such security for the 20 consecutive trading days immediately
preceding the sale of Capital Stock and (y) in the event the aggregate fair
market value of any other property (other than cash or cash equivalents)
received by the Company exceeds $10 million, the fair market value of such
property shall be determined by a nationally recognized investment banking firm
and set forth in their written opinion which shall be delivered to the Trustee.
"Fleet Investors" means Fleet Venture Resources, Inc., Fleet Equity Partners
VI, L.P. and Kennedy Plaza Partners.
"Fleet Investors Capital Stock" means the capital stock of the Company
issued to the Fleet Investors in connection with a spin-off of the Company by
Dobson Communications.
"GAAP" means generally accepted accounting principles in the United States
of America as in effect as of the Closing Date, including, without limitation,
those set forth in the opinions and pronouncements of the Accounting Principles
Board of the American Institute of Certified Public Accountants and statements
and pronouncements of the Financial Accounting Standards Board or in such other
statements by such other entity as approved by a significant segment of the
accounting profession. All ratios and computations contained or referred to in
the Indenture shall be computed in conformity with GAAP applied on a consistent
basis, except that calculations made for purposes of determining compliance with
the terms of the covenants and with other provisions of the Indenture shall be
made without giving effect to (i) the amortization of any expenses incurred in
connection with the offering of the Notes and (ii) except as otherwise provided,
the amortization of any amounts required or permitted by Accounting Principles
Board Opinion Nos. 16 and 17.
"Government Securities" means direct obligations of, obligations fully
guaranteed by, or participations in pools consisting of obligations of or
obligations guaranteed by, the United States of America for the payment of which
guarantee or obligations the full faith and credit of the United States of
America is pledged and which are not callable or redeemable at the option of the
issuer thereof.
"Guarantee" means any obligation, contingent or otherwise, of any Person
directly or indirectly guaranteeing any Indebtedness of any other Person and,
without limiting the generality of the foregoing, any obligation, direct or
indirect, contingent or otherwise, of such Person (i) to purchase or pay (or
advance or supply funds for the purchase or payment of) such Indebtedness of
such other Person (whether arising by virtue of partnership arrangements, or by
agreements to keep-well, to purchase assets, goods, securities or services
(unless such purchase arrangements are on arm's-length terms and are entered
into in the ordinary course of business), to take-or-pay, or to maintain
financial statement conditions or otherwise) or (ii) entered into for purposes
of assuring in any other manner the obligee of such Indebtedness of the payment
thereof or to protect such obligee against loss in respect thereof (in whole or
in part); PROVIDED that the term "Guarantee" shall not include endorsements for
collection or deposit in the ordinary course of business. The term "Guarantee"
used as a verb has a corresponding meaning.
"Incur" means, with respect to any Indebtedness, to incur, create, issue,
assume, Guarantee or otherwise become liable for or with respect to, or become
responsible for, the payment of, contingently or otherwise, such Indebtedness,
including an "Incurrence" of Indebtedness by reason of a Person becoming a
Restricted Subsidiary; PROVIDED that neither the accrual of interest nor the
accretion of original issue discount shall be considered an Incurrence of
Indebtedness.
"Indebtedness" means, with respect to any Person at any date of
determination (without duplication), (i) all indebtedness of such Person for
borrowed money, (ii) all obligations of such Person evidenced by bonds,
debentures, notes or other similar instruments, (iii) all obligations of such
Person in respect of letters of credit or other similar instruments (including
reimbursement obligations with respect thereto, but excluding obligations with
respect to letters of credit (including trade letters of credit) securing
obligations (other than obligations described in (i) or (ii) above or (v), (vi)
or (vii) below) entered into in the ordinary
89
<PAGE>
course of business of such Person to the extent such letters of credit are not
drawn upon or, if drawn upon, to the extent such drawing is reimbursed no later
than the third Business Day following receipt by such Person of a demand for
reimbursement), (iv) all obligations of such Person to pay the deferred and
unpaid purchase price of property or services, which purchase price is due more
than six months after the date of placing such property in service or taking
delivery and title thereto or the completion of such services, except Trade
Payables, (v) all obligations of such Person as lessee under Capitalized Leases,
(vi) all Indebtedness of other Persons secured by a Lien on any asset of such
Person, whether or not such Indebtedness is assumed by such Person; provided
that the amount of such Indebtedness shall be the lesser of (A) the fair market
value of such asset at such date of determination and (B) the amount of such
Indebtedness, (vii) all Indebtedness of other Persons Guaranteed by such Person
to the extent such Indebtedness is Guaranteed by such Person and (viii) to the
extent not otherwise included in this definition, obligations under Currency
Agreements and Interest Rate Agreements. The amount of Indebtedness of any
Person at any date shall be the outstanding balance at such date (or, in the
case of a revolving credit or other similar facility, the total amount of funds
outstanding and/or available on the date of determination) of all unconditional
obligations as described above and, with respect to contingent obligations, the
maximum liability upon the occurrence of the contingency giving rise to the
obligation, provided (A) that the amount outstanding at any time of any
Indebtedness issued with original issue discount is the face amount of such
Indebtedness less the unamortized portion of the original issue discount of such
Indebtedness at the time of its issuance as determined in conformity with GAAP,
(B) that money borrowed and set aside at the time of the Incurrence of any
Indebtedness in order to prefund the payment of the interest on such
Indebtedness shall not be deemed to be "Indebtedness" so long as such money is
held to secure the payment of such interest and (C) that Indebtedness shall not
include any liability for federal, state, local or other taxes.
"Interest Rate Agreement" means any interest rate protection agreement,
interest rate future agreement, interest rate option agreement, interest rate
swap agreement, interest rate cap agreement, interest rate collar agreement,
interest rate hedge agreement, option or future contract or other similar
agreement or arrangement.
"Investment" in any Person means any direct or indirect advance, loan or
other extension of credit (including, without limitation, by way of Guarantee or
similar arrangement; but excluding advances to customers in the ordinary course
of business that are, in conformity with GAAP, recorded as accounts receivable
on the balance sheet of the Company or its Restricted Subsidiaries) or capital
contribution to (by means of any transfer of cash or other property to others or
any payment for property or services for the account or use of others), or any
purchase or acquisition of Capital Stock, bonds, notes, debentures or other
similar instruments issued by, such Person and shall include (i) the designation
of a Restricted Subsidiary as an Unrestricted Subsidiary and (ii) the fair
market value of the Capital Stock (or any other Investment), held by the Company
or any of its Restricted Subsidiaries, of (or in) any Person that has ceased to
be a Restricted Subsidiary, including without limitation, by reason of any
transaction permitted by clause (iii) of the "Limitation on the Issuance and
Sale of Capital Stock of Restricted Subsidiaries" covenant. For purposes of the
definition of "Unrestricted Subsidiary" and the "Limitation on Restricted
Payments" covenant described below, (i) "Investment" shall include the fair
market value of the assets (net of liabilities (other than liabilities to the
Company or any of its Restricted Subsidiaries)) of any Restricted Subsidiary at
the time that such Restricted Subsidiary is designated an Unrestricted
Subsidiary, (ii) the fair market value of the assets (net of liabilities (other
than liabilities to the Company or any of its Restricted Subsidiaries)) of any
Unrestricted Subsidiary at the time that such Unrestricted Subsidiary is
designated a Restricted Subsidiary shall be considered a reduction in
outstanding Investments and (iii) any property transferred to or from an
Unrestricted Subsidiary shall be valued at its fair market value at the time of
such transfer.
90
<PAGE>
"Lien" means any mortgage, pledge, security interest, encumbrance, lien or
charge of any kind (including, without limitation, any conditional sale or other
title retention agreement or lease in the nature thereof or any agreement to
give any security interest).
"Moody's" means Moody's Investors Service, Inc. and its successors.
"Net Cash Proceeds" means, (a) with respect to any Asset Sale, the proceeds
of such Asset Sale in the form of cash or cash equivalents, including payments
in respect of deferred payment obligations (to the extent corresponding to the
principal, but not interest, component thereof) when received in the form of
cash or cash equivalents (except to the extent such obligations are financed or
sold with recourse to the Company or any Restricted Subsidiary) and proceeds
from the conversion of other property received when converted to cash or cash
equivalents, net of (i) brokerage commissions and other fees and expenses
(including fees and expenses of counsel and investment bankers) related to such
Asset Sale, (ii) provisions for all taxes (whether or not such taxes will
actually be paid or are payable) as a result of such Asset Sale without regard
to the consolidated results of operations of the Company and its Restricted
Subsidiaries, taken as a whole, (iii) payments made to repay Indebtedness or any
other obligation outstanding at the time of such Asset Sale that either (A) is
secured by a Lien on the property or assets sold or (B) is required to be paid
as a result of such sale and (iv) appropriate amounts to be provided by the
Company or any Restricted Subsidiary as a reserve against any liabilities
associated with such Asset Sale, including, without limitation, pension and
other post-employment benefit liabilities, liabilities related to environmental
matters and liabilities under any indemnification obligations associated with
such Asset Sale, all as determined in conformity with GAAP and (b) with respect
to any issuance or sale of Capital Stock, the proceeds of such issuance or sale
in the form of cash or cash equivalents, including payments in respect of
deferred payment obligations (to the extent corresponding to the principal, but
not interest, component thereof) when received in the form of cash or cash
equivalents (except to the extent such obligations are financed or sold with
recourse to the Company or any Restricted Subsidiary) and proceeds from the
conversion of other property received when converted to cash or cash
equivalents, net of attorney's fees, accountants' fees, underwriters' or
placement agents' fees, discounts or commissions and brokerage, consultant and
other fees incurred in connection with such issuance or sale and net of taxes
paid or payable as a result thereof.
"Offer to Purchase" means an offer by the Company to purchase Notes from the
Holders commenced by mailing a notice to the Trustee and each Holder stating:
(i) the covenant pursuant to which the offer is being made and that all Notes
validly tendered will be accepted for payment on a pro rata basis; (ii) the
purchase price and the date of purchase (which shall be a Business Day no
earlier than 30 days nor later than 60 days from the date such notice is mailed)
(the "Payment Date"); (iii) that any Note not tendered will continue to accrue
interest pursuant to its terms; (iv) that, unless the Company defaults in the
payment of the purchase price, any Note accepted for payment pursuant to the
Offer to Purchase shall cease to accrue interest on and after the Payment Date;
(v) that Holders electing to have a Note purchased pursuant to the Offer to
Purchase will be required to surrender the Note, together with the form entitled
"Option of the Holder to Elect Purchase" on the reverse side of the Note
completed, to the Paying Agent at the address specified in the notice prior to
the close of business on the Business Day immediately preceding the Payment
Date; (vi) that Holders will be entitled to withdraw their election if the
Paying Agent receives, not later than the close of business on the third
Business Day immediately preceding the Payment Date, a telegram, facsimile
transmission or letter setting forth the name of such Holder, the principal
amount of Notes delivered for purchase and a statement that such Holder is
withdrawing his election to have such Notes purchased; and (vii) that Holders
whose Notes are being purchased only in part will be issued new Notes equal in
principal amount to the unpurchased portion of the Notes surrendered; PROVIDED
that each Note purchased and each new Note issued shall be in a principal amount
of $1,000 or an integral multiple thereof. On the Payment Date, the Company
shall (i) accept for payment on a pro rata basis Notes or portions thereof
validly tendered pursuant to an Offer to Purchase; (ii) deposit
91
<PAGE>
with the Paying Agent money sufficient to pay the purchase price of all Notes or
portions thereof so accepted; and (iii) deliver, or cause to be delivered, to
the Trustee all Notes or portions thereof so accepted together with an Officers'
Certificate specifying the Notes or portions thereof accepted for payment by the
Company. The Paying Agent shall promptly mail to the Holders of Notes so
accepted payment in an amount equal to the purchase price, and the Trustee shall
promptly authenticate and mail to such Holders a new Note equal in principal
amount to any unpurchased portion of the Note surrendered; PROVIDED that each
Note purchased and each new Note issued shall be in a principal amount of $1,000
or an integral multiple thereof. The Company will publicly announce the results
of an Offer to Purchase as soon as practicable after the Payment Date. The
Trustee shall act as the Paying Agent for an Offer to Purchase. The Company will
comply with Rule 14e-1 under the Exchange Act and any other securities laws and
regulations thereunder to the extent such laws and regulations are applicable,
in the event that the Company is required to repurchase Notes pursuant to an
Offer to Purchase.
"Permitted Investment" means (i) an Investment in the Company or a
Restricted Subsidiary or a Person which will, upon the making of such
Investment, become a Restricted Subsidiary or be merged or consolidated with or
into or transfer or convey all or substantially all its assets to, the Company
or a Restricted Subsidiary; PROVIDED that such person's primary business is
related, ancillary or complementary to the businesses of the Company and its
Restricted Subsidiaries on the date of such Investment; (ii) Temporary Cash
Investments; (iii) payroll, travel and similar advances to cover matters that
are expected at the time of such advances ultimately to be treated as expenses
in accordance with GAAP; (iv) stock, obligations or securities received in
satisfaction of judgments; (v) Investments in prepaid expenses, negotiable
instruments held for collection and lease, utility and worker's compensation,
performance and other similar deposits; (vi) Interest Rate Agreements and
Currency Agreements designed solely to protect the Company or its Restricted
Subsidiaries against fluctuations in interest rates or foreign currency exchange
rates; and (vii) loans or advances to officers or employees of the Company or of
any Restricted Subsidiary that do not in the aggregate exceed $2 million at any
time outstanding.
"Permitted Liens" means (i) Liens for taxes, assessments, governmental
charges or claims that are being contested in good faith by appropriate legal
proceedings promptly instituted and diligently conducted and for which a reserve
or other appropriate provision, if any, as shall be required in conformity with
GAAP shall have been made; (ii) statutory and common law Liens of landlords and
carriers, warehousemen, mechanics, suppliers, materialmen, repairmen or other
similar Liens arising in the ordinary course of business and with respect to
amounts not yet delinquent or being contested in good faith by appropriate legal
proceedings promptly instituted and diligently conducted and for which a reserve
or other appropriate provision, if any, as shall be required in conformity with
GAAP shall have been made; (iii) Liens incurred or deposits made in the ordinary
course of business in connection with workers' compensation, unemployment
insurance and other types of social security; (iv) Liens incurred or deposits
made to secure the performance of tenders, bids, leases, statutory or regulatory
obligations, bankers' acceptances, surety and appeal bonds, government
contracts, performance and return-of-money bonds and other obligations of a
similar nature incurred in the ordinary course of business (exclusive of
obligations for the payment of borrowed money); (v) easements, rights-of-way,
municipal and zoning ordinances and similar charges, encumbrances, title defects
or other irregularities that do not materially interfere with the ordinary
course of business of the Company or any of its Restricted Subsidiaries; (vi)
Liens (including extensions and renewals thereof) upon real or personal property
(including intangibles) acquired after the Closing Date; PROVIDED that (a) such
Lien is created solely for the purpose of securing Indebtedness Incurred, in
accordance with the "Limitation on Indebtedness" covenant described below, (1)
to finance the cost (including the cost of design, development, acquisition,
construction, installation, improvement, transportation or integration) of the
item of property or assets subject thereto and such Lien is created prior to, at
the time of or within six months after the later of the acquisition, the
completion of construction or the commencement of full operation of such
property or (2) to refinance any Indebtedness previously so secured, (b) the
principal amount of the Indebtedness secured by such Lien does not exceed
92
<PAGE>
100% of such cost and (c) any such Lien shall not extend to or cover any
property or assets other than such item of property or assets and any
improvements on such item; (vii) leases or subleases granted to others that do
not materially interfere with the ordinary course of business of the Company and
its Restricted Subsidiaries, taken as a whole; (viii) Liens encumbering property
or assets under construction arising from progress or partial payments by a
customer of the Company or its Restricted Subsidiaries relating to such property
or assets; (ix) any interest or title of a lessor in the property subject to any
Capitalized Lease or operating lease; (x) Liens arising from filing Uniform
Commercial Code financing statements regarding leases; (xi) Liens on property
of, or on shares of Capital Stock or Indebtedness of, any Person existing at the
time such Person becomes, or becomes a part of, any Restricted Subsidiary;
PROVIDED that such Liens do not extend to or cover any property or assets of the
Company or any Restricted Subsidiary other than the property or assets acquired;
(xii) Liens in favor of the Company or any Restricted Subsidiary; (xiii) Liens
arising from the rendering of a final judgment or order against the Company or
any Restricted Subsidiary that does not give rise to an Event of Default; (xiv)
Liens securing reimbursement obligations with respect to letters of credit that
encumber documents and other property relating to such letters of credit and the
products and proceeds thereof; (xv) Liens in favor of customs and revenue
authorities arising as a matter of law to secure payment of customs duties in
connection with the importation of goods; (xvi) Liens encumbering customary
initial deposits and margin deposits, and other Liens that are within the
general parameters customary in the industry and incurred in the ordinary course
of business, in each case, securing Indebtedness under Interest Rate Agreements
and Currency Agreements and forward contracts, options, future contracts,
futures options or similar agreements or arrangements designed solely to protect
the Company or any of its Restricted Subsidiaries from fluctuations in interest
rates, currencies or the price of commodities; (xvii) Liens arising out of
conditional sale, title retention, consignment or similar arrangements for the
sale of goods entered into by the Company or any of its Restricted Subsidiaries
in the ordinary course of business in accordance with the past practices of the
Company and its Restricted Subsidiaries prior to the Closing Date; (xviii) Liens
on or sales of receivables; and (xix) Liens that secure Indebtedness with an
aggregate principal amount not in excess of $5 million at any time outstanding.
"Pledge Account" means an account established with the Trustee pursuant to
the terms of the Escrow and Security Agreement for the deposit of the Pledged
Securities to be purchased by the Company with the net proceeds from the Notes.
"Pledged Securities" means the Government Securities to be purchased by the
Company and held in the Pledge Account in accordance with the Escrow and
Security Agreement.
"Preferred Stock" means, with respect to any Person, any and all shares,
interests, participations or other equivalents (however designated, whether
voting or non voting) of such Person's preferred or preference equity, whether
outstanding on the Closing Date or issued thereafter, including, without
limitation, all series and classes of such preferred stock or preference stock.
"Public Equity Offering" means an underwritten primary public offering of
Common Stock of the Company pursuant to an effective registration statement
under the Securities Act.
A "Public Market" shall be deemed to exist if (i) a Public Equity Offering
has been consummated and (ii) at least 15% of the total issued and outstanding
Common Stock of the Company has been distributed by means of an effective
registration statement under the Securities Act or sales pursuant to Rule 144
under the Securities Act.
"Restricted Subsidiary" means any Subsidiary of the Company other than an
Unrestricted Subsidiary.
"Significant Subsidiary" means, at any date of determination, any Restricted
Subsidiary that, together with its Subsidiaries, (i) for the most recent fiscal
year of the Company, accounted for more than 10% of the consolidated revenues of
the Company and its Restricted Subsidiaries or (ii) as of the end of such fiscal
93
<PAGE>
year, was the owner of more than 10% of the consolidated assets of the Company
and its Restricted Subsidiaries, all as set forth on the most recently available
consolidated financial statements of the Company for such fiscal year.
"S&P" means Standard & Poor's Ratings Services and its successors.
"Stated Maturity" means, (i) with respect to any debt security, the date
specified in such debt security as the fixed date on which the final installment
of principal of such debt security is due and payable and (ii) with respect to
any scheduled installment of principal of or interest on any debt security, the
date specified in such debt security as the fixed date on which such installment
is due and payable.
"Strategic Subordinated Indebtedness" means Indebtedness of the Company
Incurred to finance an Asset Acquisition, which Indebtedness by its terms, or by
the terms of any agreement or instrument pursuant to which such Indebtedness is
Incurred, (i) is expressly made subordinate in right of payment to the Notes and
(ii) provides that no payment of principal, premium or interest on, or any other
payment with respect to, such Indebtedness may be made prior to the payment in
full of all of the Company's obligations under the Notes; PROVIDED that such
Indebtedness may provide for and be repaid at any time from the proceeds of a
capital contribution or the sale of Capital Stock (other than Disqualified
Stock) of the Company after the Incurrence of such Indebtedness.
"Subsidiary" means, with respect to any Person, any corporation, association
or other business entity of which more than 50% of the voting power of the
outstanding Voting Stock is owned, directly or indirectly, by such Person and
one or more other Subsidiaries of such Person.
"Temporary Cash Investment" means any of the following: (i) direct
obligations of the United States of America or any agency thereof or obligations
fully and unconditionally guaranteed by the United States of America or any
agency thereof, (ii) time deposit accounts, certificates of deposit and money
market deposits maturing within one year of the date of acquisition thereof
issued by a bank or trust company which is organized under the laws of the
United States of America, any state thereof or any foreign country recognized by
the United States of America, and which bank or trust company has capital,
surplus and undivided profits aggregating in excess of $50 million (or the
foreign currency equivalent thereof) and has outstanding debt which is rated "A"
(or such similar equivalent rating) or higher by at least one nationally
recognized statistical rating organization (as defined in Rule 436 under the
Securities Act) or any money-market fund sponsored by a registered broker dealer
or mutual fund distributor, (iii) repurchase obligations with a term of not more
than 30 days for underlying securities of the types described in clause (i)
above entered into with a bank meeting the qualifications described in clause
(ii) above, (iv) commercial paper, maturing not more than one year after the
date of acquisition, issued by a corporation (other than an Affiliate of the
Company) organized and in existence under the laws of the United States of
America, any state thereof or any foreign country recognized by the United
States of America with a rating at the time as of which any investment therein
is made of "P-1" (or higher) according to Moody's or "A-1" (or higher) according
to S&P, and (v) securities with maturities of six months or less from the date
of acquisition issued or fully and unconditionally guaranteed by any state,
commonwealth or territory of the United States of America, or by any political
subdivision or taxing authority thereof, and rated at least "A" by S&P or
Moody's.
94
<PAGE>
"Trade Payables" means, with respect to any Person, any accounts payable or
any other indebtedness or monetary obligation to trade creditors created,
assumed or Guaranteed by such Person or any of its Subsidiaries arising in the
ordinary course of business in connection with the acquisition of goods or
services.
"Transaction Date" means, with respect to the Incurrence of any Indebtedness
by the Company or any of its Restricted Subsidiaries, the date such Indebtedness
is to be Incurred and, with respect to any Restricted Payment, the date such
Restricted Payment is to be made.
"Unrestricted Subsidiary" means (i) any Subsidiary of the Company that at
the time of determination shall be designated an Unrestricted Subsidiary by the
Board of Directors in the manner provided below; and (ii) any Subsidiary of an
Unrestricted Subsidiary. The Board of Directors may designate any Restricted
Subsidiary (including any newly acquired or newly formed Subsidiary of the
Company) to be an Unrestricted Subsidiary unless such Subsidiary owns any
Capital Stock of, or owns or holds any Lien on any property of, the Company or
any Restricted Subsidiary; PROVIDED that (A) any Guarantee by the Company or any
Restricted Subsidiary of any Indebtedness of the Subsidiary being so designated
shall be deemed an "Incurrence" of such Indebtedness and an "Investment" by the
Company or such Restricted Subsidiary (or both, if applicable) at the time of
such designation; (B) either (I) the Subsidiary to be so designated has total
assets of $1,000 or less or (II) if such Subsidiary has assets greater than
$1,000, such designation would be permitted under the "Limitation on Restricted
Payments" covenant described below and (C) if applicable, the Incurrence of
Indebtedness and the Investment referred to in clause (A) of this proviso would
be permitted under the "Limitation on Indebtedness" and "Limitation on
Restricted Payments" covenants described below. The Board of Directors may
designate any Unrestricted Subsidiary to be a Restricted Subsidiary; PROVIDED
that (i) no Default or Event of Default shall have occurred and be continuing at
the time of or after giving effect to such designation and (ii) all Liens and
Indebtedness of such Unrestricted Subsidiary outstanding immediately after such
designation would, if Incurred at such time, have been permitted to be Incurred
(and shall be deemed to have been Incurred) for all purposes of the Indenture.
Any such designation by the Board of Directors shall be evidenced to the Trustee
by promptly filing with the Trustee a copy of the Board Resolution giving effect
to such designation and an Officers' Certificate certifying that such
designation complied with the foregoing provisions.
"Voting Stock" means with respect to any Person, Capital Stock of any class
or kind ordinarily having the power to vote for the election of directors,
managers or other voting members of the governing body of such Person.
"Wholly Owned" means, with respect to any Subsidiary of any Person, the
ownership of all of the outstanding Capital Stock of such Subsidiary (other than
any director's qualifying shares or Investments by foreign nationals mandated by
applicable law) by such Person or one or more Wholly Owned Subsidiaries of such
Person.
COVENANTS
The Indenture contains, among others, the following covenants.
LIMITATION ON INDEBTEDNESS
(a) The Company will not, and will not permit any of its Restricted
Subsidiaries to, Incur any Indebtedness (other than the Notes and Indebtedness
existing on the Closing Date); PROVIDED that the Company may Incur Indebtedness,
if, after giving effect to the Incurrence of such Indebtedness and the receipt
and application of the proceeds therefrom, the Consolidated Leverage Ratio would
be greater than zero and less than 6:1.
Notwithstanding the foregoing, the Company and any Restricted Subsidiary
(except as specified below) may Incur each and all of the following: (i)
Indebtedness outstanding at any time in an aggregate
95
<PAGE>
principal amount not to exceed $250 million, less any amount of such
Indebtedness permanently repaid as provided under the "Limitation on Asset
Sales" covenant described below; (ii) Indebtedness owed (A) to the Company
evidenced by a promissory note or (B) to any of its Restricted Subsidiaries;
PROVIDED that any event which results in any such Restricted Subsidiary ceasing
to be a Restricted Subsidiary or any subsequent transfer of such Indebtedness
(other than to the Company or another Restricted Subsidiary) shall be deemed, in
each case, to constitute an Incurrence of such Indebtedness not permitted by
this clause (ii); (iii) Indebtedness issued in exchange for, or the net proceeds
of which are used to refinance or refund, then outstanding Indebtedness, (other
than Indebtedness Incurred under clause (i), (ii), (iv), (vi), (viii) or (xi) of
this paragraph) and any refinancings thereof in an amount not to exceed the
amount so refinanced or refunded (plus premiums, accrued interest, fees and
expenses); PROVIDED that Indebtedness the proceeds of which are used to
refinance or refund the Notes or Indebtedness that is PARI PASSU with, or
subordinated in right of payment to, the Notes shall only be permitted under
this clause (iii) if (A) in case the Notes are refinanced in part or the
Indebtedness to be refinanced is PARI PASSU with the Notes, such new
Indebtedness, by its terms or by the terms of any agreement or instrument
pursuant to which such new Indebtedness is outstanding, is expressly made PARI
PASSU with, or subordinate in right of payment to, the remaining Notes, (B) in
case the Indebtedness to be refinanced is subordinated in right of payment to
the Notes, such new Indebtedness, by its terms or by the terms of any agreement
or instrument pursuant to which such new Indebtedness is issued or remains
outstanding, is expressly made subordinate in right of payment to the Notes at
least to the extent that the Indebtedness to be refinanced is subordinated to
the Notes and (C) such new Indebtedness, determined as of the date of Incurrence
of such new Indebtedness, does not mature prior to the Stated Maturity of the
Indebtedness to be refinanced or refunded, and the Average Life of such new
Indebtedness is at least equal to the remaining Average Life of the Indebtedness
to be refinanced or refunded; and PROVIDED FURTHER that in no event may
Indebtedness of the Company be refinanced by means of any Indebtedness of any
Restricted Subsidiary pursuant to this clause (iii); (iv) Indebtedness (A) in
respect of performance, surety or appeal bonds provided in the ordinary course
of business, (B) under Currency Agreements and Interest Rate Agreements;
PROVIDED that such agreements (a) are designed solely to protect the Company or
its Subsidiaries against fluctuations in foreign currency exchange rates or
interest rates and (b) do not increase the Indebtedness of the obligor
outstanding at any time other than as a result of fluctuations in foreign
currency exchange rates or interest rates or by reason of fees, indemnities and
compensation payable thereunder; or (C) arising from agreements providing for
indemnification, adjustment of purchase price or similar obligations, or from
Guarantees or letters of credit, surety bonds or performance bonds securing any
obligations of the Company or any of its Restricted Subsidiaries pursuant to
such agreements, in any case Incurred in connection with the disposition of any
business, assets or Restricted Subsidiary (other than Guarantees of Indebtedness
Incurred by any Person acquiring all or any portion of such business, assets or
Restricted Subsidiary for the purpose of financing such acquisition), in a
principal amount not to exceed the gross proceeds actually received by the
Company or any Restricted Subsidiary in connection with such disposition; (v)
Indebtedness of the Company, to the extent the net proceeds thereof are promptly
(A) used to purchase Notes tendered in an Offer to Purchase made as a result of
a Change in Control or (B) deposited to defease the Notes as described below
under "Defeasance"; (vi) Guarantees of the Notes and Guarantees of Indebtedness
of the Company by any Restricted Subsidiary provided the Guarantee of such
Indebtedness is permitted by and made in accordance with the "Limitation on
Issuance of Guarantees by Restricted Subsidiaries" covenant described below;
(vii) Indebtedness (including Guarantees) Incurred to finance the cost
(including the cost of design, development, acquisition, construction,
installation, improvement, transportation or integration) to acquire equipment,
inventory or network assets (including acquisitions by way of Capitalized Lease
and acquisitions of the Capital Stock of a Person that becomes a Restricted
Subsidiary to the extent of the fair market value of the equipment, inventory or
network assets so acquired) by the Company or a Restricted Subsidiary after the
Closing Date; (viii) Indebtedness of the Company not to exceed, at any one time
outstanding, two times (A) the Net Cash Proceeds received by the Company after
the Closing Date as a capital contribution or from the issuance and sale of its
Capital Stock (other than Disqualified Stock) to a Person that is not a
Subsidiary of the Company, to the extent (I) such capital contribution or Net
Cash
96
<PAGE>
Proceeds have not been used pursuant to clause (C)(2) of the first paragraph or
clause (iii), (iv), (vi) or (vii) of the second paragraph of the "Limitation on
Restricted Payments" covenant described below to make a Restricted Payment; and
(II) if such capital contribution or Net Cash Proceeds are used to consummate a
transaction pursuant to which the Company Incurs Acquired Indebtedness, the
amount of such Net Cash Proceeds exceeds one-half of the amount of Acquired
Indebtedness so Incurred and (B) 80% of the fair market value of property (other
than cash and cash equivalents) received by the Company after the Closing Date
from the sale of its Capital Stock (other than Disqualified Stock) to a Person
that is not a Subsidiary of the Company, to the extent (I) such capital
contribution or sale of Capital Stock has not been used pursuant to clause
(iii), (iv), (vi) or (vii) of the second paragraph of the "Limitation on
Restricted Payments" covenant described below to make a Restricted Payment and
(II) if such capital contribution or Capital Stock is used to consummate a
transaction pursuant to which the Company Incurs Acquired Indebtedness, 80% of
the fair market value of the property received exceeds one-half of the amount of
Acquired Indebtedness so Incurred PROVIDED that such Indebtedness does not
mature prior to the Stated Maturity of the Notes and has an Average Life longer
than the Notes; (ix) Acquired Indebtedness; (x) Strategic Subordinated
Indebtedness; and (xi) subordinated Indebtedness of the Company (in addition to
Indebtedness permitted under clauses (i) through (x) above) in an aggregate
principal amount outstanding at any time not to exceed $30 million, less any
amount of such Indebtedness permanently repaid as provided under the "Limitation
on Asset Sales" covenant described below.
(b) Notwithstanding any other provision of this "Limitation on Indebtedness"
covenant, the maximum amount of Indebtedness that the Company or a Restricted
Subsidiary may Incur pursuant to this "Limitation on Indebtedness" covenant
shall not be deemed to be exceeded, with respect to any outstanding Indebtedness
due solely to the result of fluctuations in the exchange rates of currencies.
(c) For purposes of determining any particular amount of Indebtedness under
this "Limitation on Indebtedness" covenant, (1) Guarantees, Liens or obligations
with respect to letters of credit supporting Indebtedness otherwise included in
the determination of such particular amount shall not be included and (2) any
Liens granted pursuant to the equal and ratable provisions referred to in the
"Limitation on Liens" covenant described below shall not be treated as
Indebtedness. For purposes of determining compliance with this "Limitation on
Indebtedness" covenant, in the event that an item of Indebtedness meets the
criteria of more than one of the types of Indebtedness described in the above
clauses, the Company, in its sole discretion, shall classify, and from time to
time may reclassify, such item of Indebtedness and only be required to include
the amount and type of such Indebtedness in one of such clauses.
LIMITATION ON RESTRICTED PAYMENTS
The Company will not, and will not permit any Restricted Subsidiary to,
directly or indirectly, (i) declare or pay any dividend or make any distribution
on or with respect to its Capital Stock (other than (x) dividends or
distributions payable solely in shares of its Capital Stock (other than
Disqualified Stock) or in options, warrants or other rights to acquire shares of
such Capital Stock and (y) PRO RATA dividends or distributions on Common Stock
of Restricted Subsidiaries held by minority stockholders) held by Persons other
than the Company or any of its Restricted Subsidiaries, (ii) purchase, redeem,
retire or otherwise acquire for value any shares of Capital Stock of (A) the
Company or an Unrestricted Subsidiary (including options, warrants or other
rights to acquire such shares of Capital Stock) held by any Person or (B) a
Restricted Subsidiary (including options, warrants or other rights to acquire
such shares of Capital Stock) held by any Affiliate of the Company (other than a
Wholly Owned Restricted Subsidiary) or any holder (or any Affiliate of such
holder) of 5% or more of the Capital Stock of the Company, (iii) make any
voluntary or optional principal payment, or voluntary or optional redemption,
repurchase, defeasance, or other acquisition or retirement for value, of
Indebtedness of the Company that is subordinated in right of payment to the
Notes or (iv) make any Investment, other than a Permitted Investment, in any
Person (such payments or any other actions described in clauses (i) through (iv)
above being collectively "Restricted
97
<PAGE>
Payments") if, at the time of, and after giving effect to, the proposed
Restricted Payment: (A) a Default or Event of Default shall have occurred and be
continuing, (B) the Company could not Incur at least $1.00 of Indebtedness under
the first paragraph of the "Limitation on Indebtedness" covenant or (C) the
aggregate amount of all Restricted Payments (the amount, if other than in cash,
to be determined in good faith by the Board of Directors, whose determination
shall be conclusive and evidenced by a Board Resolution) made after the Closing
Date shall exceed the sum of (1) 50% of the aggregate amount of the Adjusted
Consolidated Net Income (or, if the Adjusted Consolidated Net Income is a loss,
minus 100% of the amount of such loss) (determined by excluding income resulting
from transfers of assets by the Company or a Restricted Subsidiary to an
Unrestricted Subsidiary) accrued on a cumulative basis during the period (taken
as one accounting period) beginning on the first day of the fiscal quarter
immediately following the Closing Date and ending on the last day of the last
fiscal quarter preceding the Transaction Date for which reports have been filed
with the Commission PLUS (2) the aggregate Net Cash Proceeds received by the
Company after the Closing Date as a capital contribution or from the issuance
and sale permitted by the Indenture of its Capital Stock (other than
Disqualified Stock) to a Person who is not a Subsidiary of the Company,
including an issuance or sale permitted by the Indenture of Indebtedness of the
Company for cash subsequent to the Closing Date upon the conversion of such
Indebtedness into Capital Stock (other than Disqualified Stock) of the Company,
or from the issuance to a Person who is not a Subsidiary of the Company of any
options, warrants or other rights to acquire Capital Stock of the Company (in
each case, exclusive of any Disqualified Stock or any options, warrants or other
rights that are redeemable at the option of the holder, or are required to be
redeemed, prior to the Stated Maturity of the Notes), in each case except to the
extent such Net Cash Proceeds are used to Incur Indebtedness pursuant to clause
(viii) of the second paragraph under the "Limitation on Indebtedness" covenant,
PLUS (3) an amount equal to the net reduction in Investments (other than
reductions in Permitted Investments) in any Person resulting from payments of
interest on Indebtedness, dividends, repayments of loans or advances, or other
transfers of assets, in each case to the Company or any Restricted Subsidiary or
from the Net Cash Proceeds from the sale of any such Investment (except, in each
case, to the extent any such payment or proceeds are included in the calculation
of Adjusted Consolidated Net Income), or from redesignations of Unrestricted
Subsidiaries as Restricted Subsidiaries (valued in each case as provided in the
definition of "Investments"), not to exceed, in each case, the amount of
Investments previously made by the Company or any Restricted Subsidiary in such
Person or Unrestricted Subsidiary.
The foregoing provision shall not be violated by reason of: (i) the payment
of any dividend within 60 days after the date of declaration thereof if, at said
date of declaration, such payment would comply with the foregoing paragraph;
(ii) the redemption, repurchase, defeasance or other acquisition or retirement
for value of Indebtedness that is subordinated in right of payment to the Notes
including premium, if any, and accrued and unpaid interest, with the proceeds
of, or in exchange for, Indebtedness Incurred under clause (iii) of the second
paragraph of part (a) of the "Limitation on Indebtedness" covenant; (iii) the
repurchase, redemption or other acquisition of Capital Stock of the Company or
an Unrestricted Subsidiary (or options, warrants or other rights to acquire such
Capital Stock) in exchange for, or out of the proceeds of a capital contribution
or a substantially concurrent offering of, shares of Capital Stock (other than
Disqualified Stock) of the Company (or options, warrants or other rights to
acquire such Capital Stock); (iv) the making of any principal payment or the
repurchase, redemption, retirement, defeasance or other acquisition for value of
Indebtedness of the Company which is subordinated in right of payment to the
Notes in exchange for, or out of the proceeds of, a capital contribution or a
substantially concurrent offering of, shares of the Capital Stock (other than
Disqualified Stock) of the Company (or options, warrants or other rights to
acquire such Capital Stock); (v) payments or distributions, to dissenting
stockholders pursuant to applicable law, pursuant to or in connection with a
consolidation, merger or transfer of assets that complies with the provisions of
the Indenture applicable to mergers, consolidations and transfers of all or
substantially all of the property and assets of the Company; (vi) Investments in
any Person the primary business of which is related, ancillary or complementary
to the business of the Company and its Restricted Subsidiaries on the date of
such Investments; PROVIDED that the aggregate
98
<PAGE>
amount of Investments made pursuant to this clause (vi) does not exceed the sum
of (a) $25 million and (b) the amount of Net Cash Proceeds received by the
Company after the Closing Date as a capital contribution or from the sale of its
Capital Stock (other than Disqualified Stock) to a Person who is not a
Subsidiary of the Company, except to the extent such Net Cash Proceeds are used
to Incur Indebtedness pursuant to clause (viii) under the "Limitation on
Indebtedness" covenant or to make Restricted Payments pursuant to clause (C)(2)
of the first paragraph, or clauses (iii) or (iv) of this paragraph, of this
"Limitation on Restricted Payments" covenant, plus (z) the net reduction in
Investments made pursuant to this clause (vi) resulting from distributions on or
repayments of such Investments or from the Net Cash Proceeds from the sale of
any such Investment (except in each case to the extent any such payment or
proceeds is included in the calculation of Adjusted Consolidated Net Income) or
from such Person becoming a Restricted Subsidiary (valued in each case as
provided in the definition of "Investments"), PROVIDED that the net reduction in
any Investment shall not exceed the amount of such Investment; (vii) Investments
acquired in exchange for Capital Stock (other than Disqualified Stock) of the
Company; (viii) the declaration or payment of dividends on the Common Stock of
the Company following a Public Equity Offering of such Common Stock, of up to 6%
per annum of the Net Cash Proceeds received by the Company in such Public Equity
Offering; (ix) prior to the occurrence of a Public Market, the purchase,
redemption, retirement or other acquisition for value of shares of Capital Stock
of the Company, or options to purchase such shares, held by directors, employees
or officers, or former directors, employees or officers, of the Company or any
Restricted Subsidiary (or their estates or beneficiaries under their estates),
upon the death, disability, retirement, termination of employment or pursuant to
the terms of any agreement under which such shares of Capital Stock or options
were issued; PROVIDED that the aggregate consideration paid for such purchase,
redemption, retirement or other acquisition for value of such shares or options
after the Closing Date does not exceed $5 million in the aggregate (unless such
repurchases are made with the proceeds of insurance policies and the shares are
purchased from the executors, administrators, testamentary trustees, heirs,
legatees or beneficiaries); (x) transactions between the Company or any of its
Restricted Subsidiaries and Dobson Communications and its Subsidiaries (other
than the Company and its Subsidiaries) on a cost, rather than fair market value,
basis or on other terms of the kind customarily employed to allocate charges
among members of a consolidated group of entities, in any such case that are
fair and reasonable to the Company or such Restricted Subsidiary; (xi) in the
event of a spin-off of the Company by Dobson Communications, the purchase of
shares of Fleet Investors Capital Stock pursuant to the exercise of put rights
or mandatory redemption provisions; provided (a) after giving effect to any such
purchase the Consolidated Leverage Ratio would be less than 6.0 to 1 and (b) if
the event triggering the exercisability of the put rights or mandatory
redemption constitutes an Asset Sale or Change of Control, no such repurchase
shall be made prior to the Company's repurchase of such Notes as are required to
be repurchased pursuant to the "Limitation on Asset Sales" and "Repurchase of
Notes upon a Change of Control" covenants described below; (xii) the declaration
or payment of dividends on the Fleet Investors Capital Stock (a) if after giving
pro forma effect to any such dividend, the Consolidated Leverage Ratio would be
less than 5.0 to 1 or (b) following a Public Equity Offering of Capital Stock of
the Company provided (I) the Net Cash Proceeds received by the Company in such
Public Equity Offering is at least $90 million and (II) the aggregate amount of
dividends permitted to be made in any fiscal year of the Company under clause
(viii) and this clause (xii) shall not exceed 6% of the Net Cash Proceeds
received by the Company in the Public Equity Offering; and (xiii) other
Restricted Payments in an aggregate amount not to exceed $10 million; PROVIDED
that, except in the case of clauses (i) and (iii), no Default or Event of
Default shall have occurred and be continuing or occur as a consequence of the
actions or payments set forth therein.
Each Restricted Payment permitted pursuant to the preceding paragraph (other
than the Restricted Payment referred to in clause (ii) thereof and an exchange
of Capital Stock for Capital Stock or Indebtedness referred to in clause (iii)
or (iv) thereof), and the Net Cash Proceeds from any capital contribution or any
issuance of Capital Stock referred to in clauses (iii), (iv) and (vi), shall be
included in calculating whether the conditions of clause (C) of the first
paragraph of this "Limitation on Restricted
99
<PAGE>
Payments" covenant have been met with respect to any subsequent Restricted
Payments. In the event the proceeds of an issuance of Capital Stock of the
Company are used for the redemption, repurchase or other acquisition of the
Notes, or Indebtedness that is PARI PASSU with the Notes, then the Net Cash
Proceeds of such issuance shall be included in clause (C) of the first paragraph
of this "Limitation on Restricted Payments" covenant only to the extent such
proceeds are not used for such redemption, repurchase or other acquisition of
Indebtedness.
LIMITATION ON DIVIDEND AND OTHER PAYMENT RESTRICTIONS AFFECTING RESTRICTED
SUBSIDIARIES
The Company will not, and will not permit any Restricted Subsidiary to,
create or otherwise cause or suffer to exist or become effective any consensual
encumbrance or restriction of any kind on the ability of any Restricted
Subsidiary to (i) pay dividends or make any other distributions permitted by
applicable law on any Capital Stock of such Restricted Subsidiary owned by the
Company or any other Restricted Subsidiary, (ii) pay any Indebtedness owed to
the Company or any other Restricted Subsidiary, (iii) make loans or advances to
the Company or any other Restricted Subsidiary or (iv) transfer any of its
property or assets to the Company or any other Restricted Subsidiary.
The foregoing provisions shall not restrict any encumbrances or
restrictions: (i) existing on the Closing Date in the Indenture or any other
agreements in effect on the Closing Date, and any amendments, extensions,
refinancings, renewals or replacements of such agreements; PROVIDED that the
amendments, encumbrances and restrictions in any such extensions, refinancings,
renewals or replacements are no less favorable in any material respect to the
Holders than those encumbrances or restrictions that are then in effect and that
are being extended, refinanced, renewed or replaced; (ii) existing under or by
reason of applicable law; (iii) existing with respect to any Person or the
property or assets of such Person acquired by the Company or any Restricted
Subsidiary, existing at the time of such acquisition and not incurred in
contemplation thereof, which encumbrances or restrictions are not applicable to
any Person or the property or assets of any Person other than such Person or the
property or assets of such Person so acquired; (iv) in the case of clause (iv)
of the first paragraph of this "Limitation on Dividend and Other Payment
Restrictions Affecting Restricted Subsidiaries" covenant, (A) that restrict in a
customary manner the subletting, assignment or transfer of any property or asset
that is a lease, license, conveyance or contract or similar property or asset,
(B) existing by virtue of any transfer of, agreement to transfer, option or
right with respect to, or Lien on, any property or assets of the Company or any
Restricted Subsidiary not otherwise prohibited by the Indenture or (C) arising
or agreed to in the ordinary course of business, not relating to any
Indebtedness, and that do not, individually or in the aggregate, detract from
the value of property or assets of the Company or any Restricted Subsidiary in
any manner material to the Company or any Restricted Subsidiary; (v) with
respect to a Restricted Subsidiary and imposed pursuant to an agreement that has
been entered into for the sale or disposition of all or substantially all of the
Capital Stock of, or property and assets of, such Restricted Subsidiary; or (vi)
contained in the terms of any Indebtedness or any agreement pursuant to which
such Indebtedness was issued if (A) the encumbrance or restriction applies only
in the event of a payment default or a default with respect to a financial
covenant contained in such Indebtedness or agreement, (B) the encumbrance or
restriction is not materially more disadvantageous to the Holders of the Notes
than is customary in comparable financings (as determined by the Company) and
(C) the Company determines that any such encumbrance or restriction will not
materially affect the Company's ability to make principal or interest payments
on the Notes. Nothing contained in this "Limitation on Dividend and Other
Payment Restrictions Affecting Restricted Subsidiaries" covenant shall prevent
the Company or any Restricted Subsidiary from (1) creating, incurring, assuming
or suffering to exist any Liens otherwise permitted in the "Limitation on Liens"
covenant or (2) restricting the sale or other disposition of property or assets
of the Company or any of its Restricted Subsidiaries that secure Indebtedness of
the Company or any of its Restricted Subsidiaries.
100
<PAGE>
LIMITATION ON THE ISSUANCE AND SALE OF CAPITAL STOCK OF RESTRICTED SUBSIDIARIES
The Company will not sell, and will not permit any Restricted Subsidiary,
directly or indirectly, to issue or sell, any shares of Capital Stock of a
Restricted Subsidiary (including options, warrants or other rights to purchase
shares of such Capital Stock) except (i) to the Company or a Wholly Owned
Restricted Subsidiary; (ii) issuances of director's qualifying shares or sales
to foreign nationals of shares of Capital Stock of foreign Restricted
Subsidiaries, to the extent required by applicable law; (iii) if, immediately
after giving effect to such issuance or sale, such Restricted Subsidiary would
no longer constitute a Restricted Subsidiary and any Investment in such Person
remaining after giving effect to such issuance or sale would have been permitted
to be made under the "Limitation on Restricted Payments" covenant if made on the
date of such issuance or sale; or (iv) issuances or sales of Common Stock of a
Restricted Subsidiary; provided that the Company or such Restricted Subsidiary
applies the Net Cash Proceeds, if any, of any such sale in accordance with
clause (A) or (B) of the "Limitation on Asset Sales" covenant described below.
LIMITATION ON ISSUANCES OF GUARANTEES BY RESTRICTED SUBSIDIARIES
The Company will not permit any Restricted Subsidiary, directly or
indirectly, to Guarantee any Indebtedness of the Company which is PARI PASSU
with or subordinate in right of payment to the Notes ("Guaranteed
Indebtedness"), unless (i) such Restricted Subsidiary simultaneously executes
and delivers a supplemental indenture to the Indenture providing for a Guarantee
(a "Subsidiary Guarantee") of payment of the Notes by such Restricted Subsidiary
and (ii) such Restricted Subsidiary waives and will not in any manner whatsoever
claim or take the benefit or advantage of, any rights of reimbursement,
indemnity or subrogation or any other rights against the Company or any other
Restricted Subsidiary as a result of any payment by such Restricted Subsidiary
under its Subsidiary Guarantee; PROVIDED that this paragraph shall not be
applicable to any Guarantee of any Restricted Subsidiary that existed at the
time such Person became a Restricted Subsidiary and was not Incurred in
connection with, or in contemplation of, such Person becoming a Restricted
Subsidiary. If the Guaranteed Indebtedness is (A) PARI PASSU with the Notes,
then the Guarantee of such Guaranteed Indebtedness shall be PARI PASSU with, or
subordinated to, the Subsidiary Guarantee or (B) subordinated to the Notes, then
the Guarantee of such Guaranteed Indebtedness shall be subordinated to the
Subsidiary Guarantee at least to the extent that the Guaranteed Indebtedness is
subordinated to the Notes.
Notwithstanding the foregoing, any Subsidiary Guarantee by a Restricted
Subsidiary may provide by its terms that it shall be automatically and
unconditionally released and discharged upon (i) any sale, exchange or transfer,
to any Person not an Affiliate of the Company, of all of the Company's and each
Restricted Subsidiary's Capital Stock in, or all or substantially all the assets
of, such Restricted Subsidiary (which sale, exchange or transfer is not
prohibited by the Indenture) or (ii) the release or discharge of the Guarantee
which resulted in the creation of such Subsidiary Guarantee, except a discharge
or release by or as a result of payment under such Guarantee.
LIMITATION ON TRANSACTIONS WITH STOCKHOLDERS AND AFFILIATES
The Company will not, and will not permit any Restricted Subsidiary to,
directly or indirectly, enter into, renew or extend any transaction (including,
without limitation, the purchase, sale, lease or exchange of property or assets,
or the rendering of any service) with any holder (or any Affiliate of such
holder) of 5% or more of any class of Capital Stock of the Company or with any
Affiliate of the Company or any Restricted Subsidiary, except upon fair and
reasonable terms no less favorable to the Company or such Restricted Subsidiary
than could be obtained, at the time of such transaction or, if such transaction
is pursuant to a written agreement, at the time of the execution of the
agreement providing therefor, in a comparable arm's-length transaction with a
Person that is not such a holder or an Affiliate.
101
<PAGE>
The foregoing limitation does not limit, and shall not apply to (i)
transactions (A) approved by a majority of the disinterested members of the
Board of Directors or (B) for which the Company or a Restricted Subsidiary
delivers to the Trustee a written opinion of a nationally recognized investment
banking firm stating that the transaction is fair to the Company or such
Restricted Subsidiary from a financial point of view; (ii) any transaction
solely between the Company and any of its Wholly Owned Restricted Subsidiaries
or solely between Wholly Owned Restricted Subsidiaries; (iii) the payment of
reasonable and customary regular fees to directors of the Company who are not
employees of the Company; (iv) any payments or other transactions pursuant to
any tax-sharing agreement between the Company and any other Person with which
the Company files a consolidated tax return or with which the Company is part of
a consolidated group for tax purposes; or (v) any Restricted Payments not
prohibited by the "Limitation on Restricted Payments" covenant. Notwithstanding
the foregoing, any transaction or series of related transactions covered by the
first paragraph of this "Limitation on Transactions with Stockholders and
Affiliates" covenant and not covered by clauses (ii) through (v) of this
paragraph, the aggregate amount of which exceeds $1 million in value, must be
approved or determined to be fair in the manner provided for in clause (i)(A) or
(B) above.
LIMITATION ON LIENS
The Company will not, and will not permit any Restricted Subsidiary to,
create, incur, assume or suffer to exist any Lien on any of its assets or
properties of any character (including, without limitation, licenses), or any
shares of Capital Stock or Indebtedness of any Restricted Subsidiary, without
making effective provision for all of the Notes and all other amounts due under
the Indenture to be directly secured equally and ratably with (or, if the
obligation or liability to be secured by such Lien is subordinated in right of
payment to the Notes, prior to) the obligation or liability secured by such
Lien.
The foregoing limitation does not apply to (i) Liens existing on the Closing
Date; (ii) Liens granted after the Closing Date on any assets or Capital Stock
of the Company or its Restricted Subsidiaries created in favor of the Holders;
(iii) Liens with respect to the assets of a Restricted Subsidiary granted by
such Restricted Subsidiary to the Company or a Wholly Owned Restricted
Subsidiary to secure Indebtedness owing to the Company or such other Restricted
Subsidiary; (iv) Liens securing Indebtedness which is Incurred to refinance
secured Indebtedness which is permitted to be Incurred under clause (iii) of the
second paragraph of the "Limitation on Indebtedness" covenant; PROVIDED that
such Liens do not extend to or cover any property or assets of the Company or
any Restricted Subsidiary other than the property or assets securing the
Indebtedness being refinanced; (v) Liens on the Capital Stock of, or any
property or assets of, a Restricted Subsidiary securing Indebtedness of such
Restricted Subsidiary permitted under the "Limitation on Indebtedness" covenant;
(vi) Liens securing Indebtedness Incurred under clause (i) of the second
paragraph of the "Limitation on Indebtedness" covenant; or (vii) Permitted
Liens.
LIMITATION ON SALE-LEASEBACK TRANSACTIONS
The Company will not, and will not permit any Restricted Subsidiary to,
enter into any sale-leaseback transaction involving any of its assets or
properties whether now owned or hereafter acquired, whereby the Company or a
Restricted Subsidiary sells or transfers such assets or properties and then or
thereafter leases such assets or properties or any part thereof or any other
assets or properties which the Company or such Restricted Subsidiary, as the
case may be, intends to use for substantially the same purpose or purposes as
the assets or properties sold or transferred.
The foregoing restriction does not apply to any sale-leaseback transaction
if (i) the lease is for a period, including renewal rights, of not in excess of
three years; (ii) the lease secures or relates to industrial revenue or
pollution control bonds; (iii) the transaction is solely between the Company and
any Wholly Owned Restricted Subsidiary or solely between Wholly Owned Restricted
Subsidiaries; or (iv) the Company or such Restricted Subsidiary, within 12
months after the sale or transfer of any assets or properties is completed,
applies an amount not less than the net proceeds received from such sale in
102
<PAGE>
accordance with clause (A) or (B) of the first paragraph of the "Limitation on
Asset Sales" covenant described below.
LIMITATION ON ASSET SALES
The Company will not, and will not permit any Restricted Subsidiary to,
consummate any Asset Sale, unless (i) the consideration received by the Company
or such Restricted Subsidiary is at least equal to the fair market value of the
assets sold or disposed of and (ii) at least 85% of the consideration received
consists of cash or Temporary Cash Investments; PROVIDED, HOWEVER, that this
clause (ii) shall not apply to long-term assignments in capacity in a
telecommunications network. In the event and to the extent that the Net Cash
Proceeds received by the Company or any of its Restricted Subsidiaries from one
or more Asset Sales occurring on or after the Closing Date in any period of 12
consecutive months exceed 10% of Adjusted Consolidated Net Tangible Assets
(determined as of the date closest to the commencement of such 12-month period
for which a consolidated balance sheet of the Company and its Subsidiaries has
been filed with the Commission), then the Company shall or shall cause the
relevant Restricted Subsidiary to (i) within 12 months after the date Net Cash
Proceeds so received exceed 10% of Adjusted Consolidated Net Tangible Assets (A)
apply an amount equal to such excess Net Cash Proceeds to permanently repay
unsubordinated Indebtedness of the Company, or any Restricted Subsidiary
providing a Subsidiary Guarantee pursuant to the "Limitation on Issuances of
Guarantees by Restricted Subsidiaries" covenant described above or Indebtedness
of any other Restricted Subsidiary, in each case owing to a Person other than
the Company or any of its Restricted Subsidiaries or (B) invest an equal amount,
or the amount not so applied pursuant to clause (A) (or enter into a definitive
agreement committing to so invest within 12 months after the date of such
agreement), in property or assets (other than current assets) of a nature or
type or that are used in a business (or in a company having property and assets
of a nature or type, or engaged in a business) similar or related to the nature
or type of the property and assets of, or the business of, the Company and its
Restricted Subsidiaries existing on the date of such investment (as determined
in good faith by the Board of Directors, whose determination shall be conclusive
and evidenced by a Board Resolution) and (ii) apply (no later than the end of
the 12-month period referred to in clause (i)) such excess Net Cash Proceeds (to
the extent not applied pursuant to clause (i)) as provided in the following
paragraph of this "Limitation on Asset Sales" covenant. The amount of such
excess Net Cash Proceeds required to be applied (or to be committed to be
applied) during such 12-month period as set forth in clause (i) of the preceding
sentence and not applied as so required by the end of such period shall
constitute "Excess Proceeds."
If, as of the first day of any calendar month, the aggregate amount of
Excess Proceeds not theretofore subject to an Offer to Purchase pursuant to this
"Limitation on Asset Sales" covenant totals at least $5 million, the Company
must commence, not later than the fifteenth Business Day of such month, and
consummate an Offer to Purchase from the Holders on a PRO RATA basis an
aggregate principal amount of Notes equal to the Excess Proceeds on such date,
at a purchase price equal to 100% of the principal amount of the Notes, plus, in
each case, accrued interest to the Payment Date.
REPURCHASE OF NOTES UPON A CHANGE OF CONTROL
The Company must commence, within 30 days of the occurrence of a Change of
Control, and consummate an Offer to Purchase for all Notes then outstanding, at
a purchase price equal to 101% of the principal amount thereof, PLUS accrued
interest to the Payment Date.
There can be no assurance that the Company will have sufficient funds
available at the time of any Change of Control to make any debt payment
(including repurchases of Notes) required by the foregoing covenant (as well as
may be contained in other securities of the Company which might be outstanding
at the time). The above covenant requiring the Company to repurchase the Notes
will, unless consents are obtained, require the Company to repay all
indebtedness then outstanding which by its terms would prohibit such Note
repurchase, either prior to or concurrently with such Note repurchase.
103
<PAGE>
COMMISSION REPORTS AND REPORTS TO HOLDERS
At all times from and after the earlier of (i) the date of the commencement
of an Exchange Offer or the effectiveness of a Shelf Registration Statement (the
"Registration") and (ii) the date that is six months after the Closing Date, in
either case, whether or not the Company is then required to file reports with
the Commission, the Company shall file with the Commission all such reports and
other information as it would be required to file with the Commission by
Sections 13(a) or 15(d) under the Securities Exchange Act of 1934 if it were
subject thereto. The Company shall supply the Trustee and each Holder or shall
supply to the Trustee for forwarding to each such Holder, without cost to such
Holder, copies of such reports and other information. In addition, at all times
prior to the earlier of the date of the Registration and the date that is six
months after the Closing Date, the Company shall, at its cost, deliver to each
Holder of the Notes quarterly and annual reports substantially equivalent to
those which would be required by the Exchange Act. In addition, at all times
prior to the Registration, upon the request of any Holder or any prospective
purchaser of the Notes designated by a Holder, the Company shall supply to such
Holder or such prospective purchaser the information required under Rule 144A
under the Securities Act.
EVENTS OF DEFAULT
The following events are defined as "Events of Default" in the Indenture:
(a) default in the payment of principal of (or premium, if any, on) any Note
when the same becomes due and payable, upon acceleration, redemption or
otherwise; (b) default in the payment of interest on any Note when the same
becomes due and payable, and such default continues for a period of 30 days;
provided that a failure to make any of the first six scheduled interest payments
on the Notes on the applicable Interest Payment Date will constitute an Event of
Default with no grace or cure period; (c) default in the performance or breach
of the provisions of the Indenture applicable to mergers, consolidations and
transfers of all or substantially all of the assets of the Company or the
failure to make or consummate an Offer to Purchase in accordance with the
"Limitation on Asset Sales" or "Repurchase of Notes upon a Change of Control"
covenant; (d) the Company defaults in the performance of or breaches any other
covenant or agreement of the Company in the Indenture or under the Notes (other
than a default specified in clause (a), (b) or (c) above) and such default or
breach continues for a period of 30 consecutive days after written notice by the
Trustee or the Holders of 25% or more in aggregate principal amount of the
Notes; (e) there occurs with respect to any issue or issues of Indebtedness of
the Company or any Significant Subsidiary having an outstanding principal amount
of $5 million or more in the aggregate for all such issues of all such Persons,
whether such Indebtedness now exists or shall hereafter be created, (I) an event
of default that has caused the holder thereof to declare such Indebtedness to be
due and payable prior to its Stated Maturity and such Indebtedness has not been
discharged in full or such acceleration has not been rescinded or annulled
within 30 days of such acceleration and/or (II) the failure to make a principal
payment at the final (but not any interim) fixed maturity and such defaulted
payment shall not have been made, waived or extended within 30 days of such
payment default; (f) any final judgment or order (not covered by insurance) for
the payment of money in excess of $5 million in the aggregate for all such final
judgments or orders against all such Persons (treating any deductibles,
self-insurance or retention as not so covered) shall be rendered against the
Company or any Significant Subsidiary and shall not be paid or discharged, and
there shall be any period of 30 consecutive days following entry of the final
judgment or order that causes the aggregate amount for all such final judgments
or orders outstanding and not paid or discharged against all such Persons to
exceed $5 million during which a stay of enforcement of such final judgment or
order, by reason of a pending appeal or otherwise, shall not be in effect; (g) a
court having jurisdiction in the premises enters a decree or order for (A)
relief in respect of the Company or any Significant Subsidiary in an involuntary
case under any applicable bankruptcy, insolvency or other similar law now or
hereafter in effect, (B) appointment of a receiver, liquidator, assignee,
custodian, trustee, sequestrator or similar official of the Company or any
Significant Subsidiary or for all or substantially all of the property and
assets of the Company or any Significant Subsidiary or (C) the winding up or
liquidation of the affairs of
104
<PAGE>
the Company or any Significant Subsidiary and, in each case, such decree or
order shall remain unstayed and in effect for a period of 30 consecutive days;
(h) the Company or any Significant Subsidiary (A) commences a voluntary case
under any applicable bankruptcy, insolvency or other similar law now or
hereafter in effect, or consents to the entry of an order for relief in an
involuntary case under any such law, (B) consents to the appointment of or
taking possession by a receiver, liquidator, assignee, custodian, trustee,
sequestrator or similar official of the Company or any Significant Subsidiary or
for all or substantially all of the property and assets of the Company or any
Significant Subsidiary or (C) effects any general assignment for the benefit of
creditors; or (i) the Escrow and Security Agreement shall cease to be in full
force and effect or enforceable in accordance with its terms, other than in
accordance with its terms.
If an Event of Default (other than an Event of Default specified in clause
(g) or (h) above that occurs with respect to the Company) occurs and is
continuing under the Indenture, the Trustee or the Holders of at least 25% in
aggregate principal amount of the Notes, then outstanding, by written notice to
the Company (and to the Trustee if such notice is given by the Holders), may,
and the Trustee at the request of such Holders shall, declare the principal of,
premium, if any, and accrued interest on the Notes to be immediately due and
payable. Upon a declaration of acceleration, such principal, premium, if any,
and accrued interest shall be immediately due and payable. In the event of a
declaration of acceleration because an Event of Default set forth in clause (e)
above has occurred and is continuing, such declaration of acceleration shall be
automatically rescinded and annulled if the event of default triggering such
Event of Default pursuant to clause (e) shall be remedied or cured by the
Company or the relevant Significant Subsidiary or waived by the holders of the
relevant Indebtedness within 60 days after the declaration of acceleration with
respect thereto. If an Event of Default specified in clause (g) or (h) above
occurs with respect to the Company, the principal of, premium, if any, and
accrued interest on the Notes then outstanding shall IPSO FACTO become and be
immediately due and payable without any declaration or other act on the part of
the Trustee or any Holder. The Holders of at least a majority in principal
amount of the outstanding Notes by written notice to the Company and to the
Trustee, may waive all past defaults and rescind and annul a declaration of
acceleration and its consequences if (i) all existing Events of Default, other
than the nonpayment of the principal of, premium, if any, and interest on the
Notes that have become due solely by such declaration of acceleration, have been
cured or waived and (ii) the rescission would not conflict with any judgment or
decree of a court of competent jurisdiction. For information as to the waiver of
defaults, see "--Modification and Waiver."
The Holders of at least a majority in aggregate principal amount of the
outstanding Notes may direct the time, method and place of conducting any
proceeding for any remedy available to the Trustee or exercising any trust or
power conferred on the Trustee. However, the Trustee may refuse to follow any
direction that conflicts with law or the Indenture, that may involve the Trustee
in personal liability, or that the Trustee determines in good faith may be
unduly prejudicial to the rights of Holders of Notes not joining in the giving
of such direction and may take any other action it deems proper that is not
inconsistent with any such direction received from Holders of Notes. A Holder
may not pursue any remedy with respect to the Indenture or the Notes unless: (i)
the Holder gives the Trustee written notice of a continuing Event of Default;
(ii) the Holders of at least 25% in aggregate principal amount of outstanding
Notes make a written request to the Trustee to pursue the remedy; (iii) such
Holder or Holders offer the Trustee indemnity satisfactory to the Trustee
against any costs, liability or expense; (iv) the Trustee does not comply with
the request within 60 days after receipt of the request and the offer of
indemnity; and (v) during such 60-day period, the Holders of a majority in
aggregate principal amount of the outstanding Notes do not give the Trustee a
direction that is inconsistent with the request. However, such limitations do
not apply to the right of any Holder of a Note to receive payment of the
principal of, premium, if any, or interest on, such Note or to bring suit for
the enforcement of any such payment, on or after the due date expressed in the
Notes, which right shall not be impaired or affected without the consent of the
Holder.
The Indenture will require certain officers of the Company to certify, on or
before a date not more than 90 days after the end of each fiscal year, that a
review has been conducted of the activities of the Company and its Restricted
Subsidiaries and the Company's and its Restricted Subsidiaries' performance
105
<PAGE>
under the Indenture and that the Company has fulfilled all obligations
thereunder, or, if there has been a default in the fulfillment of any such
obligation, specifying each such default and the nature and status thereof. The
Company will also be obligated to notify the Trustee of any default or defaults
in the performance of any covenants or agreements under the Indenture.
CONSOLIDATION, MERGER AND SALE OF ASSETS
The Company will not consolidate with, merge with or into, or sell, convey,
transfer, lease or otherwise dispose of all or substantially all of its property
and assets (as an entirety or substantially an entirety in one transaction or a
series of related transactions) to, any Person or permit any Person to merge
with or into the Company unless: (i) the Company shall be the continuing Person,
or the Person (if other than the Company) formed by such consolidation or into
which the Company is merged or that acquired or leased such property and assets
of the Company shall be a corporation organized and validly existing under the
laws of the United States of America or any jurisdiction thereof and shall
expressly assume, by a supplemental indenture, executed and delivered to the
Trustee, all of the obligations of the Company on all of the Notes and under the
Indenture; (ii) immediately after giving effect to such transaction, no Default
or Event of Default shall have occurred and be continuing; (iii) immediately
after giving effect to such transaction on a pro forma basis, the Company or any
Person becoming the successor obligor of the Notes shall have a Consolidated Net
Worth equal to or greater than the Consolidated Net Worth of the Company
immediately prior to such transaction; (iv) immediately after giving effect to
such transaction on a pro forma basis the Company, or any Person becoming the
successor obligor of the Notes, as the case may be, could Incur at least $1.00
of Indebtedness under the first paragraph of the "Limitation on Indebtedness"
covenant; PROVIDED that this clause (iv) shall not apply to a consolidation,
merger or sale of all (but not less than all) of the assets of the Company if
all Liens and Indebtedness of the Company or any Person becoming the successor
obligor on the Notes, as the case may be, and its Restricted Subsidiaries
outstanding immediately after such transaction would, if Incurred at such time,
have been permitted to be Incurred (and all such Liens and Indebtedness, other
than Liens and Indebtedness of the Company and its Restricted Subsidiaries
outstanding immediately prior to the transaction, shall be deemed to have been
Incurred) for all purposes of the Indenture; and (v) the Company delivers to the
Trustee an Officers' Certificate (attaching the arithmetic computations to
demonstrate compliance with clauses (iii) and (iv) above) and Opinion of
Counsel, in each case stating that such consolidation, merger or transfer and
such supplemental indenture complies with this provision and that all conditions
precedent provided for herein relating to such transaction have been complied
with; PROVIDED, HOWEVER, that clauses (iii) and (iv) above do not apply if, in
the good faith determination of the Board of Directors of the Company, whose
determination shall be evidenced by a Board Resolution, the principal purpose of
such transaction is to change the state of incorporation of the Company; and
PROVIDED FURTHER that any such transaction shall not have as one of its purposes
the evasion of the foregoing limitations.
DEFEASANCE
DEFEASANCE AND DISCHARGE. The Indenture provides that the Company will be
deemed to have paid and will be discharged from any and all obligations in
respect of the Notes on the 123rd day after the deposit referred to below, and
the provisions of the Indenture will no longer be in effect with respect to the
Notes (except for, among other matters, certain obligations to register the
transfer or exchange of the Notes, to replace stolen, lost or mutilated Notes,
to maintain paying agencies and to hold monies for payment in trust) if, among
other things, (A) the Company has deposited with the Trustee, in trust, money
and/or U.S. Government Obligations that through the payment of interest and
principal in respect thereof in accordance with their terms will provide money
in an amount sufficient to pay the principal of, premium, if any, and accrued
interest on the Notes on the Stated Maturity of such payments in accordance with
the terms of the Indenture and the Notes, (B) the Company has delivered to the
Trustee (i) either (x) an Opinion of Counsel to the effect that Holders will not
recognize income, gain or loss for federal income tax purposes as a result of
the Company's exercise of its option under this "Defeasance" provision and will
be subject to federal income tax on the same amount and in the same manner and
at the same times as would
106
<PAGE>
have been the case if such deposit, defeasance and discharge had not occurred,
which Opinion of Counsel must be based upon (and accompanied by a copy of) a
ruling of the Internal Revenue Service to the same effect unless there has been
a change in applicable federal income tax law after the Closing Date such that a
ruling is no longer required or (y) a ruling directed to the Trustee received
from the Internal Revenue Service to the same effect as the aforementioned
Opinion of Counsel and (ii) an Opinion of Counsel to the effect that the
creation of the defeasance trust does not violate the Investment Company Act of
1940 and after the passage of 123 days following the deposit, the trust fund
will not be subject to the effect of Section 547 of the United States Bankruptcy
Code or Section 15 of the New York Debtor and Creditor Law, (C) immediately
after giving effect to such deposit on a pro forma basis, no Event of Default,
or event that after the giving of notice or lapse of time or both would become
an Event of Default, shall have occurred and be continuing on the date of such
deposit or during the period ending on the 123rd day after the date of such
deposit, and such deposit shall not result in a breach or violation of, or
constitute a default under, any other agreement or instrument to which the
Company or any of its Subsidiaries is a party or by which the Company or any of
its Subsidiaries is bound and (D) if at such time the Notes are listed on a
national securities exchange, the Company has delivered to the Trustee an
Opinion of Counsel to the effect that the Notes will not be delisted as a result
of such deposit, defeasance and discharge.
DEFEASANCE OF CERTAIN COVENANTS AND CERTAIN EVENTS OF DEFAULT. The
Indenture further provides that the provisions of the Indenture will no longer
be in effect with respect to clauses (iii) and (iv) under "Consolidation, Merger
and Sale of Assets" and all the covenants described herein under "Covenants,"
clause (c) under "Events of Default" with respect to such clauses (iii) and (iv)
under "Consolidation, Merger and Sale of Assets," clause (d) under "Events of
Default" with respect to such other covenants and clauses (e) and (f) under
"Events of Default" shall be deemed not to be Events of Default, upon, among
other things, the deposit with the Trustee, in trust, of money and/or U.S.
Government Obligations that through the payment of interest and principal in
respect thereof in accordance with their terms will provide money in an amount
sufficient to pay the principal of, premium, if any, and accrued interest on the
Notes on the Stated Maturity of such payments in accordance with the terms of
the Indenture and the Notes, the satisfaction of the provisions described in
clauses (B)(ii), (C) and (D) of the preceding paragraph and the delivery by the
Company to the Trustee of an Opinion of Counsel to the effect that, among other
things, the Holders will not recognize income, gain or loss for federal income
tax purposes as a result of such deposit and defeasance of certain covenants and
Events of Default and will be subject to federal income tax on the same amount
and in the same manner and at the same times as would have been the case if such
deposit and defeasance had not occurred.
DEFEASANCE AND CERTAIN OTHER EVENTS OF DEFAULT. In the event the Company
exercises its option to omit compliance with certain covenants and provisions of
the Indenture with respect to the Notes as described in the immediately
preceding paragraph and the Notes are declared due and payable because of the
occurrence of an Event of Default that remains applicable, the amount of money
and/or U.S. Government Obligations on deposit with the Trustee will be
sufficient to pay amounts due on the Notes at the time of their Stated Maturity
but may not be sufficient to pay amounts due on the Notes at the time of the
acceleration resulting from such Event of Default. However, the Company will
remain liable for such payments.
MODIFICATION AND WAIVER
Modifications and amendments of the Indenture may be made by the Company and
the Trustee with the consent of the Holders of not less than a majority in
aggregate principal amount of the outstanding Notes; PROVIDED, HOWEVER, that no
such modification or amendment may, without the consent of each Holder affected
thereby, (i) change the Stated Maturity of the principal of, or any installment
of interest on, any Note, (ii) reduce the principal of, or premium, if any, or
interest on, any Note, (iii) change the place or currency of payment of
principal of, or premium, if any, or interest on, any Note, (iv) impair the
right to institute suit for the enforcement of any payment on or after the
Stated Maturity (or, in the case of a redemption, on or after the Redemption
Date) of any Note, (v) reduce the above-stated percentage of
107
<PAGE>
outstanding Notes the consent of whose Holders is necessary to modify or amend
the Indenture, (vi) waive a default in the payment of principal of, premium, if
any, or interest on the Notes or (vii) reduce the percentage or aggregate
principal amount of outstanding Notes the consent of whose Holders is necessary
for waiver of compliance with certain provisions of the Indenture or for waiver
of certain defaults.
NO PERSONAL LIABILITY OF INCORPORATORS, STOCKHOLDERS, OFFICERS, DIRECTORS, OR
EMPLOYEES
The Indenture provides that no recourse for the payment of the principal of,
premium, if any, or interest on any of the Notes or for any claim based thereon
or otherwise in respect thereof, and no recourse under or upon any obligation,
covenant or agreement of the Company in the Escrow and Security Agreement, the
Indenture, or in any of the Notes or because of the creation of any Indebtedness
represented thereby, shall be had against any incorporator, stockholder,
officer, director, employee or controlling person of the Company or of any
successor Person thereof. Each Holder, by accepting the Notes, waives and
releases all such liability.
CONCERNING THE TRUSTEE
The Indenture provides that, except during the continuance of a Default, the
Trustee will not be liable, except for the performance of such duties as are
specifically set forth in such Indenture. If an Event of Default has occurred
and is continuing, the Trustee will use the same degree of care and skill in its
exercise of the rights and powers vested in it under the Indenture as a prudent
person would exercise under the circumstances in the conduct of such person's
own affairs.
The Indenture and provisions of the Trust Indenture Act incorporated by
reference therein contain limitations on the rights of the Trustee, should it
become a creditor of the Company, to obtain payment of claims in certain cases
or to realize on certain property received by it in respect of any such claims,
as security or otherwise. The Trustee is permitted to engage in other
transactions; PROVIDED, HOWEVER, that if it acquires any conflicting interest,
it must eliminate such conflict or resign.
BOOK-ENTRY; DELIVERY AND FORM
The certificates representing the New Notes will initially be represented by
one or more permanent global Notes in definitive, fully registered form without
interest coupons (each a "Restricted Global Note"; and together with the
Regulation S Global Note, the "Global Notes") and will be deposited with the
Trustee as custodian for, and registered in the name of a nominee of, DTC. Old
Notes sold in offshore transactions in reliance on Regulation S under the
Securities Act were initially represented by one or more temporary global Notes
in definitive, fully registered form without interest coupons (each a "Temporary
Regulation S Global Note") and were deposited with the Trustee as custodian for,
and registered in the name of a nominee of, DTC for the accounts of Euroclear
and Cedel Bank. The Temporary Regulation S Global Note is exchangeable for one
or more permanent global Notes (each a "Permanent Regulation S Global Note"; and
together with the Temporary Regulation S Global Notes, the "Regulation S Global
Note") on or after the 40th day following June 12, 1998 upon certification that
the beneficial interests in such global Note are owned by non-U.S. persons.
Prior to the 40th day after the Closing Date, beneficial interests in the
Temporary Regulation S Global Note may only be held through Euroclear or Cedel
Bank.
Ownership of beneficial interests in a Global Note are limited to persons
who have accounts with DTC ("participants") or persons who hold interests
through participants. Ownership of beneficial interests in a Global Note will be
shown on, and the transfer of that ownership will be effected only through,
records maintained by DTC or its nominee (with respect to interests of
participants) and the records of participants (with respect to interests of
persons other than participants). Qualified institutional buyers may hold their
interests in a Restricted Global Note directly through DTC if they are
participants in such system, or indirectly through organizations which are
participants in such system.
Investors may hold their interests in a Regulation S Global Note directly
through Cedel Bank or Euroclear, if they are participants in such systems, or
indirectly through organizations that are participants
108
<PAGE>
in such systems. Cedel Bank and Euroclear will hold interests in the Regulation
S Global Notes on behalf of their participants through DTC.
So long as DTC, or its nominee, is the registered owner or holder of a
Global Note, DTC or such nominee, as the case may be, will be considered the
sole owner or holder of the Notes represented by such Global Note for all
purposes under the Indenture and the Notes. No beneficial owner of an interest
in a Global Note will be able to transfer that interest except in accordance
with DTC's applicable procedures, in addition to those provided for under the
Indenture and, if applicable, those of Euroclear and Cedel Bank.
Payments of the principal of, and interest on, a Global Note will be made to
DTC or its nominee, as the case may be, as the registered owner thereof. Neither
the Company, the Trustee nor any Paying Agent will have any responsibility or
liability for any aspect of the records relating to or payments made on account
of beneficial ownership interests in a Global Note or for maintaining,
supervising or reviewing any records relating to such beneficial ownership
interests.
The Company expects that DTC or its nominee, upon receipt of any payment of
principal or interest in respect of a Global Note, will credit participants'
accounts with payments in amounts proportionate to their respective beneficial
interests in the principal amount of such Global Note as shown on the records of
DTC or its nominee. The Company also expects that payments by participants to
owners of beneficial interests in such Global Note held through such
participants will be governed by standing instructions and customary practices,
as is now the case with securities held for the accounts of customers registered
in the names of nominees for such customers. Such payments will be the
responsibility of such participants.
Transfers between participants in DTC will be effected in the ordinary way
in accordance with DTC rules and will be settled in same-day funds. Transfers
between participants in Euroclear and Cedel Bank will be effected in the
ordinary way in accordance with their respective rules and operating procedures.
The Company expects that DTC will take any action permitted to be taken by a
holder of Notes (including the presentation of Notes for exchange as described
below) only at the direction of one or more participants to whose account the
DTC interests in a Global Note are credited and only in respect of such portion
of the aggregate principal amount of Notes as to which such participant or
participants has or have given such direction. However, if there is an Event of
Default under the Notes, DTC will exchange the applicable Global Note for
Certificated Notes, which it will distribute to its participants and which may
be legended as set forth under the heading "Transfer Restrictions."
The Company understands that DTC is a limited purpose trust company
organized under the laws of the State of New York, a "banking organization"
within the meaning of New York Banking Law, a member of the Federal Reserve
System, a "clearing corporation" within the meaning of the Uniform Commercial
Code and a "Clearing Agency" registered pursuant to the provisions of Section
17A of the Exchange Act. DTC was created to hold securities for its participants
and facilitate the clearance and settlement of securities transactions between
participants through electronic book-entry changes in accounts of its
participants, thereby eliminating the need for physical movement of certificates
and certain other organizations. Indirect access to the DTC system is available
to others such as banks, brokers, dealers and trust companies that clear through
or maintain a custodial relationship with a participant, either directly or
indirectly ("indirect participants").
Although DTC, Euroclear and Cedel Bank are expected to follow the foregoing
procedures in order to facilitate transfers of interests in a Global Note among
participants of DTC, Euroclear and Cedel Bank, they are under no obligation to
perform or continue to perform such procedures, and such procedures may be
discontinued at any time. Neither the Company nor the Trustee will have any
responsibility for the performance by DTC, Euroclear or Cedel Bank or their
respective participants or indirect participants of their respective obligations
under the rules and procedures governing their operations.
If DTC is at any time unwilling or unable to continue as a depositary for
the Global Notes and a successor depositary is not appointed by the Company
within 90 days, the Company will issue Certificated
109
<PAGE>
Notes, which may bear the legend referred to under "Transfer Restrictions," in
exchange for the Global Notes. Holders of an interest in a Global Note may
receive Certificated Notes, which may bear the legend referred to under
"Transfer Restrictions," in accordance with DTC's rules and procedures in
addition to those provided for under the Indenture.
CERTAIN U.S. FEDERAL TAX CONSEQUENCES
The following summary describes the material anticipated U.S. federal income
tax consequences of the purchase, ownership and disposition of the Notes. Except
where noted, it deals only with Notes held as capital assets within the meaning
of Section 1221 of the Internal Revenue Code of 1986, as amended (the "Code"),
by U.S. Holders and does not deal with special situations, such as those of
dealers in securities or currencies, financial institutions, life insurance
companies, tax exempt organizations, persons holding Notes as a part of a
hedging or conversion transaction or a straddle or U.S. Holders whose
"functional currency" is not the U.S. dollar. Furthermore, the discussion below
is based upon the provisions of the Code and regulations, administrative and
judicial decisions thereunder as of the date hereof, and such authorities may be
repealed, revoked or modified with possible retroactive effect so as to result
in U.S. federal income tax consequences different from those discussed below.
ALL PROSPECTIVE PURCHASERS ARE ADVISED TO CONSULT THEIR OWN TAX ADVISORS
REGARDING THE FEDERAL, STATE, LOCAL AND FOREIGN TAX CONSEQUENCES OF THE PURCHASE
OWNERSHIP AND DISPOSITION OF THE NOTES.
THE NEW NOTES
EXCHANGE FOR REGISTERED SECURITIES. The exchange by Holder of and Old Note
for a New Note should not constitute a taxable exchange. Each New Note should be
treated as having been originally issued at the time the Old Note exchanged
therefor was originally issued.
STATED INTEREST. Each Holder of Notes must include as ordinary interest
income the interest attributable to such Notes at the time it accrues or is
received, in accordance with the Holder's accounting method for United States
federal income tax purposes.
ORIGINAL ISSUE DISCOUNT. The Notes were not issued with original issue
discount for federal income tax purposes.
TAX CONSEQUENCES TO U.S. HOLDERS
As used herein, a "U.S. Holder" means a beneficial owner that is a citizen
or resident of the U.S., a corporation, partnership or other entity created or
organized in or under the laws of the U.S. or any political subdivision thereof,
an estate the income of which is subject to U.S. federal income taxation
regardless of its source, or a trust the administration of which is subject to
the primary supervision of a court within the U.S. and for which one or more
persons have the authority to control all substantial decisions. An individual
may, subject to certain exceptions, be deemed to be a resident (as opposed to a
non-resident alien) of the U.S. by virtue of being present in the U.S. on at
least 31 days in the calendar year and for an aggregate of at least 183 days
during a three-year period ending in the current calendar year (counting for
such purposes all of the days present in the current year, one-third of the days
present in the immediately preceding year, and one-sixth of the days present in
the second preceding year). A "Non-U.S. Holder" is a holder that is not a U.S.
Holder.
TAXATION OF INTEREST ON THE NOTES
Interest paid on the Notes will be taxable to a U.S. Holder as ordinary
interest income in accordance with such holder's method of tax accounting. The
Company expects that the Notes will not be issued with original issue discount
within the meaning of the Code.
110
<PAGE>
MARKET DISCOUNT
If a U.S. Holder acquires a Note for an amount that is less than its
principal amount, the amount of the difference will be treated as "market
discount," unless such difference is less than a specified DE MINIMIS amount.
Under the market discount rules of the Code, a U.S. Holder will be required to
treat any partial principal payment on, or any gain on the sale, exchange,
retirement or other disposition (including a gift) of, a Note as ordinary income
to the extent of any accrued market discount that has not previously been
included in income. Market discount generally accrues on a straight-line basis
over the remaining term of the Note, unless the U.S. Holder elects to accrue
market discount on a constant interest method. A U.S. Holder may not be allowed
to deduct immediately all or a portion of the interest expense on any
indebtedness incurred or continued to purchase or to carry such Note.
A U.S. Holder may elect to include market discount in income currently as it
accrues (either on a straight-line basis or, if the U.S. Holder so elects, on a
constant-yield basis), in which case the interest deduction deferral rule set
forth in the preceding paragraph will not apply. Such an election will apply to
all bonds acquired by the U.S. Holder on or after the first day of the first
taxable year to which such election applies and may be revoked only with the
consent of the Internal Revenue Service ("IRS").
AMORTIZABLE BOND PREMIUM
A U.S. Holder that purchases a Note for an amount in excess of the principal
amount will be considered to have purchased the Note at a "premium." A U.S.
Holder generally may elect to amortize such premium over the remaining term of
the Note on a constant yield method. The amount amortized in any year will be
treated as a reduction of the U.S. Holder's interest income from the Note. Bond
premium on a Note held by a U.S. Holder that does not make such an election will
decrease the gain or increase the loss otherwise recognized on disposition of
the Note. The election to amortize bond premium on a constant yield method, once
made, applies to all debt obligations held or subsequently acquired by the
electing U.S. Holder on or after the first day of the taxable year to which the
election applies and may not be revoked without the consent of the IRS.
SALE, EXCHANGE OR REDEMPTION OF NOTES
Upon the sale, exchange or redemption or retirement of a Note, a U.S. Holder
will recognize gain or loss equal to the difference between the amount realized
upon the redemption, sale, exchange or retirement and such U.S. Holder's
adjusted tax basis of the Note. A U.S. Holder's tax basis in a Note will, in
general, be the U.S. Holder's cost therefor, increased by any market discount
previously included in income by the U.S. Holder with respect to the Notes and
reduced by any principal payments on the Notes and by any amounts deducted with
respect to amortizable bond premium. Such gain or loss will be capital gain or
loss, except to the extent discussed above.
The Taxpayer Relief Act of 1997 includes substantial changes to the federal
taxation of capital gains recognized by certain noncorporate taxpayers, such as
individuals, including a 20% maximum tax rate for certain gains from the sale of
capital assets held for more than 18 months. The deduction of capital losses is
subject to certain limitations.
The exchange of a Note by a U.S. Holder for an Exchange Note (as described
in "Description of the Notes--Registration Rights") should not constitute a
taxable exchange. A U.S. Holder will have the same tax basis and holding period
in the Exchange Note as it did in the Note.
INFORMATION REPORTING AND BACKUP WITHHOLDING
In general, information reporting requirements will apply to certain
payments of principal and interest and to the proceeds of sales of Notes made to
U.S. Holders other than certain exempt recipients (such as corporations). A 31%
backup withholding tax will apply to such payments if the U.S. Holder fails (i)
to provide a taxpayer identification number ("TIN"), (ii) furnishes an incorrect
TIN, (iii) is notified by the
111
<PAGE>
IRS that it has failed to properly report payments of interest and dividends or
(iv) under certain circumstances, fails to certify, under penalty of perjury,
that it has furnished a correct TIN and has not been notified by the IRS that it
is subject to backup withholding. In the case of interest paid after December
31, 1999, a U.S. Holder generally will be subject to backup withholding at a 31%
rate unless certain IRS certification procedures are complied with directly or
through an intermediary.
The Company will furnish annually to the IRS and to record holders of the
Notes (other than with respect to certain exempt holders) information relating
to the stated interest paid or accrued during the calendar year.
Any amounts withheld under the backup withholding rules generally will be
allowed as a refund or a credit against such U.S. Holder's U.S. federal income
tax liability provided the required information is furnished to the IRS.
TAX CONSEQUENCES TO NON-U.S. HOLDERS
TAXATION OF INTEREST ON THE NOTES
Subject to the discussion below concerning backup withholding, no
withholding of U.S. federal income tax will be required with respect to the
payment by the Company or any paying agent of principal or interest on a Note
owned by a Non-U.S. Holder, provided that the beneficial owner (i) does not
actually or constructively own 10% or more of the total combined voting power of
all classes of stock of the Company entitled to vote within the meaning of
Section 871(h)(3) of the Code and the regulations thereunder, (ii) is not a
controlled foreign corporation related, directly or indirectly, to the Company
through stock ownership, (iii) is not a bank whose receipt of interest on a Note
is described in Section 881(c)(3)(A) of the Code and (iv) satisfies the
statement requirement (described generally below) set forth in Section 871(h)
and Section 881(c) of the Code and the regulations thereunder.
To satisfy the requirement referred to in (iv) above, the beneficial owner
of such Note, or a financial institution holding the Note on behalf of such
owner, must provide, in accordance with specified procedures, the Company or its
paying agent with a statement to the effect that the beneficial owner is not a
U.S. person. These requirements will be met if (x) the beneficial owner provides
his name and address, and certifies, under penalties of perjury, that he is not
a U.S. person (which certification may be made on an IRS Form W-8 (or successor
form)) or (y) a financial institution holding the Note on behalf of the
beneficial owner certifies, under penalties of perjury, that such statement has
been received by it and furnishes a paying agent with a copy thereof.
In the event that any of the above requirements are not satisfied, the
Company will nonetheless not withhold federal income tax on interest paid to a
Non-U.S. Holder if it receives IRS Form 4224 (or, after December 31, 1999, a
Form W-8) from such Non-U.S. Holder, establishing that such income is
effectively connected with the conduct of a trade or business in the U.S.,
unless the Company has knowledge to the contrary. Interest or redemption premium
paid to a Non-U.S. Holder that is effectively connected with the conduct by the
holder of a trade or business in the U.S. is generally taxed at the graduated
rates that are applicable to U.S. Holders. In the case of a Non-U.S. Holder that
is a corporation, such effectively connected income may also be subject to the
U.S. federal branch profits tax (which is generally imposed on a foreign
corporation on the deemed repatriation from the U.S. of effectively connected
earnings and profits) at a 30% rate (unless the rate is reduced or eliminated by
an applicable income tax treaty and the holder is a qualified resident of the
treaty country).
SALE, EXCHANGE, OR REDEMPTION OF NOTES
A Non-U.S. Holder will generally not be subject to U.S. federal income tax
with respect to capital gain recognized on a sale, exchange, redemption or other
disposition of Notes unless (i) the gain is effectively connected with a trade
or business of the Non-U.S. Holder in the U.S., (ii) in the case of a Non-U.S.
Holder who is an individual, such holder is present in the U.S. for 183 or more
days in the taxable year of
112
<PAGE>
the sale or other disposition and certain other conditions are met, or (iii) the
Non-U.S. Holder is subject to tax pursuant to certain provisions of the Code
applicable to U.S. expatriates.
Gains derived by a Non-U.S. Holder from the sale or other disposition of
Notes that are effectively connected with the conduct by the Holder of a trade
or business in the U.S. are generally taxed at the graduated rates that are
applicable to U.S. Holders. In the case of a Non-U.S. Holder that is a
corporation, such effectively connected income may also be subject to the U.S.
branch profits tax (which is generally imposed on a foreign corporation on the
deemed repatriation from the United States of effectively connected earnings and
profits) at a 30% rate (unless the rate is reduced or eliminated by an
applicable income tax treaty and the Holder is a qualified resident of the
treaty country).
FEDERAL ESTATE TAX
A Note beneficially owned by an individual who at the time of death is a
Non-U.S. Holder will not be subject to U.S. federal estate tax as a result of
such individual's death, provided that such individual does not actually or
constructively own 10% or more of the total combined voting power of all classes
of stock of the Company entitled to vote within the meaning of Section 871(h)(3)
of the Code and provided that the interest payments with respect to such Note
would not have been, if received at the time of such individual's death,
effectively connected with the conduct of a U.S. trade or business by such
individual.
INFORMATION REPORTING AND BACKUP WITHHOLDING
No information reporting or backup withholding will be required with respect
to payments made by the Company or any paying agent to Non-U.S. Holders if a
statement described in (iv) under "Tax Consequences to Non-U.S.
Holders--Taxation of Interest on the Notes" has been received and the payor does
not have actual knowledge that the beneficial owner is a U.S. person.
Information reporting and backup withholding will not apply if payments of
interest on a Note are made outside the U.S. to an account maintained at an
office or branch of a U.S. or foreign bank or other financial institution,
provided certain procedures are in place and are observed.
Payments on the sale, exchange or other disposition of a Note made to or
through a foreign office of a broker generally will not be subject to backup
withholding. However, payments made by a broker that is a U.S. person, a
controlled foreign corporation for U.S. federal income tax purposes, a foreign
person 50% or more of whose gross income is effectively connected with a U.S.
trade or business for a specified three year period, or (with respect to
payments after December 31, 1999) a foreign partnership with certain connections
to the U.S., will be subject to information reporting unless the broker has in
its records documentary evidence that the beneficial owner is not a U.S. person
and certain other conditions are met, or the beneficial owner otherwise
establishes an exemption. Backup withholding may apply to any payment that such
broker is required to report if the broker has actual knowledge that the payee
is a U.S. person. Payments to or through the U.S. office of a broker will be
subject to information reporting and backup withholding unless the Holder
certifies, under penalties of perjury, that it is not a U.S. person or otherwise
establishes an exemption.
Non-U.S. Holders should consult their tax advisors regarding the application
of information reporting and backup withholding in their particular situations,
the availability of an exemption therefrom, and the procedures for obtaining
such an exemption, if available. Any amounts withheld under the backup
withholding rules generally will be allowed as a refund or credit against the
Non-U.S. Holder's U.S. federal income tax liability and may entitle such Holder
to a refund, provided the required information is furnished to the IRS.
113
<PAGE>
PLAN OF DISTRIBUTION
There has previously been only a limited secondary market and no public
market for the Old Notes. The Company does not intend to apply for the listing
of the Notes on a national securities exchange or for their quotation through
The Nasdaq Stock Market. The Notes are eligible for trading in the PORTAL
market. The Company has been advised by the Placement Agents that the Placement
Agents currently intend to make a market in the Notes; however, no Placement
Agent is obligated to do so and any market making may be discontinued by any
Placement Agent at any time. In addition, such market making activity may be
limited during the Exchange Offer. Therefore, there can be no assurance that an
active market for the Old Notes or the New Notes will develop. If a trading
market does not develop or is not maintained, holders of Notes may experience
difficulty in reselling Notes. If a trading market develops for the Notes,
future trading prices of such securities will depend on many factors, including,
among other things, prevailing interest rates, the Company's results of
operations and the market for similar securities. Depending on such factors,
such securities may trade at a discount from their offering price.
BROKER-DEALERS WHO DID NOT ACQUIRE OLD NOTES AS A RESULT OF MARKET MAKING
ACTIVITIES OR TRADING ACTIVITIES MAY NOT PARTICIPATE IN THE EXCHANGE OFFER.
With respect to resale of New Notes, based on an interpretation by the staff
of the Commission set forth in no-action letters issued to third parties, the
Company believes that a holder (other than a person that is an affiliate of the
Company within the meaning of Rule 405 under the Securities Act or a "broker" or
"dealer" registered under the Exchange Act) who exchanges Old Notes for New
Notes in the ordinary course of business and who is not participating, does not
intend to participate, and has no arrangement or understanding with any person
to participate, in the distribution of the New Notes, will be allowed to resell
the New Notes to the public without further registration under the Securities
Act and without delivering to the purchasers of the New Notes a prospectus that
satisfies the requirements of Section 10 thereof. However, if any holder
acquires New Notes in the Exchange Offer for the purpose of distributing or
participating in a distribution of the New Notes, such holder cannot rely on the
position of the staff of the Commission enunciated in EXXON CAPITAL HOLDINGS
CORPORATION (available May 13, 1988) or similar no-action letters or any similar
interpretive letters and must comply with the registration and prospectus
delivery requirements of the Securities Act in connection with a secondary
resale transaction, unless an exemption from registration is otherwise
available.
As contemplated by the no-action letters mentioned above and the
Registration Rights Agreement, each holder accepting the Exchange Offer is
required to represent to the Company in the Letter of Transmittal that (i) the
New Notes are to be acquired by the holder in the ordinary course of business,
(ii) the holder is not engaging and does not intend to engage in the
distribution of the New Notes, and (iii) the holder acknowledges that, if such
holder participates in the Exchange Offer for the purpose of distributing the
New Notes, such holder must comply with the registration and prospectus delivery
requirements of the Securities Act and cannot rely on the above no-action
letters.
Any broker or dealer registered under the Exchange Act (each a
"Broker-Dealer") who holds Old Notes that were acquired for its own account as a
result of market-making activities or other trading activities (other than Old
Notes acquired directly from the Company or an affiliate of the Company) may
exchange such Old Notes for New Notes pursuant to the Exchange Offer; however,
such Broker-Dealer may be deemed an underwriter within the meaning of the
Securities Act and, therefore, must deliver a prospectus meeting the
requirements of the Securities Act in connection with any resales of the New
Notes received by it in the Exchange Offer, which prospectus delivery
requirement may be satisfied by the delivery by such Broker-Dealer of this
Prospectus. The Company has agreed to cause the Exchange Offer Registration
Statement, of which this Prospectus is a part, to remain continuously effective
for a period of 180 days, if required, from the Exchange Date, and to make this
Prospectus, as amended or supplemented, available to any such Broker-Dealer for
use in connection with resales. Any Broker-Dealer participating in
114
<PAGE>
the Exchange Offer will be required to acknowledge that it will deliver a
prospectus meeting the requirements of the Securities Act in connection with any
resales of New Notes received by it in the Exchange Offer. The delivery by a
Broker-Dealer of a prospectus in connection with resales of New Notes shall not
be deemed to be an admission by such Broker-Dealer that it is an underwriter
within the meaning of the Securities Act. The Company will not receive any
proceeds from any sale of New Notes by a Broker-Dealer.
New Notes received by Broker-Dealers for their own account pursuant to the
Exchange Offer may be sold from time to time in one or more transactions in the
over-the-counter market, in negotiated transactions, through the writing of
options on the New Notes or a combination of such methods of resale, at market
prices prevailing at the time of resale, at prices related to such prevailing
market prices or negotiated prices. Any such resale may be made directly to
purchasers or to or through brokers or dealers who may receive compensation in
the form of commissions or concessions from any such Broker-Dealer and/or the
purchasers of any such New Notes.
LEGAL MATTERS
Certain legal matters with respect to the validity of the Notes are being
passed upon for the Company by McAfee & Taft A Professional Corporation,
Oklahoma City, Oklahoma.
EXPERTS
The consolidated balance sheets of Dobson Wireline Company and subsidiaries
as of December 31, 1996 and 1997, and the related consolidated statements of
operations, stockholder's equity and cash flows for each of the three years in
the period ended December 31, 1997, included in this Prospectus and in the
Registration Statement have been audited by Arthur Andersen LLP, independent
public accountants, as indicated in their report appearing herein in reliance
upon the authority of said firm as experts in giving said report.
The combined financial statements of American Telco, Inc. and American Telco
Network Services, Inc., as of December 31, 1996 and 1997 and for each of the
three years in the period ended December 31, 1997 included in this Prospectus
have been so included in reliance on the report of Price Waterhouse LLP,
independent accountants, given on the authority of said firm as experts in
auditing and accounting.
115
<PAGE>
GLOSSARY
ACCESS--telecommunications services that permit long distance carriers to
use local exchange facilities to originate and/or terminate long distance
service.
ACSI--American Communications Services, Inc.
ACCESS CHARGES--The fees paid by long distance carriers to local exchange
carriers for originating and terminating long distance calls on their local
network.
ADVANCED NETWORK PRESENCE UNIT ("ANP")--unit that links the Company's leased
lines to its switches and enables the Company to provide digital local and long
distance switch services and ATM-based data services in a market area.
ALLEGIANCE TELECOM--Allegiance Telecom, Inc.
AMERICAN TELCO--collectively, American Telco, Inc. and American Telco
Network Services, Inc.
AMERICAN TELCO ACQUISITION--pending acquisition of American Telco, Inc. and
American Telco Network Services, Inc. by Dobson Wireline Company.
AMERITECH--Ameritech Corporation.
AT&T--AT&T Corp.
ATM (ASYNCHRONOUS TRANSFER MODE)--a switching and transmission technology
that is one of a general class of packet technologies that relay traffic by way
of an address contained within the first five bits of a standard 53 bit-long
packet or cell. ATM-based packet transport was specifically developed to allow
switching and transmission of mixed voice, data and video (sometimes referred to
as "multimedia" information) at varying rates. The ATM format can be used by
many different information systems.
BELL ATLANTIC--Bell Atlantic Corporation.
BELLSOUTH--BellSouth Corporation.
CENTRAL OFFICES--the switching centers or central switching facilities for
the Company and other CLECs and/or ILECs.
COLLOCATION--the ability of a competitor carrier to connect its network to
the local exchange carrier's central offices. Physical collocation occurs when a
competitor carrier places its network connection equipment inside the local
exchange company's central offices. Virtual collocation is an alternative to
physical collocation pursuant to which the local exchange company permits a
competitor carrier to connect its network to the local exchange company's
central offices on comparable terms, even though the competitor carrier's
network connection equipment is not physically located inside the central
offices.
DEDICATED LINES--telecommunications lines dedicated or reserved for use
exclusively by particular customers along predetermined routes (in contrast to
telecommunications lines within the ILEC's public switched networks).
DIGITAL--a method of storing, processing and transmitting information
through the use of distance electronic or optical pulses that represent the
binary digits 0 and 1. Digital transmission and switching technologies employ a
sequence of these pulses to represent information as opposed to the continuously
variable analog signal. The precise digital numbers minimize distortion (such as
graininess or snow in the case of video transmission, or static or other
background distortion in the case of audio transmission).
EXCEL--Excel Communications, Inc.
FCC--Federal Communications Commission.
GTE--GTE Corporation.
116
<PAGE>
ICG--ICG Communications, Inc.
INTERCONNECTION--interconnection of facilities between or among local
exchange carriers, including potential physical collocation of one carrier's
equipment in the other carrier's premises to facilitate such interconnection.
INTEREXCHANGE CARRIER (IXC)--usually referred to as long distance providers.
Long distance carriers provide services between local exchanges on an interstate
or intrastate basis. A long distance carrier may offer services over its own or
another carrier's facilities. There are many facilities-based IXCs, including,
AT&T, MCI, WorldCom, Sprint and IXC Communications, Inc., as well as many
resellers that are authorized to provide IXC service.
INTERLATA--telecommunications services originating in one LATA and
terminating in another LATA.
INTERMEDIA COMMUNICATIONS--Intermedia Communications, Inc.
INTRALATA--telecommunications services originating and terminating in the
same LATA.
ISP (INTERNET SERVICE PROVIDER)--a company that provides subscribers basic
access to the Internet, along with additional services that may include E-Mail,
site hosting, web page development, and other Internet-related services, along
with technical support of these services.
LATA (LOCAL ACCESS AND TRANSPORT AREA)--a geographic area composed of
contiguous local exchanges, usually but not always within a single state. There
are approximately 200 LATAs in the United States.
LCI--LCI International Telecom Corp.
LOCAL EXCHANGE--a geographic area determined by the local exchange carrier
in which calls generally are transmitted without toll charges to the calling or
called party.
LOCAL EXCHANGE CARRIER OR LEC--a company providing local telephone services,
including the RBOCs, GTE and independent companies such as the Company.
MCI--MCI Communications Corporation.
NTS--NTS Communications, Inc.
NYNEX--NYNEX Corporation.
OCC--Oklahoma Corporation Commission.
OKLAHOMA TELECOM ACT--Oklahoma Telecommunications Act of 1997.
POPS (POINTS OF PRESENCE)--Locations where a long distance carrier has
installed transmission equipment in a service area that serves as, or relays
calls to, a network switching center of that long distance carrier.
"PUC" OR "PUBLIC UTILITIES COMMISSION"--a state regulatory body, established
in most states, which regulates utilities, including telephone companies
providing intrastate services.
QWEST--Qwest Communications Corporation.
RBOC(S)--the five remaining of the seven original Regional Bell Operating
Companies established by the Department of Justice's 1982 breakup of the Bell
System. The 1982 breakup created two distinct segments of telecommunication
service: local and long distance.
RECIPROCAL COMPENSATION--compensation paid by a local carrier for
termination of a local call on the network of a competing carrier which is
obligated to pay a comparable charge to terminate traffic on the network of the
first carrier. Reciprocal compensation is distinct from the one-way access
charges by which IXCs compensate LECs for originating and terminating traffic.
117
<PAGE>
RESALE--Resale by a provider of telecommunications services (such as a local
exchange carrier) of such services to other providers or carriers on a wholesale
or a retail basis.
RUS/RTB FACILITY--loan agreements between and among Dobson Telephone, the
United States of America, Rural Utilities Services ("RUS") and the Rural
Telephone Bank ("RTB").
SBC--SBC Communications, Inc.
SPRINT--Sprint Corporation.
SWITCH--a sophisticated computer that accepts instructions from a caller in
the form of a telephone number. Like an address on an envelope, the numbers tell
the switch where to route the call. The switch opens or closes circuits or
selects the paths or circuits to be used for transmission of information.
Switching is a process of interconnecting circuits to form a transmission path
between users. Switches allow local telecommunications service providers to
connect calls directly to their destination, while providing advanced features
and recording connection information for future billing.
TELECOMMUNICATIONS ACT--the Telecommunications Act of 1996.
UNBUNDLED ACCESS--access to unbundled elements of a telecommunications
services provider's network, including network facilities, equipment, features,
functions and capabilities, at any technically feasible point within such
network.
UNBUNDLED NETWORK ELEMENTS--elements of a telecommunications services
provider's network, including network facilities, equipment, features, functions
and capabilities.
VYVX--Vyvx, Inc.
VSAT--very small aperture terminal with a low band width.
WORLDCOM--WorldCom, Inc.
118
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
DOBSON WIRELINE COMPANY AND SUBSIDIARIES
Report of independent public accountants................................................................... F-2
Consolidated balance sheets as of December 31, 1996 and 1997............................................... F-3
Consolidated statements of operations for the years ended December 31, 1995, 1996 and 1997................. F-4
Consolidated statements of stockholder's equity for the years ended December 31, 1995, 1996 and 1997....... F-5
Consolidated statements of cash flows for the years ended ended December 31, 1995, 1996 and 1997........... F-6
Notes to consolidated financial statements................................................................. F-7
Condensed consolidated balance sheets as of December 31, 1997 and March 31, 1998 (unaudited)............... F-19
Condensed consolidated statements of operations for the three months ended March 31, 1997 and 1998
(unaudited).............................................................................................. F-20
Condensed consolidated statements of cash flows for the three months ended March 31, 1997 and 1998
(unaudited).............................................................................................. F-21
Notes to condensed consolidated financial statements (unaudited)........................................... F-22
AMERICAN TELCO, INC. AND AMERICAN TELCO NETWORK SERVICES, INC.
Report of independent accountants.......................................................................... F-25
Combined balance sheet as of December 31, 1996 and 1997.................................................... F-26
Combined statement of income and retained earnings for the years ended December 31, 1995, 1996 and 1997.... F-27
Combined statement of cash flows for the years ended ended December 31, 1995, 1996 and 1997................ F-28
Notes to combined financial statements..................................................................... F-29
Condensed combined balance sheet as of December 31, 1997 and March 31, 1998 (unaudited).................... F-33
Condensed combined statement of income and retained earnings for the three months ended March 31, 1997 and
1998 (unaudited)......................................................................................... F-34
Condensed combined statement of cash flows for the three months ended March 31, 1997 and 1998
(unaudited).............................................................................................. F-35
Notes to condensed combined financial statements (unaudited)............................................... F-36
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of
Dobson Wireline Company:
We have audited the accompanying consolidated balance sheets of Dobson
Wireline Company (an Oklahoma corporation) and subsidiaries as of December 31,
1996 and 1997, and the related consolidated statements of operations,
stockholder's equity and cash flows for each of the three years in the period
ended December 31, 1997. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated 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
Dobson Wireline Company and subsidiaries as of December 31, 1996 and 1997, and
the results of their operations and their cash flows for each of the three years
in the period ended December 31, 1997, in conformity with generally accepted
accounting principles.
ARTHUR ANDERSEN LLP
Oklahoma City, Oklahoma,
April 7, 1998
F-2
<PAGE>
DOBSON WIRELINE COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1996 AND 1997
ASSETS
<TABLE>
<CAPTION>
1996 1997
------------- -------------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents........................................................ $ 628,650 $ 254,269
Accounts receivable, net of allowance for doubtful accounts of $13,525 and
$16,258 in 1996 and 1997, respectively......................................... 2,054,335 1,792,231
Inventory........................................................................ 117,385 240,787
RTFC subordinated capital certificates........................................... 1,051,057 --
Prepaid expenses and other....................................................... 76,375 724,508
------------- -------------
Total current assets........................................................... 3,927,802 3,011,795
------------- -------------
PROPERTY, PLANT AND EQUIPMENT, net................................................. 35,135,539 35,976,412
------------- -------------
OTHER ASSETS:
Receivables--Affiliates.......................................................... 11,514,356 8,206,935
Deferred costs, net of accumulated amortization of $129,707 and $221,332 in 1996
and 1997, respectively......................................................... 513,596 1,128,447
Excess of cost over original cost of assets acquired, net of accumulated
amortization of $1,035,529 and $1,130,769 in 1996 and 1997, respectively....... 2,771,443 2,676,203
Investment in unconsolidated partnership and other............................... 745,551 953,564
------------- -------------
Total other assets............................................................. 15,544,946 12,965,149
------------- -------------
Total assets................................................................... $ 54,608,287 $ 51,953,356
------------- -------------
------------- -------------
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES:
Accounts payable................................................................. $ 1,666,553 $ 1,131,185
Accrued expenses................................................................. 1,048,190 204,380
Deferred revenue and customer deposits........................................... 42,800 67,448
Current portion of long-term debt................................................ 1,190,924 1,140,824
------------- -------------
Total current liabilities...................................................... 3,948,467 2,543,837
------------- -------------
LONG-TERM DEBT, net of current portion............................................. 40,565,108 27,498,535
DEFERRED CREDITS:
Income taxes..................................................................... 1,636,000 1,700,000
Investment tax credits and other................................................. 161,612 133,817
------------- -------------
Total deferred credits......................................................... 1,797,612 1,833,817
------------- -------------
COMMITMENTS (Note 10)
STOCKHOLDER'S EQUITY:
Common stock, $1 par value, 500 shares authorized and 100 shares issued and
outstanding in 1996 and 1997................................................... 100 100
Paid-in capital.................................................................. 48,192 11,496,118
Retained earnings................................................................ 8,248,808 8,580,949
------------- -------------
Total stockholder's equity..................................................... 8,297,100 20,077,167
------------- -------------
Total liabilities and stockholder's equity..................................... $ 54,608,287 $ 51,953,356
------------- -------------
------------- -------------
</TABLE>
The accompanying notes are an integral part of these consolidated balance
sheets.
F-3
<PAGE>
DOBSON WIRELINE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
<TABLE>
<CAPTION>
1995 1996 1997
------------- ------------- -------------
<S> <C> <C> <C>
REVENUE............................................................. $ 16,264,643 $ 17,908,178 $ 20,176,710
OPERATING EXPENSES:
Cost of service................................................... 2,471,111 2,822,531 3,268,343
Selling, general and administrative............................... 6,532,020 7,815,864 8,734,923
Depreciation and amortization..................................... 4,124,045 4,478,933 4,931,315
------------- ------------- -------------
Total operating expenses........................................ 13,127,176 15,117,328 16,934,581
------------- ------------- -------------
OPERATING INCOME.................................................... 3,137,467 2,790,850 3,242,129
------------- ------------- -------------
OTHER INCOME (EXPENSES):
Equity in income (loss) of unconsolidated partnership............. (170,266) (103,424) 97,848
Interest income................................................... 4,692 -- 14,674
Interest expense.................................................. (1,979,763) (2,194,169) (2,458,588)
Other............................................................. (101,438) 20,313 (9,564)
------------- ------------- -------------
Total other expenses............................................ (2,246,775) (2,277,280) (2,355,630)
------------- ------------- -------------
INCOME BEFORE INCOME TAXES AND EXTRAORDINARY ITEMS.................. 890,692 513,570 886,499
INCOME TAX PROVISION................................................ (391,149) (182,512) (336,870)
------------- ------------- -------------
INCOME BEFORE EXTRAORDINARY ITEMS................................... 499,543 331,058 549,629
EXTRAORDINARY EXPENSE, net of income tax benefit of $133,300 in 1997
(Note 4).......................................................... -- -- 217,488
------------- ------------- -------------
NET INCOME.......................................................... $ 499,543 $ 331,058 $ 332,141
------------- ------------- -------------
------------- ------------- -------------
BASIC NET INCOME PER SHARE:
Before extraordinary expense...................................... 4,995.43 3,310.58 5,496.29
Extraordinary expense............................................. -- -- (2,174.88)
------------- ------------- -------------
BASIC NET INCOME PER SHARE.......................................... $ 4,995.43 $ 3,310.58 $ 3,321.41
------------- ------------- -------------
------------- ------------- -------------
BASIC WEIGHTED AVERAGE COMMON SHARES OUTSTANDING.................... 100 100 100
------------- ------------- -------------
------------- ------------- -------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE>
DOBSON WIRELINE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
<TABLE>
<CAPTION>
COMMON STOCK
------------------------ PAID-IN RETAINED
NOTES AMOUNT CAPITAL EARNINGS
----- ----------- ------------- ------------
<S> <C> <C> <C> <C>
DECEMBER 31, 1994.................................................. 100 $ 100 $ 48,192 $ 7,418,207
Net income....................................................... -- -- -- 499,543
--- ----- ------------- ------------
DECEMBER 31, 1995.................................................. 100 100 48,192 7,917,750
Net income....................................................... -- -- -- 331,058
--- ----- ------------- ------------
DECEMBER 31, 1996.................................................. 100 100 48,192 8,248,808
Net income....................................................... -- -- -- 332,141
Capital Contribution for Logix Communications Corporation........ -- -- 1,000 --
Capital contribution from parent company (Note 4)................ -- -- 11,446,926 --
--- ----- ------------- ------------
DECEMBER 31, 1997.................................................. 100 $ 100 $ 11,496,118 $ 8,580,949
--- ----- ------------- ------------
--- ----- ------------- ------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE>
DOBSON WIRELINE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
<TABLE>
<CAPTION>
1995 1996 1997
------------ ------------- ------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income.......................................................... $ 499,543 $ 331,058 $ 332,141
Adjustments to reconcile net income to net cash provided by
operating activities--
Depreciation and amortization..................................... 4,124,045 4,478,933 4,931,315
Deferred credits.................................................. (153,530) (263,716) 36,205
Extraordinary loss on financing cost.............................. -- -- 350,788
Equity in loss (income) of unconsolidated partnership............. 170,266 103,424 (97,848)
Changes in current assets and liabilities--
Accounts receivable............................................... (1,053,761) 728,890 262,104
Inventory......................................................... (9,961) 6,612 (123,402)
Prepaid expenses and other........................................ 41,148 64,166 (648,133)
Accounts payable.................................................. 360,007 594,131 (535,368)
Accrued expenses.................................................. (221,955) 334,583 (843,810)
Deferred revenue and customer deposits............................ (96,780) (29,503) 24,648
------------ ------------- ------------
Net cash provided by operating activities....................... 3,659,022 6,348,578 3,688,640
------------ ------------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures................................................ (2,357,483) (3,902,015) (5,442,417)
Proceeds from sale of property, plant and equipment................. 23,500 -- --
(Increase) decrease in receivable--affiliate........................ (2,118,093) (1,421,790) 3,307,421
Deferred start-up costs............................................. -- (124,739) (1,101,322)
Investment in unconsolidated partnership and other.................. 261,043 (36,857) (208,013)
------------ ------------- ------------
Net cash used in investing activities........................... (4,191,033) (5,485,401) (3,444,331)
------------ ------------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from notes payable......................................... $ 700,000 $ 100,000 $ --
Repayments of notes payable......................................... -- (800,000) --
Proceeds from long-term debt........................................ 731,000 12,011,306 --
Repayments of long-term debt........................................ (1,738,144) (11,591,611) (1,669,747)
Redemption of RTFC subordinated capital certificates................ 67,950 57,632 1,051,057
Deferred financing costs............................................ -- (396,184) --
------------ ------------- ------------
Net cash used in financing activities........................... (239,194) (618,857) (618,690)
------------ ------------- ------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS.................. (771,205) 244,320 (374,381)
CASH AND CASH EQUIVALENTS, beginning of year.......................... 1,155,535 384,330 628,650
------------ ------------- ------------
CASH AND CASH EQUIVALENTS, end of year................................ $ 384,330 $ 628,650 $ 254,269
------------ ------------- ------------
------------ ------------- ------------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid for--
Interest (net of amounts capitalized)............................. $ 1,835,566 $ 1,728,405 $ 2,820,797
Income taxes...................................................... $ 253,031 $ 375,000 $ --
SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING AND FINANCING
ACTIVITIES:
Capital contribution from parent company through forgiveness of
long-term debt (Note 4)......................................... $ 11,446,926
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE>
DOBSON WIRELINE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION:
Dobson Wireline Company ("DWC") was incorporated as an Oklahoma corporation
in December 1997 as part of a reorganization by its parent company, Dobson
Communications Corporation ("Dobson Communications"). DWC and its subsidiaries
are referred to herein as the "Company." DWC is a wholly owned subsidiary of
Dobson Communications that provides, through its subsidiaries, voice, data and
Internet services to residential, business, government and other institutional
users in Oklahoma, Texas and Colorado. The Company provides these services
through three business segments: incumbent local exchange carrier ("ILEC")
operations, fiber optic telecommunications and competitive local exchange
carrier ("CLEC") operations. The consolidated financial statements of the
Company include the accounts of Dobson Wireline Company, Dobson Telephone
Company, Inc. ("Dobson Telephone"), Dobson Fiber Company, Inc. ("Dobson Fiber"),
Dobson Fiber/FORTE of Colorado, Inc., Logix Communications Corporation ("Logix")
and Dobson Network Management, Inc. collectively referred to herein as the
"Subsidiaries."
REORGANIZATION OF DOBSON COMMUNICATIONS
In January 1998, Dobson Communications transferred all of the common stock
of the Subsidiaries to DWC. The transaction was considered a reorganization of
entities under common control under which the accounting treatment of the
reorganization is similar to a pooling-of-interests.
Concurrent with the reorganization, the number of shares and par value of
the Company's authorized stock changed. All share and per share data are stated
to reflect the common stock changes.
The effects of all intercompany transactions between the Company and its
subsidiaries prior to the reorganization have been eliminated.
CAPITAL RESOURCES AND GROWTH
The Company's total indebtedness and debt service requirements will
substantially increase as a result of the transactions described in Note 12, and
the Company will be subject to significant financial restrictions and
limitations. If the Company is unable to borrow sufficient funds through the
bridge facility or the senior notes described in Note 12, the Company may be
unable to borrow additional funds from other sources 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.
ILEC
The Company, through Dobson Telephone, provides wireline telephone service
to nine contiguous exchanges in western Oklahoma and three contiguous exchanges
adjacent to and east of the Oklahoma City metropolitan area. Dobson Telephone
operates under the authority of the Federal Communications Commission ("FCC").
Rates charged by Dobson Telephone are regulated by the FCC and the Oklahoma
Corporation Commission. Dobson Telephone, like other wireline companies that
operate in rural areas
F-7
<PAGE>
DOBSON WIRELINE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. ORGANIZATION: (CONTINUED)
where the cost to provide service is higher than normal, receives high cost
support funds from state jurisdictions and the federal universal service fund.
Approximately 31%, 36% and 36% of the Company's revenue from its ILEC operations
for the year ended December 31, 1995, 1996 and 1997, respectively, was from
these two sources.
FIBER OPTIC TELECOMMUNICATIONS
The Company provides fiber optic telecommunications service between Oklahoma
City, Oklahoma and Amarillo, Texas through Dobson Fiber. In addition, the
Company has a 20% interest in and manages the FORTE of Colorado Partnership
which provides fiber optic telecommunication service between Springfield,
Colorado and Colorado Springs, Colorado.
CLEC
The Company commenced its CLEC operations in October 1997 through Logix.
Logix provides facilities based and resells integrated services including local
exchange, long distance, data, wireless, paging and Internet in Oklahoma City
and Tulsa, Oklahoma. Until October 1997, Logix's principal activities included
developing its business plans, procuring governmental authorizations, hiring
management and other key personnel, working on the design and development of its
competitive local exchange telephone networks and operations support systems
("OSS"), acquiring equipment and facilities and negotiating interconnection
agreements. Accordingly, Logix has incurred operating losses and operating cash
flow deficits.
Logix's success will be affected by the problems, expenses, and delays
encountered in connection with the formation of a new business, and the
competitive environment in which Logix intends to operate. Logix's performance
will further be affected by its ability to assess potential markets, secure
financing or raise additional capital, implement expanded interconnection and
collocation with ILEC facilities, lease adequate trunking capacity from ILECs or
other CLECs, purchase and install switches in additional markets, expand or
replace its OSS and other back office systems, develop a sufficient customer
base, and attract, retain, and motivate qualified personnel. Logix's networks
and telecommunications services are subject to significant regulation at the
federal, state and local levels. Delays in receiving required regulatory
approvals or the enactment of new adverse regulation or regulatory requirements
may have a material adverse effect upon Logix. Although management believes that
Logix will be able to successfully mitigate these risks, there is no assurance
that Logix will be able to do so or that Logix will ever operate profitably.
Expenses are expected to exceed revenues in each location in which Logix offers
service until sufficient customer base is established.
On March 26, 1998, DWC entered into a definitive agreement to purchase
substantially all of the assets of American Telco, Inc. and American Telco
Network Services, Inc. (collectively, "ATI") for $130 million, subject to
adjustment, as discussed in Note 12.
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
consolidates each subsidiary and partnership in which it has a controlling
interest. Significant intercompany accounts and transactions have been
F-8
<PAGE>
DOBSON WIRELINE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
eliminated. Investments in unconsolidated partnerships where the Company does
not have a controlling interest are accounted for under the equity method.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents on the accompanying consolidated balance sheets
includes cash and short-term investments with original maturities of three
months or less.
INVENTORY
The Company values its inventory at the lower of cost or market on the
first-in, first-out method of accounting.
IMPAIRMENT OF LONG-LIVED ASSETS
The Company assesses potential impairments of long-lived assets, certain
identifiable intangibles and excess of cost over original cost of assets
acquired 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.
DEFERRED COSTS
Deferred costs consist primarily of fees incurred to secure long-term debt,
start-up costs and organizational costs. Deferred start-up costs are amortized
on a straight-line basis over three years. Deferred financing costs are being
amortized on a straight-line basis over the term of the debt of eight years.
Amortization expense related to these costs of $8,694, $3,622 and $163,510 was
recorded in 1995, 1996 and 1997, respectively. As discussed in Note 12, the
Company wrote off its deferred start-up costs effective January 1, 1998.
EXCESS OF COST OVER ORIGINAL COST OF ASSETS ACQUIRED
The excess of cost over the original cost of assets acquired relates to
Dobson Telephone's acquisition of McLoud Telephone Company in 1985 and is being
amortized using the straight-line method over 40 years. Amortization expense of
$95,240 was recorded in 1995, 1996 and 1997.
ADVERTISING COSTS
Advertising costs are expensed as incurred and are included as selling,
general and administrative expenses in the accompanying consolidated statements
of operations.
INCOME TAXES
The Company files a consolidated income tax return with its parent, Dobson
Communications. 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
F-9
<PAGE>
DOBSON WIRELINE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
income taxes reflect the estimated future tax effects of temporary differences
between financial statement and tax bases of assets and liabilities at year-end.
Amounts owed to Dobson Communications for income taxes are reflected in
receivables-affiliates and deferred credits in the accompanying balance sheets.
REVENUE RECOGNITION
The Company records service revenues over the period they are earned. The
cost of providing service is recognized as incurred.
Toll revenue is billed in arrears. The Company accrued estimated unbilled
revenues for services provided of approximately $277,000 and $271,000 as of
December 31, 1996 and 1997, respectively, which are included in accounts
receivable in the accompanying consolidated balance sheets. Monthly access
charges are billed in advance and are reflected in deferred revenue and customer
deposits on the accompanying consolidated balance sheets.
EARNINGS PER SHARE
Basic net income per common share is computed by using the weighted average
number of shares of common stock outstanding during the year. In 1997, the
Company adopted SFAS No. 128, "Earnings Per Share" which did not change the
Company's reported net income per common share for 1995 and 1996. The Company
has not presented diluted earnings per share as it has no potentially dilutive
securities.
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.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 130, "Reporting
Comprehensive Income," effective for fiscal years beginning after December 15,
1997. Management of the Company will adopt this accounting standard as of
January 1, 1998. SFAS No. 130 requires that all items required to be recognized
under accounting standards as components of comprehensive income, consisting of
both net income and those items that bypass the statement of operations and are
reported as a separate component of stockholder's equity, be reported in a
financial statement that is displayed with the same prominence as other
financial statements. The Company does not believe that its comprehensive income
through December 31, 1997 will differ materially from net income.
At December 31, 1997, the Company adopted SFAS No. 131, "Disclosure about
Segments of an Enterprise and Related Information," which requires a new basis
of determining reportable segments (i.e., the management approach). This
approach (as contrasted with the prior requirement which utilized a specified
classification system for determining segments) designates the Company's
internal organization as used by management for making operating decisions and
assessing performance as the source of business segments. The Company is
organized into three business segments to facilitate the delivery of
F-10
<PAGE>
DOBSON WIRELINE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
service to customers: ILEC, Fiber and CLEC. Segment results are presented on
this new basis in Note 9 at December 31, 1995, 1996 and 1997.
3. PROPERTY, PLANT AND EQUIPMENT:
Property, plant and equipment are recorded at cost. Newly constructed
telephone systems and fiber optic cable systems are added to property, plant and
equipment at cost which includes contracted services, direct labor, materials,
overhead and capitalized interest. For the years ended December 31, 1995, 1996
and 1997, interest capitalized was not significant. 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, 1996 and 1997:
<TABLE>
<CAPTION>
USEFUL LIFE 1996 1997
----------- -------------- --------------
<S> <C> <C> <C>
Telephone systems and equipment...................................... 5-40 $ 42,659,436 $ 46,115,237
Fiber systems and equipment.......................................... 5-22 15,643,458 15,956,178
Buildings and improvements........................................... 20-40 2,857,835 3,379,420
Vehicles and other work equipment.................................... 3-10 2,348,439 2,774,902
Furniture and office equipment....................................... 5-10 1,701,020 2,167,201
Under construction................................................... 46,962 61,612
Land................................................................. 201,494 211,494
-------------- --------------
Property, plant and equipment...................................... 65,458,644 70,666,044
Accumulated depreciation............................................. (30,323,105) (34,689,632)
-------------- --------------
Property, plant and equipment, net................................. $ 35,135,539 $ 35,976,412
-------------- --------------
-------------- --------------
</TABLE>
4. LONG-TERM DEBT:
The Company's long-term debt as of December 31, 1996 and 1997, consisted of
the following:
<TABLE>
<CAPTION>
1996 1997
------------- -------------
<S> <C> <C>
Revolving credit facility.......................................................... $ 12,011,306 $ --
Mortgage notes payable............................................................. 29,744,726 28,639,359
------------- -------------
Total debt....................................................................... 41,756,032 28,639,359
Less--Current maturities........................................................... 1,190,924 1,140,824
------------- -------------
Total long-term debt............................................................. $ 40,565,108 $ 27,498,535
------------- -------------
------------- -------------
</TABLE>
REVOLVING CREDIT FACILITY
On February 28, 1997, the Dobson Communications' bank credit agreement was
amended and restated to provide Dobson Communications with a $200 million
revolving credit facility maturing in 2005. Interest on borrowings under this
credit agreement accrues at variable rates (weighted average rate of
F-11
<PAGE>
DOBSON WIRELINE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. LONG-TERM DEBT: (CONTINUED)
8.43% at December 31, 1997). The Company's portion of the initial proceeds were
used to refinance existing indebtedness, and for general corporate purposes. In
connection with the closing of the revolving credit facility, the Company
extinguished its then existing credit facility, and recognized a pretax loss of
approximately $351,000 as a result of writing off previously capitalized
financing costs associated with the old revolving credit facility. This loss has
been reflected as an extraordinary item, net of tax, in the Company's
consolidated statement of operations for the year ended December 31, 1997.
Effective December 31, 1997, Dobson Communications made a capital
contribution to the Company of approximately $11,447,000, which represented the
Company's outstanding portion of the revolving credit facility payable to Dobson
Communications.
MORTGAGE NOTES
The mortgage notes payable to the United States of America, through the
Rural Utilities Service ("RUS") and the Rural Telephone Bank ("RTB") with
interest rates ranging from 2% to 10.75% due in quarterly or monthly
installments maturing at various dates from 1998 to 2028. The mortgage notes are
secured by substantially all the assets of Dobson Telephone and contain, among
other things, restrictions on the payment of dividends and redemption of capital
stock, as defined. Under the long-term debt agreements, Dobson Telephone is
restricted, without RUS approval for Dobson Telephone, from making any loans to,
or in any manner extending its credit to various affiliates. The agreements also
prohibit payment of dividends or distributions or new investments in affiliated
companies unless after such action Dobson Telephone's current assets exceed its
current liabilities and its adjusted net worth (as defined in the agreement) is
at least 40% of (i) its adjusted assets (as defined in the agreement), or, (ii)
if smaller, the sum of 10% of its adjusted assets, plus 30% of the excess of its
adjusted net worth over 10% of its adjusted assets, if any, plus 30% of the
amount of any reduction of its adjusted net worth resulting from the declaration
or payment of dividends or other distributions.
Minimum future payments of long-term debt for years subsequent to December
31, 1997, are as follows:
<TABLE>
<S> <C>
1998........................................................... $1,140,824
1999........................................................... 1,171,514
2000........................................................... 1,209,193
2001........................................................... 1,230,378
2002........................................................... 1,274,207
2003 and thereafter............................................ 22,613,243
----------
$28,639,359
----------
----------
</TABLE>
5. EMPLOYEE BENEFIT PLAN:
Dobson Communications 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 $44,000, $40,000 and $47,000 during the years ended December 31,
1995, 1996 and 1997, respectively.
F-12
<PAGE>
DOBSON WIRELINE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6. TAXES:
Provision (benefit) for income taxes for the years ended December 31, 1995,
1996 and 1997, were as follows:
<TABLE>
<CAPTION>
1995 1996 1997
---------- ----------- ----------
<S> <C> <C> <C>
Federal income taxes-
Current......................................................... $ 478,513 $ 407,512 $ 302,870
Deferred........................................................ (82,200) (197,000) 38,000
Deferred investment tax credits amortized....................... (48,000) (48,000) (39,000)
State income taxes (current and deferred)......................... 42,836 20,000 35,000
---------- ----------- ----------
Total income tax provision (benefit).......................... $ 391,149 $ 182,512 $ 336,870
---------- ----------- ----------
---------- ----------- ----------
</TABLE>
The provisions for income taxes for the years ended December 31, 1995, 1996
and 1997, differ from amounts computed at the statutory rate as follows:
<TABLE>
<CAPTION>
1995 1996 1997
---------- ---------- ----------
<S> <C> <C> <C>
Income taxes at statutory rate (34%)............................... $ 302,835 $ 174,614 $ 301,410
Deferred investment credits amortized.............................. (48,000) (48,000) (39,000)
Amortization of excess of cost over original cost of assets
acquired......................................................... 32,000 32,000 32,000
State income taxes, net of Federal income tax effect............... 43,982 13,200 23,100
Other, net......................................................... 60,332 10,698 19,360
---------- ---------- ----------
$ 391,149 $ 182,512 $ 336,870
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
The tax effects of the temporary differences which gave rise to deferred tax
assets and liabilities at December 31, 1996 and 1997, were as follows:
<TABLE>
<CAPTION>
1996 1997
------------- -------------
<S> <C> <C>
Current deferred income taxes:
Accrued liabilities..................................................... $ -- $ 9,000
Deferred expenses....................................................... -- 17,000
------------- -------------
Net current deferred income tax asset................................. -- 26,000
Noncurrent deferred income taxes:
Fixed assets............................................................ (1,636,000) (1,700,000)
------------- -------------
Net noncurrent deferred income tax asset (liability).................. (1,636,000) (1,700,000)
------------- -------------
Total deferred income taxes........................................... $ (1,636,000) $ (1,674,000)
------------- -------------
------------- -------------
</TABLE>
Investment tax credits previously recorded by the Company for book purposes
have been deferred and are being amortized over the average lives of the
property giving rise to the credits. The investment tax credit amortization used
to offset income tax expense was $48,000 for each of the years ended December
31, 1995 and 1996, and $39,000 in 1997.
F-13
<PAGE>
DOBSON WIRELINE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6. TAXES: (CONTINUED)
At December 31, 1997, the Company had investment tax credit carryforwards
for tax purposes of $134,000, which may be utilized to reduce future Federal
income taxes payable. Unless utilized, the remaining investment tax credit
carryforwards will expire in 1999.
7. RELATED PARTY TRANSACTIONS:
The Company had receivables from Dobson Communications and certain of its
subsidiaries totaling $11,514,356 and $8,206,935 at December 31, 1996 and 1997,
respectively. These receivables represent advances to these entities net of
repayments and intercompany allocations. The net receivables from these
affiliates have been reflected as receivables-affiliates in the accompanying
balance sheets.
The Company carries telephone traffic and provides network monitoring for
affiliated companies of Dobson Communications. Fees of approximately $1,658,000
and $1,722,000 were earned from the affiliated companies for services provided
during 1996 and 1997, respectively, and are reflected in revenue in the
accompanying statements of operations.
8. ACCRUED EXPENSES:
The Company's accrued expenses as of December 31, 1996 and 1997, consisted
of the following:
<TABLE>
<CAPTION>
1996 1997
------------ ----------
<S> <C> <C>
Interest...................................................................... $ 508,077 $ 14,400
Property tax.................................................................. 321,495 --
Vacation, wages and other..................................................... 218,618 189,980
------------ ----------
Total accrued expenses...................................................... $ 1,048,190 $ 204,380
------------ ----------
------------ ----------
</TABLE>
9. REPORT OF BUSINESS SEGMENTS:
The Company operates in three reportable segments: ILEC, Fiber and CLEC.
These segments are strategic business units that offer different products and
services. The segments are managed separately because each business requires
different technology and marketing strategies. The accounting policies of the
segments are the same as those described in the summary of significant
accounting policies in Note 2. The Company evaluates and measures performance of
each segment based on operating cash flow. The Company accounts for intersegment
sales and transfers as if the sales or transfers were to third parties, that is,
at current market prices. The Company allocates corporate overhead, income taxes
and amortization of deferred financing cost to each segment. The segments do not
have significant noncash items other than depreciation and amortization in
reported profit or loss. A summary of the Company's operations by segment is as
follows:
F-14
<PAGE>
DOBSON WIRELINE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
9. REPORT OF BUSINESS SEGMENTS: (CONTINUED)
<TABLE>
<CAPTION>
1995 1996 1997
------------- ------------- -------------
<S> <C> <C> <C>
OPERATING INFORMATION:
Operating revenue--
ILEC
External...................................................... $ 13,697,428 $ 14,365,436 $ 15,361,080
Intersegment.................................................. 83,954 85,312 109,260
Fiber
External...................................................... 2,500,815 3,429,928 4,588,708
Intersegment.................................................. 23,961 22,597 80,058
CLEC (1)
External...................................................... 66,400 112,814 226,922
Intersegment.................................................. 239,220 170,160 220,500
Intersegment revenue (4)........................................ (347,135) (278,069) (409,818)
------------- ------------- -------------
Total operating revenue....................................... $ 16,264,643 $ 17,908,178 $ 20,176,710
------------- ------------- -------------
Operating income (loss)--
ILEC............................................................ $ 2,364,361 $ 2,284,638 $ 3,771,593
Fiber........................................................... 807,474 800,269 1,682,539
CLEC (1)........................................................ (34,368) (294,057) (2,212,003)
------------- ------------- -------------
Total operating income........................................ $ 3,137,467 $ 2,790,850 $ 3,242,129
------------- ------------- -------------
Operating cash flow-- (2)
ILEC............................................................ $ 5,549,431 $ 5,531,951 $ 7,031,493
Fiber........................................................... 1,732,922 2,012,580 3,104,075
CLEC (1)........................................................ (20,841) (274,748) (1,962,124)
------------- ------------- -------------
Total operating cash flow..................................... $ 7,261,512 $ 7,269,783 $ 8,173,444
------------- ------------- -------------
Interest expense, net-- (3)
ILEC............................................................ $ 1,367,552 $ 1,341,508 $ 1,282,710
Fiber........................................................... 607,519 852,661 1,161,204
------------- ------------- -------------
Total interest expense, net................................... $ 1,975,071 $ 2,194,169 $ 2,443,914
------------- ------------- -------------
Income (loss) before income taxes and extraordinary items
ILEC............................................................ $ 893,915 $ 924,713 $ 2,476,319
Fiber........................................................... 31,145 (117,087) 622,183
CLEC (1)........................................................ (34,368) (294,056) (2,212,003)
------------- ------------- -------------
Total income before income taxes and extraordinary items...... $ 890,692 $ 513,570 $ 886,499
------------- ------------- -------------
INVESTMENT INFORMATION:
Segment assets--
ILEC............................................................ $ 44,668,443 $ 43,303,275 $ 43,268,782
Fiber........................................................... 13,679,561 16,240,856 15,069,721
CLEC............................................................ 195,073 303,470 7,384,411
Intersegment receivables (4).................................... (4,648,685) (5,239,314) (13,769,558)
------------- ------------- -------------
Total segment assets.......................................... $ 53,894,392 $ 54,608,287 $ 51,953,356
------------- ------------- -------------
</TABLE>
F-15
<PAGE>
DOBSON WIRELINE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
9. REPORT OF BUSINESS SEGMENTS: (CONTINUED)
<TABLE>
<CAPTION>
1995 1996 1997
------------- ------------- -------------
<S> <C> <C> <C>
OTHER INFORMATION:
Depreciation and amortization--
ILEC............................................................ $ 3,185,070 $ 3,247,313 $ 3,259,900
Fiber........................................................... 925,448 1,212,311 1,421,536
CLEC............................................................ 13,527 19,309 249,879
------------- ------------- -------------
Total depreciation and amortization........................... $ 4,124,045 $ 4,478,933 $ 4,931,315
------------- ------------- -------------
Capital expenditures--
ILEC............................................................ 1,516,011 1,145,184 952,061
Fiber........................................................... 839,222 2,693,578 552,947
CLEC............................................................ 2,250 63,253 3,917,409
------------- ------------- -------------
Total capital expenditures.................................... $ 2,357,483 $ 3,902,015 $ 5,442,417
------------- ------------- -------------
</TABLE>
- ------------------------
(1) In 1996 and 1997, CLEC includes Logix and its predecessor and Dobson Network
Management, Inc. In 1995, CLEC includes Dobson Network Management, Inc.
(2) Operating cash flow is defined by the Company to be operating income
excluding the charge for depreciation and amortization expense.
(3) Included in interest expense is amortization expense of deferred financing
cost. The amortization expense is allocated to the Fiber segment based on
the segment's pro rata portion of total Dobson Communications' debt on the
date of debt issuance.
(4) The intersegment eliminations were included to reconcile reportable segment
activities to the Company's consolidated totals.
10. COMMITMENTS:
Future minimum lease payments required under operating leases that have an
initial or remaining noncancellable lease term in excess of one year at December
31, 1997, are as follows:
<TABLE>
<S> <C>
1998.............................................. $ 259,446
1999.............................................. 218,317
2000.............................................. 216,802
2001.............................................. 205,363
2002.............................................. 207,267
2003 and thereafter............................... 736,710
</TABLE>
Included in the annual lease commitments is approximately $194,000, payable
annually to an affiliated entity through July 2005. Lease expense under the
above leases was approximately $178,000, $199,000 and $240,000 for the years
ended December 31, 1995, 1996 and 1997, respectively.
F-16
<PAGE>
DOBSON WIRELINE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
11. 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 using a discounted cash flow analysis based 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>
1996 1997
---------------------------- ----------------------------
CARRYING CARRYING
AMOUNT FAIR VALUE AMOUNT FAIR VALUE
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Revolving credit facility................. $ 12,011,306 $ 12,011,306 $ -- $ --
Mortgage notes payable.................... 29,744,726 24,855,656 28,639,359 26,969,543
</TABLE>
12. SUBSEQUENT EVENTS:
PENDING ACQUISITIONS
On March 26, 1998, DWC entered into a definitive agreement to purchase the
stock of ATI for $130 million, subject to adjustment. ATI is based in Houston,
Texas and provides resale services primarily to business customers in five major
Texas markets, including Houston, Dallas, Ft. Worth, San Antonio and Austin. At
the time of the agreement, the Company placed $5 million into an escrow account
pending closing. DWC plans to finance the acquisition through the bridge
facility discussed below or through the issuance of senior notes.
On January 6, 1998, a subsidiary of the Company purchased from previously
assigned Zenex Communications, Inc. ("Zenex") contractual rights, information,
data and other rights with respect to certain of Zenex's long distance customers
located in areas served by Dobson Telephone for $105,000.
BRIDGE FACILITY
On March 24, 1998, DWC obtained a commitment letter for a $155 million
bridge facility (the "Bridge Facility"). The Bridge Facility will be used to
finance the ATI acquisition, to fund the Zenex purchase, and to provide
additional operating capital, absent the issuance of senior discount notes. The
facility will bear interest at 13%, increasing by 1% after six months from the
issuance date and increasing by an additional 0.5% at the end of each subsequent
three-month period. Interest will be payable quarterly in arrears and the Bridge
Facility will mature one year from the date of issuance. In addition, DWC must
pay a commitment fee equal to 1.25% of the principal amount and a takedown fee
of 1.5% of the principal amount of the Bridge Facility. The Bridge Facility will
be secured by substantially all of the assets of DWC, including the Pending
Acquisitions. The Bridge Facility is expected to be extinguished with proceeds
from either a private debt offering or through the issuance of senior rollover
notes (the "Rollover Notes"). The Rollover Notes would be used in their entirety
to redeem 100% of the outstanding principal amount of the Bridge Notes. The
Rollover Notes would bear interest at a variable rate and mature ten years after
the date of issuance. The Rollover Notes would be secured with the same assets
secured under the Bridge Notes.
F-17
<PAGE>
DOBSON WIRELINE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
12. SUBSEQUENT EVENTS: (CONTINUED)
ZENEX
On April 7, 1998, the Company entered into a non-binding letter of intent
with Zenex to purchase certain long distance customers and related assets of
Zenex, excluding Zenex's switch and the assets relating to Zenex's prepaid long
distance cards, for $500,000 and the assumption of certain liabilities of Zenex.
ACCOUNTING PRONOUNCEMENTS
In April 1998, the Accounting Standards Executive Committee issued Statement
of Position ("SOP") 98-5, "Reporting on the Costs of Start-Up Activities,"
effective for fiscal years beginning after December 15, 1998. The Company
adopted this SOP as of January 1, 1998. SOP 98-5 requires costs of start-up
activities and organization costs to be expensed as incurred. The Company will
recognize a pretax loss of approximately $1,128,000 as cumulative effect of
accounting change as a result of adopting this SOP.
F-18
<PAGE>
DOBSON WIRELINE COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1997 1998
------------- -------------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents........................................................ $ 254,269 $ 1,377,105
Accounts receivable, net......................................................... 1,792,231 2,049,967
Other current assets............................................................. 965,295 554,018
------------- -------------
Total current assets........................................................... 3,011,795 3,981,090
------------- -------------
PROPERTY, PLANT AND EQUIPMENT, net................................................. 35,976,412 37,016,990
------------- -------------
OTHER ASSETS:
Receivables--affiliates.......................................................... 8,206,935 --
Excess purchase price over book value of assets acquired, net.................... 2,676,203 2,652,393
Deferred costs, net.............................................................. 1,128,447 125,417
Escrow deposits.................................................................. -- 5,000,000
Investments in unconsolidated subsidiaries and other............................. 953,564 1,049,903
------------- -------------
Total other assets............................................................. 12,965,149 8,827,713
------------- -------------
Total assets................................................................. $ 51,953,356 $ 49,825,793
------------- -------------
------------- -------------
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES:
Accounts payable................................................................. $ 1,131,185 $ 714,730
Accrued expenses................................................................. 204,380 489,697
Current portion of long-term debt................................................ 1,140,824 1,198,214
Deferred revenue and customer deposits........................................... 67,448 122,770
------------- -------------
Total current liabilities...................................................... 2,543,837 2,525,411
LONG-TERM DEBT, net of current portion............................................. 27,498,535 27,164,863
PAYABLES--AFFILIATES............................................................... -- 496,936
DEFERRED CREDITS................................................................... 1,833,817 1,263,000
STOCKHOLDER'S EQUITY:
Class A Common Stock, $1 par value, 500 shares authorized and 100 shares issued
and outstanding................................................................ 100 100
Paid-in capital.................................................................. 11,496,118 11,496,118
Retained earnings................................................................ 8,580,949 6,879,365
------------- -------------
Total stockholder's equity..................................................... 20,077,167 18,375,583
------------- -------------
Total liabilities and stockholder's equity..................................... $ 51,953,356 $ 49,825,793
------------- -------------
------------- -------------
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
F-19
<PAGE>
DOBSON WIRELINE COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
---------------------------
1997 1998
------------ -------------
<S> <C> <C>
REVENUE.............................................................................. $ 4,780,340 $ 5,290,098
OPERATING EXPENSES:
Cost of service.................................................................... 778,038 1,698,813
Selling, general and administrative................................................ 1,719,942 3,683,439
Depreciation and amortization...................................................... 1,169,532 1,296,684
------------ -------------
Total operating expenses......................................................... 3,667,512 6,678,936
------------ -------------
OPERATING INCOME(LOSS)............................................................... 1,112,828 (1,388,838)
OTHER INCOME (EXPENSE):
Equity in income of unconsolidated partnership..................................... 22,902 25,403
Interest income.................................................................... 20 4,550
Interest expense................................................................... (604,959) (320,957)
Other.............................................................................. 9,864 9,710
------------ -------------
Total other expense, net......................................................... (572,173) (281,294)
INCOME(LOSS) BEFORE INCOME TAXES, EXTRAORDINARY ITEMS AND CUMULATIVE EFFECT OF CHANGE
IN ACCOUNTING PRINCIPLE............................................................ 540,655 (1,670,132)
INCOME TAX (PROVISION) BENEFIT....................................................... (205,449) 635,000
------------ -------------
INCOME(LOSS) BEFORE EXTRAORDINARY ITEMS AND CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING
PRINCIPLE.......................................................................... 335,206 (1,035,132)
EXTRAORDINARY EXPENSE, net of income tax benefit of $133,300 in 1997................. (217,488) --
CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE, net of income tax benefit of
$429,000 in 1998................................................................... -- (699,447)
------------ -------------
NET INCOME(LOSS)..................................................................... $ 117,718 $ (1,734,579)
------------ -------------
------------ -------------
BASIC NET INCOME (LOSS) APPLICABLE TO COMMON STOCKHOLDERS PER COMMON SHARE
Before extraordinary expense and cumulative effect of change in accounting
principle........................................................................ $ 3,352 $ (10,351)
Extraordinary expense.............................................................. (2,175) --
Cumulative effect of change in accounting principle and extraordinary expense...... -- (6,995)
------------ -------------
BASIC NET INCOME (LOSS) APPLICABLE TO COMMON STOCKHOLDERS PER COMMON SHARE........... $ 1,177 $ (17,346)
------------ -------------
------------ -------------
BASIC WEIGHTED AVERAGE COMMON SHARES OUTSTANDING..................................... 100 100
------------ -------------
------------ -------------
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
F-20
<PAGE>
DOBSON WIRELINE COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDING MARCH 31,
------------------------------
1997 1998
-------------- --------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)............................................................... $ 117,718 $ (1,734,579)
Adjustments to reconcile net income (loss) to net cash provided by operating
activities--
Depreciation and amortization................................................. 1,169,532 1,296,684
Deferred income taxes and investment tax credits.............................. (671,126) (570,817)
Extraordinary loss on financing cost.......................................... 350,788 --
Cumulative effect of change in accounting principle........................... 1,128,447
Equity in income of unconsolidated partnership................................ (22,902) (25,403)
Changes in current assets and liabilities--
Accounts receivable........................................................... 331,545 (257,736)
Other current assets.......................................................... 75,374 411,277
Accounts payable.............................................................. (1,070,483) (416,455)
Accrued expenses.............................................................. (144,499) 285,317
Deferred revenue and customer deposits........................................ (5,751) 55,322
-------------- --------------
Net cash provided by operating activities................................... 130,196 172,057
-------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures............................................................ (429,703) (2,334,605)
Deferred start-up costs......................................................... (432,166) --
Decrease (increase) in receivables/payables--affiliates, net.................... 1,781,464 8,703,871
Purchase of customer list....................................................... -- (125,417)
Acquisition escrow deposit...................................................... -- (5,000,000)
Investments in unconsolidated partnership and other............................. (550,693) (16,788)
Redemption of RTFC subordinated capital certificates............................ 1,051,057 --
-------------- --------------
Net cash provided by investing activities................................... 1,419,959 1,227,061
-------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayments of long-term debt.................................................... (599,879) (276,282)
-------------- --------------
Net cash used in financing activities....................................... (599,879) (276,282)
-------------- --------------
NET INCREASE IN CASH AND CASH EQUIVALENTS......................................... 950,276 1,122,836
CASH AND CASH EQUIVALENTS, beginning of period.................................... 628,178 254,269
-------------- --------------
CASH AND CASH EQUIVALENTS, end of period.......................................... $ 1,578,454 $ 1,377,105
-------------- --------------
-------------- --------------
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
F-21
<PAGE>
DOBSON WIRELINE COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
The condensed consolidated balance sheets of Dobson Wireline Company ("DWC")
and subsidiaries (collectively with DWC, the "Company") as of March 31, 1998 and
December 31, 1997, the condensed consolidated statements of operations for the
three months ended March 31, 1997 and 1998, and the condensed consolidated
statements of cash flows for the three months ended March 31, 1997 and 1998 are
unaudited. In the opinion of management, such financial statements include all
adjustments, consisting only of normal recurring adjustments necessary for a
fair presentation of financial position, results of operations, and cash flows
for the periods presented.
The condensed balance sheet data at December 31, 1997 was derived from
audited financial statements, but does not include all disclosures required by
generally accepted accounting principles. The financial statements presented
herein should be read in connection with the Company's December 31, 1997
consolidated financial statements.
1. ORGANIZATION
DWC was incorporated as an Oklahoma corporation in December, 1997 as part of
a reorganization by its parent company, Dobson Communications Corporation
("Dobson Communications"). DWC is a wholly owned subsidiary of Dobson
Communications that provides, through its subsidiaries, voice, data and Internet
services to residential, business, government and other institutional users in
Oklahoma, Texas and Colorado. The Company provides these services through three
business segments: incumbent local exchange carrier ("ILEC") operations, fiber
optic telecommunications and competitive local exchange carrier ("CLEC")
operations. The consolidated financial statements of the Company include the
accounts of Dobson Wireline Company, Dobson Telephone Company, Inc. ("Dobson
Telephone"), Dobson Fiber Company, Inc. ("Dobson Fiber"), Dobson Fiber/FORTE of
Colorado, Inc., Logix Communications Corporation ("Logix") and Dobson Network
Management, Inc. collectively referred to herein as the "Subsidiaries."
REORGANIZATION OF DOBSON COMMUNICATIONS
In January, 1998, Dobson Communications transferred all of the common stock
of the Subsidiaries to DWC. The transaction was considered a reorganization of
entities under common control under which the accounting treatment of the
reorganization is similar to a pooling-of-interests.
Concurrent with the reorganization, the number of shares and par value of
the Company's authorized stock changed. All share and per share data are stated
to reflect the common stock changes.
The effects of all intercompany transactions, including the transactions
prior to the reorganization, have been eliminated.
2. ACQUISITIONS
On March 26, 1998, the Company entered into a definitive agreement to
purchase the common stock of American Telco, Inc. ("ATI") for $130 million,
subject to adjustment. ATI is based in Houston, TX and provides
telecommunications services to customers in five major Texas markets, including
Houston, Dallas, Fort Worth, San Antonio and Austin. The Company closed this
acquisition on June 15, 1998, using the proceeds from the debt offering
described in Note 6.
F-22
<PAGE>
DOBSON WIRELINE COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
3. EARNINGS PER COMMON SHARE
Basic income (loss) per common share is computed by using the weighted
average number of shares of common stock outstanding during the year. Diluted
net loss per common share has been omitted because the Company has no
potentially dilutive securities.
4. RECENT PRONOUNCEMENTS
In April, 1998, the Accounting Standards Executive Committee issued
Statement of Position ("SOP") 98-5, "Reporting on the Costs of Start-Up
Activities," effective for fiscal years beginning after December 15, 1998. The
Company adopted SOP 98-5 as of January 1, 1998. SOP 98-5 requires costs of
start-up activities and organization costs to be expensed as incurred. The
Company has recognized a pretax loss of approximately $1.1 million as a result
of adopting this SOP. This loss has been reflected as a cumulative effect of
change in accounting principle, net of tax, in the accompanying condensed
consolidated statement of operations.
5. REPORT OF BUSINESS SEGMENTS
The Company operates in three reportable segments: ILEC, Fiber and CLEC.
These segments are strategic business units that offer different products and
services. They are managed separately because each business requires different
technology and marketing strategies. The accounting policies of the segments are
the same as those of the Company. The Company evaluates and measures performance
of each segment based on operating cash flow. The Company accounts for
intersegment sales and transfers as if the sales or transfers were to third
parties, that is, at current market prices. The Company allocates corporate
overhead, income taxes and amortization of deferred financing cost to each
segment. The
F-23
<PAGE>
DOBSON WIRELINE COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
5. REPORT OF BUSINESS SEGMENTS (CONTINUED)
segments do not have significant noncash items other than depreciation and
amortization in reported profit or loss. A summary of the Company's operations
by segment is as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
---------------------------
1997 1998
------------ -------------
<S> <C> <C>
OPERATING INFORMATION:
Operating revenue
ILEC
External............................................................. $ 3,701,679 $ 3,768,978
Fiber
External............................................................. 1,041,085 1,153,015
Intersegment......................................................... 20,000 55,000
CLEC
External............................................................. 37,576 368,105
Intersegment......................................................... 41,500 45,569
Intersegment revenue (1)............................................... (61,500) (100,569)
------------ -------------
Total operating revenue.............................................. 4,780,340 5,290,098
Income (loss) before income taxes, extraordinary items and cumulative
effect of accounting changes
ILEC................................................................... 540,713 898,318
Fiber.................................................................. 96,305 482,775
CLEC................................................................... (96,363) (3,051,225)
------------ -------------
Total income (loss) before income taxes, extraordinary items and
cumulative effect of accounting changes............................ $ 540,655 $ (1,670,132)
------------ -------------
------------ -------------
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1997 1998
------------- -------------
<S> <C> <C>
INVESTMENT INFORMATION:
Segment assets
ILEC................................................................. $ 42,490,224 $ 45,057,863
Fiber................................................................ 14,709,691 16,785,775
CLEC................................................................. 1,776,791 12,291,022
Intersegment receivables (1)......................................... (7,023,350) (24,308,867)
------------- -------------
Total segment assets............................................... $ 51,953,356 $ 49,825,793
------------- -------------
------------- -------------
</TABLE>
- ------------------------
(1) The intersegment eliminations were included to reconcile reportable segment
activities to the Company's consolidated totals.
6. SUBSEQUENT EVENT
On June 12, 1998, the Company sold $350 million of 12 1/4% senior notes due
2008. A portion of the proceeds were used to close the ATI Acquisition and
purchase approximately $122 million of securities to be held in escrow to pay
the first six scheduled semi-annual interest payments on the debt.
F-24
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of
American Telco, Inc. and American Telco Network Services, Inc.
In our opinion, the accompanying combined balance sheets and the related
combined statements of income and retained earnings and of cash flows present
fairly, in all material respects, the financial position of American Telco, Inc.
and American Telco Network Services, Inc. (the Companies) at December 31, 1996
and 1997, and the results of their operations and their cash flows for each of
the three years ended December 31, 1997 in conformity with generally accepted
accounting principles. These financial statements are the responsibility of the
Companies' management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
statements in accordance with generally accepted auditing standards which
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, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
Houston, Texas
March 12, 1998
F-25
<PAGE>
AMERICAN TELCO, INC. AND AMERICAN TELCO NETWORK SERVICES, INC.
COMBINED BALANCE SHEET
DECEMBER 31, 1996 AND 1997
ASSETS
<TABLE>
<CAPTION>
1996 1997
------------- -------------
<S> <C> <C>
Current assets:
Cash and cash equivalents........................................................ $ 647,427 $ 173,502
Accounts receivable--trade, net of allowance for doubtful accounts of $240,107
and $255,464, respectively..................................................... 4,622,870 6,031,822
Prepaid expenses................................................................. 91,139 112,457
------------- -------------
Total current assets........................................................... 5,361,436 6,317,781
Property and equipment, net........................................................ 6,456,227 7,952,279
Other assets....................................................................... 29,880 491,997
------------- -------------
$ 11,847,543 $ 14,762,057
------------- -------------
------------- -------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Lines of credit.................................................................. $ -- $ 853,000
Current portion of long-term debt................................................ -- 74,488
Accounts payable................................................................. 4,197,500 5,502,721
Accrued expenses................................................................. 1,160,503 1,323,816
Deposits......................................................................... 44,770 45,072
------------- -------------
Total current liabilities...................................................... 5,402,773 7,799,097
Long-term debt..................................................................... 336,804
------------- -------------
Total liabilities.............................................................. 5,402,773 8,135,901
------------- -------------
Shareholders' equity:
Common stock..................................................................... 10,100 10,100
Additional paid-in capital....................................................... 900 900
Retained earnings................................................................ 6,433,770 6,615,156
------------- -------------
6,444,770 6,626,156
------------- -------------
Commitments and contingencies (Note 6)
------------- -------------
$ 11,847,543 $ 14,762,057
------------- -------------
------------- -------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-26
<PAGE>
AMERICAN TELCO, INC. AND AMERICAN TELCO NETWORK SERVICES, INC.
COMBINED STATEMENT OF INCOME AND RETAINED EARNINGS
YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
<TABLE>
<CAPTION>
1995 1996 1997
------------- ------------- -------------
<S> <C> <C> <C>
Revenues............................................................ $ 39,409,290 $ 44,275,734 $ 52,041,133
Cost of service..................................................... 21,583,189 22,981,931 29,453,698
Selling, general and administrative expenses........................ 12,635,738 15,701,621 18,540,195
Depreciation and amortization....................................... 1,757,968 1,937,529 2,600,963
------------- ------------- -------------
Total operating expenses............................................ 35,976,895 40,621,081 50,594,856
Income from operations.............................................. 3,432,395 3,654,653 1,446,277
Other income (expense):
Interest expense, net............................................. (201,474) (35,685) (195,988)
Other, net........................................................ (57,327) 34,064 228,097
------------- ------------- -------------
Net income.......................................................... 3,173,594 3,653,032 1,478,386
Retained earnings, beginning of year................................ 4,318,144 5,554,738 6,433,770
Distributions....................................................... (1,937,000) (2,774,000) (1,297,000)
------------- ------------- -------------
Retained earnings, end of year...................................... $ 5,554,738 $ 6,433,770 $ 6,615,156
------------- ------------- -------------
------------- ------------- -------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-27
<PAGE>
AMERICAN TELCO, INC. AND AMERICAN TELCO NETWORK SERVICES, INC.
COMBINED STATEMENT OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
<TABLE>
<CAPTION>
1995 1996 1997
------------- ------------- -------------
<S> <C> <C> <C>
Operating activities:
Net income......................................................... $ 3,173,594 $ 3,653,032 $ 1,478,386
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation..................................................... 1,757,968 1,937,529 2,600,963
Loss on sale of property and equipment........................... 107,830 18,044 15,410
Changes in operating assets and liabilities:
Accounts receivable.............................................. (627,935) (227,841) (1,408,952)
Prepaid expenses and other assets................................ 24,989 35,669 (9,659)
Accounts payable................................................. (340,120) 1,372,273 1,305,221
Accrued expenses................................................. 175,490 107,602 163,313
Deposits......................................................... 3,917 1,296 302
------------- ------------- -------------
Net cash provided by operating activities...................... 4,275,733 6,897,604 4,144,984
------------- ------------- -------------
Investing activities:
Purchase of property and equipment................................. (917,667) (3,174,116) (4,081,132)
Increase in other assets........................................... (507,000)
Proceeds from sale of property and equipment....................... 182,392 6,141 1,931
------------- ------------- -------------
Net cash used by investing activities.......................... (735,275) (3,167,975) (4,586,201)
------------- ------------- -------------
Financing activities:
Repayments of advances from an officer............................. (210,000) (250,000)
Net borrowings (payments) on revolving lines of credit............. (401,739) (725,663) 853,000
Proceeds from long-term debt....................................... 419,924
Principal payments on long-term debt............................... (222,222) (283,336) (8,632)
Distributions to shareholders...................................... (1,937,000) (2,774,000) (1,297,000)
------------- ------------- -------------
Net cash used by financing activities.......................... (2,770,961) (4,032,999) (32,708)
------------- ------------- -------------
Net increase (decrease) in cash...................................... 769,497 (303,370) (473,925)
Cash and cash equivalents, beginning of year......................... 181,300 950,797 647,427
------------- ------------- -------------
Cash and cash equivalents, end of year............................... $ 950,797 $ 647,427 $ 173,502
------------- ------------- -------------
------------- ------------- -------------
Supplemental cash flow information:
Cash paid for interest............................................. $ 210,666 $ 64,763 $ 190,884
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-28
<PAGE>
AMERICAN TELCO, INC. AND AMERICAN TELCO NETWORK SERVICES, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BUSINESS COMBINATION
The companies included in the accompanying combined financial statements,
American Telco, Inc. (ATI) and American Telco Network Services, Inc. (ATNSI)
(collectively, the Companies), are under common control. All material
intercompany transactions and profits or losses have been eliminated in these
combined financial statements.
ATI and ATNSI were incorporated in Texas on May 12, 1983 and December 29,
1986, respectively. ATI is a provider of local and long distance telephone
services and ATNSI provides related telecommunication services. In 1997, ATI
began to provide local telephone service to commercial customers in certain
major Texas cities. Local service revenues were less than 10% of total revenues
during 1997.
REVENUE RECOGNITION
The Companies use the full accrual method in recognizing telephone service
income when service is provided. Expenses associated with the cost of
telecommunications are accrued when service is used. Management believes the
Companies are not subject to significant concentrations of credit risk due to
the diverse nature of their customer base.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost and depreciated using the
straight-line method over their estimated useful lives; leasehold improvements
are amortized using the straight-line method over the lease term or the
estimated useful life of the related assets, whichever is shorter.
LONG-LIVED ASSETS
In accordance with Statement of Financial Accounting Standards No. 121 (FAS
121) "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of," the Companies review for the impairment of long-lived
assets and certain identifiable intangibles on a periodic basis and whenever
events or changes in circumstances indicate that the carrying amount of an asset
may not be recoverable. Under FAS 121, an impairment loss would be recognized
when estimated future cash flows expected to result from the use of the asset
and its eventual disposition is less than its carrying amount. No such
impairment losses have been identified by the Companies through December 31,
1997.
INCOME TAXES
The Companies have elected to be treated as S Corporations for federal
income tax purposes. As such, no provision for federal income taxes has been
presented in these combined financial statements since taxes are to be paid by
the shareholders individually. In 1997 certain costs amounting to approximately
$1,000,000 have been capitalized for financial reporting purposes that will be
expensed as incurred for tax purposes.
CASH EQUIVALENTS
The Companies consider all temporary cash investments purchased with an
original maturity of three months or less to be cash equivalents.
F-29
<PAGE>
AMERICAN TELCO, INC. AND AMERICAN TELCO NETWORK SERVICES, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
CAPITALIZED COSTS
Effective January 1, 1997, the Companies adopted the policy of capitalizing
costs incurred to increase the capacity of their telecommunications network.
Such costs were previously expensed as incurred. During 1997, the Companies
incurred and capitalized $257,000 related to network capacity upgrades. These
costs are included in other assets and are amortized using the straight-line
method over a period of four years. Management believes the impact on the
Companies' financial position and results of operations resulting from this
change in accounting principles is not material.
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 reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements, as well as the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates. Management
believes the estimates and assumptions used in the preparation of these
financial statements are reasonable.
2. PROPERTY AND EQUIPMENT, NET
Property and equipment comprised the following at December 31:
<TABLE>
<CAPTION>
ESTIMATED
DESCRIPTION USEFUL LIVES 1996 1997
- ------------------------------------------------------------- --------------- ------------- -------------
<S> <C> <C> <C>
Furniture and equipment...................................... 5-7 $ 5,006,021 $ 6,722,739
Switch equipment............................................. 5 3,854,871 5,217,303
Automatic call processors.................................... 5 3,025,835 3,550,408
Leasehold improvements....................................... 1-3 348,456 449,416
------------- -------------
12,235,183 15,939,866
Less--accumulated depreciation and amortization.............. (5,778,956) (7,987,587)
------------- -------------
$ 6,456,227 $ 7,952,279
------------- -------------
------------- -------------
</TABLE>
The Companies have capitalized $760,003 during 1997 of internal costs
related to the development of new customer service, local service, line charge
reconciliation and billing softwares developed during the year. This amount is
included in furniture and equipment at December 31, 1997.
3. INDEBTEDNESS
In September 1996, ATI entered into a credit agreement with a financial
institution. The credit agreement provides for an aggregate of $3,500,000 in
borrowings under a line of credit and under letters of credit. Borrowings under
the line of credit may not exceed 80% of eligible accounts receivable, and
letters of credit outstanding may not exceed $1,000,000. Advances bear interest
at prime, with an adjusted LIBOR rate option, and are secured by accounts
receivable, contract rights, deposit accounts and general intangibles. At
December 31, 1997, the outstanding balance under this facility was $853,000.
Maximum borrowings outstanding under the line of credit were $3,426,000 during
1997.
F-30
<PAGE>
AMERICAN TELCO, INC. AND AMERICAN TELCO NETWORK SERVICES, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
3. INDEBTEDNESS (CONTINUED)
At December 31, 1997, ATI had a long-term loan amounting to $411,292. The
loan bears interest at prime. Payments are made monthly and include $8,731 in
principal and the related interest accruing during the month. The term of the
loan is 60 months starting in December 1997.
These agreements require that certain restrictive and minimum financial
covenants be maintained.
The Companies also have received advances from certain
officers/shareholders.
4. SHAREHOLDERS' EQUITY
<TABLE>
<S> <C> <C>
COMMON STOCK
ATI -- Class A voting common stock, $.01 par value, 100,000 shares authorized, 100,000
issued and outstanding
ATI -- Class B nonvoting common stock, $.01 par value, 900,000 shares authorized,
900,000 issued and outstanding
ATNSI -- $.10 par value, 100,000 shares authorized, 1,000 issued and outstanding
</TABLE>
5. RELATED PARTY TRANSACTIONS
O.L.C. Company (OLC), an affiliate of the Companies prior to its sale to a
third party on July 3, 1997, provided telecommunications services to the
Companies totaling $5,835,000, $5,892,000 and $3,157,000 for the years ended
December 31, 1995 and 1996 and from January 1, 1997 to July 3, 1997,
respectively, which are included as direct costs in the accompanying combined
statement of income. The Companies had a balance of $772,358 owing to OLC as of
December 31, 1996, which is included in accounts payable in the accompanying
combined balance sheet.
The Companies charged a management fee totaling $192,000 to OLC for the
first six months of 1997 which is included in other income, net in the
accompanying combined statement of income.
The Companies paid promotional services to an affiliate totaling $210,000,
$259,000 and $225,000 for the years ended December 31, 1995, 1996 and 1997,
respectively.
6. OPERATING LEASES AND SERVICE AGREEMENTS
The Companies lease office space and equipment under noncancelable operating
leases. Future minimum lease payments under noncancelable operating leases are
as follows:
<TABLE>
<CAPTION>
OPERATING
YEAR ENDING DECEMBER 31, LEASES
- ------------------------------------------------------------ ------------
<S> <C>
1998........................................................ $ 1,103,764
1999........................................................ 845,878
2000........................................................ 896,241
2001........................................................ 784,870
2002........................................................ 483,587
Thereafter.................................................. 745,750
------------
$ 4,860,090
------------
------------
</TABLE>
F-31
<PAGE>
AMERICAN TELCO, INC. AND AMERICAN TELCO NETWORK SERVICES, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
6. OPERATING LEASES AND SERVICE AGREEMENTS (CONTINUED)
ATNSI has executed various agreements for leased lines to various cities.
Several of the agreements provide for, among other things, a cancelation charge
if the agreements are canceled before the first year.
7. PROFIT SHARING PLAN
ATI has adopted a profit sharing and employee savings plan under Section
401(k) of the Internal Revenue Code of 1986. Participants can contribute from 1%
to 20% of their pre-tax compensation and can receive a matching employer
contribution of up to 4% of the participants' eligible compensation for the plan
year. The amount of ATI's contribution to the plan is at the discretion of the
Board of Directors. ATI's 401(k) plan contribution expenses accrued at December
31, 1996 and 1997 were $232,136 and $92,412, respectively.
8. SUBSEQUENT EVENT
On March 6, 1998, the Company's shareholders signed a letter of intent to
sell the Company's operations to an unrelated third party.
F-32
<PAGE>
AMERICAN TELCO INC. AND AMERICAN TELCO NETWORK SERVICES, INC.
CONDENSED COMBINED BALANCE SHEET
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1997 1998
------------- -------------
(UNAUDITED)
<S> <C> <C>
Current assets:
Cash and cash equivalents........................................................ $ 173,502 $ 280,314
Accounts receivable--trade, net of allowance for doubtful accounts of $255,464
and $267,278, respectively..................................................... 6,031,822 7,348,347
Prepaid expenses................................................................. 112,457 158,519
------------- -------------
Total current assets........................................................... 6,317,781 7,787,180
Property and equipment, net........................................................ 7,952,279 7,897,921
Other assets....................................................................... 491,997 573,698
------------- -------------
$ 14,762,057 $ 16,258,799
------------- -------------
------------- -------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Lines of credit.................................................................. $ 853,000 $ 878,000
Current portion of long-term debt................................................ 74,488 74,488
Accounts payable................................................................. 5,502,721 5,554,603
Accrued expenses................................................................. 1,323,816 1,688,409
Deposits......................................................................... 45,072 52,594
------------- -------------
Total current liabilities...................................................... 7,799,097 8,248,094
Long-term debt..................................................................... 336,804 319,101
------------- -------------
Total liabilities.............................................................. 8,135,901 8,567,195
------------- -------------
Shareholders' equity:
Common stock..................................................................... 10,100 10,100
Additional paid-in capital....................................................... 900 900
Retained earnings................................................................ 6,615,156 7,680,604
------------- -------------
6,626,156 7,691,604
------------- -------------
Commitments (Note 4)...............................................................
------------- -------------
$ 14,762,057 $ 16,258,799
------------- -------------
------------- -------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-33
<PAGE>
AMERICAN TELCO INC. AND AMERICAN TELCO NETWORK SERVICES, INC.
CONDENSED COMBINED STATEMENT OF INCOME AND RETAINED EARNINGS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
----------------------------
1997 1998
------------- -------------
(UNAUDITED)
<S> <C> <C>
Revenues........................................................................... $ 12,133,101 $ 15,741,866
------------- -------------
Expenses:
Cost of service.................................................................. 6,825,027 9,405,537
Selling, general and administrative.............................................. 4,480,092 4,309,134
Depreciation and amortization.................................................... 615,426 715,456
------------- -------------
Total expenses................................................................. 11,920,545 14,430,127
------------- -------------
Income from operations............................................................. 212,556 1,311,739
Interest expense................................................................... (29,138) (61,798)
Other income (expenses), net....................................................... 13,519 (1,493)
------------- -------------
Net income......................................................................... 196,937 1,248,448
Retained earnings, beginning of period............................................. 6,433,770 6,615,156
Distributions to S Corporations' shareholders...................................... (145,170) (183,000)
------------- -------------
Retained earnings, end of period................................................... $ 6,485,537 $ 7,680,604
------------- -------------
------------- -------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-34
<PAGE>
AMERICAN TELCO INC. AND AMERICAN TELCO NETWORK SERVICES, INC.
CONDENSED COMBINED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
----------------------------
1997 1998
------------- -------------
(UNAUDITED)
<S> <C> <C>
Operating activities:--
Net income....................................................................... $ 196,937 $ 1,248,448
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation................................................................... 615,426 715,456
Loss on sale of property and equipment......................................... 653 15,239
Changes in operating assets and liabilities:
Accounts receivable............................................................ (1,300,690) (1,316,525)
Prepaid expenses and other assets.............................................. (22,503) (46,062)
Accounts payable............................................................... (441,773) 51,882
Accrued expenses............................................................... 543,412 364,593
Deposits....................................................................... (2,946) 7,522
------------- -------------
Net cash (used) provided by operating activities............................. (411,484) 1,040,553
------------- -------------
Investing activities:
Purchase of property and equipment, net.......................................... (1,149,824) (676,337)
Increase in other assets......................................................... (260,500) (81,701)
------------- -------------
Net cash used in investing activities........................................ (1,410,324) (758,038)
------------- -------------
Financing activities:
Net borrowings on revolving lines of credit...................................... 1,691,000 25,000
Principal payments on long-term debt............................................. (17,703)
Distributions to S Corporations' shareholders.................................... (145,170) (183,000)
------------- -------------
Net cash provided (used) by financing activities............................. 1,545,830 (175,703)
------------- -------------
Net (decrease) increase in cash.................................................... (275,978) 106,812
Cash and equivalents at beginning of period........................................ 647,427 173,502
------------- -------------
Cash and equivalents at end of period.............................................. $ 371,449 $ 280,314
------------- -------------
------------- -------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-35
<PAGE>
AMERICAN TELCO INC. AND AMERICAN TELCO NETWORK SERVICES, INC.
NOTES TO CONDENSED COMBINED FINANCIAL INFORMATION
MARCH 31, 1998
(UNAUDITED)
The condensed combined balance sheets of American Telco, Inc. and American
Telco Network Services, Inc. as of December 31, 1997 and March 31, 1998, the
condensed combined statements of operations and retained earnings for the three
months ended March 31, 1997 and 1998, and the condensed combined statements of
cash flows for the three months ended March 31, 1997 and 1998 are unaudited.
They do not include all information and notes required by generally accepted
accounting principles for complete financial statements. In the opinion of
management, such financial statements include all adjustments, consisting only
of normal recurring adjustments necessary for a fair presentation of financial
position, results of operations, and cash flows for the periods presented.
The condensed combined balance sheet data at December 31, 1997 was derived
from audited financial statements, but does not include all disclosures required
by generally accepted accounting principles. The financial statements presented
herein should be read in connection with the Companies' December 31, 1997
combined financial statements.
1. BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
The companies included in the accompanying combined financial statements,
American Telco, Inc. (ATI) and American Telco Network Services, Inc. (ATNSI)
(collectively, the Companies), are under common control. All material
intercompany transactions and profits and losses have been eliminated in these
combined financial statements.
ATI and ATNSI were incorporated in Texas on May 12, 1983 and December 29,
1986, respectively. ATI is a provider of local and long distance telephone
services and ATNSI provides related telecommunication services. In 1997, ATI
began to provide local telephone service to commercial customers in certain
major Texas cities. Local service revenues were less than 1% and approximately
10% of total revenues during the three months ended March 31, 1997 and 1998,
respectively.
REVENUE RECOGNITION
The Companies use the full accrual method in recognizing telephone service
income when service is provided. Expenses associated with the cost of
telecommunications are accrued when service is used. Management believes the
Companies are not subject to significant concentrations of credit risk due to
the diverse nature of their customer base.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost and depreciated using the
straight-line method over their estimated useful lives; leasehold improvements
are amortized using the straight-line method over the lease term or the
estimated useful life of the related assets, whichever is shorter.
INCOME TAXES
The Companies have elected to be treated as S Corporations for federal
income tax purposes. As such, no provision for federal income taxes has been
presented in those combined financial statements since income taxes are to be
paid by the shareholders individually.
F-36
<PAGE>
AMERICAN TELCO INC. AND AMERICAN TELCO NETWORK SERVICES, INC.
NOTES TO CONDENSED COMBINED FINANCIAL INFORMATION (CONTINUED)
MARCH 31, 1998
(UNAUDITED)
2. INDEBTEDNESS
In September 1996, ATI entered into a credit agreement with a financial
institution. The credit agreement provided for an aggregate of $3,500,000 in
borrowings under a line of credit and under letters of credit. During the three
months ended March 31, 1998, the line of credit was increased to $7,000,000.
Borrowings under the line of credit may not exceed 80% of eligible accounts
receivable and letters of credit outstanding may not exceed $1,000,000. Advances
bear interest at prime, with an adjusted LIBOR rate option, and are secured by
accounts receivable, contract rights, deposit accounts and general intangibles.
At March 31, 1998, the outstanding balance under this facility was $878,000.
At March 31, 1998, ATI had a long-term loan amounting to $393,589. The loan
bears interest at prime. Payments are made monthly and include $8,731 in
principal and related interest accruing during the month. The term of the loan
is 60 months starting in December 1997.
These agreements require that certain restrictive and minimum financial
covenants be maintained.
The Company also have received advances from certain officers/shareholders.
3. SHAREHOLDERS' EQUITY
COMMON STOCK
<TABLE>
<S> <C> <C>
ATI -- Class A voting common stock, $.01 par value, 100,000 shares authorized,
100,000 issued and outstanding
ATI -- Class B nonvoting common stock, $.01 par value, 900,000 shares authorized,
900,000 issued and outstanding
ATNSI -- $.10 par value, 100,000 shares authorized, 1,000 issued and outstanding
</TABLE>
4. COMMITMENT
On March 6, 1998, the Companies' shareholders signed a letter of intent to
sell the Companies' operations to an unrelated third party.
F-37
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
As permitted by the Oklahoma General Corporation Act under which the Company
is incorporated, the Company's Amended and Restated Certificate of Incorporation
provides for indemnification of each of the Company's officers and directors
against (a) expenses, including attorney's fees, judgments, fines and amounts
paid in settlement actually and reasonably incurred by him in connection with
any action, suit or proceeding brought by reason of his being or having been a
director, officer, employee or agent of the Company, or of any other
corporation, partnership, joint venture, or other enterprise at the request of
the Company, other than an action by or in the right of the Company, provided
that he acted in good faith and in a manner he reasonably believed to be in the
best interest of the Company, and with respect to any criminal action, he had no
reasonable cause to believe that his conduct was unlawful and (b) expenses
(including attorney's fees) actually and reasonably incurred by him in
connection with the defense or settlement of any action or suit by or in the
right of the Company brought by reason of his being or having been a director,
officer, employee or agent of the Company, or any other corporation,
partnership, joint venture, or other enterprise at the request of the Company,
provided that he acted in good faith and in a manner he reasonably believed to
be in or not opposed to the best interest of the Company; except that no
indemnification shall be made in respect of any claim, issue or matter as to
which such person shall have been adjudged liable to the Company, unless and
only to the extent that the court in which such action or suit was decided has
determined that the person is fairly and reasonably entitled to indemnification
for such expenses which the court shall deem proper. The Company's bylaws
provide for similar indemnification. These provisions may be sufficiently broad
to indemnify such persons for liabilities arising under the Securities Act of
1933, as amended.
The Company's directors and officers are also insured against claims arising
out of the performance of their duties in such capacities.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT METHOD OF
NUMBERS DESCRIPTION FILING
- --------- ------------------------------------------------------------------------------ -------------
<C> <S> <C>
3.1 Registrant's Certificate of Incorporation, as amended
3.2 Registrant's By-laws, as amended
4.1 Telephone Loan Contract dated as of November 7, 1958 between Dobson Telephone
Company, Inc. and United States of America. (1) [4.2]
4.2 Telephone Loan Contract dated as of March 19, 1956 between McLoud Telephone
Company and United States of America. (1) [4.3]
4.3 Telephone Loan Contract dated as of January 15, 1993 between Dobson Telephone
Company, Inc., Rural Telephone Bank and United States of America. (1) [4.4]
4.4 Restated Mortgage, Security Agreement and Financing Statement dated as of May
15, 1993 between Dobson Telephone Company and United States of America. (1) [4.5]
4.5 Indenture dated as of June 12, 1998 between the Registrant, as Issuer, and
United States Trust Company of New York, as Trustee.
</TABLE>
II-1
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT METHOD OF
NUMBERS DESCRIPTION FILING
- --------- ------------------------------------------------------------------------------ -------------
<C> <S> <C>
4.6 Escrow and Security Agreement dated June 12, 1998 among the Registrant as
Pledgor, and Morgan Stanley & Co. Incorporated, Montgomery Securities LLC as
Placement Agents, and United States Trust Company of New York, as Trustee.
4.7 Registration Rights Agreement dated June 12, 1998 between the Registrant and
Morgan Stanley & Co. Incorporated, and NationsBanc Montgomery Securities
LLC.
5 Opinion of McAfee & Taft A Professional Corporation.
10.1 Stock Purchase Agreement, dated as of March 26, 1998, between the shareholders
of American Telco Inc. and American Telco Network Services, Inc. and the
Registrant. (2)[2.1]
10.2 First Amendment to Stock Purchase Agreement among American Telco Inc. and
American Telco Network Services, Inc. and the Registrant. (2) [2.2]
10.3* Letter dated September 16, 1997 from Registrant to William J. Hoffman, Jr.,
describing employment arrangement. (3)[10.3.4]
11 Statement re computation of per share earnings.
12 Statement re computation of ratios.
21 Subsidiaries
23.1 Consent of McAfee & Taft A Professional Corporation is contained in Exhibit 5
hereto.
23.2 Consent of Arthur Andersen LLP.
23.3 Consent of Price Waterhouse LLP.
24 Power of Attorney.
25 Statement of eligibility of Trustee.
27 Financial Data Schedule.
99.1 Letter of Transmittal.
99.2 Notice of Guarantee of Delivery.
99.3 Company letter.
99.4 Client letter.
99.5 Guidelines for certification of taxpayer identification number.
</TABLE>
- ------------------------
All exhibits not filed herewith are either:
(1) Filed as an exhibit to the Registration Statement on Form S-4
(Registration No. 33-23769), as the exhibit number indicated in brackets,
by Dobson Communications Corporation, the Registrant's parent, and
incorporated herein by reference;
(2) Filed as an exhibit to Current Report on Form 8-K on June 30, 1998, of
Dobson Communications Company, the Registrant's parent (File No.
333-23769), as the exhibit number indicated in brackets, and incorporated
herein by reference; or
(3) Filed as an exhibit the Annual Report on Form 10-K for the year ended
December 31, 1997, of Dobson Communications Company, the Registrant's
parent, as the exhibit number indicated in brackets, and incorporated
herein by reference.
* Management contract or compensatory plan or arrangement.
(b) Financial Statement Schedules
None.
II-2
<PAGE>
ITEM 22. UNDERTAKINGS.
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this Registration Statement:
(i) To include any prospectus required by section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the Registration Statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth in
the Registration Statement;
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the Registration Statement or
any material change to such information in the Registration Statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at the time shall be deemed to
be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
The undersigned Registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Items 4, 10(b), 11 or 13 of this Form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the Registration Statement through the
date of responding to the request.
The undersigned Registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the Registration Statement when it became effective.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registration pursuant to the provisions described under Item 20, or otherwise,
the Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnifications against public policy as expressed in
the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this amended 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 8th day of July, 1998.
<TABLE>
<S> <C> <C>
DOBSON WIRELINE COMPANY
By: /s/ EVERETT R. DOBSON
-----------------------------------------
Everett R. Dobson
CHAIRMAN OF THE BOARD AND CHIEF EXECUTIVE
OFFICER
</TABLE>
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities indicated on the 8th day of July, 1998.
NAME TITLE
- ------------------------------ ----------------------------------------
/s/ EVERETT R. DOBSON Chairman of the Board and Chief
- ------------------------------ Executive Officer (Principal Executive
Everett R. Dobson Officer)
/s/ STEPHEN T. DOBSON
- ------------------------------ President and Director
Stephen T. Dobson
/s/ BRUCE R. KNOOIHUIZEN
- ------------------------------ Vice President and Chief Financial
Bruce R. Knooihuizen Officer (Principal Financial Officer)
/s/ TRENTON W. LEFORCE
- ------------------------------ Corporate Controller (Principal
Trenton W. LeForce Accounting Officer)
/s/ RUSSELL L. DOBSON
- ------------------------------ Director
Russell L. Dobson
/s/ JUSTIN L. JASCHKE
- ------------------------------ Director
Justin L. Jaschke
/s/ THADEUS J. MOCARSKI
- ------------------------------ Director
Thadeus J. Mocarski
II-4
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT METHOD OF
NUMBERS DESCRIPTION FILING
- --------- ------------------------------------------------------------------------------ -------------
<C> <S> <C>
3.1 Registrant's Certificate of Incorporation, as amended
3.2 Registrant's By-laws, as amended
4.1 Telephone Loan Contract dated as of November 7, 1958 between Dobson Telephone
Company, Inc. and United States of America. (1) [4.2]
4.2 Telephone Loan Contract dated as of March 19, 1956 between McLoud Telephone
Company and United States of America. (1) [4.3]
4.3 Telephone Loan Contract dated as of January 15, 1993 between Dobson Telephone
Company, Inc., Rural Telephone Bank and United States of America. (1) [4.4]
4.4 Restated Mortgage, Security Agreement and Financing Statement dated as of May
15, 1993 between Dobson Telephone Company and United States of America. (1) [4.5]
4.5 Indenture dated as of June 12, 1998 between the Registrant, as Issuer, and
United States Trust Company of New York, as Trustee.
4.6 Escrow and Security Agreement dated June 12, 1998 among the Registrant as
Pledgor, and Morgan Stanley & Co. Incorporated, Montgomery Securities LLC as
Placement Agents, and United States Trust Company of New York, as Trustee.
4.7 Registration Rights Agreement dated June 12, 1998 between the Registrant and
Morgan Stanley & Co. Incorporated, and NationsBanc Montgomery Securities
LLC.
5 Opinion of McAfee & Taft A Professional Corporation.
10.1 Stock Purchase Agreement, dated as of March 26, 1998, between the shareholders
of American Telco Inc. and American Telco Network Services, Inc. and the
Registrant. (2)[2.1]
10.2 First Amendment to Stock Purchase Agreement among American Telco Inc. and
American Telco Network Services, Inc. and the Registrant. (2) [2.2]
10.3* Letter dated September 16, 1997 from Registrant to William J. Hoffman, Jr.,
describing employment arrangement. (3)[10.3.4]
11 Statement re computation of per share earnings.
12 Statement re computation of ratios.
21 Subsidiaries
23.1 Consent of McAfee & Taft A Professional Corporation is contained in Exhibit 5
hereto.
23.2 Consent of Arthur Andersen LLP.
23.3 Consent of Price Waterhouse LLP.
24 Power of Attorney.
25 Statement of eligibility of Trustee.
27 Financial Data Schedule.
99.1 Letter of Transmittal.
99.2 Notice of Guarantee of Delivery.
99.3 Company letter.
99.4 Client letter.
99.5 Guidelines for certification of taxpayer identification number.
</TABLE>
- ------------------------
All exhibits not filed herewith are either:
<PAGE>
(1) Filed as an exhibit to the Registration Statement on Form S-4
(Registration No. 33-23769), as the exhibit number indicated in brackets,
by Dobson Communications Corporation, the Registrant's parent, and
incorporated herein by reference;
(2) Filed as an exhibit to Current Report on Form 8-K on June 30, 1998, of
Dobson Communications Company, the Registrant's parent (File No.
333-23769), as the exhibit number indicated in brackets, and incorporated
herein by reference; or
(3) Filed as an exhibit the Annual Report on Form 10-K for the year ended
December 31, 1997, of Dobson Communications Company, the Registrant's
parent, as the exhibit number indicated in brackets, and incorporated
herein by reference.
* Management contract or compensatory plan or arrangement.
<PAGE>
CERTIFICATE OF INCORPORATION
OF
DOBSON WIRELINE COMPANY
FIRST: The name of the corporation is DOBSON WIRELINE COMPANY.
SECOND: The address of the corporation's registered office in the State
of Oklahoma is 13439 North Broadway Extension, Oklahoma City, Oklahoma,
73114. The name of the corporation's registered agent at such address is
Everett R. Dobson.
THIRD: The purpose of the corporation is to engage in any lawful act or
activity for which corporations may be organized under the general
corporation law of the State of Oklahoma.
FOURTH: The total number of shares of stock which the corporation shall
have authority to issue is 500 shares, with a par value of $1.00 per share,
all of which shall be Common Stock.
The Board of Directors of the corporation shall have full authority, to
the extent permitted by law, to increase, decrease or otherwise adjust the
capital stock of the corporation, to designate the classes or series thereof
and to determine whether all or any part of such stock shall have voting
powers, full or limited, or no voting powers, and to determine such
designations, and such powers, preferences, relative, participating or
optional, or other special rights and the qualifications, limitations or
restrictions thereof as the Board shall from time to time determine in duly
adopted resolutions.
At any time and from time to time when authorized by resolution of the
Board of Directors and without any action by its shareholders, the
corporation may issue or sell any shares of its capital stock of any class or
series, whether out of the unissued shares thereof authorized by the
Certificate of Incorporation of the corporation as originally filed or by an
amendment thereof or out of shares of its capital stock acquired by it after
the issue thereof, and whether or not the shares thereof so issued or sold
shall confer upon the holders thereof the right to exchange or convert such
shares for or into other classes or any series thereof. When similarly
authorized, but without any action by its shareholders, the corporation may
issue or grant rights, warrants or options, in bearer or registered or such
other form as the Board of Directors may determine, for the purchase of
shares of the capital stock of any class or series of the corporation within
such period of time, or without limit as to time, to such aggregate number of
shares, and at such price per share, as the board of Directors may determine.
Such rights, warrants or options may be issued or granted separately or in
connection with the issue of any bonds, debentures, notes, obligations or
other evidences of indebtedness or shares of the capital stock of any class
or series of the corporation and for such consideration and
<PAGE>
on such terms and conditions as the Board of Directors in its sole discretion
may determine. In each case, the consideration to be received by the
corporation for any such shares so issued or sold shall be such as shall be
fixed from time to time by resolution of the Board of Directors.
FIFTH: The name and mailing address of the incorporator is as follows:
<TABLE>
<CAPTION>
NAME MAILING ADDRESS
---- ---------------
<S> <C>
Ken D. Kerr, Jr. 401 N. Hudson
Oklahoma City, OK 73102
</TABLE>
SIXTH: In furtherance and not in limitation of the powers conferred by
statute, the Board of Directors is expressly authorized:
(a) To adopt, amend or repeal the Bylaws of the corporation;
(b) To authorize and cause to be executed or granted mortgages,
security interests and liens upon the real and personal property of the
corporation;
(c) To set apart out of any of the funds of the corporation available
for dividends a reserve or reserves for any proper purpose and to abolish
any such reserve in the manner in which it was created;
(d) By a majority of the whole Board of Directors, to designate one
or more committees, each committee to consist of one (1) or more of the
directors of the corporation. The board may designate one (1) or more
directors as alternate members of any committee, who may replace any absent
or disqualified member at any meeting of the committee. Any such
committee, to the extent provided in the resolution or in the Bylaws of the
corporation, shall have and may exercise the powers of the Board of
Directors in the management of the business and affairs of the corporation,
and may authorize the seal of the corporation to be affixed to all papers
which may require it; provided, however, the Bylaws may provide that in the
absence or disqualification of any member of such committee or committees,
the member or members thereof present at any meeting and not disqualified
from voting, whether or not he or they constitute a quorum, may unanimously
appoint another member of the Board of Directors to act at the meeting in
the place of any such absent or disqualified member; and
(e) When and as authorized by the affirmative vote of the holders of
a majority of the stock issued and outstanding
<PAGE>
having voting power given at a shareholders' meeting duly called upon
such notice as is required by law, or when authorized by the written
consent of the holders of a majority of the voting stock issued and
outstanding, to sell, lease or exchange all or substantially all of the
property and assets of the corporation, including its goodwill and its
corporate franchises, upon such terms and conditions and for such
consideration, which may consist in whole or in part of other securities
of, any other corporation or corporations, as its Board of Directors
shall deem expedient and for the best interests of the corporation.
SEVENTH: Whenever a compromise or arrangement is proposed between this
corporation and its creditors or any class of them and/or between this
corporation and its shareholders or any class of them, any court of equitable
jurisdiction within the State of Oklahoma, on the application in a summary
way of this corporation or of any creditor or shareholder thereof, or on the
application of any receiver or receivers appointed for this corporation under
the provisions of Section 1106 of Title 18 of the Oklahoma Statutes or on the
application of trustees in dissolution or of any receiver or receivers
appointed for this corporation under the provisions of Section 1100 of Title
18 of the Oklahoma Statutes order a meeting of the creditors or class of
creditors, and/or of the shareholders or class of shareholders of this
corporation, as the case may be, to be summoned in such manner as the court
directs. If a majority in number representing three-fourths (3/4ths) in
value of the creditors or class of creditors, and/or of the shareholders or
class of shareholders of this corporation, as the case may be, agree to any
compromise or arrangement and to any reorganization of this corporation as
consequence of such compromise or arrangement, the compromise or arrangement
and the reorganization shall, if sanctioned by the court to which the
application has been made, be binding on all the creditors or class of
creditors and/or on all the shareholders or class of shareholders of this
corporation, as the case may be, and also this corporation.
EIGHTH: Meetings of shareholders may be held within or out of the State
of Oklahoma, as the Bylaws may provide. The books of the corporation may be
kept (subject to applicable law) inside or outside the State of Oklahoma at
such place or places as may be designated from time to time by the Board of
Directors or in the Bylaws of the corporation. Elections of directors need
not be by written ballot unless the Bylaws of the corporation shall so
provide.
NINTH: To the extent permitted by law, no contract or transaction
between the corporation and one or more of its directors or officers, or
between the corporation and any other corporation, partnership, association
or other organization in which one or more of its directors or officers are
directors or officers or have a financial interest, shall be void or voidable
solely for this reason, or solely because the directors or
<PAGE>
officers are present at or participate in the meeting of the board or
committee thereof which authorized the contract or transaction, or solely
because the directors or officers or their votes are counted for such purpose.
TENTH: A director of the corporation shall not be personally liable to
the corporation or its shareholders for damages for breach of fiduciary duty
as a director, except for personal liability for (i) acts or omissions by
such director not in good faith or which involve intentional misconduct or a
knowing violation of law; (ii) the payment of dividends or the redemption or
purchase of stock in violation of Section 1041 or Section 1052 of the Act;
(iii) any breach of such director's duty of loyalty to the corporation or its
shareholders; or (iv) any transaction from which such director derived an
improper personal benefit.
The corporation shall indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative
(other than an action by or in the right of the corporation) by reason of the
fact that he is or was a director, officer, employee or agent of the
corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership,
joint venture, or other enterprise, against expenses (including attorneys'
fees), judgments, fines, and amounts paid in settlement actually and
reasonably incurred by him in connection with such action, suit or
proceeding, if he acted in good faith and in a manner he reasonably believed
to be in the best interest of the corporation and, with respect to any
criminal action or proceeding, had no reasonable cause to believe that his
conduct was unlawful. The termination of any action, suit or proceeding by
judgment, order, settlement, conviction or upon a plea of nolo contendere or
its equivalent shall not itself create a presumption that the person did not
act in good faith and in a manner which he reasonably believed to be in, or
not opposed to, the best interests of the corporation and with respect to any
criminal action or proceeding had reasonable cause to believe that his
conduct was unlawful.
The corporation shall indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action
or suit by or in the right of the corporation to procure a judgment in its
favor by reason of the fact that he is or was a director, officer, employee
or agent of the corporation or is or was serving at the request of the
corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise against expenses
(including attorney's fees) actually and reasonably incurred by him in
connection with the defense or settlement of such action or suit, if he acted
in good faith and in a manner he reasonably believed to be in or not opposed
to the best interest of the corporation; except that no indemnification shall
be made in respect of any claim, issue or matter as to which
<PAGE>
such person shall have been adjudged to be liable to the corporation unless
and only to the extent that the court in which such action or suit was
brought shall determine, upon application, that despite the adjudication of
liability, but in the view of all the circumstances of the case, such person
is fairly and reasonably entitled to indemnity for such expenses which the
court shall deem proper.
Expenses, including fees and expenses of counsel, incurred in defending
a civil, criminal, administrative or investigative action, suit or proceeding
may be paid by the corporation in advance of the final disposition of such
action, suit or proceeding upon receipt of an undertaking by or on behalf of
the director, officer, employee or agent to repay such amount if it shall
ultimately be determined that he is not entitled to be indemnified by the
corporation as authorized herein.
The corporation may purchase (upon resolution duly adopted by the Board
of Directors) and maintain insurance on behalf of any person who is or was a
director, officer, employee or agent of the corporation, or is or was serving
at the request of the corporation as a director, officer, employee or agent
of another corporation, partnership, joint venture, trust or other enterprise
against any liability asserted against any liability asserted against him and
incurred by him in any such capacity, or arising out of his status as such,
whether or not the corporation would have the power to indemnify him against
such liability.
To the extent that a director, officer, employee or agent of, or any
other person entitled to indemnity hereunder by, the corporation has been
successful on the merits or otherwise in defense of any action, suit, or
proceeding referred to herein or in defense of any claim, issue or matter
therein, he shall be indemnified against expenses (including attorney's
fees) actually and reasonably incurred by him in connection therewith.
Every such person shall be entitled, without demand by him upon the
corporation or any action by the corporation, to enforce his right to such
indemnity in an action at law against the corporation. The right of
indemnification and advancement of expenses hereinabove provided shall not be
deemed exclusive of any rights to which any such person may now or hereafter
be otherwise entitled and specifically, without limiting the generality of
the foregoing, shall not be deemed exclusive of any rights pursuant to
statute or otherwise, of any such person in any such action, suit or
proceeding to have assessed or allowed in his favor against the corporation
or otherwise, his costs and expenses incurred therein or in connection
therewith or any part thereof.
ELEVENTH: In furtherance and not in limitation of the powers conferred
by the laws of the State of Oklahoma, the Board of Directors is expressly
authorized to adopt, amend or repeal the Bylaws of the corporation.
<PAGE>
TWELFTH: The corporation reserves the right to amend, alter, change or
repeal any provision contained in this Certificate of Incorporation, in the
manner now or hereafter prescribed by law, and all rights conferred upon the
shareholders herein are granted subject to this reservation.
THE UNDERSIGNED, being the incorporator hereinbefore named, for the
purpose of forming a corporation pursuant to the Oklahoma General Corporation
Act, make this Certificate, hereby declaring and certifying that this is the
act and deed of the undersigned and that the facts herein stated are true, as
of July 2, 1998.
/s/ KEN D. KERR, JR.
-------------------------------
KEN D. KERR, JR., INCORPORATOR
<PAGE>
BYLAWS
OF
DOBSON WIRELINE COMPANY
ARTICLE I
OFFICES
Section 1. The registered office shall be in the City of Oklahoma City,
County of Oklahoma, State of Oklahoma.
Section 2. 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 SHAREHOLDERS
Section 1. 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 Certificate of Incorporation, as may be amended, on file
with the Oklahoma Secretary of State.
Section 2. Meetings of shareholders 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 of shareholders, commencing with the year
1998, 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.,
at which they shall elect a board of directors, and transact such other
business as may be properly brought before the meeting.
Section 4. Written notice of the annual meeting, stating the place,
date and hour of such meeting, shall be given to each shareholder 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. 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 shareholders, a complete list of the shareholders 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 shareholder. Such list
shall be open to the examination of any shareholder, for any
<PAGE>
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
shareholder who may be present.
Section 6. Special meetings of the shareholders, 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 shareholders owning a majority in amount of the entire capital 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. Written notice of a special meeting of shareholders, stating
the place, date, hour and the purpose or purposes thereof, shall be given to
each shareholder entitled to vote thereat, not less than ten (10) days before
the date fixed for the meeting unless otherwise required by law.
Section 8. Business transacted at any special meeting of the
shareholders shall be limited to the purposes stated in the notice.
Section 9. 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 shareholders for the
transaction of business except as otherwise provided by law or by the
Certificate of Incorporation. If, however, such quorum shall not be present
or represented at any meeting of the shareholders, the shareholders proxy,
shall have power to adjourn the meeting from time to time, without notice
other than announcement at the meeting, until a quorum shall be present or
represented; 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 notified.
Section 10. 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, 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
<PAGE>
control the decision of such question.
Section 11. Each shareholder entitled to vote shall at every meeting of
the shareholders 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, and, except where the transfer books of
the corporation have been closed or a date has been fixed as a record date
for the determination of its shareholders entitled to vote, no share of stock
shall be voted on at any election for directors which has been transferred on
the books of the corporation within twenty (20) days preceding such election
of directors.
Section 12. Any action required to or which may be taken at any annual
or special meeting of the shareholders, 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 shareholders without a meeting by less than unanimous
written consent shall be given to those shareholders who have not consented
in writing.
ARTICLE III
DIRECTORS
Section 1. The number of directors which shall constitute the whole
Board shall not be less than one (1) nor more than seven (7). The initial
Board shall consist of six (6). Thereafter, within the limits above
specified, the number of directors shall be determined by resolution of the
Board of Directors or by the shareholders at the annual or a special meeting
of the shareholders. Except for the election held by the incorporator and
except as provided in Section 2 and in Section 14 of this Article III, the
directors shall be elected at the annual meeting of shareholders. Each
director elected shall hold office until such director's successor is elected
and qualified, or until such director's earlier resignation or removal.
Directors need not be shareholders.
Section 2. Except as provided in Section 14 of this Article III,
vacancies and newly created directorships resulting from any increase in the
authorized number of directors by the directors may be filled by a majority
of the directors then in office, though less than a quorum, 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.
Section 3. The business of the corporation shall be managed by its
Board of Directors which may exercise all such powers of
<PAGE>
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 shareholders.
Section 4. The Board of Directors of the corporation may hold meetings,
both regular and special, either within or without the State of Oklahoma.
Section 5. 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, hour and the business to be transacted at
and purpose of such meeting.
Section 6. Special meetings of the Board may be called by the President
on three (3) days' notice to each director either personally, by mail, by
telegram or by facsimile transmission. Special meetings shall be called by
the President or 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 7. 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 8. 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 (1) or more of the directors of the corporation, which, to
the extent provided in the resolution, 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 9. Each committee shall keep regular minutes of its meetings
and report the same to the Board of Directors when required.
Section 10. Members of the Board of Directors, or of any
<PAGE>
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 11. 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 12. 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 therefore.
Members of special or standing committees may be allowed like compensation
for attending committee meetings.
Section 13. 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 14. Any director may be removed, for cause or without cause, by
a majority vote of the shareholders entitled to vote for the election of such
director at any annual or special meeting of the shareholders. Upon such
removal of a director, the shareholders (and not the remaining directors)
shall elect a director to replace such removed director at the same
shareholders' meeting at which such removal took place or at a subsequent
shareholders' meeting.
ARTICLE IV
NOTICES
Section 1. Notices of directors and shareholders shall be in writing
and delivered personally or mailed to the directors or shareholders 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. Notice by telegram shall be deemed to be given when delivered to
the sending telegraph office.
Section 2. Whenever any notice is required to be given under the
provisions of law or of the Certificate of Incorporation or by
<PAGE>
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. 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, 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. The Board of Directors at its first meeting and after each
annual meeting of shareholders shall choose a Chairman of the Board of
Directors, a President and a Secretary, and may choose such other officers
and agents as it shall deem necessary.
Section 3. The salaries of all officers and agents of the corporation
shall be fixed by the Board of Directors.
Section 4. 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. 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. The President, shall be the chief executive officer of the
corporation, shall preside at all meetings of the shareholders and, unless a
Chairman or Vice-Chairman of the Board has been chosen, be 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
designates the Chairman of the Board to act as Chief Executive Officer, the
President shall serve as Chief Operating Officer of the corporation.
Section 7. 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
<PAGE>
execution thereof shall be expressly delegated by the Board of Directors to
some other officer or agent of the corporation.
Section 8. 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.
Section 9. The Secretary shall attend the meetings of the Board of
Directors and all meetings of the shareholders 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 shareholders 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 10. The Assistant Secretary, or if there be more than one, the
Assistant Secretaries in the order determined by the Board of Directors,
shall, in 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 11. 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 12. 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 13. If required by the Board of Directors, the
<PAGE>
Treasurer, if one is chosen or, if not, the Secretary, shall give the
corporation a bond (which shall be renewed every six (6) years) in such sum
and with such surety or sureties as shall be satisfactory to the Board of
Directors for the faithful performance of the duties of the office of a
treasurer and for the restoration to the corporation, in case of the
Treasurer's (or Secretary's, as the case may be) death, resignation,
retirement or removal from office, of all books, papers, vouchers, money and
other property of whatever kind in the possession or under the control of the
Treasurer (or Secretary, as the case may be) belonging to the corporation.
Section 14. 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 SHAREHOLDERS
Section 1. 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 shareholder in the corporation.
Section 2. 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. 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 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
<PAGE>
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. 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. 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 shareholders, nor more than sixty (60) days prior to the time
for the other action hereinafter described, as of which there shall be
determined the shareholders who are entitled: to notice of or to vote at any
meeting of shareholders 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. 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 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. 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.
Section 3. The Board of Directors shall present at each annual meeting and
at any special meeting of the shareholders,
<PAGE>
when called for by vote of the shareholders, a full and clear statement of
the business and condition of the corporation.
Section 4. 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. The fiscal year of the corporation shall be as fixed by the
Board of Directors.
Section 6. The Board of Directors may provide a suitable seal,
containing the name of the corporation, which seal shall be in 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. 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
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, other than 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
The Bylaws may be amended and repealed, or new bylaws may be adopted, by
the shareholders or by the Board of Directors at any regular meeting of the
shareholders or of the Board of Directors if notice of such amendment,
repeal, or adoption of new bylaws be from contained in the notice of such
special meeting.
<PAGE>
Exhibit 4.5
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
DOBSON WIRELINE COMPANY,
Issuer
and
UNITED STATES TRUST COMPANY OF NEW YORK
Trustee
-------------------------------
Indenture
Dated as of June 12, 1998
-------------------------------
12 1/4% Senior Notes due 2008
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
CROSS-REFERENCE TABLE
<TABLE>
TIA Sections Indenture Sections
- ------------ ------------------
<S> <C>
Section 310(a)(1). . . . . . . . . . . . . . . . . . . . . 7.10
(a)(2). . . . . . . . . . . . . . . . . . . . . 7.10
(b) . . . . . . . . . . . . . . . . . . . . . . 7.08
Section 313(c) . . . . . . . . . . . . . . . . . . . . . . 7.06; 11.02
Section 314(a) . . . . . . . . . . . . . . . . . . . . . . 4.17; 11.02
(a)(4). . . . . . . . . . . . . . . . . . . . . 4.16; 11.02
(c)(1). . . . . . . . . . . . . . . . . . . . . 11.03
(c)(2). . . . . . . . . . . . . . . . . . . . . 11.03
(e) . . . . . . . . . . . . . . . . . . . . . . 11.04
Section 315(b) . . . . . . . . . . . . . . . . . . . . . . 7.05; 11.02
Section 316(a)(1)(A) . . . . . . . . . . . . . . . . . . . 6.05
(a)(1)(B) . . . . . . . . . . . . . . . . . . . 6.04
(b) . . . . . . . . . . . . . . . . . . . . . . 6.07
Section 317(a)(1). . . . . . . . . . . . . . . . . . . . . 6.08
(a)(2). . . . . . . . . . . . . . . . . . . . . 6.09
Section 318(a) . . . . . . . . . . . . . . . . . . . . . . 11.01
(c) . . . . . . . . . . . . . . . . . . . . . . 11.01
</TABLE>
Note: The Cross-Reference Table shall not for any purpose be deemed to be a
part of the Indenture.
<PAGE>
TABLE OF CONTENTS
<TABLE>
PAGE
----
<S> <C>
ARTICLE ONE
DEFINITIONS AND INCORPORATION BY REFERENCE
SECTION 1.01. DEFINITIONS . . . . . . . . . . . . . . . . . . . . 1
SECTION 1.02. INCORPORATION BY REFERENCE OF TRUST INDENTURE ACT . 22
SECTION 1.03. RULES OF CONSTRUCTION . . . . . . . . . . . . . . . 22
ARTICLE TWO
THE NOTES
SECTION 2.01. FORM AND DATING . . . . . . . . . . . . . . . . . . 23
SECTION 2.02. RESTRICTIVE LEGENDS . . . . . . . . . . . . . . . . 24
SECTION 2.03. EXECUTION, AUTHENTICATION AND DENOMINATIONS . . . . 26
SECTION 2.04. REGISTRAR AND PAYING AGENT. . . . . . . . . . . . . 27
SECTION 2.05. PAYING AGENT TO HOLD MONEY IN TRUST . . . . . . . . 28
SECTION 2.06. TRANSFER AND EXCHANGE . . . . . . . . . . . . . . . 28
SECTION 2.07. BOOK-ENTRY PROVISIONS FOR GLOBAL NOTES. . . . . . . 29
SECTION 2.08. SPECIAL TRANSFER PROVISIONS . . . . . . . . . . . . 31
SECTION 2.09. REPLACEMENT NOTES . . . . . . . . . . . . . . . . . 34
SECTION 2.10. OUTSTANDING NOTES . . . . . . . . . . . . . . . . . 35
SECTION 2.11. TEMPORARY NOTES . . . . . . . . . . . . . . . . . . 35
SECTION 2.12. CANCELLATION. . . . . . . . . . . . . . . . . . . . 35
SECTION 2.13. CUSIP NUMBERS . . . . . . . . . . . . . . . . . . . 36
SECTION 2.14. DEFAULTED INTEREST. . . . . . . . . . . . . . . . . 36
SECTION 2.15. ISSUANCE OF ADDITIONAL NOTES. . . . . . . . . . . . 36
ARTICLE THREE
REDEMPTION
SECTION 3.01. OPTIONAL REDEMPTION; SPECIAL REDEMPTION . . . . . . 36
SECTION 3.02. NOTICES TO TRUSTEE. . . . . . . . . . . . . . . . . 37
SECTION 3.03. SELECTION OF NOTES TO BE REDEEMED . . . . . . . . . 37
SECTION 3.04. NOTICE OF REDEMPTION. . . . . . . . . . . . . . . . 38
SECTION 3.05. EFFECT OF NOTICE OF REDEMPTION. . . . . . . . . . . 39
SECTION 3.06. DEPOSIT OF REDEMPTION PRICE . . . . . . . . . . . . 39
- --------------------
Note: The Table of Contents shall not for any purposes be deemed to be a
part of the Indenture.
<PAGE>
SECTION 3.07. PAYMENT OF NOTES CALLED FOR REDEMPTION. . . . . . . 39
SECTION 3.08. NOTES REDEEMED IN PART. . . . . . . . . . . . . . . 39
ARTICLE FOUR
COVENANTS
SECTION 4.01. PAYMENT OF NOTES. . . . . . . . . . . . . . . . . . 40
SECTION 4.02. MAINTENANCE OF OFFICE OR AGENCY . . . . . . . . . . 40
SECTION 4.03. LIMITATION ON INDEBTEDNESS. . . . . . . . . . . . . 40
SECTION 4.04. LIMITATION ON RESTRICTED PAYMENTS . . . . . . . . . 43
SECTION 4.05. LIMITATION ON DIVIDEND AND OTHER PAYMENT
RESTRICTIONS AFFECTING RESTRICTED SUBSIDIARIES . . . 45
SECTION 4.06. LIMITATION ON THE ISSUANCE AND SALE OF CAPITAL
STOCK OF RESTRICTED SUBSIDIARIES . . . . . . . . . . 47
SECTION 4.07. LIMITATION ON ISSUANCES OF GUARANTEES BY
RESTRICTED SUBSIDIARIES. . . . . . . . . . . . . . . 47
SECTION 4.08. LIMITATION ON TRANSACTIONS WITH STOCKHOLDERS
AND AFFILIATES . . . . . . . . . . . . . . . . . . . 48
SECTION 4.09. LIMITATION ON LIENS. . . . . . . . . . . . . . . . . 48
SECTION 4.10. LIMITATION ON ASSET SALES. . . . . . . . . . . . . . 49
SECTION 4.11. REPURCHASE OF NOTES UPON A CHANGE OF CONTROL . . . . 50
SECTION 4.12. EXISTENCE. . . . . . . . . . . . . . . . . . . . . . 50
SECTION 4.13. PAYMENT OF TAXES AND OTHER CLAIMS. . . . . . . . . . 50
SECTION 4.14. MAINTENANCE OF PROPERTIES AND INSURANCE. . . . . . . 50
SECTION 4.15. NOTICE OF DEFAULTS . . . . . . . . . . . . . . . . . 51
SECTION 4.16. COMPLIANCE CERTIFICATES. . . . . . . . . . . . . . . 51
SECTION 4.17. COMMISSION REPORTS AND REPORTS TO HOLDERS. . . . . . 52
SECTION 4.18. WAIVER OF STAY, EXTENSION OR USURY LAWS. . . . . . . 52
SECTION 4.19. LIMITATION ON SALE-LEASEBACK TRANSACTIONS. . . . . . 52
ARTICLE FIVE
SUCCESSOR CORPORATION
SECTION 5.01. WHEN COMPANY MAY MERGE, ETC. . . . . . . . . . . . . 53
SECTION 5.02. SUCCESSOR SUBSTITUTED. . . . . . . . . . . . . . . . 54
ARTICLE SIX
DEFAULT AND REMEDIES
SECTION 6.01. EVENTS OF DEFAULT. . . . . . . . . . . . . . . . . . 54
SECTION 6.02. ACCELERATION . . . . . . . . . . . . . . . . . . . . 56
SECTION 6.03. OTHER REMEDIES . . . . . . . . . . . . . . . . . . . 57
SECTION 6.04. WAIVER OF PAST DEFAULTS. . . . . . . . . . . . . . . 57
SECTION 6.05. CONTROL BY MAJORITY. . . . . . . . . . . . . . . . . 57
<PAGE>
SECTION 6.06. LIMITATION ON SUITS. . . . . . . . . . . . . . . . . 57
SECTION 6.07. RIGHTS OF HOLDERS TO RECEIVE PAYMENT . . . . . . . . 58
SECTION 6.08. COLLECTION SUIT BY TRUSTEE . . . . . . . . . . . . . 58
SECTION 6.09. TRUSTEE MAY FILE PROOFS OF CLAIM . . . . . . . . . . 58
SECTION 6.10. PRIORITIES . . . . . . . . . . . . . . . . . . . . . 59
SECTION 6.11. UNDERTAKING FOR COSTS. . . . . . . . . . . . . . . . 59
SECTION 6.12. RESTORATION OF RIGHTS AND REMEDIES . . . . . . . . . 60
SECTION 6.13. RIGHTS AND REMEDIES CUMULATIVE . . . . . . . . . . . 60
SECTION 6.14. DELAY OR OMISSION NOT WAIVER . . . . . . . . . . . . 60
ARTICLE SEVEN
TRUSTEE
SECTION 7.01. GENERAL. . . . . . . . . . . . . . . . . . . . . . . 60
SECTION 7.02. CERTAIN RIGHTS OF TRUSTEE. . . . . . . . . . . . . . 61
SECTION 7.03. INDIVIDUAL RIGHTS OF TRUSTEE . . . . . . . . . . . . 62
SECTION 7.04. TRUSTEE'S DISCLAIMER . . . . . . . . . . . . . . . . 62
SECTION 7.05. NOTICE OF DEFAULT. . . . . . . . . . . . . . . . . . 62
SECTION 7.06. REPORTS BY TRUSTEE TO HOLDERS. . . . . . . . . . . . 62
SECTION 7.07. COMPENSATION AND INDEMNITY . . . . . . . . . . . . . 62
SECTION 7.08. REPLACEMENT OF TRUSTEE . . . . . . . . . . . . . . . 63
SECTION 7.09. SUCCESSOR TRUSTEE BY MERGER, ETC.. . . . . . . . . . 64
SECTION 7.10. ELIGIBILITY. . . . . . . . . . . . . . . . . . . . . 64
SECTION 7.11. MONEY HELD IN TRUST. . . . . . . . . . . . . . . . . 64
SECTION 7.12. WITHHOLDING TAXES. . . . . . . . . . . . . . . . . . 64
ARTICLE EIGHT
DISCHARGE OF INDENTURE
SECTION 8.01. TERMINATION OF COMPANY'S OBLIGATIONS . . . . . . . . 65
SECTION 8.02. DEFEASANCE AND DISCHARGE OF INDENTURE. . . . . . . . 66
SECTION 8.03. DEFEASANCE OF CERTAIN OBLIGATIONS. . . . . . . . . . 68
SECTION 8.04. APPLICATION OF TRUST MONEY . . . . . . . . . . . . . 70
SECTION 8.05. REPAYMENT TO COMPANY . . . . . . . . . . . . . . . . 70
SECTION 8.06. REINSTATEMENT. . . . . . . . . . . . . . . . . . . . 70
ARTICLE NINE
AMENDMENTS, SUPPLEMENTS AND WAIVERS
SECTION 9.01. WITHOUT CONSENT OF HOLDERS . . . . . . . . . . . . . 71
SECTION 9.02. WITH CONSENT OF HOLDERS. . . . . . . . . . . . . . . 71
SECTION 9.03. REVOCATION AND EFFECT OF CONSENT . . . . . . . . . . 72
<PAGE>
SECTION 9.04. NOTATION ON OR EXCHANGE OF NOTES . . . . . . . . . . 73
SECTION 9.05. TRUSTEE TO SIGN AMENDMENTS, ETC. . . . . . . . . . . 73
SECTION 9.06. CONFORMITY WITH TRUST INDENTURE ACT. . . . . . . . . 73
ARTICLE TEN
SECURITY
SECTION 10.01. SECURITY. . . . . . . . . . . . . . . . . . . . . . 73
ARTICLE ELEVEN
MISCELLANEOUS
SECTION 11.01. TRUST INDENTURE ACT OF 1939 . . . . . . . . . . . . 75
SECTION 11.02. NOTICES . . . . . . . . . . . . . . . . . . . . . . 75
SECTION 11.03. CERTIFICATE AND OPINION AS TO CONDITIONS PRECEDENT. 76
SECTION 11.04. STATEMENTS REQUIRED IN CERTIFICATE OR OPINION . . . 77
SECTION 11.05. RULES BY TRUSTEE, PAYING AGENT OR REGISTRAR . . . . 77
SECTION 11.06. PAYMENT DATE OTHER THAN A BUSINESS DAY. . . . . . . 77
SECTION 11.07. GOVERNING LAW . . . . . . . . . . . . . . . . . . . 77
SECTION 11.08. NO ADVERSE INTERPRETATION OF OTHER AGREEMENTS . . . 77
SECTION 11.09. NO RECOURSE AGAINST OTHERS. . . . . . . . . . . . . 78
SECTION 11.10. SUCCESSORS. . . . . . . . . . . . . . . . . . . . . 78
SECTION 11.11. DUPLICATE ORIGINALS . . . . . . . . . . . . . . . . 78
SECTION 11.12. SEPARABILITY. . . . . . . . . . . . . . . . . . . . 78
SECTION 11.13. TABLE OF CONTENTS, HEADINGS, ETC. . . . . . . . . . 78
<PAGE>
EXHIBIT A Form of Note . . . . . . . . . . . . . . . . . . . . . . . . A-1
EXHIBIT B Form of Certificate. . . . . . . . . . . . . . . . . . . . . B-1
EXHIBIT C Form of Certificate to be Delivered in Connection with
Transfers Pursuant to Non-QIB Accredited
Investors. . . . . . . . . . . . . . . . . . . . . C-1
EXHIBIT D Form of Certificate to be Delivered in Connection with
Transfers Pursuant to Regulation S . . . . . . . . D-1
</TABLE>
<PAGE>
INDENTURE, dated as of June 12, 1998, between DOBSON WIRELINE COMPANY,
an Oklahoma corporation (the "COMPANY"), and United States Trust Company of
New York, a bank and trust company organized under the New York banking law
(the "TRUSTEE").
RECITALS
The Company has duly authorized the execution and delivery of this
Indenture to provide for the issuance initially of up to $350,000,000
aggregate principal amount of the Company's 12 1/4% Senior Notes due 2008 (the
"NOTES") issuable as provided in this Indenture. The Notes will be partially
secured pursuant to the terms of an Escrow and Security Agreement (as defined
herein) as provided by Article Ten of this Indenture. All things necessary
to make this Indenture a valid agreement of the Company, in accordance with
its terms, have been done, and the Company has done all things necessary to
make the Notes, when executed by the Company and authenticated and delivered
by the Trustee hereunder and duly issued by the Company, the valid
obligations of the Company as hereinafter provided.
This Indenture is subject to, and shall be governed by, the provisions
of the Trust Indenture Act of 1939 that are required to be a part of and to
govern indentures qualified under the Trust Indenture Act of 1939.
AND THIS INDENTURE FURTHER WITNESSETH
For and in consideration of the premises and the purchase of the Notes
by the Holders thereof, it is mutually covenanted and agreed, for the equal
and proportionate benefit of all Holders, the Company and the Trustee, as
follows.
ARTICLE ONE
DEFINITIONS AND INCORPORATION BY REFERENCE
SECTION 1.01. DEFINITIONS.
"Acquired Indebtedness" means Indebtedness of a Person existing at the
time such Person becomes a Restricted Subsidiary or assumed in connection
with an Asset Acquisition by a Restricted Subsidiary and not Incurred in
connection with, or in anticipation of, such Person becoming a Restricted
Subsidiary or such Asset Acquisition.
"Adjusted Consolidated Net Income" means, for any period, the
aggregate net income (or loss) of the Company and its Restricted Subsidiaries
for such period determined in conformity
<PAGE>
2
with GAAP; PROVIDED that the following items shall be excluded in computing
Adjusted Consolidated Net Income (without duplication): (i) the net income
(or loss) of any Person that is not a Restricted Subsidiary, except (x) with
respect to net income, to the extent of the amount of dividends or other
distributions actually paid to the Company or any of its Restricted
Subsidiaries by such Person during such period and (y) with respect to net
losses, to the extent of the amount of Investments made by the Company or any
Restricted Subsidiary in such Person during such period; (ii) solely for the
purposes of calculating the amount of Restricted Payments that may be made
pursuant to clause (C) of the first paragraph of Section 4.04 (and in such
case, except to the extent includable pursuant to clause (i) above), the net
income (or loss) of any Person accrued prior to the date it becomes a
Restricted Subsidiary or is merged into or consolidated with the Company or
any of its Restricted Subsidiaries or all or substantially all of the
property and assets of such Person are acquired by the Company or any of its
Restricted Subsidiaries; (iii) the net income of any Restricted Subsidiary to
the extent that the declaration or payment of dividends or similar
distributions by such Restricted Subsidiary of such net income is not at the
time permitted by the operation of the terms of its charter or any agreement,
instrument, judgment, decree, order, statute, rule or governmental regulation
applicable to such Restricted Subsidiary; (iv) any gains or losses (on an
after-tax basis) attributable to Asset Sales; (v) except for purposes of
calculating the amount of Restricted Payments that may be made pursuant to
clause (C) of the first paragraph of Section 4.04, any amount paid or accrued
as dividends on Preferred Stock of the Company or any Restricted Subsidiary
owned by Persons other than the Company and any of its Restricted
Subsidiaries; (vi) all extraordinary gains and extraordinary losses, net of
tax; and (vii) any compensation expense paid or payable solely with Capital
Stock (other than Disqualified Stock) of the Company or any options, warrants
or other rights to acquire Capital Stock (other than Disqualified Stock) of
the Company.
"Adjusted Consolidated Net Tangible Assets" means the total amount of
assets of the Company and its Restricted Subsidiaries (less applicable
depreciation, amortization and other valuation reserves), except to the
extent resulting from write-ups of capital assets (excluding write-ups in
connection with accounting for acquisitions in conformity with GAAP), after
deducting therefrom (i) all current liabilities of the Company and its
Restricted Subsidiaries (excluding intercompany items) and (ii) all goodwill,
trade names, trademarks, patents, unamortized debt discount and expense and
other like intangibles, all as set forth on the most recent quarterly or
annual consolidated balance sheet of the Company and its Restricted
Subsidiaries, prepared in conformity with GAAP and filed with the Commission.
"Affiliate" means, as applied to any Person, any other Person directly
or indirectly controlling, controlled by, or under direct or indirect common
control with, such Person. For purposes of this definition, "control"
(including, with correlative meanings, the terms "controlling," "controlled
by" and "under common control with"), as applied to any Person, means the
possession, directly or indirectly, of the power to direct or cause the
direction of the
<PAGE>
3
management and policies of such Person, whether through the ownership of
voting securities, by contract or otherwise.
"Agent Members" has the meaning provided in Section 2.07(a).
"American Telco Acquisition" means the purchase by the Company of the
outstanding capital stock of American Telco, Inc. and American Telco Network
Services, Inc., pursuant to a stock purchase agreement, dated as of March 26,
1998, among Dobson Wireline Company and the shareholders of American Telco,
Inc. and American Telco Network Services, Inc., as such is in effect on the
Closing Date.
"Asset Acquisition" means (i) an investment by the Company or any of
its Restricted Subsidiaries in any other Person pursuant to which such Person
shall become a Restricted Subsidiary or shall be merged into or consolidated
with the Company or any of its Restricted Subsidiaries; PROVIDED that such
Person's primary business is related, ancillary or complementary to the
businesses of the Company and its Restricted Subsidiaries on the date of such
investment or (ii) an acquisition by the Company or any of its Restricted
Subsidiaries of the property and assets of any Person other than the Company
or any of its Restricted Subsidiaries that constitute substantially all of a
division or line of business of such Person; provided that the property and
assets acquired are related, ancillary or complementary to the businesses of
the Company and its Restricted Subsidiaries on the date of such acquisition.
"Asset Disposition" means the sale or other disposition by the Company
or any of its Restricted Subsidiaries (other than to the Company or another
Restricted Subsidiary) of (i) all or substantially all of the Capital Stock
of any Restricted Subsidiary or (ii) all or substantially all of the assets
that constitute a division or line of business of the Company or any of its
Restricted Subsidiaries.
"Asset Sale" means any sale, transfer or other disposition (including
by way of merger, consolidation or sale-leaseback transaction) in one
transaction or a series of related transactions by the Company or any of its
Restricted Subsidiaries to any Person other than the Company or any of its
Restricted Subsidiaries of (i) all or any of the Capital Stock of any
Restricted Subsidiary, (ii) all or substantially all of the property and
assets of an operating unit or business of the Company or any of its
Restricted Subsidiaries or (iii) any other property and assets (other than
the Capital Stock or other Investment in an Unrestricted Subsidiary) of the
Company or any of its Restricted Subsidiaries outside the ordinary course of
business of the Company or such Restricted Subsidiary and, in each case, that
is not governed by Article Five; PROVIDED that "Asset Sale" shall not include
(a) sales or other dispositions of inventory, receivables and other current
assets, (b) sales, transfers or other dispositions of assets constituting a
Restricted Payment permitted to be made under Section 4.04, (c) sales,
transfers or other dispositions of assets with a fair market value (as
certified in an Officers' Certificate) not in excess of $10 million in any
<PAGE>
4
transaction or series of related transactions, or (d) sales or other
dispositions of assets for consideration at least equal to the fair market
value of the assets sold or disposed of, to the extent that the consideration
received consists of property or assets (other than current assets) of a
nature or type or that are used in a business (or a company having property
or assets of a nature or type, or engaged in a business) similar or related
to the nature or type of the property and assets of, or business of, the
Company and its Restricted Subsidiaries existing on the date of such sale or
other disposition.
"Average Life" means, at any date of determination with respect to any
debt security, the quotient obtained by dividing (i) the sum of the products
of (a) the number of years from such date of determination to the dates of
each successive scheduled principal payment of such debt security and (b) the
amount of such principal payment by (ii) the sum of all such principal
payments.
"Board of Directors" means the Board of Directors of the Company or
any committee of such Board of Directors duly authorized to act under this
Indenture.
"Board Resolution" means a copy of a resolution, certified by the
Secretary of the Company to have been duly adopted by the Board of Directors
and to be in full force and effect on the date of such certification, and
delivered to the Trustee.
"Business Day" means any day except a Saturday, Sunday or other day on
which commercial banks in The City of New York, or in the city of the
Corporate Trust Office of the Trustee, are authorized by law to close.
"Capital Stock" means, with respect to any Person, any and all shares,
interests, participations or other equivalents (however designated, whether
voting or non-voting) in equity of such Person, whether outstanding on the
Closing Date or issued thereafter, including, without limitation, all Common
Stock and Preferred Stock.
"Capitalized Lease" means, as applied to any Person, any lease of any
property (whether real, personal or mixed) of which the discounted present
value of the rental obligations of such Person as lessee, in conformity with
GAAP, is required to be capitalized on the balance sheet of such Person.
"Capitalized Lease Obligations" means the discounted present value of
the rental obligations under a Capitalized Lease.
"Change of Control" means such time as (i) (a) prior to the occurrence
of a Public Market, a "person" or "group" (within the meaning of Section
13(d) or 14(d)(2) under the Exchange Act) becomes the ultimate "beneficial
owner" (as defined in Rule 13d-3 under the
<PAGE>
5
Exchange Act) of Voting Stock representing a greater percentage of the total
voting power of the Voting Stock of (x) Dobson Communications, on a fully
diluted basis, than is beneficially owned by Everett R. Dobson and the Fleet
Investors and their Affiliates on such date or (y) the Company, on a fully
diluted basis, than is beneficially owned by the Existing Stockholders on
such date and (b) after the occurrence of a Public Market, a "person" or
"group" (within the meaning of Section 13(d) or 14(d)(2) under the Exchange
Act) becomes the ultimate "beneficial owner" (as defined in Rule 13d-3 under
the Exchange Act) of more than 35% of the total voting power of the Voting
Stock of the Company on a fully diluted basis and such ownership represents a
greater percentage of the total voting power of the Voting Stock of the
Company, on a fully diluted basis, than is held by the Existing Stockholders
on such date; or (ii) individuals who on the Closing Date constitute the
Board of Directors (together with any new directors (x) whose election by the
Board of Directors or whose nomination by the Board of Directors for election
by the Company's stockholders was approved by a vote of at least a majority
of the members of the Board of Directors then in office who either were
members of the Board of Directors on the Closing Date or whose election or
nomination for election was previously so approved or (y) so long as no
"person" or "group" (within the meaning of Section 13(d) or 14(d)(2) under
the Exchange Act) becomes the ultimate "beneficial owner" (as defined in Rule
13d-3 under the Exchange Act) of a greater percentage of the total voting
power of the Voting Stock of Dobson Communications, on a fully diluted basis,
than is held by Everett R. Dobson and the Fleet Investors and their
Affiliates on such date, whose election was approved by Dobson
Communications) cease for any reason to constitute a majority of the members
of the Board of Directors then in office.
"Closing Date" means the date on which the Notes are originally issued
under this Indenture.
"Commission" means the Securities and Exchange Commission, as from
time to time constituted, created under the Exchange Act or, if at any time
after the execution of this instrument such Commission is not existing and
performing the duties now assigned to it under the TIA, then the body
performing such duties at such time.
"Common Stock" means, with respect to any Person, any and all shares,
interests, participations or other equivalents (however designated, whether
voting or non voting) of such Person's equity, other than Preferred Stock of
such Person, whether outstanding on the Closing Date or issued thereafter,
including without limitation, all series and classes of such common stock.
"Company" means the party named as such in the first paragraph of this
Indenture until a successor replaces it pursuant to Article Five of this
Indenture and thereafter means the successor.
<PAGE>
6
"Company Order" means a written request or order signed in the name of
the Company (i) by its Chairman, a Vice Chairman, its President or a Vice
President and (ii) by its Treasurer, an Assistant Treasurer, its Secretary or
an Assistant Secretary and delivered to the Trustee; PROVIDED, HOWEVER, that
such written request or order may be signed by any two of the officers or
directors listed in clause (i) above in lieu of being signed by one of such
officers or directors listed in such clause (i) and one of the officers
listed in clause (ii) above.
"Consolidated EBITDA" means, for any period, Adjusted Consolidated Net
Income for such period plus, to the extent such amount was deducted in
calculating such Adjusted Consolidated Net Income, (i) Consolidated Interest
Expense, (ii) income taxes (other than income taxes (either positive or
negative) attributable to extraordinary and non-recurring gains or losses or
sales of assets), (iii) depreciation expense, (iv) amortization expense and
(v) all other non-cash items reducing Adjusted Consolidated Net Income (other
than items that will require cash payments and for which an accrual or
reserve is, or is required by GAAP to be, made), less all non-cash items
increasing Adjusted Consolidated Net Income, all as determined on a
consolidated basis for the Company and its Restricted Subsidiaries in
conformity with GAAP; PROVIDED that, if any Restricted Subsidiary is not a
Wholly Owned Restricted Subsidiary, Consolidated EBITDA shall be reduced (to
the extent not otherwise reduced in accordance with GAAP) by an amount equal
to (A) the amount of the Adjusted Consolidated Net Income attributable to
such Restricted Subsidiary multiplied by (B) the percentage ownership
interest in the income of such Restricted Subsidiary not owned on the last
day of such period by the Company or any of its Restricted Subsidiaries.
"Consolidated Interest Expense" means, for any period, the aggregate
amount of interest in respect of Indebtedness (including, without limitation,
amortization of original issue discount on any Indebtedness and the interest
portion of any deferred payment obligation, calculated in accordance with the
effective interest method of accounting; all commissions, discounts and other
fees and charges owed with respect to letters of credit and bankers'
acceptance financing; the net costs associated with Interest Rate Agreements;
and Indebtedness that is Guaranteed or secured by the Company or any of its
Restricted Subsidiaries) and all but the principal component of rentals in
respect of Capitalized Lease Obligations paid, accrued or scheduled to be
paid or to be accrued by the Company and its Restricted Subsidiaries during
such period; EXCLUDING, HOWEVER, (i) any amount of such interest of any
Restricted Subsidiary if the net income of such Restricted Subsidiary is
excluded in the calculation of Adjusted Consolidated Net Income pursuant to
clause (iii) of the definition thereof (but only in the same proportion as
the net income of such Restricted Subsidiary is excluded from the calculation
of Adjusted Consolidated Net Income pursuant to clause (iii) of the
definition thereof) and (ii) any premiums, fees and expenses (and any
amortization thereof) payable in connection with the offering of the Notes,
all as determined on a consolidated basis (without taking into account
Unrestricted Subsidiaries) in conformity with GAAP.
<PAGE>
7
"Consolidated Leverage Ratio" means, on any Transaction Date, the
ratio of (i) the aggregate amount of Indebtedness of the Company and its
Restricted Subsidiaries on a consolidated basis outstanding on such
Transaction Date to (ii) the aggregate amount of Consolidated EBITDA for the
then most recent four fiscal quarters for which financial statements of the
Company have been filed with the Commission (such four fiscal quarter period
being the "Four Quarter Period"); PROVIDED that, in making the foregoing
calculation, (A) PRO FORMA effect shall be given to any Indebtedness that is
to be Incurred or repaid on the Transaction Date as if such Incurrence or
repayment had occurred on the first day of such Four Quarter Period; (B) PRO
FORMA effect shall be given to Asset Dispositions and Asset Acquisitions
(including giving PRO FORMA effect to the application of proceeds of any
Asset Disposition) that occur during the period beginning on the first day of
the Four Quarter Period and ending on the Transaction Date (the "Reference
Period"), as if they had occurred and such proceeds had been applied on the
first day of such Reference Period; and (C) PRO FORMA effect shall be given
to asset dispositions and asset acquisitions (including giving PRO FORMA
effect to the application of proceeds of any asset disposition) that have
been made by any Person that has become a Restricted Subsidiary or has been
merged with or into the Company or any Restricted Subsidiary during such
Reference Period and that would have constituted Asset Dispositions or Asset
Acquisitions had such transactions occurred when such Person was a Restricted
Subsidiary as if such asset dispositions or asset acquisitions were Asset
Dispositions or Asset Acquisitions that occurred on the first day of such
Reference Period; PROVIDED that to the extent that clause (B) or (C) of this
sentence requires that PRO FORMA effect be given to an Asset Acquisition or
Asset Disposition, such PRO FORMA calculation shall be based upon the four
full fiscal quarters immediately preceding the Transaction Date of the
Person, or division or line of business of the Person, that is acquired or
disposed of for which financial information is available.
"Consolidated Net Worth" means, at any date of determination,
stockholders' equity as set forth on the most recently available quarterly or
annual consolidated balance sheet of the Company and its Restricted
Subsidiaries (which shall be as of a date not more than 90 days prior to the
date of such computation, and which shall not take into account Unrestricted
Subsidiaries), less any amounts attributable to Disqualified Stock or any
equity security convertible into or exchangeable for Indebtedness, the cost
of treasury stock and the principal amount of any promissory notes receivable
from the sale of the Capital Stock of the Company or any of its Restricted
Subsidiaries, each item to be determined in conformity with GAAP (excluding
the effects of foreign currency exchange adjustments under Financial
Accounting Standards Board Statement of Financial Accounting Standards No.
52).
"Corporate Trust Office" means the office of the Trustee at which the
corporate trust business of the Trustee shall, at any particular time, be
principally administered, which office is, at the date of this Indenture,
located at 114 West 47th Street, New York, NY 10036, Attention: Corporate
Trust Department.
<PAGE>
8
"Currency Agreement" means any foreign exchange contract, currency
swap agreement or other similar agreement or arrangement.
"Default" means any event that is, or after notice or passage of time
or both would be, an Event of Default.
"Depositary" shall mean The Depository Trust Company, its nominees,
and their respective successors.
"Disqualified Stock" means any class or series of Capital Stock of any
Person that by its terms or otherwise is (i) required to be redeemed prior to
the Stated Maturity of the Notes, (ii) redeemable at the option of the holder
of such class or series of Capital Stock at any time prior to the Stated
Maturity of the Notes or (iii) convertible into or exchangeable for Capital
Stock referred to in clause (i) or (ii) above or Indebtedness having a
scheduled maturity prior to the Stated Maturity of the Notes; PROVIDED that
any Capital Stock that would not constitute Disqualified Stock but for
provisions thereof giving holders thereof the right to require such Person to
repurchase or redeem such Capital Stock upon the occurrence of an "asset
sale" or "change of control" occurring prior to the Stated Maturity of the
Notes shall not constitute Disqualified Stock if the "asset sale" or "change
of control" provisions applicable to such Capital Stock are no more favorable
to the holders of such Capital Stock than the provisions contained in Section
4.10 and Section 4.11 and such Capital Stock, or the agreements or
instruments governing the redemption rights thereof, specifically provides
that such Person will not repurchase or redeem any such stock pursuant to
such provision prior to the Company's repurchase of such Notes as are
required to be repurchased pursuant to Section 4.10 and Section 4.11.
"Dobson Communications" means Dobson Communications Corporation, an
Oklahoma corporation.
"Escrow and Security Agreement" means the Escrow and Security
Agreement dated the Closing Date from the Company, as pledgor, to United
States Trust Company of New York, as Trustee.
"Event of Default" has the meaning provided in Section 6.01.
"Excess Proceeds" has the meaning provided in Section 4.10.
"Exchange Act" means the Securities Exchange Act of 1934.
"Exchange Notes" means any securities of the Company containing terms
identical to the Notes (except that such Exchange Notes shall be registered
under the Securities Act) that
<PAGE>
9
are issued and exchanged for the Notes pursuant to the Registration Rights
Agreement and this Indenture.
"Existing Stockholders" means (i) Everett R. Dobson and the Fleet
Investors and their respective Affiliates and (ii) Dobson Communications, so
long as no "person" or "group" (within the meaning of Section 13(d) or
14(d)(2) under the Exchange Act) becomes the ultimate "beneficial owner" (as
defined in Rule 13d-3 under the Exchange Act) of more than 35% of the total
voting power of the Voting Stock of Dobson Communications on a fully diluted
basis and such ownership represents a greater percentage of the total voting
power of the Voting Stock of Dobson Communications, on a fully diluted basis
than is held by the Existing Stockholders in clause (i) on such date.
"fair market value" means the price that would be paid in an
arm's-length transaction between an informed and willing seller under no
compulsion to sell and an informed and willing buyer under no compulsion to
buy, as determined in good faith by the Board of Directors, whose
determination shall be conclusive if evidenced by a Board Resolution;
PROVIDED that for purposes of clause (viii) of the second paragraph of
Section 4.03, (x) the fair market value of any security registered under the
Exchange Act shall be the average of the closing prices, regular way, of such
security for the 20 consecutive trading days immediately preceding the sale
of Capital Stock and (y) in the event the aggregate fair market value of any
other property (other than cash or cash equivalents) received by the Company
exceeds $10 million, the fair market value of such property shall be
determined by a nationally recognized investment banking firm and set forth
in their written opinion which shall be delivered to the Trustee.
"Fleet Investors" means Fleet Venture Resources, Inc., Fleet Equity
Partners VI, L.P. and Kennedy Plaza Partners.
"Fleet Investors Capital Stock" means the capital stock of the Company
issued to the Fleet Investors in connection with a spin-off of the Company by
Dobson Communications.
"GAAP" means generally accepted accounting principles in the United
States of America as in effect as of the Closing Date, including, without
limitation, those set forth in the opinions and pronouncements of the
Accounting Principles Board of the American Institute of Certified Public
Accountants and statements and pronouncements of the Financial Accounting
Standards Board or in such other statements by such other entity as approved
by a significant segment of the accounting profession. All ratios and
computations contained or referred to in this Indenture shall be computed in
conformity with GAAP applied on a consistent basis, except that calculations
made for purposes of determining compliance with the terms of the covenants
and with other provisions of this Indenture shall be made without giving
effect to (i) the amortization of any expenses incurred in connection with
the offering of the Notes and (ii) except as otherwise provided, the
amortization of any amounts required or permitted by Accounting Principles
Board Opinion Nos. 16 and 17.
<PAGE>
10
"Global Notes" has the meaning provided in Section 2.01.
"Government Securities" means direct obligations of, obligations fully
guaranteed by, or participations in pools consisting of obligations of or
obligations guaranteed by, the United States of America for the payment of
which guarantee or obligations the full faith and credit of the United States
of America is pledged and which are not callable or redeemable at the option
of the issuer thereof
"Guarantee" means any obligation, contingent or otherwise, of any
Person directly or indirectly guaranteeing any Indebtedness of any other
Person and, without limiting the generality of the foregoing, any obligation,
direct or indirect, contingent or otherwise, of such Person (i) to purchase
or pay (or advance or supply funds for the purchase or payment of) such
Indebtedness of such other Person (whether arising by virtue of partnership
arrangements, or by agreements to keep-well, to purchase assets, goods,
securities or services (unless such purchase arrangements are on arm's-length
terms and are entered into in the ordinary course of business), to
take-or-pay, or to maintain financial statement conditions or otherwise) or
(ii) entered into for purposes of assuring in any other manner the obligee of
such Indebtedness of the payment thereof or to protect such obligee against
loss in respect thereof (in whole or in part); PROVIDED that the term
"Guarantee" shall not include endorsements for collection or deposit in the
ordinary course of business. The term "Guarantee" used as a verb has a
corresponding meaning.
"Guaranteed Indebtedness" has the meaning provided in Section 4.07.
"Holder" or "Noteholder" means the registered holder of any Note.
"Incur" means, with respect to any Indebtedness, to incur, create,
issue, assume, Guarantee or otherwise become liable for or with respect to,
or become responsible for, the payment of, contingently or otherwise, such
Indebtedness, including an "Incurrence" of Indebtedness by reason of a Person
becoming a Restricted Subsidiary; PROVIDED that neither the accrual of
interest nor the accretion of original issue discount shall be considered an
Incurrence of Indebtedness.
"Indebtedness" means, with respect to any Person at any date of
determination (without duplication), (i) all indebtedness of such Person for
borrowed money, (ii) all obligations of such Person evidenced by bonds,
debentures, notes or other similar instruments, (iii) all obligations of such
Person in respect of letters of credit or other similar instruments
(including reimbursement obligations with respect thereto, but excluding
obligations with respect to letters of credit (including trade letters of
credit) securing obligations (other than obligations described in (i) or (ii)
above or (v), (vi) or (vii) below) entered into in the ordinary course of
business of such Person to the extent such letters of credit are not drawn
upon or, if drawn upon, to the extent such
<PAGE>
11
drawing is reimbursed no later than the third Business Day following receipt
by such Person of a demand for reimbursement), (iv) all obligations of such
Person to pay the deferred and unpaid purchase price of property or services,
which purchase price is due more than six months after the date of placing
such property in service or taking delivery and title thereto or the
completion of such services, except Trade Payables, (v) all obligations of
such Person as lessee under Capitalized Leases, (vi) all Indebtedness of
other Persons secured by a Lien on any asset of such Person, whether or not
such Indebtedness is assumed by such Person; provided that the amount of such
Indebtedness shall be the lesser of (A) the fair market value of such asset
at such date of determination and (B) the amount of such Indebtedness, (vii)
all Indebtedness of other Persons Guaranteed by such Person to the extent
such Indebtedness is Guaranteed by such Person and (viii) to the extent not
otherwise included in this definition, obligations under Currency Agreements
and Interest Rate Agreements. The amount of Indebtedness of any Person at any
date shall be the outstanding balance at such date (or, in the case of a
revolving credit or other similar facility, the total amount of funds
outstanding and/or available on the date of determination) of all
unconditional obligations as described above and, with respect to contingent
obligations, the maximum liability upon the occurrence of the contingency
giving rise to the obligation, provided (A) that the amount outstanding at
any time of any Indebtedness issued with original issue discount is the face
amount of such Indebtedness less the unamortized portion of the original
issue discount of such Indebtedness at the time of its issuance as determined
in conformity with GAAP, (B) that money borrowed and set aside at the time of
the Incurrence of any Indebtedness in order to prefund the payment of the
interest on such Indebtedness shall not be deemed to be "Indebtedness" so
long as such money is held to secure the payment of such interest and (C)
that Indebtedness shall not include any liability for federal, state, local
or other taxes.
"Indenture" means this Indenture as originally executed or as it may
be amended or supplemented from time to time by one or more indentures
supplemental to this Indenture entered into pursuant to the applicable
provisions of this Indenture.
"Institutional Accredited Investor" means an institution that is an
"accredited investor" as that term is defined in Rule 501(a)(1), (2), (3) or
(7) under the Securities Act.
"Interest Payment Date" means each semiannual interest payment date on
June 15 and December 15 of each year, commencing December 15, 1998.
"Interest Rate Agreement" means any interest rate protection
agreement, interest rate future agreement, interest rate option agreement,
interest rate swap agreement, interest rate cap agreement, interest rate
collar agreement, interest rate hedge agreement, option or future contract or
other similar agreement or arrangement.
<PAGE>
12
"Investment" in any Person means any direct or indirect advance, loan
or other extension of credit (including, without limitation, by way of
Guarantee or similar arrangement; but excluding advances to customers in the
ordinary course of business that are, in conformity with GAAP, recorded as
accounts receivable on the balance sheet of the Company or its Restricted
Subsidiaries) or capital contribution to (by means of any transfer of cash or
other property to others or any payment for property or services for the
account or use of others), or any purchase or acquisition of Capital Stock,
bonds, notes, debentures or other similar instruments issued by, such Person
and shall include (i) the designation of a Restricted Subsidiary as an
Unrestricted Subsidiary and (ii) the fair market value of the Capital Stock
(or any other Investment), held by the Company or any of its Restricted
Subsidiaries, of (or in) any Person that has ceased to be a Restricted
Subsidiary, including without limitation, by reason of any transaction
permitted by clause (iii) of Section 4.06. For purposes of the definition of
"Unrestricted Subsidiary" and Section 4.04, (i) "Investment" shall include
the fair market value of the assets (net of liabilities (other than
liabilities to the Company or any of its Restricted Subsidiaries)) of any
Restricted Subsidiary at the time that such Restricted Subsidiary is
designated an Unrestricted Subsidiary, (ii) the fair market value of the
assets (net of liabilities (other than liabilities to the Company or any of
its Restricted Subsidiaries)) of any Unrestricted Subsidiary at the time that
such Unrestricted Subsidiary is designated a Restricted Subsidiary shall be
considered a reduction in outstanding Investments and (iii) any property
transferred to or from an Unrestricted Subsidiary shall be valued at its fair
market value at the time of such transfer.
"Lien" means any mortgage, pledge, security interest, encumbrance,
lien or charge of any kind (including, without limitation, any conditional
sale or other title retention agreement or lease in the nature thereof or any
agreement to give any security interest).
"Moody's" means Moody's Investors Service, Inc. and its successors.
"Net Cash Proceeds" means, (a) with respect to any Asset Sale, the
proceeds of such Asset Sale in the form of cash or cash equivalents,
including payments in respect of deferred payment obligations (to the extent
corresponding to the principal, but not interest, component thereof) when
received in the form of cash or cash equivalents (except to the extent such
obligations are financed or sold with recourse to the Company or any
Restricted Subsidiary) and proceeds from the conversion of other property
received when converted to cash or cash equivalents, net of (i) brokerage
commissions and other fees and expenses (including fees and expenses of
counsel and investment bankers) related to such Asset Sale, (ii) provisions
for all taxes (whether or not such taxes will actually be paid or are
payable) as a result of such Asset Sale without regard to the consolidated
results of operations of the Company and its Restricted Subsidiaries, taken
as a whole, (iii) payments made to repay Indebtedness or any other obligation
outstanding at the time of such Asset Sale that either (A) is secured by a
Lien on the property or assets sold or (B) is required to be paid as a result
of such sale and (iv) appropriate amounts to be provided by the Company or
any Restricted Subsidiary as a reserve against any liabilities
<PAGE>
13
associated with such Asset Sale, including, without limitation, pension and
other post-employment benefit liabilities, liabilities related to
environmental matters and liabilities under any indemnification obligations
associated with such Asset Sale, all as determined in conformity with GAAP
and (b) with respect to any issuance or sale of Capital Stock, the proceeds
of such issuance or sale in the form of cash or cash equivalents, including
payments in respect of deferred payment obligations (to the extent
corresponding to the principal, but not interest, component thereof) when
received in the form of cash or cash equivalents (except to the extent such
obligations are financed or sold with recourse to the Company or any
Restricted Subsidiary) and proceeds from the conversion of other property
received when converted to cash or cash equivalents, net of attorney's fees,
accountants' fees, underwriters' or placement agents' fees, discounts or
commissions and brokerage, consultant and other fees incurred in connection
with such issuance or sale and net of taxes paid or payable as a result
thereof.
"Notes" means any of the securities, as defined in the first paragraph
of the recitals hereof, that are authenticated and delivered under this
Indenture. For all purposes of this Indenture, the term "Notes" shall include
the Notes initially issued on the Closing Date, any Exchange Notes to be
issued and exchanged for any Notes pursuant to the Registration Rights
Agreement and this Indenture and any other Notes issued after the Closing
Date under this Indenture. For purposes of this Indenture, all Notes shall
vote together as one series of Notes under this Indenture.
"Non-U.S. Person" means a person who is not a U.S. person, as defined
in Regulation S.
"Offer to Purchase" means an offer by the Company to purchase Notes
from the Holders commenced by mailing a notice to the Trustee and each Holder
stating: (i) the covenant pursuant to which the offer is being made and that
all Notes validly tendered will be accepted for payment on a pro rata basis;
(ii) the purchase price and the date of purchase (which shall be a Business
Day no earlier than 30 days nor later than 60 days from the date such notice
is mailed) (the "Payment Date"); (iii) that any Note not tendered will
continue to accrue interest pursuant to its terms; (iv) that, unless the
Company defaults in the payment of the purchase price, any Note accepted for
payment pursuant to the Offer to Purchase shall cease to accrue interest on
and after the Payment Date; (v) that Holders electing to have a Note
purchased pursuant to the Offer to Purchase will be required to surrender the
Note, together with the form entitled "Option of the Holder to Elect
Purchase" on the reverse side of the Note completed, to the Paying Agent at
the address specified in the notice prior to the close of business on the
Business Day immediately preceding the Payment Date; (vi) that Holders will
be entitled to withdraw their election if the Paying Agent receives, not
later than the close of business on the third Business Day immediately
preceding the Payment Date, a telegram, facsimile transmission or letter
setting forth the name of such Holder, the principal amount of Notes
delivered for purchase and a statement that such Holder is withdrawing his
election to have such Notes purchased; and
<PAGE>
14
(vii) that Holders whose Notes are being purchased only in part will be
issued new Notes equal in principal amount to the unpurchased portion of the
Notes surrendered; PROVIDED that each Note purchased and each new Note issued
shall be in a principal amount of $1,000 or an integral multiple thereof. On
the Payment Date, the Company shall (i) accept for payment on a pro rata
basis Notes or portions thereof validly tendered pursuant to an Offer to
Purchase; (ii) deposit with the Paying Agent money sufficient to pay the
purchase price of all Notes or portions thereof so accepted; and (iii)
deliver, or cause to be delivered, to the Trustee all Notes or portions
thereof so accepted together with an Officers' Certificate specifying the
Notes or portions thereof accepted for payment by the Company. The Paying
Agent shall promptly mail to the Holders of Notes so accepted payment in an
amount equal to the purchase price, and the Trustee shall promptly
authenticate and mail to such Holders a new Note equal in principal amount to
any unpurchased portion of the Note surrendered; PROVIDED that each Note
purchased and each new Note issued shall be in a principal amount of $1,000
or an integral multiple thereof. The Company will publicly announce the
results of an Offer to Purchase as soon as practicable after the Payment
Date. The Trustee shall act as the Paying Agent for an Offer to Purchase. The
Company will comply with Rule 14e-1 under the Exchange Act and any other
securities laws and regulations thereunder to the extent such laws and
regulations are applicable, in the event that the Company is required to
repurchase Notes pursuant to an Offer to Purchase.
"Officer" means, with respect to the Company, (i) the Chairman of the
Board, the President, any Vice President, the Chief Financial Officer, and
(ii) the Treasurer or any Assistant Treasurer, or the Secretary or any
Assistant Secretary.
"Officers' Certificate" means a certificate signed by one Officer
listed in clause (i) of the definition thereof and one Officer listed in
clause (ii) of the definition thereof or two officers listed in clause (i) of
the definition thereof. Each Officers' Certificate (other than certificates
provided pursuant to TIA Section 314(a)(4)) shall include the statements
provided for in TIA Section 314(e).
"Offshore Global Note" has the meaning provided in Section 2.01.
"Offshore Notes Exchange Date" has the meaning provided in Section
2.01.
"Offshore Physical Notes" has the meaning provided in Section 2.01.
"Opinion of Counsel" means a written opinion signed by legal counsel,
who may be an employee of or counsel to the Company, that meets the
requirements of Section 11.04 hereof. Each such Opinion of Counsel shall
include the statements provided for in TIA Section 314(e).
"Paying Agent" has the meaning provided in Section 2.04, except that,
for the purposes of Article Eight, the Paying Agent shall not be the Company
or a Subsidiary of the Company
<PAGE>
15
or an Affiliate of any of them. The term "Paying Agent" includes any
additional Paying Agent.
"Permanent Offshore Global Note" has the meaning provided in Section
2.01.
"Permitted Investment" means (i) an Investment in the Company or a
Restricted Subsidiary or a Person which will, upon the making of such
Investment, become a Restricted Subsidiary or be merged or consolidated with
or into or transfer or convey all or substantially all its assets to, the
Company or a Restricted Subsidiary; PROVIDED that such person's primary
business is related, ancillary or complementary to the businesses of the
Company and its Restricted Subsidiaries on the date of such Investment; (ii)
Temporary Cash Investments; (iii) payroll, travel and similar advances to
cover matters that are expected at the time of such advances ultimately to be
treated as expenses in accordance with GAAP; (iv) stock, obligations or
securities received in satisfaction of judgments; (v) Investments in prepaid
expenses, negotiable instruments held for collection and lease, utility and
worker's compensation, performance and other similar deposits; (vi) Interest
Rate Agreements and Currency Agreements designed solely to protect the
Company or its Restricted Subsidiaries against fluctuations in interest rates
or foreign currency exchange rates; and (vii) loans or advances to officers
or employees of the Company or of any Restricted Subsidiary that do not in
the aggregate exceed $2 million at any time outstanding.
"Permitted Liens" means (i) Liens for taxes, assessments, governmental
charges or claims that are being contested in good faith by appropriate legal
proceedings promptly instituted and diligently conducted and for which a
reserve or other appropriate provision, if any, as shall be required in
conformity with GAAP shall have been made; (ii) statutory and common law
Liens of landlords and carriers, warehousemen, mechanics, suppliers,
materialmen, repairmen or other similar Liens arising in the ordinary course
of business and with respect to amounts not yet delinquent or being contested
in good faith by appropriate legal proceedings promptly instituted and
diligently conducted and for which a reserve or other appropriate provision,
if any, as shall be required in conformity with GAAP shall have been made;
(iii) Liens incurred or deposits made in the ordinary course of business in
connection with workers' compensation, unemployment insurance and other types
of social security; (iv) Liens incurred or deposits made to secure the
performance of tenders, bids, leases, statutory or regulatory obligations,
bankers' acceptances, surety and appeal bonds, government contracts,
performance and return-of-money bonds and other obligations of a similar
nature incurred in the ordinary course of business (exclusive of obligations
for the payment of borrowed money); (v) easements, rights-of-way, municipal
and zoning ordinances and similar charges, encumbrances, title defects or
other irregularities that do not materially interfere with the ordinary
course of business of the Company or any of its Restricted Subsidiaries; (vi)
Liens (including extensions and renewals thereof) upon real or personal
property (including intangibles) acquired after the Closing Date; PROVIDED
that (a) such Lien is created solely for the purpose of securing Indebtedness
Incurred, in accordance
<PAGE>
16
with Section 4.03, (1) to finance the cost (including the cost of design,
development, acquisition, construction, installation, improvement,
transportation or integration) of the item of property or assets subject
thereto and such Lien is created prior to, at the time of or within six
months after the later of the acquisition, the completion of construction or
the commencement of full operation of such property or (2) to refinance any
Indebtedness previously so secured, (b) the principal amount of the
Indebtedness secured by such Lien does not exceed 100% of such cost and (c)
any such Lien shall not extend to or cover any property or assets other than
such item of property or assets and any improvements on such item; (vii)
leases or subleases granted to others that do not materially interfere with
the ordinary course of business of the Company and its Restricted
Subsidiaries, taken as a whole; (viii) Liens encumbering property or assets
under construction arising from progress or partial payments by a customer of
the Company or its Restricted Subsidiaries relating to such property or
assets; (ix) any interest or title of a lessor in the property subject to any
Capitalized Lease or operating lease; (x) Liens arising from filing Uniform
Commercial Code financing statements regarding leases; (xi) Liens on property
of, or on shares of Capital Stock or Indebtedness of, any Person existing at
the time such Person becomes, or becomes a part of, any Restricted
Subsidiary; PROVIDED that such Liens do not extend to or cover any property
or assets of the Company or any Restricted Subsidiary other than the property
or assets acquired; (xii) Liens in favor of the Company or any Restricted
Subsidiary; (xiii) Liens arising from the rendering of a final judgment or
order against the Company or any Restricted Subsidiary that does not give
rise to an Event of Default; (xiv) Liens securing reimbursement obligations
with respect to letters of credit that encumber documents and other property
relating to such letters of credit and the products and proceeds thereof;
(xv) Liens in favor of customs and revenue authorities arising as a matter of
law to secure payment of customs duties in connection with the importation of
goods; (xvi) Liens encumbering customary initial deposits and margin
deposits, and other Liens that are within the general parameters customary in
the industry and incurred in the ordinary course of business, in each case,
securing Indebtedness under Interest Rate Agreements and Currency Agreements
and forward contracts, options, future contracts, futures options or similar
agreements or arrangements designed solely to protect the Company or any of
its Restricted Subsidiaries from fluctuations in interest rates, currencies
or the price of commodities; (xvii) Liens arising out of conditional sale,
title retention, consignment or similar arrangements for the sale of goods
entered into by the Company or any of its Restricted Subsidiaries in the
ordinary course of business in accordance with the past practices of the
Company and its Restricted Subsidiaries prior to the Closing Date; (xviii)
Liens on or sales of receivables; and (xix) Liens that secure Indebtedness
with an aggregate principal amount not in excess of $5 million at any time
outstanding.
"Person" means an individual, a corporation, a partnership, a limited
liability company, an association, a trust or any other entity or
organization, including a government or political subdivision or an agency or
instrumentality thereof.
"Physical Notes" has the meaning provided in Section 2.01.
<PAGE>
17
"Pledge Account" means an account established with the Trustee pursuant
to the terms of the Escrow and Security Agreement for the deposit of the Pledged
Securities to be purchased by the Company with the net proceeds from the Notes.
"Pledged Securities" means the Government Securities to be purchased by
the Company and held in the Pledge Account in accordance with the Escrow and
Security Agreement.
"Preferred Stock" means, with respect to any Person, any and all shares,
interests, participations or other equivalents (however designated, whether
voting or non voting) of such Person's preferred or preference equity, whether
outstanding on the Closing Date or issued thereafter, including, without
limitation, all series and classes of such preferred stock or preference stock.
"principal" of a debt security, including the Notes, means the principal
amount due on the Stated Maturity as shown on such debt security.
"Private Placement Legend" means the legend initially set forth on the
Notes in the form set forth in Section 2.02.
"Public Equity Offering" means an underwritten primary public offering of
Common Stock of the Company pursuant to an effective registration statement
under the Securities Act.
A "Public Market" shall be deemed to exist if (i) a Public Equity
Offering has been consummated and (ii) at least 15% of the total issued and
outstanding Common Stock of the Company has been distributed by means of an
effective registration statement under the Securities Act or sales pursuant to
Rule 144 under the Securities Act.
"QIB" means a "qualified institutional buyer" as defined in Rule 144A.
"Redemption Date" means, when used with respect to any Note to be
redeemed, the date fixed for such redemption by or pursuant to this Indenture.
"Redemption Price" means, when used with respect to any Note to be
redeemed, the price at which such Note is to be redeemed pursuant to this
Indenture.
"Registrar" has the meaning provided in Section 2.04.
"Registration Rights Agreement" means the Registration Rights
Agreement, dated June 10, 1998, between the Company and Morgan Stanley & Co.
Incorporated and NationsBanc Montgomery Securities LLC, and certain permitted
assigns specified therein.
<PAGE>
18
"Registration Statement" means the Registration Statement as defined and
described in the Registration Rights Agreement.
"Regular Record Date" for the interest payable on any Interest Payment
Date means the June 1 or December 1 (whether or not a Business Day), as the case
may be, next preceding such Interest Payment Date.
"Regulation S" means Regulation S under the Securities Act.
"Responsible Officer", when used with respect to the Trustee, means any
officer within the corporate trust administration of the Trustee (or any
successor group of the corporate trust administration of the Trustee), and also
means, with respect to a particular corporate trust matter, any other officer to
whom such matter is referred because of his or her knowledge of and familiarity
with the particular subject.
"Restricted Payments" has the meaning provided in Section 4.04.
"Restricted Subsidiary" means any Subsidiary of the Company other than an
Unrestricted Subsidiary.
"Rule 144A" means Rule 144A under the Securities Act.
"Securities Act" means the Securities Act of 1933.
"Security Register" has the meaning provided in Section 2.04.
"Shelf Registration Statement" means the Shelf Registration Statement as
defined in the Registration Rights Agreement.
"Significant Subsidiary" means, at any date of determination, any
Restricted Subsidiary that, together with its Subsidiaries, (i) for the most
recent fiscal year of the Company, accounted for more than 10% of the
consolidated revenues of the Company and its Restricted Subsidiaries or (ii) as
of the end of such fiscal year, was the owner of more than 10% of the
consolidated assets of the Company and its Restricted Subsidiaries, all as set
forth on the most recently available consolidated financial statements of the
Company for such fiscal year.
"Special Redemption" means a redemption of the Notes in whole pursuant to
Section 3.01(c).
"S&P" means Standard & Poor's Ratings Service and its successors.
<PAGE>
19
"Stated Maturity" means, (i) with respect to any debt security, the date
specified in such debt security as the fixed date on which the final installment
of principal of such debt security is due and payable and (ii) with respect to
any scheduled installment of principal of or interest on any debt security, the
date specified in such debt security as the fixed date on which such installment
is due and payable.
"Strategic Subordinated Indebtedness" means Indebtedness of the Company
Incurred to finance an Asset Acquisition, which Indebtedness by its terms, or by
the terms of any agreement or instrument pursuant to which such Indebtedness is
Incurred, (i) is expressly made subordinate in right of payment to the Notes and
(ii) provides that no payment of principal, premium or interest on, or any other
payment with respect to, such Indebtedness may be made prior to the payment in
full of all of the Company's obligations under the Notes; PROVIDED that such
Indebtedness may provide for and be repaid at any time from the proceeds of a
capital contribution or the sale of Capital Stock (other than Disqualified
Stock) of the Company after the Incurrence of such Indebtedness.
"Subsidiary" means, with respect to any Person, any corporation,
association or other business entity of which more than 50% of the voting power
of the outstanding Voting Stock is owned, directly or indirectly, by such Person
and one or more other Subsidiaries of such Person.
"Subsidiary Guarantee" has the meaning provided in Section 4.07.
"Temporary Cash Investment" means any of the following: (i) direct
obligations of the United States of America or any agency thereof or obligations
fully and unconditionally guaranteed by the United States of America or any
agency thereof, (ii) time deposit accounts, certificates of deposit and money
market deposits maturing within one year of the date of acquisition thereof
issued by a bank or trust company which is organized under the laws of the
United States of America, any state thereof or any foreign country recognized by
the United States of America, and which bank or trust company has capital,
surplus and undivided profits aggregating in excess of $50 million (or the
foreign currency equivalent thereof) and has outstanding debt which is rated "A"
(or such similar equivalent rating) or higher by at least one nationally
recognized statistical rating organization (as defined in Rule 436 under the
Securities Act) or any money-market fund sponsored by a registered broker dealer
or mutual fund distributor, (iii) repurchase obligations with a term of not more
than 30 days for underlying securities of the types described in clause (i)
above entered into with a bank meeting the qualifications described in clause
(ii) above, (iv) commercial paper, maturing not more than one year after the
date of acquisition, issued by a corporation (other than an Affiliate of the
Company) organized and in existence under the laws of the United States of
America, any state thereof or any foreign country recognized by the United
States of America with a rating at the time as of which any investment therein
is made of "P-1" (or higher) according to Moody's or "A-1" (or higher) according
to S&P, and (v) securities with maturities of six months or less from
<PAGE>
20
the date of acquisition issued or fully and unconditionally guaranteed by any
state, commonwealth or territory of the United States of America, or by any
political subdivision or taxing authority thereof, and rated at least "A" by
S&P or Moody's.
"Temporary Offshore Global Note" has the meaning provided in Section
2.01.
"TIA" or "Trust Indenture Act" means the Trust Indenture Act of 1939, (15
U.S. Code Sections 77aaa-77bbbb), as in effect on the date this Indenture was
executed, except as provided in Section 9.06.
"Trade Payables" means, with respect to any Person, any accounts payable
or any other indebtedness or monetary obligation to trade creditors created,
assumed or Guaranteed by such Person or any of its Subsidiaries arising in the
ordinary course of business in connection with the acquisition of goods or
services.
"Transaction Date" means, with respect to the Incurrence of any
Indebtedness by the Company or any of its Restricted Subsidiaries, the date such
Indebtedness is to be Incurred and, with respect to any Restricted Payment, the
date such Restricted Payment is to be made.
"Trustee" means the party named as such in the first paragraph of this
Indenture until a successor replaces it in accordance with the provisions of
Article Seven of this Indenture and thereafter means such successor.
"United States Bankruptcy Code" means the Bankruptcy Reform Act of 1978,
as amended and as codified in Title 11 of the United States Code, as amended
from time to time hereafter, or any successor federal bankruptcy law.
"Unrestricted Subsidiary" means (i) any Subsidiary of the Company that at
the time of determination shall be designated an Unrestricted Subsidiary by the
Board of Directors in the manner provided below; and (ii) any Subsidiary of an
Unrestricted Subsidiary. The Board of Directors may designate any Restricted
Subsidiary (including any newly acquired or newly formed Subsidiary of the
Company) to be an Unrestricted Subsidiary unless such Subsidiary owns any
Capital Stock of, or owns or holds any Lien on any property of, the Company or
any Restricted Subsidiary; PROVIDED that (A) any Guarantee by the Company or any
Restricted Subsidiary of any Indebtedness of the Subsidiary being so designated
shall be deemed an "Incurrence" of such Indebtedness and an "Investment" by the
Company or such Restricted Subsidiary at the time of such designation;
(B) either (I) the Subsidiary to be so designated has total assets of $1,000 or
less or (II) if such Subsidiary has assets greater than $1,000, such designation
would be permitted under Section 4.04 and (C) if applicable, the Incurrence of
Indebtedness and the Investment referred to in clause (A) of this proviso would
be permitted under Section 4.03 and Section 4.04. The Board of Directors may
designate any Unrestricted
<PAGE>
21
Subsidiary to be a Restricted Subsidiary; PROVIDED that (i) no Default or
Event of Default shall have occurred and be continuing at the time of or
after giving effect to such designation and (ii) all Liens and Indebtedness
of such Unrestricted Subsidiary outstanding immediately after such
designation would, if Incurred at such time, have been permitted to be
Incurred (and shall be deemed to have been Incurred) for all purposes of this
Indenture. Any such designation by the Board of Directors shall be evidenced
to the Trustee by promptly filing with the Trustee a copy of the Board
Resolution giving effect to such designation and an Officers' Certificate
certifying that such designation complied with the foregoing provisions.
"U.S. Global Note" has the meaning provided in Section 2.01.
"U.S. Government Obligations" means securities that are (i) direct
obligations of the United States of America for the payment of which its full
faith and credit is pledged or (ii) obligations of a Person controlled or
supervised by and acting as an agency or instrumentality of the United States of
America the payment of which is unconditionally guaranteed as a full faith and
credit obligation by the United States of America, which, in either case, are
not callable or redeemable at the option of the issuer thereof at any time prior
to the Stated Maturity of the Notes, and shall also include a depository receipt
issued by a bank or trust company as custodian with respect to any such U.S.
Government Obligation or a specific payment of interest on or principal of any
such U.S. Government Obligation held by such custodian for the account of the
holder of a depository receipt; PROVIDED that (except as required by law) such
custodian is not authorized to make any deduction from the amount payable to the
holder of such depository receipt from any amount received by the custodian in
respect of the U.S. Government Obligation or the specific payment of interest on
or principal of the U.S. Government Obligation evidenced by such depository
receipt.
"U.S. Physical Notes" has the meaning provided in Section 2.01.
"Voting Stock" means with respect to any Person, Capital Stock of any
class or kind ordinarily having the power to vote for the election of directors,
managers or other voting members of the governing body of such Person.
"Wholly Owned" means, with respect to any Subsidiary of any Person, the
ownership of all of the outstanding Capital Stock of such Subsidiary (other than
any director's qualifying shares or Investments by foreign nationals mandated by
applicable law) by such Person or one or more Wholly Owned Subsidiaries of such
Person.
SECTION 1.02. INCORPORATION BY REFERENCE OF TRUST INDENTURE ACT.
Whenever this Indenture refers to a provision of the TIA, the provision is
incorporated by reference in and made a part of this Indenture. The following
TIA terms used in this Indenture have the following meanings:
<PAGE>
22
"indenture securities" means the Notes;
"indenture security holder" means a Holder or a Noteholder;
"indenture to be qualified" means this Indenture;
"indenture trustee" or "institutional trustee" means the Trustee;
and
"obligor" on the indenture securities means the Company or any
other obligor on the Notes.
All other TIA terms used in this Indenture that are defined by the TIA,
defined by TIA reference to another statute or defined by a rule of the
Commission and not otherwise defined herein have the meanings assigned to them
therein.
SECTION 1.03. RULES OF CONSTRUCTION. Unless the context otherwise
requires:
(i) a term has the meaning assigned to it;
(ii) an accounting term not otherwise defined has the meaning
assigned to it in accordance with GAAP;
(iii) "or" is not exclusive;
(iv) words in the singular include the plural, and words in the
plural include the singular;
(v) provisions apply to successive events and transactions;
(vi) "herein," "hereof" and other words of similar import refer
to this Indenture as a whole and not to any particular Article, Section
or other subdivision;
(vii) all ratios and computations based on GAAP contained in this
Indenture shall be computed in accordance with the definition of GAAP set
forth in Section 1.01; and
(viii) all references to Sections or Articles refer to Sections or
Articles of this Indenture unless otherwise indicated.
<PAGE>
23
ARTICLE TWO
THE NOTES
SECTION 2.01. FORM AND DATING. The Notes and the Trustee's
certificate of authentication shall be substantially in the form annexed hereto
as Exhibit A with such appropriate insertions, omissions, substitutions and
other variations as are required or permitted by this Indenture. The Notes may
have notations, legends or endorsements required by law, stock exchange
agreements to which the Company is subject or usage. The Company shall approve
the form of the Notes and any notation, legend or endorsement on the Notes.
Each Note shall be dated the date of its authentication.
The terms and provisions contained in the form of the Notes
annexed hereto as Exhibit A shall constitute, and are hereby expressly made, a
part of this Indenture. To the extent applicable, the Company and the Trustee,
by their execution and delivery of this Indenture, expressly agree to such terms
and provisions and to be bound thereby.
Notes offered and sold in reliance on Rule 144A shall be issued
initially in the form of one or more permanent global Notes in registered form,
substantially in the form set forth in Exhibit A (the "U.S. GLOBAL NOTES"),
registered in the name of the nominee of the Depositary, deposited with the
Trustee, as custodian for the Depositary, duly executed by the Company and
authenticated by the Trustee as hereinafter provided. The aggregate principal
amount of the U.S. Global Notes may from time to time be increased or decreased
by adjustments made on the records of the Trustee, as custodian for the
Depositary or its nominee, in accordance with the instructions given by the
Holder thereof, as hereinafter provided.
Notes offered and sold in offshore transactions in reliance on
Regulation S shall be issued initially in the form of one or more temporary
global Notes in registered form substantially in the form set forth in Exhibit A
(the "TEMPORARY OFFSHORE GLOBAL NOTES"), registered in the name of the nominee
of the Depositary, deposited with the Trustee, as custodian for the Depositary,
duly executed by the Company and authenticated by the Trustee as hereinafter
provided. At any time following July 22, 1998 (the "OFFSHORE NOTES EXCHANGE
DATE"), upon receipt by the Trustee and the Company of a certificate
substantially in the form of Exhibit B hereto, one or more permanent global
Notes in registered form substantially in the form set forth in Exhibit A (the
"PERMANENT OFFSHORE GLOBAL NOTES"; and together with the Temporary Offshore
Global Notes, the "OFFSHORE GLOBAL NOTES") duly executed by the Company and
authenticated by the Trustee as hereinafter provided shall be deposited with the
Trustee, as custodian for the Depositary, and the Registrar shall reflect on its
books and records the date and a decrease in the principal amount of the
Temporary Offshore Global Notes in an amount equal to the principal amount of
the beneficial interest in the Temporary Offshore Global Notes transferred.
<PAGE>
24
Notes offered and sold in reliance on Regulation D under the
Securities Act shall be issued in the form of permanent certificated Notes in
registered form in substantially the form set forth in Exhibit A (the "U.S.
PHYSICAL NOTES"). Notes issued pursuant to Section 2.07 in exchange for
interests in the Offshore Global Note shall be in the form of permanent
certificated Notes in registered form substantially in the form set forth in
Exhibit A (the "OFFSHORE PHYSICAL NOTES").
The Offshore Physical Notes and U.S. Physical Notes are sometimes
collectively herein referred to as the "PHYSICAL NOTES". The U.S. Global Notes
and the Offshore Global Notes are sometimes referred to herein as the "GLOBAL
NOTES".
The definitive Notes shall be typed, printed, lithographed or
engraved or produced by any combination of these methods or may be produced in
any other manner permitted by the rules of any securities exchange on which the
Notes may be listed, all as determined by the Officers executing such Notes, as
evidenced by their execution of such Notes.
SECTION 2.02. RESTRICTIVE LEGENDS. Unless and until a Note is
exchanged for an Exchange Note in connection with an effective Registration
pursuant to the Registration Rights Agreement, each U.S. Global Note, Temporary
Offshore Global Note and U.S. Physical Note shall bear the following legend on
the face thereof:
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933,
AS AMENDED (THE "SECURITIES ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED
OR SOLD WITHIN THE UNITED STATES OR TO, OR FOR THE ACCOUNT OR BENEFIT OF,
U.S. PERSONS EXCEPT AS SET FORTH IN THE FOLLOWING SENTENCE. BY ITS
ACQUISITION HEREOF, THE HOLDER (1) REPRESENTS THAT (A) IT IS A "QUALIFIED
INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT),
OR (B) IT IS AN INSTITUTIONAL "ACCREDITED INVESTOR" (AS DEFINED IN
RULE 501(a)(1), (2), (3) OR (7) OF REGULATION D UNDER THE SECURITIES ACT)
(AN "INSTITUTIONAL ACCREDITED INVESTOR") OR (C) IT IS NOT A U.S. PERSON
AND IS ACQUIRING THIS NOTE IN AN OFFSHORE TRANSACTION IN COMPLIANCE WITH
REGULATION S UNDER THE SECURITIES ACT, (2) AGREES THAT IT WILL NOT,
WITHIN THE TIME PERIOD REFERRED TO UNDER RULE 144(k) UNDER THE SECURITIES
ACT AS IN EFFECT ON THE DATE OF THE TRANSFER OF THIS NOTE, RESELL OR
OTHERWISE TRANSFER THIS NOTE EXCEPT (A) TO THE COMPANY OR ANY SUBSIDIARY
THEREOF, (B) TO A QUALIFIED INSTITUTIONAL BUYER IN COMPLIANCE WITH RULE
144A UNDER THE SECURITIES ACT,
<PAGE>
25
(C) INSIDE THE UNITED STATES TO AN INSTITUTIONAL ACCREDITED INVESTOR
THAT, PRIOR TO SUCH TRANSFER, FURNISHES TO THE TRUSTEE A SIGNED LETTER
CONTAINING CERTAIN REPRESENTATIONS AND AGREEMENTS RELATING TO THE
RESTRICTIONS ON TRANSFER OF THIS NOTE (THE FORM OF WHICH LETTER CAN BE
OBTAINED FROM THE TRUSTEE) AND IF SUCH TRANSFER IS IN RESPECT OF AN
AGGREGATE PRINCIPAL AMOUNT OF NOTES OF LESS THAN $100,000, AN OPINION
OF COUNSEL ACCEPTABLE TO THE COMPANY THAT SUCH TRANSFER IS IN
COMPLIANCE WITH THE SECURITIES ACT, (D) OUTSIDE THE UNITED STATES IN
AN OFFSHORE TRANSACTION IN COMPLIANCE WITH RULE 904 UNDER THE
SECURITIES ACT, (E) PURSUANT TO THE EXEMPTION FROM REGISTRATION
PROVIDED BY RULE 144 UNDER THE SECURITIES ACT (IF AVAILABLE) OR (F)
PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES
ACT AND (3) AGREES THAT IT WILL DELIVER TO EACH PERSON TO WHOM THIS
NOTE IS TRANSFERRED A NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS
LEGEND. IN CONNECTION WITH ANY TRANSFER OF THIS NOTE WITHIN THE TIME
PERIOD REFERRED TO ABOVE, THE HOLDER MUST CHECK THE APPROPRIATE BOX
SET FORTH ON THE REVERSE HEREOF RELATING TO THE MANNER OF SUCH
TRANSFER AND SUBMIT THIS CERTIFICATE TO THE TRUSTEE. IF THE PROPOSED
TRANSFEREE IS AN INSTITUTIONAL ACCREDITED INVESTOR, THE HOLDER MUST,
PRIOR TO SUCH TRANSFER, FURNISH TO THE TRUSTEE AND THE COMPANY SUCH
CERTIFICATIONS, LEGAL OPINIONS OR OTHER INFORMATION AS EITHER OF THEM
MAY REASONABLY REQUIRE TO CONFIRM THAT SUCH TRANSFER IS BEING MADE
PURSUANT TO AN EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT. AS USED HEREIN, THE
TERMS "OFFSHORE TRANSACTION", "UNITED STATES" AND "U.S. PERSON" HAVE
THE MEANINGS GIVEN TO THEM BY REGULATION S UNDER THE SECURITIES ACT.
THE INDENTURE CONTAINS A PROVISION REQUIRING THE TRUSTEE TO REFUSE TO
REGISTER ANY TRANSFER OF THIS NOTE IN VIOLATION OF THE FOREGOING
RESTRICTIONS.
Each Global Note, whether or not an Exchange Note, shall also bear
the following legend on the face thereof:
UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF
THE DEPOSITORY TRUST COMPANY, TO THE COMPANY OR ITS AGENT FOR
REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY CERTIFICATE ISSUED
IS REGISTERED IN THE
<PAGE>
26
NAME OF CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN
AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY OR SUCH
OTHER REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY OR SUCH OTHER
NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY
TRUST COMPANY (AND ANY PAYMENT HEREON IS MADE TO CEDE & CO. OR TO SUCH
OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF THE
DEPOSITORY TRUST COMPANY), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF
FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL SINCE THE
REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.
TRANSFERS OF THIS GLOBAL NOTE SHALL BE LIMITED TO TRANSFERS IN WHOLE, BUT
NOT IN PART, TO NOMINEES OF CEDE & CO. OR TO A SUCCESSOR THEREOF OR SUCH
SUCCESSOR'S NOMINEE AND TRANSFERS OF PORTIONS OF THIS GLOBAL NOTE SHALL
BE LIMITED TO TRANSFERS MADE IN ACCORDANCE WITH THE RESTRICTIONS SET
FORTH IN SECTION 2.08 OF THE INDENTURE.
SECTION 2.03. EXECUTION, AUTHENTICATION AND DENOMINATIONS.
Subject to Article Four and applicable law, the aggregate principal amount of
Notes which may be authenticated and delivered under this Indenture is
unlimited. The Notes shall be executed by two Officers of the Company. The
signature of these Officers on the Notes may be by facsimile or manual signature
in the name and on behalf of the Company.
If an Officer whose signature is on a Note no longer holds that
office at the time the Trustee or authenticating agent authenticates the Note,
the Note shall be valid nevertheless.
A Note shall not be valid until the Trustee or authenticating
agent manually signs the certificate of authentication on the Note. The
signature shall be conclusive evidence that the Note has been authenticated
under this Indenture.
At any time and from time to time after the execution of this
Indenture, the Trustee or an authenticating agent shall upon receipt of a
Company Order authenticate for original issue Notes in the aggregate principal
amount specified in such Company Order; PROVIDED that the Trustee shall be
entitled to receive an Officers' Certificate and an Opinion of Counsel of the
Company in connection with such authentication of Notes. Such Company Order
shall specify the amount of Notes to be authenticated and the date on which the
original issue of Notes is to be authenticated and in case of an issuance of
Notes pursuant to Section 2.15, shall certify that such issuance is in
compliance with Article Four.
<PAGE>
27
The Trustee may appoint an authenticating agent to authenticate
Notes. An authenticating agent may authenticate Notes whenever the Trustee may
do so. Each reference in this Indenture to authentication by the Trustee
includes authentication by such authenticating agent. An authenticating agent
has the same rights as an Agent to deal with the Company or an Affiliate of the
Company. The Trustee shall not be liable for the misconduct or negligence of
any authenticating agent appointed with due care.
The Notes shall be issuable only in registered form without
coupons and only in denominations of $1,000 in principal amount and any integral
multiple of $1,000 in excess thereof.
SECTION 2.04. REGISTRAR AND PAYING AGENT. The Company shall
maintain an office or agency where Notes may be presented for registration of
transfer or for exchange (the "REGISTRAR"), an office or agency where Notes may
be presented for payment (the "PAYING AGENT") and an office or agency where
notices and demands to or upon the Company in respect of the Notes and this
Indenture may be served, which shall be in the Borough of Manhattan, the City of
New York. The Company shall cause the Registrar to keep a register of the Notes
and of their transfer and exchange (the "SECURITY REGISTER"). The Company may
have one or more co-Registrars and one or more additional Paying Agents.
The Company shall enter into an appropriate agency agreement with
any Agent not a party to this Indenture. The agreement shall implement the
provisions of this Indenture that relate to such Agent. The Company shall give
prompt written notice to the Trustee of the name and address of any such Agent
and any change in the address of such Agent. If the Company fails to maintain a
Registrar, Paying Agent and/or agent for service of notices and demands, the
Trustee shall act as such Registrar, Paying Agent and/or agent for service of
notices and demands. The Company may remove any Agent upon written notice to
such Agent and the Trustee; PROVIDED that no such removal shall become effective
until (i) the acceptance of an appointment by a successor Agent to such Agent as
evidenced by an appropriate agency agreement entered into by the Company and
such successor Agent and delivered to the Trustee or (ii) notification to the
Trustee that the Trustee shall serve as such Agent until the appointment of a
successor Agent in accordance with clause (i) of this proviso. The Company, any
Subsidiary of the Company, or any Affiliate of any of them may act as Paying
Agent, Registrar or co-Registrar, and/or agent for service of notice and
demands.
The Company initially appoints the Trustee as Registrar, Paying
Agent, authenticating agent and agent for service of notice and demands. The
Trustee shall preserve in as current a form as is reasonably practicable the
most recent list available to it of the names and addresses of Holders and shall
otherwise comply with TIA Section 312(a). If the Trustee is not the Registrar,
the Company shall furnish to the Trustee as of each Regular Record Date and at
such other times as the Trustee may request in writing a list in such form and
as of such date
<PAGE>
28
as the Trustee may reasonably require of the names and addresses of Holders,
including the aggregate principal amount of Notes held by each Holder.
SECTION 2.05. PAYING AGENT TO HOLD MONEY IN TRUST. Not later
than 11:00 a.m. (New York City time) each due date of the principal, premium, if
any, and interest on any Notes, the Company shall deposit with the Paying Agent
money in immediately available funds sufficient to pay such principal, premium,
if any, and interest so becoming due. The Company shall require each Paying
Agent other than the Trustee to agree in writing that such Paying Agent shall
hold in trust for the benefit of the Holders or the Trustee all money held by
the Paying Agent for the payment of principal of, premium, if any, and interest
on the Notes (whether such money has been paid to it by the Company or any other
obligor on the Notes), and such Paying Agent shall promptly notify the Trustee
of any default by the Company (or any other obligor on the Notes) in making any
such payment. The Company at any time may require a Paying Agent to pay all
money held by it to the Trustee and account for any funds disbursed, and the
Trustee may at any time during the continuance of any payment default, upon
written request to a Paying Agent, require such Paying Agent to pay all money
held by it to the Trustee and to account for any funds disbursed. Upon doing
so, the Paying Agent shall have no further liability for the money so paid over
to the Trustee. If the Company or any Subsidiary of the Company or any
Affiliate of any of them acts as Paying Agent, it will, on or before each due
date of any principal of, premium, if any, or interest on the Notes, segregate
and hold in a separate trust fund for the benefit of the Holders a sum of money
sufficient to pay such principal, premium, if any, or interest so becoming due
until such sum of money shall be paid to such Holders or otherwise disposed of
as provided in this Indenture, and will promptly notify the Trustee of its
action or failure to act.
SECTION 2.06. TRANSFER AND EXCHANGE. The Notes are issuable only
in registered form. A Holder may transfer a Note only by written application to
the Registrar stating the name of the proposed transferee and otherwise
complying with the terms of this Indenture. No such transfer shall be effected
until, and such transferee shall succeed to the rights of a Holder only upon,
final acceptance and registration of the transfer by the Registrar in the
Security Register. Prior to the registration of any transfer by a Holder as
provided herein, the Company, the Trustee, and any agent of the Company shall
treat the person in whose name the Note is registered as the owner thereof for
all purposes whether or not the Note shall be overdue, and neither the Company,
the Trustee, nor any such agent shall be affected by notice to the contrary.
Furthermore, any Holder of a Global Note shall, by acceptance of such Global
Note, agree that transfers of beneficial interests in such Global Note may be
effected only through a book entry system maintained by the Holder of such
Global Note (or its agent) and that ownership of a beneficial interest in the
Note shall be required to be reflected in a book entry. When Notes are
presented to the Registrar or a co-Registrar with a request to register the
transfer or to exchange them for an equal principal amount of Notes of
<PAGE>
29
other authorized denominations (including an exchange of Notes for Exchange
Notes), the Registrar shall register the transfer or make the exchange as
requested if its requirements for such transactions are met (including that
such Notes are duly endorsed or accompanied by a written instrument of
transfer in form satisfactory to the Trustee and Registrar duly executed by
the Holder thereof or by an attorney who is authorized in writing to act on
behalf of the Holder); PROVIDED that no exchanges of Notes for Exchange Notes
shall occur until a Registration Statement shall have been declared effective
by the Commission and that any Notes that are exchanged for Exchange Notes
shall be cancelled by the Trustee. To permit registrations of transfers and
exchanges, the Company shall execute and the Trustee shall authenticate Notes
at the Registrar's request. No service charge shall be made for any
registration of transfer or exchange or redemption of the Notes, but the
Company may require payment of a sum sufficient to cover any transfer tax or
similar governmental charge payable in connection therewith (other than any
such transfer taxes or other similar governmental charge payable upon
exchanges pursuant to Section 2.11, 3.08 or 9.04).
The Registrar shall not be required (i) to issue, register the
transfer of or exchange any Note during a period beginning at the opening of
business 15 days before the day of the mailing of a notice of redemption of
Notes selected for redemption under Section 3.03 and ending at the close of
business on the day of such mailing, or (ii) to register the transfer of or
exchange any Note so selected for redemption in whole or in part, except the
unredeemed portion of any Note being redeemed in part.
SECTION 2.07. BOOK-ENTRY PROVISIONS FOR GLOBAL NOTES. (a) The
U.S. Global Note and Offshore Global Note initially shall (i) be registered in
the name of the Depositary for such Global Notes or the nominee of such
Depositary, (ii) be delivered to the Trustee as custodian for such Depositary
and (iii) bear legends as set forth in Section 2.02.
Members of, or participants in, the Depositary ("AGENT MEMBERS")
shall have no rights under this Indenture with respect to any Global Note held
on their behalf by the Depositary, or the Trustee as its custodian, or under the
Global Note, and the Depositary may be treated by the Company, the Trustee and
any agent of the Company or the Trustee as the absolute owner of such Global
Note for all purposes whatsoever. Notwithstanding the foregoing, nothing herein
shall prevent the Company, the Trustee or any agent of the Company or the
Trustee, from giving effect to any written certification, proxy or other
authorization furnished by the Depositary or impair, as between the Depositary
and its Agent Members, the operation of customary practices governing the
exercise of the rights of a holder of any Note. Neither the Company nor the
Trustee shall be liable for any delay by the Depositary in identifying the
beneficial owners of the Notes and the Company and the Trustee may conclusively
rely on, and shall be protected in relying on, instructions from the Depositary
for all purposes (including with respect to the registration and delivery, and
the respective principal amounts, of any Notes to be issued).
<PAGE>
30
(b) Transfers of a Global Note shall be limited to transfers of
such Global Note in whole, but not in part, to the Depositary, its successors or
their respective nominees. Interests of beneficial owners in a Global Note may
be transferred in accordance with the rules and procedures of the Depositary and
the provisions of Section 2.08. In addition, U.S. Physical Notes and Offshore
Physical Notes shall be transferred to all beneficial owners in exchange for
their beneficial interests in the U.S. Global Notes or the Offshore Global
Notes, respectively, if (i) the Depositary notifies the Company that it is
unwilling or unable to continue as Depositary for the U.S. Global Notes or the
Offshore Global Notes, as the case may be, and a successor depositary is not
appointed by the Company within 90 days of such notice, (ii) an Event of Default
has occurred and is continuing and the Registrar has received a request from the
Depositary or (iii) in accordance with the rules and procedures of the
Depositary and the provisions of Section 2.08.
(c) Any beneficial interest in one of the Global Notes that is
transferred to a person who takes delivery in the form of an interest in the
other Global Note will, upon transfer, cease to be an interest in such Global
Note and become an interest in the other Global Note and, accordingly, will
thereafter be subject to all transfer restrictions, if any, and other procedures
applicable to beneficial interests in such other Global Note for as long as it
remains such an interest.
(d) In connection with any transfer of a portion of the
beneficial interests in a Global Note to beneficial owners pursuant to paragraph
(b) of this Section, the Registrar shall reflect on its books and records the
date and a decrease in the principal amount of such Global Note in an amount
equal to the principal amount of the beneficial interest in such Global Note to
be transferred, and the Company shall execute, and the Trustee shall
authenticate and deliver, one or more Physical Notes of like tenor and amount.
(e) In connection with the transfer of the entire U.S. Global
Notes or Offshore Global Notes to beneficial owners pursuant to paragraph (b) of
this Section, the U.S. Global Notes or Offshore Global Notes, as the case may
be, shall be deemed to be surrendered to the Trustee for cancellation, and the
Company shall execute, and the Trustee shall authenticate and deliver, to each
beneficial owner identified by the Depositary in exchange for its beneficial
interest in the U.S. Global Notes or Offshore Global Notes, as the case may be,
an equal aggregate principal amount of U.S. Physical Notes or Offshore Physical
Notes, as the case may be, of authorized denominations.
(f) Any U.S. Physical Note delivered in exchange for an
interest in the U.S. Global Notes pursuant to paragraph (b) or (d) of this
Section shall, except as otherwise provided by paragraph (f) of Section 2.08,
bear the legend regarding transfer restrictions applicable to the U.S. Physical
Note set forth in Section 2.02.
<PAGE>
31
(g) Any Offshore Physical Note delivered in exchange for an
interest in the Offshore Global Notes pursuant to paragraph (b) of this Section
shall, except as otherwise provided by paragraph (f) of Section 2.08, bear the
legend regarding transfer restrictions applicable to the Offshore Physical Note
set forth in Section 2.02.
(h) The registered holder of a Global Note may grant proxies
and otherwise authorize any person, including Agent Members and persons that may
hold interests through Agent Members, to take any action which a Holder is
entitled to take under this Indenture or the Notes.
SECTION 2.08. SPECIAL TRANSFER PROVISIONS. Unless and until a
Note is exchanged for an Exchange Note in connection with an effective
Registration pursuant to the Registration Rights Agreement, the following
provisions shall apply:
(a) TRANSFERS TO NON-QIB INSTITUTIONAL ACCREDITED INVESTORS.
The following provisions shall apply with respect to the registration of any
proposed transfer of a Note to any Institutional Accredited Investor which is
not a QIB (excluding Non-U.S. Persons):
(i) The Registrar shall register the transfer of any Note,
whether or not such Note bears the Private Placement Legend, if (x) the
requested transfer is after the time period referred to in Rule 144(k)
under the Securities Act or (y) the proposed transferee has delivered to
the Registrar (A) a certificate substantially in the form of Exhibit C
hereto and (B) if the aggregate principal amount of the Notes being
transferred is less than $100,000, an opinion of counsel acceptable to
the Company that such transfer is in compliance with the Securities Act.
(ii) If the proposed transferor is an Agent Member holding a
beneficial interest in the U.S. Global Note, upon receipt by the
Registrar of (x) the documents, if any, required by paragraph (i) and (y)
instructions given in accordance with the Depositary's and the
Registrar's procedures, the Registrar shall reflect on its books and
records the date and a decrease in the principal amount of the U.S.
Global Note in an amount equal to the principal amount of the beneficial
interest in the U.S. Global Note to be transferred, and the Company shall
execute, and the Trustee shall authenticate and deliver, one or more U.S.
Physical Notes of like tenor and amount.
(b) TRANSFERS TO QIBS. The following provisions shall apply
with respect to the registration of any proposed transfer of a U.S. Physical
Note or an interest in the U.S. Global Notes to a QIB (excluding Non-U.S.
Persons):
(i) If the Note to be transferred consists of (x) U.S. Physical
Notes, the Registrar shall register the transfer if such transfer is
being made by a proposed
<PAGE>
32
transferor who has checked the box provided for on the form of Note
stating, or has otherwise advised the Company and the Registrar in
writing, that the sale has been made in compliance with the provisions
of Rule 144A to a transferee who has signed the certification provided
for on the form of Note stating, or has otherwise advised the Company
and the Registrar in writing, that it is purchasing the Note for its
own account or an account with respect to which it exercises sole
investment discretion and that it and any such account is a QIB within
the meaning of Rule 144A, and is aware that the sale to it is being
made in reliance on Rule 144A and acknowledges that it has received
such information regarding the Company as it has requested pursuant to
Rule 144A or has determined not to request such information and that
it is aware that the transferor is relying upon its foregoing
representations in order to claim the exemption from registration
provided by Rule 144A or (y) an interest in the U.S. Global Notes, the
transfer of such interest may be effected only through the book entry
system maintained by the Depositary.
(ii) If the proposed transferee is an Agent Member, and the Note
to be transferred consists of U.S. Physical Notes, upon receipt by the
Registrar of the documents referred to in clause (i) and instructions
given in accordance with the Depositary's and the Registrar's procedures,
the Registrar shall reflect on its books and records the date and an
increase in the principal amount of the U.S. Global Notes in an amount
equal to the principal amount of the U.S. Physical Notes, to be
transferred, and the Trustee shall cancel the U.S. Physical Note so
transferred.
(c) TRANSFERS OF INTERESTS IN THE TEMPORARY OFFSHORE GLOBAL
NOTES. The following provisions shall apply with respect to registration of any
proposed transfer of interests in the Temporary Offshore Global Notes:
(i) The Registrar shall register the transfer of any Note (x)
if the proposed transferee is a Non-U.S. Person and the proposed
transferor has delivered to the Registrar a certificate substantially in
the form of Exhibit D hereto or (y) if the proposed transferee is a QIB
and the proposed transferor has checked the box provided for on the form
of Note stating, or has otherwise advised the Company and the Registrar
in writing, that the sale has been made in compliance with the provisions
of Rule 144A to a transferee who has signed the certification provided
for on the form of Note stating, or has otherwise advised the Company and
the Registrar in writing, that it is purchasing the Note for its own
account or an account with respect to which it exercises sole investment
discretion and that it and any such account is a QIB within the meaning
of Rule 144A, and is aware that the sale to it is being made in reliance
on Rule 144A and acknowledges that it has received such information
regarding the Company as it has requested pursuant to Rule 144A or has
determined not to request such information and that it is aware that the
transferor is relying upon its foregoing
<PAGE>
33
representations in order to claim the exemption from registration
provided by Rule 144A.
(ii) If the proposed transferee is an Agent Member, upon receipt
by the Registrar of the documents referred to in clause (i)(y) above and
instructions given in accordance with the Depositary's and the
Registrar's procedures, the Registrar shall reflect on its books and
records the date and an increase in the principal amount of the U.S.
Global Notes, in an amount equal to the principal amount of the Temporary
Offshore Global Notes to be transferred, and the Trustee shall decrease
the amount of the Temporary Offshore Global Notes.
(d) TRANSFERS OF INTERESTS IN THE PERMANENT OFFSHORE GLOBAL
NOTES OR OFFSHORE PHYSICAL NOTES TO U.S. PERSONS. The following provisions
shall apply with respect to any transfer of interests in the Permanent Offshore
Global Notes or Offshore Physical Notes to U.S. Persons: The Registrar shall
register the transfer of any such Note without requiring any additional
certification.
(e) TRANSFERS TO NON-U.S. PERSONS AT ANY TIME. The following
provisions shall apply with respect to any transfer of a Note to a Non-U.S.
Person:
(i) Prior to July 22, 1998, the Registrar shall register any
proposed transfer of a Note to a Non-U.S. Person upon receipt of a
certificate substantially in the form of Exhibit D hereto from the
proposed transferor.
(ii) On and after July 22, 1998, the Registrar shall register
any proposed transfer to any Non-U.S. Person if the Note to be
transferred is a U.S. Physical Note or an interest in the U.S. Global
Notes, upon receipt of a certificate substantially in the form of
Exhibit D from the proposed transferor.
(iii) (a) If the proposed transferor is an Agent Member holding a
beneficial interest in the U.S. Global Notes, upon receipt by the
Registrar of (x) the documents, if any, required by paragraph (ii) and
(y) instructions in accordance with the Depositary's and the Registrar's
procedures, the Registrar shall reflect on its books and records the date
and a decrease in the principal amount of the U.S. Global Note in an
amount equal to the principal amount of the beneficial interest in the
U.S. Global Note to be transferred, and (b) if the proposed transferee is
an Agent Member, upon receipt by the Registrar of instructions given in
accordance with the Depositary's and the Registrar's procedures, the
Registrar shall reflect on its books and records the date and an increase
in the principal amount of the Offshore Global Notes in an amount equal
to the principal amount of the U.S. Physical Notes or the U.S. Global
Notes, as the case may
<PAGE>
34
be, to be transferred, and the Trustee shall cancel the Physical Note,
if any, so transferred or decrease the amount of the U.S. Global Notes.
(f) PRIVATE PLACEMENT LEGEND. Upon the transfer, exchange or
replacement of Notes not bearing the Private Placement Legend, the Registrar
shall deliver Notes that do not bear the Private Placement Legend. Upon the
transfer, exchange or replacement of Notes bearing the Private Placement Legend,
the Registrar shall deliver only Notes that bear the Private Placement Legend
unless either (i) the circumstances contemplated by the fourth paragraph of
Section 2.01 or paragraphs (a)(i)(x) or (e)(ii) of this Section 2.08 exist or
(ii) there is delivered to the Registrar an Opinion of Counsel reasonably
satisfactory to the Company and the Trustee to the effect that neither such
legend nor the related restrictions on transfer are required in order to
maintain compliance with the provisions of the Securities Act.
(g) GENERAL. By its acceptance of any Note bearing the Private
Placement Legend, each Holder of such a Note acknowledges the restrictions on
transfer of such Note set forth in this Indenture and in the Private Placement
Legend and agrees that it will transfer such Note only as provided in this
Indenture. The Registrar shall not register a transfer of any Note unless such
transfer complies with the restrictions on transfer of such Note set forth in
this Indenture. In connection with any transfer of Notes, each Holder agrees by
its acceptance of the Notes to furnish the Registrar or the Company such
certifications, legal opinions or other information as either of them may
reasonably require to confirm that such transfer is being made pursuant to an
exemption from, or a transaction not subject to, the registration requirements
of the Securities Act; PROVIDED that the Registrar shall not be required to
determine (but may rely on a determination made by the Company with respect to)
the sufficiency of any such certifications, legal opinions or other information.
The Registrar shall retain copies of all letters, notices and
other written communications received pursuant to Section 2.07 or this Section
2.08. The Company shall have the right to inspect and make copies of all such
letters, notices or other written communications at any reasonable time upon the
giving of reasonable written notice to the Registrar.
SECTION 2.09. REPLACEMENT NOTES. If a mutilated Note is
surrendered to the Trustee or if the Holder claims that the Note has been lost,
destroyed or wrongfully taken, the Company shall issue and the Trustee shall
authenticate a replacement Note of like tenor and principal amount and bearing a
number not contemporaneously outstanding; PROVIDED that the requirements of the
second paragraph of Section 2.10 are met. If required by the Trustee or the
Company, an indemnity bond must be furnished that is sufficient in the judgment
of both the Trustee and the Company to protect the Company, the Trustee or any
Agent from any loss that any of them may suffer if a Note is replaced. The
Company may charge such Holder for its expenses and the expenses of the Trustee
in replacing a Note. In case any such mutilated,
<PAGE>
35
lost, destroyed or wrongfully taken Note has become or is about to become due
and payable, the Company in its discretion may pay such Note instead of
issuing a new Note in replacement thereof.
Every replacement Note is an additional obligation of the Company
and shall be entitled to the benefits of this Indenture.
SECTION 2.10. OUTSTANDING NOTES. Notes outstanding at any time
are all Notes that have been authenticated by the Trustee except for those
cancelled by it, those delivered to it for cancellation and those described in
this Section 2.10 as not outstanding.
If a Note is replaced pursuant to Section 2.09, it ceases to be
outstanding unless and until the Trustee and the Company receive proof
satisfactory to them that the replaced Note is held by a BONA FIDE purchaser.
If the Paying Agent (other than the Company or an Affiliate of the
Company) holds on the maturity date money sufficient to pay Notes payable on
that date, then on and after that date such Notes cease to be outstanding and
interest on them shall cease to accrue.
A Note does not cease to be outstanding because the Company or one
of its Affiliates holds such Note, PROVIDED, HOWEVER, that, in determining
whether the Holders of the requisite principal amount of the outstanding Notes
have given any request, demand, authorization, direction, notice, consent or
waiver hereunder, Notes owned by the Company or any other obligor upon the Notes
or any Affiliate of the Company or of such other obligor shall be disregarded
and deemed not to be outstanding, except that, in determining whether the
Trustee shall be protected in relying upon any such request, demand,
authorization, direction, notice, consent or waiver, only Notes which the
Trustee knows to be so owned shall be so disregarded. Notes so owned which have
been pledged in good faith may be regarded as outstanding if the pledgee
establishes to the satisfaction of the Trustee the pledgee's right so to act
with respect to such Notes and that the pledgee is not the Company or any other
obligor upon the Notes or any Affiliate of the Company or of such other obligor.
SECTION 2.11. TEMPORARY NOTES. Until definitive Notes are ready
for delivery, the Company may prepare and the Trustee shall authenticate
temporary Notes. Temporary Notes shall be substantially in the form of
definitive Notes but may have insertions, substitutions, omissions and other
variations determined to be appropriate by the Officers executing the temporary
Notes, as evidenced by their execution of such temporary Notes. If temporary
Notes are issued, the Company will cause definitive Notes to be prepared without
unreasonable delay. After the preparation of definitive Notes, the temporary
Notes shall be exchangeable for definitive Notes upon surrender of the temporary
Notes at the office or agency of the Company designated for such purpose
pursuant to Section 4.02, without
<PAGE>
36
charge to the Holder. Upon surrender for cancellation of any one or more
temporary Notes the Company shall execute and the Trustee shall authenticate
and deliver in exchange therefor a like principal amount of definitive Notes
of authorized denominations. Until so exchanged, the temporary Notes shall
be entitled to the same benefits under this Indenture as definitive Notes.
SECTION 2.12. CANCELLATION. The Company at any time may deliver
to the Trustee for cancellation any Notes previously authenticated and delivered
hereunder which the Company may have acquired in any manner whatsoever, and may
deliver to the Trustee for cancellation any Notes previously authenticated
hereunder which the Company has not issued and sold. The Registrar and the
Paying Agent shall forward to the Trustee any Notes surrendered to them for
transfer, exchange or payment. The Trustee shall cancel all Notes surrendered
for transfer, exchange, payment or cancellation and shall destroy them in
accordance with its normal procedure. Except as expressly permitted by this
Indenture, the Company may not issue new Notes to replace Notes it has paid in
full or delivered to the Trustee for cancellation.
SECTION 2.13. CUSIP NUMBERS. The Company in issuing the Notes
may use "CUSIP", "CINS" or "ISIN" numbers (if then generally in use), and the
Trustee shall use CUSIP, CINS or ISIN numbers, as the case may be, in notices of
redemption or exchange as a convenience to Holders; PROVIDED that any such
notice shall state that no representation is made as to the correctness of such
numbers either as printed on the Notes or as contained in any notice of
redemption or exchange and that reliance may be placed only on the other
identification numbers printed on the Notes. The Company will promptly notify
the Trustee of any change in "CUSIP", "CINS" or "ISIN" numbers for the Notes.
SECTION 2.14. DEFAULTED INTEREST. If the Company defaults in a
payment of interest on the Notes, it shall pay, or shall deposit with the Paying
Agent money in immediately available funds sufficient to pay the defaulted
interest, plus (to the extent lawful) any interest payable on the defaulted
interest, to the Persons who are Holders on a subsequent special record date. A
special record date, as used in this Section 2.14 with respect to the payment of
any defaulted interest, shall mean the 15th day next preceding the date fixed by
the Company for the payment of defaulted interest, whether or not such day is a
Business Day. At least 15 days before the subsequent special record date, the
Company shall mail to each Holder and to the Trustee a notice that states the
subsequent special record date, the payment date and the amount of defaulted
interest to be paid.
SECTION 2.15. ISSUANCE OF ADDITIONAL NOTES. The Company may, subject to
Article Four of this Indenture and applicable law, issue additional Notes under
this Indenture. The Notes issued on the Closing Date and any additional Notes
subsequently issued shall be treated as a single class for all purposes under
this Indenture.
<PAGE>
37
ARTICLE THREE
REDEMPTION
SECTION 3.01. OPTIONAL REDEMPTION; SPECIAL REDEMPTION. (a) The Notes
may be redeemed at the election of the Company, in whole or in part, at any time
and from time to time on or after June 15, 2003 and prior to maturity, upon not
less than 30 nor more than 60 days' prior notice mailed by first-class mail to
each Holder's last address as it appears in the Security Register, at the
following Redemption Prices (expressed in percentages of their principal
amount), plus accrued and unpaid interest to the Redemption Date (subject to the
right of Holders of record on the relevant Regular Record Date that is on or
prior to the Redemption Date to receive interest due on an Interest Payment
Date) if redeemed during the 12-month period commencing on June 15 of the
applicable year set forth below:
<TABLE>
Redemption
Year Price
---- ----------
<S> <C>
2003 106.125%
2004 104.083
2005 102.042
2006 and thereafter 100.000
</TABLE>
(b) At any time prior to June 15, 2001, the Company may redeem up to
35% of the aggregate principal amount of the Notes with the Net Cash Proceeds
from one or more sales of Capital Stock of the Company (other than Disqualified
Stock), at any time as a whole or from time to time in part, upon not less than
30 nor more than 60 days' prior notice mailed by first-class mail to each
Holder's last address as it appears in the Security Register, at a Redemption
Price (expressed in percentages of their principal amount) of 112.250%, plus
accrued and unpaid interest to the Redemption Date (subject to the right of
Holders of record on the relevant Regular Record Date that is on or prior to the
Redemption Date to receive interest due on an Interest Payment Date); PROVIDED
that at least 65% of the aggregate principal amount of the Notes originally
issued on the Closing Date remains outstanding after each such redemption and
notice of any such redemption is mailed within 60 days after the related sale of
Capital Stock.
(c) In the event the American Telco Acquisition is not consummated by
September 15, 1998, or if it appears in the sole judgment of the Company that
the American Telco Acquisition will not be consummated by such date, the Company
will be required to redeem (a "Special Redemption") the Notes, in whole, on
10 days' prior notice mailed by first class mail to each Holder's last address
as it appears in the Security Register, at a Redemption Price equal to 101% of
their principal amount, plus accrued and unpaid interest to the Redemption Date.
<PAGE>
38
SECTION 3.02. NOTICES TO TRUSTEE. If the Company elects to redeem Notes
pursuant to Section 3.01(a) or (b), it shall notify the Trustee in writing of
the Redemption Date and the principal amount of Notes to be redeemed.
The Company shall give each notice provided for in this Section 3.02 in
an Officers' Certificate at least 45 days before the Redemption Date (unless a
shorter period shall be satisfactory to the Trustee).
SECTION 3.03. SELECTION OF NOTES TO BE REDEEMED. If less than all of
the Notes are to be redeemed at any time, the Trustee shall select the Notes to
be redeemed in compliance with the requirements, as certified to it by the
Company, of the principal national securities exchange, if any, on which the
Notes are listed or, if the Notes are not listed on a national securities
exchange, by lot or by such other method as the Trustee in its sole discretion
shall deem fair and appropriate; PROVIDED that no Notes of $1,000 in principal
amount or less shall be redeemed in part.
The Trustee shall make the selection from the Notes outstanding and not
previously called for redemption. Notes in denominations of $1,000 in principal
amount may only be redeemed in whole. The Trustee may select for redemption
portions (equal to $1,000 in principal amount or any integral multiple thereof)
of Notes that have denominations larger than $1,000 in principal amount.
Provisions of this Indenture that apply to Notes called for redemption also
apply to portions of Notes called for redemption. The Trustee shall notify the
Company and the Registrar promptly in writing of the Notes or portions of Notes
to be called for redemption.
SECTION 3.04. NOTICE OF REDEMPTION. With respect to any redemption of
Notes pursuant to Section 3.01(a) or (b), at least 30 days but not more than 60
days before a Redemption Date, and with respect to a redemption of Notes
pursuant to Section 3.01(c), at least 10 days before the Redemption Date, the
Company shall mail a notice of redemption by first class mail to each Holder
whose Notes are to be redeemed.
The notice shall identify the Notes to be redeemed and shall state:
(i) the Redemption Date;
(ii) the Redemption Price;
(iii) the name and address of the Paying Agent;
(iv) that Notes called for redemption must be surrendered to the
Paying Agent in order to collect the Redemption Price;
<PAGE>
39
(v) that, unless the Company defaults in making the redemption
payment, interest on Notes called for redemption ceases to accrue on and
after the Redemption Date and the only remaining right of the Holders is
to receive payment of the Redemption Price plus accrued interest to the
Redemption Date upon surrender of the Notes to the Paying Agent;
(vi) that, if any Note is being redeemed in part, the portion of
the principal amount (equal to $1,000 in principal amount or any integral
multiple thereof) of such Note to be redeemed and that, on and after the
Redemption Date, upon surrender of such Note, a new Note or Notes in
principal amount equal to the unredeemed portion thereof will be
reissued; and
(vii) that, if any Note contains a CUSIP, CINS or ISIN number as
provided in Section 2.13, no representation is being made as to the
correctness of the CUSIP, CINS or ISIN number either as printed on the
Notes or as contained in the notice of redemption and that reliance may
be placed only on the other identification numbers printed on the Notes.
At the Company's request (which request may be revoked by the Company at
any time prior to the time at which the Trustee shall have given such notice to
the Holders), made in writing to the Trustee at least 45 days (or such shorter
period as shall be satisfactory to the Trustee) before a Redemption Date, the
Trustee shall give the notice of redemption in the name and at the expense of
the Company. If, however, the Company gives such notice to the Holders, the
Company shall concurrently deliver to the Trustee an Officers' Certificate
stating that such notice has been given.
SECTION 3.05. EFFECT OF NOTICE OF REDEMPTION. Once notice of redemption
is mailed, Notes called for redemption become due and payable on the Redemption
Date and at the Redemption Price. Upon surrender of any Notes to the Paying
Agent, such Notes shall be paid at the Redemption Price, plus accrued interest,
if any, to the Redemption Date.
Notice of redemption shall be deemed to be given when mailed, whether or
not the Holder receives the notice. In any event, failure to give such notice,
or any defect therein, shall not affect the validity of the proceedings for the
redemption of Notes held by Holders to whom such notice was properly given.
SECTION 3.06. DEPOSIT OF REDEMPTION PRICE. On or prior to any
Redemption Date, the Company shall deposit with the Paying Agent (or, if the
Company is acting as its own Paying Agent, shall segregate and hold in trust as
provided in Section 2.05) money sufficient to pay the Redemption Price of and
accrued interest on all Notes to be redeemed on that date other than Notes or
portions thereof called for redemption on that date that have been delivered by
the Company to the Trustee for cancellation.
<PAGE>
40
SECTION 3.07. PAYMENT OF NOTES CALLED FOR REDEMPTION. If notice of
redemption has been given in the manner provided above, the Notes or portion of
Notes specified in such notice to be redeemed shall become due and payable on
the Redemption Date at the Redemption Price stated therein, together with
accrued interest to such Redemption Date, and on and after such date (unless the
Company shall default in the payment of such Notes at the Redemption Price and
accrued interest to the Redemption Date, in which case the principal, until
paid, shall bear interest from the Redemption Date at the rate prescribed in the
Notes), such Notes shall cease to accrue interest. Upon surrender of any Note
for redemption in accordance with a notice of redemption, such Note shall be
paid and redeemed by the Company at the Redemption Price, together with accrued
interest, if any, to the Redemption Date; PROVIDED that installments of interest
whose Stated Maturity is on or prior to the Redemption Date shall be payable to
the Holders registered as such at the close of business on the relevant Regular
Record Date.
SECTION 3.08. NOTES REDEEMED IN PART. Upon surrender of any Note that
is redeemed in part, the Company shall execute and the Trustee shall
authenticate and deliver to the Holder a new Note equal in principal amount to
the unredeemed portion of such surrendered Note.
ARTICLE FOUR
COVENANTS
SECTION 4.01. PAYMENT OF NOTES. The Company shall pay the principal of,
premium, if any, and interest on the Notes on the dates and in the manner
provided in the Notes and this Indenture. An installment of principal, premium,
if any, or interest shall be considered paid on the date due if the Trustee or
Paying Agent (other than the Company, a Subsidiary of the Company, or any
Affiliate of any of them) holds on that date money designated for and sufficient
to pay the installment. If the Company or any Subsidiary of the Company or any
Affiliate of any of them, acts as Paying Agent, an installment of principal,
premium, if any, or interest shall be considered paid on the due date if the
entity acting as Paying Agent complies with the last sentence of Section 2.05.
As provided in Section 6.09, upon any bankruptcy or reorganization procedure
relative to the Company, the Trustee shall serve as the Paying Agent, if any,
for the Notes.
The Company shall pay interest on overdue principal, premium, if any, and
interest on overdue installments of interest, to the extent lawful, at the rate
per annum specified in the Notes.
SECTION 4.02. MAINTENANCE OF OFFICE OR AGENCY. The Company will
maintain in the Borough of Manhattan, The City of New York an office or agency
where Notes may be surrendered for registration of transfer or exchange or for
presentation for payment and where notices and demands to or upon the Company in
respect of the Notes and this Indenture may be served. The Company will give
prompt written notice to the Trustee of the location, and any
<PAGE>
41
change in the location, of such office or agency. If at any time the Company
shall fail to maintain any such required office or agency or shall fail to
furnish the Trustee with the address thereof, such presentations, surrenders,
notices and demands may be made or served at the address of the Trustee set
forth in Section 11.02.
The Company may also from time to time designate one or more other
offices or agencies where the Notes may be presented or surrendered for any or
all such purposes and may from time to time rescind such designations; PROVIDED
that no such designation or rescission shall in any manner relieve the Company
of its obligation to maintain an office or agency in the Borough of Manhattan,
The City of New York for such purposes. The Company will give prompt written
notice to the Trustee of any such designation or rescission and of any change in
the location of any such other office or agency.
The Company hereby initially designates the Corporate Trust Office of the
Trustee as such office of the Company in accordance with Section 2.04.
SECTION 4.03. LIMITATION ON INDEBTEDNESS. (a) The Company will not, and
will not permit any of its Restricted Subsidiaries to, Incur any Indebtedness
(other than the Notes and Indebtedness existing on the Closing Date); PROVIDED
that the Company may Incur Indebtedness, if, after giving effect to the
Incurrence of such Indebtedness and the receipt and application of the proceeds
therefrom, the Consolidated Leverage Ratio would be greater than zero and less
than 6:1.
Notwithstanding the foregoing, the Company and any Restricted Subsidiary
(except as specified below) may Incur each and all of the following:
(i) Indebtedness outstanding at any time in an aggregate
principal amount not to exceed $250 million, less any amount of such
Indebtedness permanently repaid as provided under Section 4.10;
(ii) Indebtedness owed (A) to the Company evidenced by a
promissory note or (B) to any of its Restricted Subsidiaries; PROVIDED
that any event which results in any such Restricted Subsidiary ceasing to
be a Restricted Subsidiary or any subsequent transfer of such
Indebtedness (other than to the Company or another Restricted Subsidiary)
shall be deemed, in each case, to constitute an Incurrence of such
Indebtedness not permitted by this clause (ii);
(iii) Indebtedness issued in exchange for, or the net proceeds of
which are used to refinance or refund, then outstanding Indebtedness,
(other than Indebtedness Incurred under clause (i), (ii), (iv), (vi),
(viii) or (xi) of this paragraph) and any refinancings thereof in an
amount not to exceed the amount so refinanced or refunded (plus premiums,
<PAGE>
42
accrued interest, fees and expenses); PROVIDED that Indebtedness the
proceeds of which are used to refinance or refund the Notes or
Indebtedness that is PARI PASSU with, or subordinated in right of payment
to, the Notes shall only be permitted under this clause (iii) if (A) in
case the Notes are refinanced in part or the Indebtedness to be
refinanced is PARI PASSU with the Notes, such new Indebtedness, by its
terms or by the terms of any agreement or instrument pursuant to which
such new Indebtedness is outstanding, is expressly made PARI PASSU with,
or subordinate in right of payment to, the remaining Notes, (B) in case
the Indebtedness to be refinanced is subordinated in right of payment to
the Notes, such new Indebtedness, by its terms or by the terms of any
agreement or instrument pursuant to which such new Indebtedness is issued
or remains outstanding, is expressly made subordinate in right of payment
to the Notes at least to the extent that the Indebtedness to be
refinanced is subordinated to the Notes and (C) such new Indebtedness,
determined as of the date of Incurrence of such new Indebtedness, does
not mature prior to the Stated Maturity of the Indebtedness to be
refinanced or refunded, and the Average Life of such new Indebtedness is
at least equal to the remaining Average Life of the Indebtedness to be
refinanced or refunded; and PROVIDED FURTHER that in no event may
Indebtedness of the Company be refinanced by means of any Indebtedness of
any Restricted Subsidiary pursuant to this clause (iii);
(iv) Indebtedness (A) in respect of performance, surety or
appeal bonds provided in the ordinary course of business, (B) under
Currency Agreements and Interest Rate Agreements; PROVIDED that such
agreements (a) are designed solely to protect the Company or its
Subsidiaries against fluctuations in foreign currency exchange rates or
interest rates and (b) do not increase the Indebtedness of the obligor
outstanding at any time other than as a result of fluctuations in foreign
currency exchange rates or interest rates or by reason of fees,
indemnities and compensation payable thereunder; or (C) arising from
agreements providing for indemnification, adjustment of purchase price or
similar obligations, or from Guarantees or letters of credit, surety
bonds or performance bonds securing any obligations of the Company or any
of its Restricted Subsidiaries pursuant to such agreements, in any case
Incurred in connection with the disposition of any business, assets or
Restricted Subsidiary (other than Guarantees of Indebtedness Incurred by
any Person acquiring all or any portion of such business, assets or
Restricted Subsidiary for the purpose of financing such acquisition), in
a principal amount not to exceed the gross proceeds actually received by
the Company or any Restricted Subsidiary in connection with such
disposition;
(v) Indebtedness of the Company, to the extent the net proceeds
thereof are promptly (A) used to purchase Notes tendered in an Offer to
Purchase made as a result of a Change in Control or (B) deposited to
defease the Notes in accordance with Article Eight;
<PAGE>
43
(vi) Guarantees of the Notes and Guarantees of Indebtedness of
the Company by any Restricted Subsidiary provided the Guarantee of such
Indebtedness is permitted by and made in accordance with Section 4.07;
(vii) Indebtedness (including Guarantees) Incurred to finance the
cost (including the cost of design, development, acquisition,
construction, installation, improvement, transportation or integration)
to acquire equipment, inventory or network assets (including acquisitions
by way of Capitalized Lease and acquisitions of the Capital Stock of a
Person that becomes a Restricted Subsidiary to the extent of the fair
market value of the equipment, inventory or network assets so acquired)
by the Company or a Restricted Subsidiary after the Closing Date;
(viii) Indebtedness of the Company not to exceed, at any one time
outstanding, two times (A) the Net Cash Proceeds received by the Company
after the Closing Date as a capital contribution or from the issuance and
sale of its Capital Stock (other than Disqualified Stock) to a Person
that is not a Subsidiary of the Company, to the extent (I) such capital
contribution or Net Cash Proceeds have not been used pursuant to clause
(C)(2) of the first paragraph or clause (iii), (iv), (vi) or (vii) of the
second paragraph of Section 4.04 to make a Restricted Payment; and (II)
if such capital contribution or Net Cash Proceeds are used to consummate
a transaction pursuant to which the Company Incurs Acquired Indebtedness,
the amount of such Net Cash Proceeds exceeds one-half of the amount of
Acquired Indebtedness so Incurred and (B) 80% of the fair market value of
property (other than cash and cash equivalents) received by the Company
after the Closing Date from the sale of its Capital Stock (other than
Disqualified Stock) to a Person that is not a Subsidiary of the Company,
to the extent (I) such capital contribution or sale of Capital Stock has
not been used pursuant to clause (iii), (iv), (vi) or (vii) of the second
paragraph of Section 4.04 to make a Restricted Payment and (II) if such
capital contribution or Capital Stock is used to consummate a transaction
pursuant to which the Company Incurs Acquired Indebtedness, 80% of the
fair market value of the property received exceeds one-half of the amount
of Acquired Indebtedness so Incurred PROVIDED that such Indebtedness does
not mature prior to the Stated Maturity of the Notes and has an Average
Life longer than the Notes;
(ix) Acquired Indebtedness;
(x) Strategic Subordinated Indebtedness; and
(xi) subordinated Indebtedness of the Company (in addition to
Indebtedness permitted under clauses (i) through (x) above) in an
aggregate principal amount outstanding at any time not to exceed $30
million, less any amount of such Indebtedness permanently repaid as
provided under Section 4.10.
<PAGE>
44
(b) Notwithstanding any other provision of this Section 4.03, the
maximum amount of Indebtedness that the Company or a Restricted Subsidiary may
Incur pursuant to this Section 4.03 shall not be deemed to be exceeded, with
respect to any outstanding Indebtedness due solely to the result of fluctuations
in the exchange rates of currencies.
(c) For purposes of determining any particular amount of Indebtedness
under this Section 4.03, (1) Guarantees, Liens or obligations with respect to
letters of credit supporting Indebtedness otherwise included in the
determination of such particular amount shall not be included and (2) any Liens
granted pursuant to the equal and ratable provisions referred to in Section 4.09
shall not be treated as Indebtedness. For purposes of determining compliance
with this Section 4.03, in the event that an item of Indebtedness meets the
criteria of more than one of the types of Indebtedness described in the above
clauses, the Company, in its sole discretion, shall classify, and from time to
time may reclassify, such item of Indebtedness and only be required to include
the amount and type of such Indebtedness in one of such clauses.
SECTION 4.04. LIMITATION ON RESTRICTED PAYMENTS. The Company will not,
and will not permit any Restricted Subsidiary to, directly or indirectly,
(i) declare or pay any dividend or make any distribution on or with respect to
its Capital Stock (other than (x) dividends or distributions payable solely in
shares of its Capital Stock (other than Disqualified Stock) or in options,
warrants or other rights to acquire shares of such Capital Stock and (y) PRO
RATA dividends or distributions on Common Stock of Restricted Subsidiaries held
by minority stockholders) held by Persons other than the Company or any of its
Restricted Subsidiaries, (ii) purchase, redeem, retire or otherwise acquire for
value any shares of Capital Stock of (A) the Company or an Unrestricted
Subsidiary (including options, warrants or other rights to acquire such shares
of Capital Stock) held by any Person or (B) a Restricted Subsidiary (including
options, warrants or other rights to acquire such shares of Capital Stock) held
by any Affiliate of the Company (other than a Wholly Owned Restricted
Subsidiary) or any holder (or any Affiliate of such holder) of 5% or more of the
Capital Stock of the Company, (iii) make any voluntary or optional principal
payment, or voluntary or optional redemption, repurchase, defeasance, or other
acquisition or retirement for value, of Indebtedness of the Company that is
subordinated in right of payment to the Notes or (iv) make any Investment, other
than a Permitted Investment, in any Person (such payments or any other actions
described in clauses (i) through (iv) above being collectively "Restricted
Payments") if, at the time of, and after giving effect to, the proposed
Restricted Payment: (A) a Default or Event of Default shall have occurred and be
continuing, (B) the Company could not Incur at least $1.00 of Indebtedness under
the first paragraph of Section 4.03 or (C) the aggregate amount of all
Restricted Payments (the amount, if other than in cash, to be determined in good
faith by the Board of Directors, whose determination shall be conclusive and
evidenced by a Board Resolution) made after the Closing Date shall exceed the
sum of (1) 50% of the aggregate amount of the Adjusted Consolidated Net Income
(or, if the Adjusted Consolidated Net Income is a loss, minus 100% of the amount
of such loss)
<PAGE>
45
(determined by excluding income resulting from transfers of assets by the
Company or a Restricted Subsidiary to an Unrestricted Subsidiary) accrued
on a cumulative basis during the period (taken as one accounting period)
beginning on the first day of the fiscal quarter immediately following the
Closing Date and ending on the last day of the last fiscal quarter preceding the
Transaction Date for which reports have been filed with the Commission PLUS
(2) the aggregate Net Cash Proceeds received by the Company after the Closing
Date as a capital contribution or from the issuance and sale permitted by this
Indenture of its Capital Stock (other than Disqualified Stock) to a Person who
is not a Subsidiary of the Company, including an issuance or sale permitted by
this Indenture of Indebtedness of the Company for cash subsequent to the Closing
Date upon the conversion of such Indebtedness into Capital Stock (other than
Disqualified Stock) of the Company, or from the issuance to a Person who is not
a Subsidiary of the Company of any options, warrants or other rights to acquire
Capital Stock of the Company (in each case, exclusive of any Disqualified Stock
or any options, warrants or other rights that are redeemable at the option of
the holder, or are required to be redeemed, prior to the Stated Maturity of the
Notes), in each case except to the extent such Net Cash Proceeds are used to
Incur Indebtedness pursuant to clause (viii) of the second paragraph under
Section 4.03, PLUS (3) an amount equal to the net reduction in Investments
(other than reductions in Permitted Investments) in any Person resulting from
payments of interest on Indebtedness, dividends, repayments of loans or
advances, or other transfers of assets, in each case to the Company or any
Restricted Subsidiary or from the Net Cash Proceeds from the sale of any such
Investment (except, in each case, to the extent any such payment or proceeds are
included in the calculation of Adjusted Consolidated Net Income), or from
redesignations of Unrestricted Subsidiaries as Restricted Subsidiaries (valued
in each case as provided in the definition of "Investments"), not to exceed, in
each case, the amount of Investments previously made by the Company or any
Restricted Subsidiary in such Person or Unrestricted Subsidiary.
The foregoing provision shall not be violated by reason of:
(i) the payment of any dividend within 60 days after the date
of declaration thereof if, at said date of declaration, such payment
would comply with the foregoing paragraph;
(ii) the redemption, repurchase, defeasance or other acquisition
or retirement for value of Indebtedness that is subordinated in right of
payment to the Notes including premium, if any, and accrued and unpaid
interest, with the proceeds of, or in exchange for, Indebtedness Incurred
under clause (iii) of the second paragraph of part (a) of Section 4.03;
(iii) the repurchase, redemption or other acquisition of Capital
Stock of the Company or an Unrestricted Subsidiary (or options, warrants
or other rights to acquire such Capital Stock) in exchange for, or out of
the proceeds of a capital contribution or a substantially concurrent
offering of, shares of Capital Stock (other than Disqualified
<PAGE>
46
Stock) of the Company (or options, warrants or other rights to acquire
such Capital Stock);
(iv) the making of any principal payment or the repurchase,
redemption, retirement, defeasance or other acquisition for value of
Indebtedness of the Company which is subordinated in right of payment to
the Notes in exchange for, or out of the proceeds of, a capital
contribution or a substantially concurrent offering of, shares of the
Capital Stock (other than Disqualified Stock) of the Company (or options,
warrants or other rights to acquire such Capital Stock);
(v) payments or distributions, to dissenting stockholders
pursuant to applicable law, pursuant to or in connection with a
consolidation, merger or transfer of assets that complies with Article
Five;
(vi) Investments in any Person the primary business of which is
related, ancillary or complementary to the business of the Company and
its Restricted Subsidiaries on the date of such Investments; PROVIDED
that the aggregate amount of Investments made pursuant to this clause
(vi) does not exceed the sum of (a) $25 million and (b) the amount of Net
Cash Proceeds received by the Company after the Closing Date as a capital
contribution or from the sale of its Capital Stock (other than
Disqualified Stock) to a Person who is not a Subsidiary of the Company,
except to the extent such Net Cash Proceeds are used to Incur
Indebtedness pursuant to clause (viii) under Section 4.03 or to make
Restricted Payments pursuant to clause (C)(2) of the first paragraph, or
clauses (iii) or (iv) of this paragraph, of this Section 4.04, plus (z)
the net reduction in Investments made pursuant to this clause
(vi) resulting from distributions on or repayments of such Investments or
from the Net Cash Proceeds from the sale of any such Investment (except
in each case to the extent any such payment or proceeds is included in
the calculation of Adjusted Consolidated Net Income) or from such Person
becoming a Restricted Subsidiary (valued in each case as provided in the
definition of "Investments"), PROVIDED that the net reduction in any
Investment shall not exceed the amount of such Investment;
(vii) Investments acquired in exchange for Capital Stock (other
than Disqualified Stock) of the Company;
(viii) the declaration or payment of dividends on the Common Stock
of the Company following a Public Equity Offering of such Common Stock,
of up to 6% per annum of the Net Cash Proceeds received by the Company in
such Public Equity Offering;
<PAGE>
47
(ix) prior to the occurrence of a Public Market, the purchase,
redemption, retirement or other acquisition for value of shares of
Capital Stock of the Company, or options to purchase such shares, held by
directors, employees or officers, or former directors, employees or
officers, of the Company or any Restricted Subsidiary (or their estates
or beneficiaries under their estates), upon the death, disability,
retirement, termination of employment or pursuant to the terms of any
agreement under which such shares of Capital Stock or options were
issued; PROVIDED that the aggregate consideration paid for such purchase,
redemption, retirement or other acquisition for value of such shares or
options after the Closing Date does not exceed $5 million in the
aggregate (unless such repurchases are made with the proceeds of
insurance policies and the shares are purchased from the executors,
administrators, testamentary trustees, heirs, legatees or beneficiaries);
(x) transactions between the Company or any of its Restricted
Subsidiaries and Dobson Communications and its Subsidiaries (other than
the Company and its Subsidiaries) on a cost, rather than fair market
value, basis or on other terms of the kind customarily employed to
allocate charges among members of a consolidated group of entities, in
any such case that are fair and reasonable to the Company or such
Restricted Subsidiary;
(xi) in the event of a spin-off of the Company by Dobson
Communications, the purchase of shares of Fleet Investors Capital Stock
pursuant to the exercise of put rights or mandatory redemption
provisions; provided (a) after giving effect to any such purchase the
Consolidated Leverage Ratio would be less than 6.0 to 1 and (b) if the
event triggering the exercisability of the put rights or mandatory
redemption constitutes an Asset Sale or Change of Control, no such
repurchase shall be made prior to the Company's repurchase of such Notes
as are required to be repurchased pursuant to Section 4.10 and Section
4.11;
(xii) the declaration or payment of dividends on the Fleet
Investors Capital Stock (a) if after giving pro forma effect to any such
dividend, the Consolidated Leverage Ratio would be less than 5.0 to 1 or
(b) following a Public Equity Offering of Capital Stock of the Company
provided (I) the Net Cash Proceeds received by the Company in such Public
Equity Offering is at least $90 million and (II) the aggregate amount of
dividends permitted to be made in any fiscal year of the Company under
clause (viii) and this clause (xii) shall not exceed 6% of the Net Cash
Proceeds received by the Company in the Public Equity Offering; and
(xiii) other Restricted Payments in an aggregate amount not to
exceed $10 million;
<PAGE>
48
PROVIDED that, except in the case of clauses (i) and (iii), no Default or
Event of Default shall have occurred and be continuing or occur as a consequence
of the actions or payments set forth therein.
Each Restricted Payment permitted pursuant to the preceding paragraph
(other than the Restricted Payment referred to in clause (ii) thereof and an
exchange of Capital Stock for Capital Stock or Indebtedness referred to in
clause (iii) or (iv) thereof), and the Net Cash Proceeds from any capital
contribution or any issuance of Capital Stock referred to in clauses (iii), (iv)
and (vi), shall be included in calculating whether the conditions of clause (C)
of the first paragraph of this Section 4.04 have been met with respect to any
subsequent Restricted Payments. In the event the proceeds of an issuance of
Capital Stock of the Company are used for the redemption, repurchase or other
acquisition of the Notes, or Indebtedness that is PARI PASSU with the Notes,
then the Net Cash Proceeds of such issuance shall be included in clause (C) of
the first paragraph of this Section 4.04 only to the extent such proceeds are
not used for such redemption, repurchase or other acquisition of Indebtedness.
SECTION 4.05. LIMITATION ON DIVIDEND AND OTHER PAYMENT RESTRICTIONS
AFFECTING RESTRICTED SUBSIDIARIES. The Company will not, and will not permit
any Restricted Subsidiary to, create or otherwise cause or suffer to exist or
become effective any consensual encumbrance or restriction of any kind on the
ability of any Restricted Subsidiary to (i) pay dividends or make any other
distributions permitted by applicable law on any Capital Stock of such
Restricted Subsidiary owned by the Company or any other Restricted Subsidiary,
(ii) pay any Indebtedness owed to the Company or any other Restricted
Subsidiary, (iii) make loans or advances to the Company or any other Restricted
Subsidiary or (iv) transfer any of its property or assets to the Company or any
other Restricted Subsidiary.
The foregoing provisions shall not restrict any encumbrances or
restrictions:
(i) existing on the Closing Date in this Indenture or any other
agreements in effect on the Closing Date, and any amendments, extensions,
refinancings, renewals or replacements of such agreements; PROVIDED that
the amendments, encumbrances and restrictions in any such extensions,
refinancings, renewals or replacements are no less favorable in any
material respect to the Holders than those encumbrances or restrictions
that are then in effect and that are being extended, refinanced, renewed
or replaced;
(ii) existing under or by reason of applicable law;
(iii) existing with respect to any Person or the property or
assets of such Person acquired by the Company or any Restricted
Subsidiary, existing at the time of such acquisition and not incurred in
contemplation thereof, which encumbrances or restrictions
<PAGE>
49
are not applicable to any Person or the property or assets of any Person
other than such Person or the property or assets of such Person so
acquired;
(iv) in the case of clause (iv) of the first paragraph of this
Section 4.05, (A) that restrict in a customary manner the subletting,
assignment or transfer of any property or asset that is a lease, license,
conveyance or contract or similar property or asset, (B) existing by
virtue of any transfer of, agreement to transfer, option or right with
respect to, or Lien on, any property or assets of the Company or any
Restricted Subsidiary not otherwise prohibited by this Indenture or
(C) arising or agreed to in the ordinary course of business, not relating
to any Indebtedness, and that do not, individually or in the aggregate,
detract from the value of property or assets of the Company or any
Restricted Subsidiary in any manner material to the Company or any
Restricted Subsidiary;
(v) with respect to a Restricted Subsidiary and imposed
pursuant to an agreement that has been entered into for the sale or
disposition of all or substantially all of the Capital Stock of, or
property and assets of, such Restricted Subsidiary; or
(vi) contained in the terms of any Indebtedness or any agreement
pursuant to which such Indebtedness was issued if (A) the encumbrance or
restriction applies only in the event of a payment default or a default
with respect to a financial covenant contained in such Indebtedness or
agreement, (B) the encumbrance or restriction is not materially more
disadvantageous to the Holders of the Notes than is customary in
comparable financings (as determined by the Company) and (C) the Company
determines that any such encumbrance or restriction will not materially
affect the Company's ability to make principal or interest payments on
the Notes. Nothing contained in this Section 4.05 shall prevent the
Company or any Restricted Subsidiary from (1) creating, incurring,
assuming or suffering to exist any Liens otherwise permitted in Section
4.09 or (2) restricting the sale or other disposition of property or
assets of the Company or any of its Restricted Subsidiaries that secure
Indebtedness of the Company or any of its Restricted Subsidiaries.
SECTION 4.06. LIMITATION ON THE ISSUANCE AND SALE OF CAPITAL STOCK OF
RESTRICTED SUBSIDIARIES. The Company will not sell, and will not permit any
Restricted Subsidiary, directly or indirectly, to issue or sell, any shares of
Capital Stock of a Restricted Subsidiary (including options, warrants or other
rights to purchase shares of such Capital Stock) except (i) to the Company or a
Wholly Owned Restricted Subsidiary; (ii) issuances of director's qualifying
shares or sales to foreign nationals of shares of Capital Stock of foreign
Restricted Subsidiaries, to the extent required by applicable law; (iii) if,
immediately after giving effect to such issuance or sale, such Restricted
Subsidiary would no longer constitute a Restricted Subsidiary and any Investment
in such Person remaining after giving effect to such issuance or sale would have
been
<PAGE>
50
permitted to be made under Section 4.04 if made on the date of such issuance
or sale; or (iv) issuances or sales of Common Stock of a Restricted
Subsidiary; provided that the Company or such Restricted Subsidiary applies
the Net Cash Proceeds, if any, of any such sale in accordance with clause (A)
or (B) of Section 4.10.
SECTION 4.07. LIMITATION ON ISSUANCES OF GUARANTEES BY RESTRICTED
SUBSIDIARIES. The Company will not permit any Restricted Subsidiary, directly or
indirectly, to Guarantee any Indebtedness of the Company which is PARI PASSU
with or subordinate in right of payment to the Notes ("Guaranteed
Indebtedness"), unless (i) such Restricted Subsidiary simultaneously executes
and delivers a supplemental indenture to this Indenture providing for a
Guarantee (a "Subsidiary Guarantee") of payment of the Notes by such Restricted
Subsidiary and (ii) such Restricted Subsidiary waives and will not in any manner
whatsoever claim or take the benefit or advantage of, any rights of
reimbursement, indemnity or subrogation or any other rights against the Company
or any other Restricted Subsidiary as a result of any payment by such Restricted
Subsidiary under its Subsidiary Guarantee; PROVIDED that this paragraph shall
not be applicable to any Guarantee of any Restricted Subsidiary that existed at
the time such Person became a Restricted Subsidiary and was not Incurred in
connection with, or in contemplation of, such Person becoming a Restricted
Subsidiary. If the Guaranteed Indebtedness is (A) PARI PASSU with the Notes,
then the Guarantee of such Guaranteed Indebtedness shall be PARI PASSU with, or
subordinated to, the Subsidiary Guarantee or (B) subordinated to the Notes, then
the Guarantee of such Guaranteed Indebtedness shall be subordinated to the
Subsidiary Guarantee at least to the extent that the Guaranteed Indebtedness is
subordinated to the Notes.
Notwithstanding the foregoing, any Subsidiary Guarantee by a Restricted
Subsidiary may provide by its terms that it shall be automatically and
unconditionally released and discharged upon (i) any sale, exchange or transfer,
to any Person not an Affiliate of the Company, of all of the Company's and each
Restricted Subsidiary's Capital Stock in, or all or substantially all the assets
of, such Restricted Subsidiary (which sale, exchange or transfer is not
prohibited by this Indenture) or (ii) the release or discharge of the Guarantee
which resulted in the creation of such Subsidiary Guarantee, except a discharge
or release by or as a result of payment under such Guarantee.
SECTION 4.08. LIMITATION ON TRANSACTIONS WITH STOCKHOLDERS AND
AFFILIATES. The Company will not, and will not permit any Restricted Subsidiary
to, directly or indirectly, enter into, renew or extend any transaction
(including, without limitation, the purchase, sale, lease or exchange of
property or assets, or the rendering of any service) with any holder (or any
Affiliate of such holder) of 5% or more of any class of Capital Stock of the
Company or with any Affiliate of the Company or any Restricted Subsidiary,
except upon fair and reasonable terms no less favorable to the Company or such
Restricted Subsidiary than could be obtained, at the time of such transaction
or, if such transaction is pursuant to a written agreement, at the time of the
<PAGE>
51
execution of the agreement providing therefor, in a comparable arm's-length
transaction with a Person that is not such a holder or an Affiliate.
The foregoing limitation does not limit, and shall not apply to
(i) transactions (A) approved by a majority of the
disinterested members of the Board of Directors or (B) for which the
Company or a Restricted Subsidiary delivers to the Trustee a written
opinion of a nationally recognized investment banking firm stating that
the transaction is fair to the Company or such Restricted Subsidiary from
a financial point of view;
(ii) any transaction solely between the Company and any of its
Wholly Owned Restricted Subsidiaries or solely between Wholly Owned
Restricted Subsidiaries;
(iii) the payment of reasonable and customary regular fees to
directors of the Company who are not employees of the Company;
(iv) any payments or other transactions pursuant to any
tax-sharing agreement between the Company and any other Person with which
the Company files a consolidated tax return or with which the Company is
part of a consolidated group for tax purposes; or
(v) any Restricted Payments not prohibited by Section 4.04.
Notwithstanding the foregoing, any transaction or series of related
transactions covered by the first paragraph of this Section 4.08 and not covered
by clauses (ii) through (v) of this Section 4.08, the aggregate amount of which
exceeds $1 million in value, must be approved or determined to be fair in the
manner provided for in clause (i)(A) or (B) above.
SECTION 4.09. LIMITATION ON LIENS. The Company will not, and will not
permit any Restricted Subsidiary to, create, incur, assume or suffer to exist
any Lien on any of its assets or properties of any character (including, without
limitation, licenses), or any shares of Capital Stock or Indebtedness of any
Restricted Subsidiary, without making effective provision for all of the Notes
and all other amounts due under this Indenture to be directly secured equally
and ratably with (or, if the obligation or liability to be secured by such Lien
is subordinated in right of payment to the Notes, prior to) the obligation or
liability secured by such Lien.
The foregoing limitation does not apply to
(i) Liens existing on the Closing Date;
(ii) Liens granted after the Closing Date on any assets or
Capital Stock of the Company or its Restricted Subsidiaries created in
favor of the Holders;
<PAGE>
52
(iii) Liens with respect to the assets of a Restricted Subsidiary
granted by such Restricted Subsidiary to the Company or a Wholly Owned
Restricted Subsidiary to secure Indebtedness owing to the Company or such
other Restricted Subsidiary;
(iv) Liens securing Indebtedness which is Incurred to refinance
secured Indebtedness which is permitted to be Incurred under clause
(iii) of the second paragraph of Section 4.03; PROVIDED that such Liens
do not extend to or cover any property or assets of the Company or any
Restricted Subsidiary other than the property or assets securing the
Indebtedness being refinanced;
(v) Liens on the Capital Stock of, or any property or assets
of, a Restricted Subsidiary securing Indebtedness of such Restricted
Subsidiary permitted under Section 4.03;
(vi) Liens securing Indebtedness Incurred under clause (i) of
the second paragraph of Section 4.03; or
(vii) Permitted Liens.
SECTION 4.10. LIMITATION ON ASSET SALES. The Company will not, and
will not permit any Restricted Subsidiary to, consummate any Asset Sale,
unless (i) the consideration received by the Company or such Restricted
Subsidiary is at least equal to the fair market value of the assets sold or
disposed of and (ii) at least 85% of the consideration received consists of
cash or Temporary Cash Investments; PROVIDED, HOWEVER, that this clause (ii)
shall not apply to long-term assignments in capacity in a telecommunications
network. In the event and to the extent that the Net Cash Proceeds received
by the Company or any of its Restricted Subsidiaries from one or more Asset
Sales occurring on or after the Closing Date in any period of 12 consecutive
months exceed 10% of Adjusted Consolidated Net Tangible Assets (determined as
of the date closest to the commencement of such 12-month period for which a
consolidated balance sheet of the Company and its Subsidiaries has been filed
with the Commission), then the Company shall or shall cause the relevant
Restricted Subsidiary to (i) within 12 months after the date Net Cash
Proceeds so received exceed 10% of Adjusted Consolidated Net Tangible Assets
(A) apply an amount equal to such excess Net Cash Proceeds to permanently
repay unsubordinated Indebtedness of the Company, or any Restricted
Subsidiary providing a Subsidiary Guarantee pursuant to Section 4.07 or
Indebtedness of any other Restricted Subsidiary, in each case owing to a
Person other than the Company or any of its Restricted Subsidiaries or (B)
invest an equal amount, or the amount not so applied pursuant to clause (A)
(or enter into a definitive agreement committing to so invest within 12
months after the date of such agreement), in property or assets (other than
current assets) of a nature or type or that are used in a business (or in a
company having property and assets of a nature or type, or engaged in a
business) similar or related to the
<PAGE>
53
nature or type of the property and assets of, or the business of, the Company
and its Restricted Subsidiaries existing on the date of such investment (as
determined in good faith by the Board of Directors, whose determination shall
be conclusive and evidenced by a Board Resolution) and (ii) apply (no later
than the end of the 12-month period referred to in clause (i)) such excess
Net Cash Proceeds (to the extent not applied pursuant to clause (i)) as
provided in the following paragraph of this Section 4,10. The amount of such
excess Net Cash Proceeds required to be applied (or to be committed to be
applied) during such 12-month period as set forth in clause (i) of the
preceding sentence and not applied as so required by the end of such period
shall constitute "Excess Proceeds."
If, as of the first day of any calendar month, the aggregate amount of
Excess Proceeds not theretofore subject to an Offer to Purchase pursuant to
this Section 4.10 totals at least $5 million, the Company must commence, not
later than the fifteenth Business Day of such month, and consummate an Offer
to Purchase from the Holders on a PRO RATA basis an aggregate principal
amount of Notes equal to the Excess Proceeds on such date, at a purchase
price equal to 100% of the principal amount of the Notes, plus, in each case,
accrued interest to the Payment Date.
SECTION 4.11. REPURCHASE OF NOTES UPON A CHANGE OF CONTROL. The
Company must commence, within 30 days after the occurrence of a Change of
Control, and consummate an Offer to Purchase for all Notes then outstanding,
at a purchase price equal to 101% of the principal amount thereof, PLUS
accrued interest to the date of purchase.
SECTION 4.12. EXISTENCE. Subject to Articles Four and Five of this
Indenture, the Company will do or cause to be done all things necessary to
preserve and keep in full force and effect its existence and the existence of
each of its Restricted Subsidiaries in accordance with the respective
organizational documents of the Company and each such Subsidiary and the
rights (whether pursuant to charter, partnership certificate, agreement,
statute or otherwise), material licenses and franchises of the Company and
each such Subsidiary; PROVIDED that the Company shall not be required to
preserve any such right, license or franchise, or the existence of any
Restricted Subsidiary, if the maintenance or preservation thereof is no
longer desirable in the conduct of the business of the Company and its
Restricted Subsidiaries taken as a whole.
SECTION 4.13. PAYMENT OF TAXES AND OTHER CLAIMS. The Company will
pay or discharge and shall cause each of its Subsidiaries to pay or
discharge, or cause to be paid or discharged, before the same shall become
delinquent (i) all material taxes, assessments and governmental charges
levied or imposed upon (a) the Company or any such Subsidiary, (b) the income
or profits of any such Subsidiary which is a corporation or (c) the property
of the Company or any such Subsidiary and (ii) all material lawful claims for
labor, materials and supplies that, if unpaid, might by law become a lien
upon the property of the Company or any such Subsidiary; PROVIDED that the
Company shall not be required to pay or discharge, or cause to be paid or
discharged, any such tax, assessment, charge or claim the amount,
applicability or
<PAGE>
54
validity of which is being contested in good faith by appropriate proceedings
and for which adequate reserves have been established.
SECTION 4.14. MAINTENANCE OF PROPERTIES AND INSURANCE. The Company
will cause all properties used or useful in the conduct of its business or
the business of any of its Restricted Subsidiaries, to be maintained and kept
in good condition, repair and working order and supplied with all necessary
equipment and will cause to be made all necessary repairs, renewals,
replacements, betterments and improvements thereof, all as in the judgment of
the Company may be necessary so that the business carried on in connection
therewith may be properly and advantageously conducted at all times; PROVIDED
that nothing in this Section 4.14 shall prevent the Company or any such
Subsidiary from discontinuing the use, operation or maintenance of any of
such properties or disposing of any of them, if such discontinuance or
disposal is, in the judgment of the Company, desirable in the conduct of the
business of the Company or such Subsidiary.
The Company will provide or cause to be provided, for itself and its
Restricted Subsidiaries, insurance (including appropriate self-insurance)
against loss or damage of the kinds customarily insured against by
corporations similarly situated and owning like properties, including, but
not limited to, products liability insurance and public liability insurance,
with reputable insurers or with the government of the United States of
America, or an agency or instrumentality thereof, in such amounts, with such
deductibles and by such methods as shall be customary for corporations
similarly situated in the industry in which the Company or such Restricted
Subsidiary, as the case may be, is then conducting business.
SECTION 4.15. NOTICE OF DEFAULTS. In the event that the Company
becomes aware of any Default or Event of Default the Company, promptly after
it becomes aware thereof, will give written notice thereof to the Trustee.
SECTION 4.16. COMPLIANCE CERTIFICATES. (a) The Company shall
deliver to the Trustee, within 45 days after the end of each fiscal quarter
(90 days after the end of the last fiscal quarter of each year), an Officers'
Certificate stating whether or not the signers know of any Default or Event
of Default that occurred during such fiscal quarter. In the case of the
Officers' Certificate delivered within 90 days of the end of the Company's
fiscal year, such certificate shall contain a certification from the
principal executive officer, principal financial officer or principal
accounting officer that a review has been conducted of the activities of the
Company and its Restricted Subsidiaries and the Company's and its Restricted
Subsidiaries' performance under this Indenture and that the Company has
complied with all conditions and covenants under this Indenture. For
purposes of this Section 4.16, such compliance shall be determined without
regard to any period of grace or requirement of notice provided under this
Indenture. If they do know of such a Default or Event of Default, the
certificate shall describe any such Default or
<PAGE>
55
Event of Default and its status. The first certificate to be delivered
pursuant to this Section 4.16(a) shall be for the first fiscal quarter
beginning after the execution of this Indenture.
(b) The Company shall deliver to the Trustee, within 90 days after
the end of the Company's fiscal year, a certificate signed by the Company's
independent certified public accountants stating (i) that their audit
examination has included a review of the terms of this Indenture and the
Notes as they relate to accounting matters, (ii) that they have read the most
recent Officers' Certificate delivered to the Trustee pursuant to paragraph
(a) of this Section 4.16 and (iii) whether, in connection with their audit
examination, anything came to their attention that caused them to believe
that the Company was not in compliance with any of the terms, covenants,
provisions or conditions of Article Four and Section 5.01 of this Indenture
as they pertain to accounting matters and, if any Default or Event of Default
has come to their attention, specifying the nature and period of existence
thereof; PROVIDED that such independent certified public accountants shall
not be liable in respect of such statement by reason of any failure to obtain
knowledge of any such Default or Event of Default that would not be disclosed
in the course of an audit examination conducted in accordance with generally
accepted auditing standards in effect at the date of such examination.
SECTION 4.17. COMMISSION REPORTS AND REPORTS TO HOLDERS. At all
times from and after the earlier of (i) the date of the commencement of an
Exchange Offer or the effectiveness of the Shelf Registration Statement (the
"Registration") and (ii) December 12, 1998, in either case, whether or not
the Company is then required to file reports with the Commission, the Company
shall file with the Commission all such reports and other information as it
would be required to file with the Commission by Sections 13(a) or 15(d)
under the Exchange Act if it were subject thereto. The Company shall supply
the Trustee and each Holder or shall supply to the Trustee for forwarding to
each such Holder, without cost to such Holder, copies of such reports and
other information. In addition, at all times prior to the earlier of the date
of the Registration and December 12, 1998, the Company shall, at its cost,
deliver to each Holder of the Notes quarterly and annual reports
substantially equivalent to those which would be required by the Exchange
Act. In addition, at all times prior to the Registration, upon the request of
any Holder or any prospective purchaser of the Notes designated by a Holder,
the Company shall supply to such Holder or such prospective purchaser the
information required under Rule 144A under the Securities Act. The Company
also shall comply with the other provisions of TIA Section 314(a).
SECTION 4.18. WAIVER OF STAY, EXTENSION OR USURY LAWS. The Company
covenants (to the extent that it may lawfully do so) that it will not at any
time insist upon, or plead, or in any manner whatsoever claim or take the
benefit or advantage of, any stay or extension law or any usury law or other
law that would prohibit or forgive the Company from paying all or any portion
of the principal of, premium, if any, or interest on the Notes as
contemplated herein, wherever enacted, now or at any time hereafter in force,
or that may affect the covenants or the performance of this Indenture; and
(to the extent that it may lawfully do so) the Company hereby
<PAGE>
56
expressly waives all benefit or advantage of any such law and covenants that
it will not hinder, delay or impede the execution of any power herein granted
to the Trustee, but will suffer and permit the execution of every such power
as though no such law had been enacted.
SECTION 4.19. LIMITATION ON SALE-LEASEBACK TRANSACTIONS. The Company
will not, and will not permit any Restricted Subsidiary to, enter into any
sale-leaseback transaction involving any of its assets or properties whether
now owned or hereafter acquired, whereby the Company or a Restricted
Subsidiary sells or transfers such assets or properties and then or
thereafter leases such assets or properties or any part thereof or any other
assets or properties which the Company or such Restricted Subsidiary, as the
case may be, intends to use for substantially the same purpose or purposes as
the assets or properties sold or transferred.
The foregoing restriction does not apply to any sale-leaseback
transaction if (i) the lease is for a period, including renewal rights, of
not in excess of three years; (ii) the lease secures or relates to industrial
revenue or pollution control bonds; (iii) the transaction is solely between
the Company and any Wholly Owned Restricted Subsidiary or solely between
Wholly Owned Restricted Subsidiaries; or (iv) the Company or such Restricted
Subsidiary, within 12 months after the sale or transfer of any assets or
properties is completed, applies an amount not less than the net proceeds
received from such sale in accordance with clause (A) or (B) of the first
paragraph of Section 4.10.
ARTICLE FIVE
SUCCESSOR CORPORATION
SECTION 5.01. WHEN COMPANY MAY MERGE, ETC. The Company will not
consolidate with, merge with or into, or sell, convey, transfer, lease or
otherwise dispose of all or substantially all of its property and assets (as
an entirety or substantially an entirety in one transaction or a series of
related transactions) to, any Person or permit any Person to merge with or
into the Company unless: (i) the Company shall be the continuing Person, or
the Person (if other than the Company) formed by such consolidation or into
which the Company is merged or that acquired or leased such property and
assets of the Company shall be a corporation organized and validly existing
under the laws of the United States of America or any jurisdiction thereof
and shall expressly assume, by a supplemental indenture, executed and
delivered to the Trustee, all of the obligations of the Company on all of the
Notes and under this Indenture; (ii) immediately after giving effect to such
transaction, no Default or Event of Default shall have occurred and be
continuing; (iii) immediately after giving effect to such transaction on a
pro forma basis, the Company or any Person becoming the successor obligor of
the Notes shall have a Consolidated Net Worth equal to or greater than the
Consolidated Net Worth of the Company immediately prior to such transaction;
(iv) immediately after giving effect to such transaction on
<PAGE>
57
a pro forma basis the Company, or any Person becoming the successor obligor
of the Notes, as the case may be, could Incur at least $1.00 of Indebtedness
under the first paragraph of Section 4.03; PROVIDED that this clause (iv)
shall not apply to a consolidation, merger or sale of all (but not less than
all) of the assets of the Company if all Liens and Indebtedness of the
Company or any Person becoming the successor obligor on the Notes, as the
case may be, and its Restricted Subsidiaries outstanding immediately after
such transaction would, if Incurred at such time, have been permitted to be
Incurred (and all such Liens and Indebtedness, other than Liens and
Indebtedness of the Company and its Restricted Subsidiaries outstanding
immediately prior to the transaction, shall be deemed to have been Incurred)
for all purposes of this Indenture; and (v) the Company delivers to the
Trustee an Officers' Certificate (attaching the arithmetic computations to
demonstrate compliance with clauses (iii) and (iv)) and Opinion of Counsel,
in each case stating that such consolidation, merger or transfer and such
supplemental indenture complies with this provision and that all conditions
precedent provided for herein relating to such transaction have been complied
with; PROVIDED, HOWEVER, that clauses (iii) and (iv) above do not apply if,
in the good faith determination of the Board of Directors of the Company,
whose determination shall be evidenced by a Board Resolution, the principal
purpose of such transaction is to change the state of incorporation of the
Company; and PROVIDED FURTHER that any such transaction shall not have as one
of its purposes the evasion of the foregoing limitations.
SECTION 5.02. SUCCESSOR SUBSTITUTED. Upon any consolidation or
merger, or any sale, conveyance, transfer, lease or other disposition of all
or substantially all of the property and assets of the Company in accordance
with Section 5.01 of this Indenture, the successor Person formed by such
consolidation or into which the Company is merged or to which such sale,
conveyance, transfer, lease or other disposition is made shall succeed to,
and be substituted for, and may exercise every right and power of, the
Company under this Indenture with the same effect as if such successor Person
had been named as the Company herein; PROVIDED that the Company shall not be
released from its obligation to pay the principal of, premium, if any, or
interest on the Notes in the case of a lease of all or substantially all of
its property and assets.
ARTICLE SIX
DEFAULT AND REMEDIES
SECTION 6.01. EVENTS OF DEFAULT. An "EVENT OF DEFAULT" shall occur
with respect to the Notes if:
(a) the Company defaults in the payment of the principal of (or
premium, if any, on) any Note when the same becomes due and payable at
maturity, upon acceleration, redemption or otherwise;
<PAGE>
58
(b) the Company defaults in the payment of interest on any Note
when the same becomes due and payable, and such default continues for a
period of 30 days; PROVIDED that a failure to make any of the first six
scheduled interest payments on the Notes on the applicable Interest
Payment Date will constitute an Event of Default with no grace or cure
period;
(c) the Company defaults in the performance of, or breaches the
provisions of, Article Five or fails to make or consummate an Offer to
Purchase in accordance with Section 4.10 or 4.11;
(d) the Company defaults in the performance of or breaches any
other covenant or agreement of the Company in this Indenture or under the
Notes (other than a default specified in clause (a), (b) or (c) above)
and such default or breach continues for a period of 30 consecutive days
after written notice to the Company by the Trustee or to the Company and
the Trustee by the Holders of 25% or more in aggregate principal amount
of the Notes;
(e) there occurs with respect to any issue or issues of
Indebtedness of the Company or any Significant Subsidiary having an
outstanding principal amount of $5 million or more in the aggregate for
all such issues of all such Persons, whether such Indebtedness now exists
or shall hereafter be created, (I) an event of default that has caused
the holder thereof to declare such Indebtedness to be due and payable
prior to its Stated Maturity and such Indebtedness has not been
discharged in full or such acceleration has not been rescinded or
annulled within 30 days of such acceleration and/or (II) the failure to
make a principal payment at the final (but not any interim) fixed
maturity and such defaulted payment shall not have been made, waived or
extended within 30 days of such payment default;
(f) any final judgment or order (not covered by insurance) for
the payment of money in excess of $5 million in the aggregate for all
such final judgments or orders against all such Persons (treating any
deductibles, self-insurance or retention as not so covered) shall be
rendered against the Company or any Significant Subsidiary and shall not
be paid or discharged, and there shall be any period of 30 consecutive
days following entry of the final judgment or order that causes the
aggregate amount for all such final judgments or orders outstanding and
not paid or discharged against all such Persons to exceed $5 million
during which a stay of enforcement of such final judgment or order, by
reason of a pending appeal or otherwise, shall not be in effect;
(g) a court having jurisdiction in the premises enters a decree
or order for (A) relief in respect of the Company or any Significant
Subsidiary in an involuntary case under any applicable bankruptcy,
insolvency or other similar law now or hereafter in
<PAGE>
59
effect, (B) appointment of a receiver, liquidator, assignee, custodian,
trustee, sequestrator or similar official of the Company or any
Significant Subsidiary or for all or substantially all of the property
and assets of the Company or any Significant Subsidiary or (C) the
winding up or liquidation of the affairs of the Company or any
Significant Subsidiary and, in each case, such decree or order shall
remain unstayed and in effect for a period of 30 consecutive days;
(h) the Company or any Significant Subsidiary (A) commences a
voluntary case under any applicable bankruptcy, insolvency or other
similar law now or hereafter in effect, or consents to the entry of an
order for relief in an involuntary case under any such law, (B) consents
to the appointment of or taking possession by a receiver, liquidator,
assignee, custodian, trustee, sequestrator or similar official of the
Company or any Significant Subsidiary or for all or substantially all of
the property and assets of the Company or any Significant Subsidiary or
(C) effects any general assignment for the benefit of creditors; or
(i) the Escrow and Security Agreement shall cease to be in full
force and effect or enforceable in accordance with its terms, other than
in accordance with its terms.
SECTION 6.02. ACCELERATION. If an Event of Default (other than an
Event of Default specified in clause (g) or (h) of Section 6.01 that occurs
with respect to the Company) occurs and is continuing under this Indenture,
the Trustee or the Holders of at least 25% in aggregate principal amount of
the Notes then outstanding, by written notice to the Company (and to the
Trustee if such notice is given by the Holders), may, and the Trustee at the
request of such Holders shall, declare the principal of, premium, if any, and
accrued interest on the Notes to be immediately due and payable. Upon a
declaration of acceleration, such principal of, premium, if any, and accrued
interest shall be immediately due and payable. In the event of a declaration
of acceleration because an Event of Default set forth in clause (e) of
Section 6.01 has occurred and is continuing, such declaration of acceleration
shall be automatically rescinded and annulled if the event of default
triggering such Event of Default pursuant to clause (e) shall be remedied or
cured by the Company and/or the relevant Significant Subsidiary or waived by
the holders of the relevant Indebtedness within 60 days after the declaration
of acceleration hereunder with respect thereto. If an Event of Default
specified in clause (g) or (h) of Section 6.01 occurs with respect to the
Company, the principal of, premium, if any, and accrued interest on the Notes
then outstanding shall IPSO FACTO become and be immediately due and payable
without any declaration or other act on the part of the Trustee or any Holder.
At any time after such a declaration of acceleration, but before a
judgment or decree for the payment of the money due has been obtained by the
Trustee, the Holders of at least a majority in principal amount of the
outstanding Notes by written notice to the Company and to the Trustee, may
waive all past Defaults and rescind and annul a declaration of acceleration
and
<PAGE>
60
its consequences if (i) all existing Events of Default, other than the
non-payment of the principal of, premium, if any, and accrued interest on the
Notes that have become due solely by such declaration of acceleration, have
been cured or waived and (ii) the rescission would not conflict with any
judgment or decree of a court of competent jurisdiction.
SECTION 6.03. OTHER REMEDIES. If an Event of Default occurs and is
continuing, the Trustee may pursue any available remedy by proceeding at law
or in equity to collect the payment of principal of, premium, if any, or
interest on the Notes or to enforce the performance of any provision of the
Notes or this Indenture.
The Trustee may maintain a proceeding even if it does not possess any
of the Notes or does not produce any of them in the proceeding.
SECTION 6.04. WAIVER OF PAST DEFAULTS. Subject to Sections 6.02,
6.07 and 9.02, the Holders of at least a majority in principal amount of the
outstanding Notes, by notice to the Trustee, may waive an existing Default or
Event of Default and its consequences, except a Default in the payment of
principal of, premium, if any, or interest on any Note as specified in clause
(a) or (b) of Section 6.01 or in respect of a covenant or provision of this
Indenture which cannot be modified or amended without the consent of the
Holder of each outstanding Note affected. Upon any such waiver, such Default
shall cease to exist, and any Event of Default arising therefrom shall be
deemed to have been cured, for every purpose of this Indenture; but no such
waiver shall extend to any subsequent or other Default or Event of Default or
impair any right consequent thereto.
SECTION 6.05. CONTROL BY MAJORITY. The Holders of at least a
majority in aggregate principal amount of the outstanding Notes may direct
the time, method and place of conducting any proceeding for any remedy
available to the Trustee or exercising any trust or power conferred on the
Trustee; PROVIDED, that the Trustee may refuse to follow any direction that
conflicts with law or this Indenture, that may involve the Trustee in
personal liability, or that the Trustee determines in good faith may be
unduly prejudicial to the rights of Holders of Notes not joining in the
giving of such direction; and PROVIDED FURTHER, that the Trustee may take any
other action it deems proper that is not inconsistent with any such direction
received from Holders of Notes pursuant to this Section 6.05.
SECTION 6.06. LIMITATION ON SUITS. A Holder may not institute any
proceeding, judicial or otherwise, with respect to this Indenture or the
Notes, or for the appointment of a receiver or trustee, or for any other
remedy hereunder, unless:
(i) the Holder has previously given to the Trustee written
notice of a continuing Event of Default;
<PAGE>
61
(ii) the Holders of at least 25% in aggregate principal amount
of outstanding Notes shall have made written request to the Trustee to
pursue the remedy;
(iii) such Holder or Holders have offered and, if requested,
provided to the Trustee indemnity satisfactory to the Trustee against any
costs, liabilities or expenses to be incurred in compliance with such
request;
(iv) the Trustee for 60 days after its receipt of such notice,
request and offer of indemnity has failed to comply with such request;
and
(v) during such 60-day period, the Holders of a majority in
aggregate principal amount of the outstanding Notes have not given the
Trustee a direction that is inconsistent with such written request.
For purposes of Section 6.05 of this Indenture and this Section 6.06,
the Trustee shall comply with TIA Section 316(a) in making any determination
of whether the Holders of the required aggregate principal amount of
outstanding Notes have concurred in any request or direction of the Trustee
to pursue any remedy available to the Trustee or the Holders with respect to
this Indenture or the Notes or otherwise under the law.
A Holder may not use this Indenture to prejudice the rights of another
Holder or to obtain a preference or priority over such other Holder.
The limitations set forth in this Section 6.06 shall not apply to the
right of any Holder of a Note to receive payment of the principal of,
premium, if any, or interest on, such Note or to bring suit for the
enforcement of any such payment, on or after the due date expressed in the
Notes, which right shall not be impaired or affected without the consent of
the Holder.
SECTION 6.07. RIGHTS OF HOLDERS TO RECEIVE PAYMENT. Notwithstanding
any other provision of this Indenture, the right of any Holder of a Note to
receive payment of principal of, premium, if any, or interest on such
Holder's Note on or after the respective due dates expressed on such Note, or
to bring suit for the enforcement of any such payment on or after such
respective dates, shall not be impaired or affected without the consent of
such Holder.
SECTION 6.08. COLLECTION SUIT BY TRUSTEE. If an Event of Default in
payment of principal, premium or interest specified in clause (a), (b), (c)
or (d) of Section 6.01 occurs and is continuing, the Trustee may recover
judgment in its own name and as trustee of an express trust against the
Company or any other obligor of the Notes for the whole amount of principal,
premium, if any, and accrued interest remaining unpaid, together with
interest on overdue principal, premium, if any, and, to the extent that
payment of such interest is lawful, interest on overdue installments of
interest, in each case at the rate specified in the Notes, and such further
amount as shall be sufficient to cover the costs and expenses of collection,
including the
<PAGE>
62
reasonable compensation, expenses, disbursements and advances of the Trustee,
its agents and counsel.
SECTION 6.09. TRUSTEE MAY FILE PROOFS OF CLAIM. The Trustee may file
such proofs of claim and other papers or documents as may be necessary or
advisable in order to have the claims of the Trustee (including any claim for
the reasonable compensation, expenses, disbursements and advances of the
Trustee, its agents and counsel, and any other amounts due the Trustee under
Section 7.07) and the Holders allowed in any judicial proceedings relative to
the Company (or any other obligor of the Notes), its creditors or its
property and shall be entitled and empowered to collect and receive any
monies, securities or other property payable or deliverable upon conversion
or exchange of the Notes or upon any such claims and to distribute the same,
and any custodian, receiver, assignee, trustee, liquidator, sequestrator or
other similar official in any such judicial proceeding is hereby authorized
by each Holder to make such payments to the Trustee and, in the event that
the Trustee shall consent to the making of such payments directly to the
Holders, to pay to the Trustee any amount due to it for the reasonable
compensation, expenses, disbursements and advances of the Trustee, its agent
and counsel, and any other amounts due the Trustee under Section 7.07.
Nothing herein contained shall be deemed to empower the Trustee to authorize
or consent to, or accept or adopt on behalf of any Holder, any plan of
reorganization, arrangement, adjustment or composition affecting the Notes or
the rights of any Holder thereof, or to authorize the Trustee to vote in
respect of the claim of any Holder in any such proceeding.
SECTION 6.10. PRIORITIES. If the Trustee collects any money pursuant
to this Article Six, it shall pay out the money in the following order:
First: to the Trustee for all amounts due under Section 7.07;
Second: to Holders for amounts then due and unpaid for principal
of, premium, if any, and interest on the Notes in respect of which or for
the benefit of which such money has been collected, ratably, without
preference or priority of any kind, according to the amounts due and
payable on such Notes for principal, premium, if any, and interest,
respectively; and
Third: to the Company or any other obligors of the Notes, as
their interests may appear, or as a court of competent jurisdiction may
direct.
The Trustee, upon prior written notice to the Company, may fix a
record date and payment date for any payment to Holders pursuant to this
Section 6.10.
SECTION 6.11. UNDERTAKING FOR COSTS. In any suit for the enforcement
of any right or remedy under this Indenture or in any suit against the
Trustee for any action taken or omitted by
<PAGE>
63
it as Trustee, a court may require any party litigant in such suit to file an
undertaking to pay the costs of the suit, and the court may assess reasonable
costs, including reasonable attorneys' fees, against any party litigant in
the suit having due regard to the merits and good faith of the claims or
defenses made by the party litigant. This Section 6.11 does not apply to a
suit by the Trustee, a suit by a Holder pursuant to Section 6.07 of this
Indenture, or a suit by Holders of more than 10% in principal amount of the
outstanding Notes.
SECTION 6.12. RESTORATION OF RIGHTS AND REMEDIES. If the Trustee or
any Holder has instituted any proceeding to enforce any right or remedy under
this Indenture and such proceeding has been discontinued or abandoned for any
reason, or has been determined adversely to the Trustee or to such Holder,
then, and in every such case, subject to any determination in such
proceeding, the Company, the Trustee and the Holders shall be restored
severally and respectively to their former positions hereunder and thereafter
all rights and remedies of the Company, Trustee and the Holders shall
continue as though no such proceeding had been instituted.
SECTION 6.13. RIGHTS AND REMEDIES CUMULATIVE. Except as otherwise
provided with respect to the replacement or payment of mutilated, destroyed,
lost or wrongfully taken Notes in Section 2.09, no right or remedy herein
conferred upon or reserved to the Trustee or to the Holders is intended to be
exclusive of any other right or remedy, and every right and remedy shall, to
the extent permitted by law, be cumulative and in addition to every other
right and remedy given hereunder or now or hereafter existing at law or in
equity or otherwise. The assertion or employment of any right or remedy
hereunder, or otherwise, shall not prevent the concurrent assertion or
employment of any other appropriate right or remedy.
SECTION 6.14. DELAY OR OMISSION NOT WAIVER. No delay or omission of
the Trustee or of any Holder to exercise any right or remedy accruing upon
any Event of Default shall impair any such right or remedy or constitute a
waiver of any such Event of Default or an acquiescence therein. Every right
and remedy given by this Article Six or by law to the Trustee or to the
Holders may be exercised from time to time, and as often as may be deemed
expedient, by the Trustee or by the Holders, as the case may be.
ARTICLE SEVEN
TRUSTEE
SECTION 7.01. GENERAL. The duties and responsibilities of the
Trustee shall be as provided by the TIA and as set forth herein.
Notwithstanding the foregoing, no provision of this Indenture shall require
the Trustee to expend or risk its own funds or otherwise incur any financial
liability in the performance of any of its duties hereunder, or in the
exercise of any of its rights or powers, if it shall have reasonable grounds
for believing that repayment of such funds or
<PAGE>
64
adequate indemnity against such risk or liability is not reasonably assured
to it. Whether or not therein expressly so provided, every provision of this
Indenture relating to the conduct or affecting the liability of or affording
protection to the Trustee shall be subject to the provisions of this Article
Seven.
SECTION 7.02. CERTAIN RIGHTS OF TRUSTEE. Subject to TIA Sections
315(a) through (d):
(i) the Trustee may rely and shall be protected in acting or
refraining from acting upon any resolution, certificate, statement,
instrument, opinion, report, notice, request, direction, consent, order,
bond, debenture, note, other evidence of indebtedness or other paper or
document believed by it to be genuine and to have been signed or
presented by the proper person. The Trustee need not investigate any
fact or matter stated in the document;
(ii) before the Trustee acts or refrains from acting, it may
require an Officers' Certificate or an Opinion of Counsel, which shall
conform to Section 11.04. The Trustee shall not be liable for any action
it takes or omits to take in good faith in reliance on such certificate
or opinion;
(iii) the Trustee may act through its attorneys and agents and
shall not be responsible for the misconduct or negligence of any agent
appointed with due care;
(iv) the Trustee shall be under no obligation to exercise any of
the rights or powers vested in it by this Indenture at the request or
direction of any of the Holders, unless such Holders shall have offered
to the Trustee reasonable security or indemnity against the costs,
expenses and liabilities that might be incurred by it in compliance with
such request or direction;
(v) the Trustee shall not be liable for any action it takes or
omits to take in good faith that it believes to be authorized or within
its rights or powers or for any action it takes or omits to take in
accordance with the written direction of the Holders of a majority in
principal amount of the outstanding Notes relating to the time, method
and place of conducting any proceeding for any remedy available to the
Trustee, or exercising any trust or power conferred upon the Trustee,
under this Indenture;
(vi) whenever in the administration of this Indenture the
Trustee shall deem it desirable that a matter be proved or established
prior to taking, suffering or omitting any action hereunder, the Trustee
(unless other evidence be herein specifically prescribed) may, in the
absence of bad faith on its part, rely upon an Officer's Certificate; and
<PAGE>
65
(vii) the Trustee shall not be bound to make any investigation
into the facts or matters stated in any resolution, certificate,
statement, instrument, opinion, report, notice, request, direction,
consent, order, bond, debenture, note, other evidence of indebtedness or
other paper or document, but the Trustee, in its discretion, may make
such further inquiry or investigation into such facts or matters as it
may see fit, and, if the Trustee shall determine to make such further
inquiry or investigation, it shall be entitled to examine the books,
records and premises of the Company personally or by agent or attorney.
SECTION 7.03. INDIVIDUAL RIGHTS OF TRUSTEE. The Trustee, in its
individual or any other capacity, may become the owner or pledgee of Notes
and may otherwise deal with the Company or its Affiliates with the same
rights it would have if it were not the Trustee. Any Agent may do the same
with like rights. However, the Trustee is subject to TIA Sections 310(b) and
311.
SECTION 7.04. TRUSTEE'S DISCLAIMER. The Trustee (i) makes no
representation as to the validity or adequacy of this Indenture or the Notes,
(ii) shall not be accountable for the Company's use or application of the
proceeds from the Notes and (iii) shall not be responsible for any statement
in the Notes other than its certificate of authentication.
SECTION 7.05. NOTICE OF DEFAULT. If any Default or any Event of
Default occurs and is continuing and if such Default or Event of Default is
known to a Responsible Officer of the Trustee, the Trustee shall mail to
each Holder in the manner and to the extent provided in TIA Section 313(c)
notice of the Default or Event of Default within 45 days after it occurs,
unless such Default or Event of Default has been cured; PROVIDED, HOWEVER,
that, except in the case of a default in the payment of the principal of,
premium, if any, or interest on any Note, the Trustee shall be protected in
withholding such notice if and so long as the board of directors, the
executive committee or a trust committee of directors and/or Responsible
Officers of the Trustee in good faith determine that the withholding of such
notice is in the interest of the Holders.
SECTION 7.06. REPORTS BY TRUSTEE TO HOLDERS. Within 60 days after
each May 15, beginning with May 15, 1999, the Trustee shall mail to each
Holder as provided in TIA Section 313(c) a brief report dated as of such May
15, if required by TIA Section 313(a).
SECTION 7.07. COMPENSATION AND INDEMNITY. The Company shall pay to
the Trustee such compensation as shall be agreed upon in writing for its
services. The compensation of the Trustee shall not be limited by any law on
compensation of a trustee of an express trust. The Company shall reimburse
the Trustee upon request for all reasonable out-of-pocket expenses and
advances incurred or made by the Trustee. Such expenses shall include the
reasonable compensation and expenses of the Trustee's agents and counsel.
<PAGE>
66
The Company shall indemnify the Trustee against any and all losses,
liabilities, obligations, damages, penalties, judgments, actions, suits,
proceedings, reasonable costs and expenses (including reasonable fees and
disbursements of counsel) of any kind whatsoever which may be incurred by the
Trustee in connection with any investigative, administrative or judicial
proceeding (whether or not such indemnified party is designated a party to
such proceeding) arising out of or in connection with the acceptance or
administration of its duties under this Indenture; provided, however, that
the Company need not reimburse any expense or indemnify against any loss,
obligation, damage, penalty, judgment, action, suit, proceeding, reasonable
cost or expense (including reasonable fees and disbursements of counsel) of
any kind whatsoever which may be incurred by the Trustee in connection with
any investigative, administrative or judicial proceeding (whether or not such
indemnified party is designated a party to such proceeding) in which it is
determined that the Trustee acted with negligence, bad faith or willful
misconduct, The Trustee shall notify the Company promptly of any claim for
which it may seek indemnity. Failure by the Trustee to so notify the Company
shall not relieve the Company of its obligations hereunder, unless the
Company is materially prejudiced thereby. The Company shall defend the claim
and the Trustee shall cooperate in the defense. Unless otherwise set forth
herein, the Trustee may have separate counsel and the Company shall pay the
reasonable fees and expenses of such counsel. The Company need not pay for
any settlement made without its consent, which consent shall not be
unreasonably withheld.
To secure the Company's payment obligations in this Section 7.07, the
Trustee shall have a lien prior to the Notes on all money or property held or
collected by the Trustee, in its capacity as Trustee, except money or
property held in trust to pay principal of, premium, if any, and interest on
particular Notes.
If the Trustee incurs expenses or renders services after the
occurrence of an Event of Default specified in clause (g) or (h) of Section
6.01, the expenses and the compensation for the services will be intended to
constitute expenses of administration under Title 11 of the United States
Bankruptcy Code or any applicable federal or state law for the relief of
debtors.
SECTION 7.08. REPLACEMENT OF TRUSTEE. A resignation or removal of
the Trustee and appointment of a successor Trustee shall become effective
only upon the successor Trustee's acceptance of appointment as provided in
this Section 7.08.
The Trustee may resign at any time by so notifying the Company in
writing at least 30 days prior to the date of the proposed resignation. The
Holders of a majority in principal amount of the outstanding Notes may remove
the Trustee by so notifying the Trustee in writing and may appoint a
successor Trustee with the consent of the Company. The Company may remove
the Trustee if: (i) the Trustee is no longer eligible under Section 7.10;
(ii) the Trustee is adjudged a bankrupt or an insolvent; (iii) a receiver or
other public officer takes charge of the Trustee or its property; or (iv) the
Trustee becomes incapable of acting.
<PAGE>
67
If the Trustee resigns or is removed, or if a vacancy exists in the
office of Trustee for any reason, the Company shall promptly appoint a
successor Trustee. Within one year after the successor Trustee takes office,
the Holders of a majority in principal amount of the outstanding Notes may
appoint a successor Trustee to replace the successor Trustee appointed by the
Company. If the successor Trustee does not deliver its written acceptance
required by the next succeeding paragraph of this Section 7.08 within 30 days
after the retiring Trustee resigns or is removed, the retiring Trustee, the
Company or the Holders of a majority in principal amount of the outstanding
Notes may petition any court of competent jurisdiction for the appointment of
a successor Trustee.
A successor Trustee shall deliver a written acceptance of its
appointment to the retiring Trustee and to the Company. Immediately after
the delivery of such written acceptance, subject to the lien provided in
Section 7.07, (i) the retiring Trustee shall transfer all property held by it
as Trustee to the successor Trustee, (ii) the resignation or removal of the
retiring Trustee shall become effective and (iii) the successor Trustee shall
have all the rights, powers and duties of the Trustee under this Indenture.
A successor Trustee shall mail notice of its succession to each Holder.
If the Trustee is no longer eligible under Section 7.10 or shall fail
to comply with TIA Section 310(b), any Holder who satisfies the requirements
of TIA Section 310(b) may petition any court of competent jurisdiction for
the removal of the Trustee and the appointment of a successor Trustee. If at
any time the Trustee shall cease to be eligible in accordance with the
provisions of this Section 7.08, the Trustee shall resign immediately in the
manner and with the effect provided in this Article Seven.
The Company shall give notice of any resignation and any removal of
the Trustee and each appointment of a successor Trustee to all Holders. Each
notice shall include the name of the successor Trustee and the address of its
Corporate Trust Office.
Notwithstanding replacement of the Trustee pursuant to this Section
7.08, the Company's obligation under Section 7.07 shall continue for the
benefit of the retiring Trustee.
SECTION 7.09. SUCCESSOR TRUSTEE BY MERGER, ETC. If the Trustee
consolidates with, merges or converts into, or transfers all or substantially
all of its corporate trust business to, another corporation or national
banking association, the resulting, surviving or transferee corporation or
national banking association without any further act shall be the successor
Trustee with the same effect as if the successor Trustee had been named as
the Trustee herein.
SECTION 7.10. ELIGIBILITY. This Indenture shall always have a
Trustee who satisfies the requirements of TIA Section 310(a)(1). The Trustee
shall have a combined capital and surplus of
<PAGE>
68
at least $25 million as set forth in its most recent published annual report
of condition that is subject to the requirements of applicable Federal or
state supervising or examining authorities. If at any time the Trustee shall
cease to be eligible in accordance with this Section 7.10, the Trustee shall
resign immediately in the manner and with the effect specified in this
Article Seven.
SECTION 7.11. MONEY HELD IN TRUST. The Trustee shall not be liable
for interest on any money received by it except as the Trustee may agree with
the Company. Money held in trust by the Trustee need not be segregated from
other funds except to the extent required by law and except for money held in
trust under Article Eight or Article Ten of this Indenture.
SECTION 7.12. WITHHOLDING TAXES. The Trustee, as agent for the
Company, shall exclude and withhold from each payment of principal and
interest and other amounts due hereunder or under the Notes any and all
withholding taxes applicable thereto as required by law. The Trustee agrees
to act as such withholding agent and, in connection therewith, whenever any
present or future taxes or similar charges are required to be withheld with
respect to any amounts payable in respect of the Notes, to withhold such
amounts and timely pay the same to the appropriate authority in the name of
and on behalf of the holders of the Notes, that it will file any necessary
withholding tax returns or statements when due, and that, as promptly as
possible after the payment thereof, it will deliver to each Holder of a Note
appropriate documentation showing the payment thereof, together with such
additional documentary evidence as such Holders may reasonably request from
time to time.
ARTICLE EIGHT
DISCHARGE OF INDENTURE
SECTION 8.01. TERMINATION OF COMPANY'S OBLIGATIONS. Except as
otherwise provided in this Section 8.01, the Company may terminate its
obligations under the Notes and this Indenture if:
(i) all Notes previously authenticated and delivered (other
than destroyed, lost or stolen Notes that have been replaced or Notes
that are paid pursuant to Section 4.01 or Notes for whose payment money
or securities have theretofore been held in trust and thereafter repaid
to the Company, as provided in Section 8.05) have been delivered to the
Trustee for cancellation and the Company has paid all sums payable by it
hereunder; or
(ii) (A) the Notes mature within one year or all of them are to
be called for redemption within one year under arrangements satisfactory
to the Trustee for giving the notice of redemption, (B) the Company
irrevocably deposits in trust with the Trustee during such one-year
period, under the terms of an irrevocable trust agreement in form and
substance satisfactory to the Trustee, as trust funds solely for the
benefit of the
<PAGE>
69
Holders for that purpose, money or U.S. Government Obligations sufficient
(in the opinion of a nationally recognized firm of independent public
accountants expressed in a written certification thereof delivered to the
Trustee), without consideration of any reinvestment of any interest
thereon, to pay principal, premium, if, any, and interest on the Notes to
maturity or redemption, as the case may be, and to pay all other sums
payable by it hereunder, (C) no Default or Event of Default with respect
to the Notes shall have occurred and be continuing on the date of such
deposit, (D) such deposit will not result in a breach or violation of, or
constitute a default under, this Indenture or any other agreement or
instrument to which the Company is a party or by which it is bound and
(E) the Company has delivered to the Trustee an Officers' Certificate and
an Opinion of Counsel, in each case stating that all conditions precedent
provided for herein relating to the satisfaction and discharge of this
Indenture have been complied with.
With respect to the foregoing clause (i), the Company's obligations
under Section 7.07 shall survive. With respect to the foregoing clause (ii),
the Company's obligations in Sections 2.02, 2.03, 2.04, 2.05, 2.06, 2.07,
2.08, 2.09, 2.14, 4.01, 4.02, 7.07, 7.08, 8.04, 8.05 and 8.06 shall survive
until the Notes are no longer outstanding. Thereafter, only the Company's
obligations in Sections 7.07, 8.05 and 8.06 shall survive. After any such
irrevocable deposit, the Trustee upon request shall acknowledge in writing
the discharge of the Company's obligations under the Notes and this Indenture
except for those surviving obligations specified above.
SECTION 8.02. DEFEASANCE AND DISCHARGE OF INDENTURE. The Company
will be deemed to have paid and will be discharged from any and all
obligations in respect of the Notes on the 123rd day after the date of the
deposit referred to in clause (A) of this Section 8.02, and the provisions of
this Indenture will no longer be in effect with respect to the Notes, and the
Trustee, at the expense of the Company, shall execute proper instruments
acknowledging the same, except as to (i) rights of registration of transfer
and exchange, (ii) substitution of apparently mutilated, defaced, destroyed,
lost or stolen Notes, (iii) rights of Holders to receive payments of
principal thereof and interest thereon, (iv) the Company's obligations under
Section 4.02, (v) the rights, obligations and immunities of the Trustee
hereunder and (vi) the rights of the Holders as beneficiaries of this
Indenture with respect to the property so deposited with the Trustee payable
to all or any of them; PROVIDED that the following conditions shall have been
satisfied:
(A) with reference to this Section 8.02, the Company has
irrevocably deposited or caused to be irrevocably deposited with the
Trustee (or another trustee satisfying the requirements of Section 7.10
of this Indenture) and conveyed all right, title and interest for the
benefit of the Holders, under the terms of an irrevocable trust agreement
in form and substance satisfactory to the Trustee as trust funds in
trust, specifically pledged to the Trustee for the benefit of the Holders
as security for payment of the principal of, premium, if any, and
interest, if any, on the Notes, and dedicated solely to, the benefit of
the Holders, in and to (1) money in an amount, (2) U.S.
<PAGE>
70
Government Obligations that, through the payment of interest, premium, if
any, and principal in respect thereof in accordance with their terms,
will provide, not later than one day before the due date of any payment
referred to in this clause (A), money in an amount or (3) a combination
thereof in an amount sufficient, in the opinion of a nationally
recognized firm of independent public accountants expressed in a written
certification thereof delivered to the Trustee, to pay and discharge,
without consideration of the reinvestment of such interest and after
payment of all federal, state and local taxes or other charges and
assessments in respect thereof payable by the Trustee, the principal of,
premium, if any, and accrued interest on the outstanding Notes at the
Stated Maturity of such principal or interest; PROVIDED that the Trustee
shall have been irrevocably instructed to apply such money or the
proceeds of such U.S. Government Obligations to the payment of such
principal, premium, if any, and interest with respect to the Notes;
(B) such deposit will not result in a breach or violation of,
or constitute a default under, this Indenture or any other agreement or
instrument to which the Company is a party or by which it is bound;
(C) immediately after giving effect to such deposit on a pro
forma basis, no Default or Event of Default shall have occurred and be
continuing on the date of such deposit or during the period ending on the
123rd day after such date of deposit;
(D) the Company shall have delivered to the Trustee (1) either
(x) a ruling directed to the Trustee received from the Internal Revenue
Service to the effect that the Holders will not recognize income, gain or
loss for federal income tax purposes as a result of the Company's
exercise of its option under this Section 8.02 and will be subject to
federal income tax on the same amount and in the same manner and at the
same times as would have been the case if such option had not been
exercised or (y) an Opinion of Counsel to the same effect as the ruling
described in clause (x) above accompanied by a ruling to that effect
published by the Internal Revenue Service, unless there has been a change
in the applicable federal income tax law since the date of this Indenture
such that a ruling from the Internal Revenue Service is no longer
required and (2) an Opinion of Counsel to the effect that (x) the
creation of the defeasance trust does not violate the Investment Company
Act of 1940 and (y) after the passage of 123 days following the deposit
(except, with respect to any trust funds for the account of any Holder
who may be deemed to be an "insider" for purposes of the United States
Bankruptcy Code, after one year following the deposit), the trust fund
will not be subject to the effect of Section 547 of the United States
Bankruptcy Code or Section 15 of the New York Debtor and Creditor Law in
a case commenced by or against the Company under either such statute, and
either (I) the trust funds will no longer remain the property of the
Company (and therefore will not be subject to the effect of any
applicable bankruptcy, insolvency, reorganization or similar laws
affecting creditors' rights generally) or (II) if a court were
<PAGE>
71
to rule under any such law in any case or proceeding that the trust funds
remained property of the Company, (a) assuming such trust funds remained
in the possession of the Trustee prior to such court ruling to the extent
not paid to the Holders, the Trustee will hold, for the benefit of the
Holders, a valid and perfected security interest in such trust funds that
is not avoidable in bankruptcy or otherwise except for the effect of
Section 552(b) of the United States Bankruptcy Code on interest on the
trust funds accruing after the commencement of a case under such statute
and (b) the Holders will be entitled to receive adequate protection of
their interests in such trust funds if such trust funds are used in such
case or proceeding;
(E) if the Notes are then listed on a national securities
exchange, the Company shall have delivered to the Trustee an Opinion of
Counsel to the effect that such deposit, defeasance and discharge will
not cause the Notes to be delisted; and
(F) the Company has delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, in each case stating that all
conditions precedent provided for herein relating to the defeasance
contemplated by this Section 8.02 have been complied with.
Notwithstanding the foregoing, prior to the end of the 123-day (or one
year) period referred to in clause (D)(2)(y) of this Section 8.02, none of
the Company's obligations under this Indenture shall be discharged.
Subsequent to the end of such 123-day (or one year) period with respect to
this Section 8.02, the Company's obligations in Sections 2.02, 2.03, 2.04,
2.05, 2.06, 2.07, 2.08, 2.09, 2.14, 4.01, 4.02, 7.07, 7.08, 8.05 and 8.06
shall survive until the Notes are no longer outstanding. Thereafter, only
the Company's obligations in Sections 7.07, 8.05 and 8.06 shall survive. If
and when a ruling from the Internal Revenue Service or an Opinion of Counsel
referred to in clause (D)(1) of this Section 8.02 is able to be provided
specifically without regard to, and not in reliance upon, the continuance of
the Company's obligations under Section 4.01, then the Company's obligations
under such Section 4.01 shall cease upon delivery to the Trustee of such
ruling or Opinion of Counsel and compliance with the other conditions
precedent provided for herein relating to the defeasance contemplated by this
Section 8.02.
After any such irrevocable deposit, the Trustee upon request shall
acknowledge in writing the discharge of the Company's obligations under the
Notes and this Indenture except for those surviving obligations in the
immediately preceding paragraph.
SECTION 8.03. DEFEASANCE OF CERTAIN OBLIGATIONS. The Company may
omit to comply with any term, provision or condition set forth in clauses
(iii) and (iv) of Section 5.01 and Sections 4.03 through 4.17 and Section
4.19, clause (c) of Section 6.01 with respect to clauses (iii) and (iv) of
Section 5.01, clause (d) of Section 6.01 with respect to Sections 4.03
through 4.17 and Section 4.19, and clauses (e), (f) and (i) of Section 6.01
shall be deemed not to be Events of Default, in each case with respect to the
outstanding Notes if:
<PAGE>
72
(i) with reference to this Section 8.03, the Company has
irrevocably deposited or caused to be irrevocably deposited with the
Trustee (or another trustee satisfying the requirements of Section 7.10)
and conveyed all right, title and interest to the Trustee for the benefit
of the Holders, under the terms of an irrevocable trust agreement in form
and substance satisfactory to the Trustee as trust funds in trust,
specifically pledged to the Trustee for the benefit of the Holders as
security for payment of the principal of, premium, if any, and interest,
if any, on the Notes, and dedicated solely to, the benefit of the
Holders, in and to (A) money in an amount, (B) U.S. Government
Obligations that, through the payment of interest and principal in
respect thereof in accordance with their terms, will provide, not later
than one day before the due date of any payment referred to in this
clause (i), money in an amount or (C) a combination thereof in an amount
sufficient, in the opinion of a nationally recognized firm of independent
public accountants expressed in a written certification thereof delivered
to the Trustee, to pay and discharge, without consideration of the
reinvestment of such interest and after payment of all federal, state and
local taxes or other charges and assessments in respect thereof payable
by the Trustee, the principal of, premium, if any, and interest on the
outstanding Notes on the Stated Maturity of such principal or interest;
PROVIDED that the Trustee shall have been irrevocably instructed to apply
such money or the proceeds of such U.S. Government Obligations to the
payment of such principal, premium, if any, and interest with respect to
the Notes;
(ii) such deposit will not result in a breach or violation of,
or constitute a default under, this Indenture or any other agreement or
instrument to which the Company is a party or by which it is bound;
(iii) immediately after giving effect to such deposit on a pro
forma basis, no Default or Event of Default shall have occurred and be
continuing on the date of such deposit or during the period ending on the
123rd day after such date of deposit;
(iv) the Company has delivered to the Trustee an Opinion of
Counsel to the effect that (A) the creation of the defeasance trust does
not violate the Investment Company Act of 1940, (B) the Trustee, for the
benefit of the Holders, has a valid first-priority security interest in
the trust funds, (C) the Holders will not recognize income, gain or loss
for federal income tax purposes as a result of such deposit and
defeasance of certain obligations and will be subject to federal income
tax on the same amount and in the same manner and at the same times as
would have been the case if such deposit and defeasance had not occurred
and (D) after the passage of 123 days following the deposit (except, with
respect to any trust funds for the account of any Holder who may be
deemed to be an "insider" for purposes of the United States Bankruptcy
Code, after one year following the deposit), the trust funds will not be
subject to the effect of Section 547 of
<PAGE>
73
the United States Bankruptcy Code or Section 15 of the New York Debtor
and Creditor Law in a case commenced by or against the Company under
either such statute, and either (1) the trust funds will no longer remain
the property of the Company (and therefore will not be subject to the
effect of any applicable bankruptcy, insolvency, reorganization or
similar laws affecting creditors' rights generally) or (2) if a court
were to rule under any such law in any case or proceeding that the trust
funds remained property of the Company, (x) assuming such trust funds
remained in the possession of the Trustee prior to such court ruling to
the extent not paid to the Holders, the Trustee will hold, for the
benefit of the Holders, a valid and perfected security interest in such
trust funds that is not avoidable in bankruptcy or otherwise (except for
the effect of Section 552(b) of the United States Bankruptcy Code on
interest on the trust funds accruing after the commencement of a case
under such statute) and (y) the Holders will be entitled to receive
adequate protection of their interests in such trust funds if such trust
funds are used in such case or proceeding;
(v) if the Notes are then listed on a national securities
exchange, the Company shall have delivered to the Trustee an Opinion of
Counsel to the effect that such deposit defeasance and discharge will not
cause the Notes to be delisted; and
(vi) the Company has delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, in each case stating that all
conditions precedent provided for herein relating to the defeasance
contemplated by this Section 8.03 have been complied with.
SECTION 8.04. APPLICATION OF TRUST MONEY. Subject to Section 8.06,
the Trustee or Paying Agent shall hold in trust money or U.S. Government
Obligations deposited with it pursuant to Section 8.01, 8.02 or 8.03, as the
case may be, and shall apply the deposited money and the money from U.S.
Government Obligations in accordance with the Notes and this Indenture to the
payment of principal of, premium, if any, and interest on the Notes; but such
money need not be segregated from other funds except to the extent required
by law.
SECTION 8.05. REPAYMENT TO COMPANY. Subject to Sections 7.07, 8.01,
8.02 and 8.03, the Trustee and the Paying Agent shall promptly pay to the
Company upon request set forth in an Officers' Certificate any excess money
held by them at any time and thereupon shall be relieved from all liability
with respect to such money. The Trustee and the Paying Agent shall pay to
the Company upon request any money held by them for the payment of principal,
premium, if any, or interest that remains unclaimed for two years. After
payment to the Company, Holders entitled to such money must look to the
Company for payment as general creditors unless an applicable law designates
another Person, and all liability of the Trustee and such Paying Agent with
respect to such money shall cease.
<PAGE>
74
SECTION 8.06. REINSTATEMENT. If the Trustee or Paying Agent is
unable to apply any money or U.S. Government Obligations in accordance with
Section 8.01, 8.02 or 8.03, as the case may be, by reason of any legal
proceeding or by reason of any order or judgment of any court or governmental
authority enjoining, restraining or otherwise prohibiting such application,
the Company's obligations under this Indenture and the Notes shall be revived
and reinstated as though no deposit had occurred pursuant to Section 8.01,
8.02 or 8.03, as the case may be, until such time as the Trustee or Paying
Agent is permitted to apply all such money or U.S. Government Obligations in
accordance with Section 8.01, 8.02 or 8.03, as the case may be; PROVIDED
that, if the Company has made any payment of principal of, premium, if any,
or interest on any Notes because of the reinstatement of its obligations, the
Company shall be subrogated to the rights of the Holders of such Notes to
receive such payment from the money or U.S. Government Obligations held by
the Trustee or Paying Agent.
ARTICLE NINE
AMENDMENTS, SUPPLEMENTS AND WAIVERS
SECTION 9.01. WITHOUT CONSENT OF HOLDERS. The Company, when
authorized by a resolution of its Board of Directors (as evidenced by a Board
Resolution delivered to the Trustee), and the Trustee may amend or supplement
this Indenture or the Notes without notice to or the consent of any Holder:
(1) to cure any ambiguity, defect or inconsistency in this
Indenture; PROVIDED that such amendments or supplements shall not
adversely affect the interests of the Holders in any material respect;
(2) to comply with Article Five;
(3) to comply with any requirements of the Commission in
connection with the qualification of this Indenture under the TIA;
(4) to evidence and provide for the acceptance of appointment
hereunder by a successor Trustee; or
(5) to make any change that, in the good faith opinion of the
Board of Directors as evidenced by a Board Resolution, does not
materially and adversely affect the rights of any Holder.
SECTION 9.02. WITH CONSENT OF HOLDERS. Subject to Sections 6.04 and
6.07 and without prior notice to the Holders, the Company, when authorized by
its Board of Directors (as evidenced by a Board Resolution delivered to the
Trustee), and the Trustee may amend this Indenture and the Notes with the
written consent of the Holders of a majority in principal amount
<PAGE>
75
of the Notes then outstanding, and the Holders of a majority in principal
amount of the Notes then outstanding by written notice to the Trustee may
waive future compliance by the Company with any provision of this Indenture
or the Notes.
Notwithstanding the provisions of this Section 9.02, without the
consent of each Holder affected, an amendment or waiver, including a waiver
pursuant to Section 6.04, may not:
(i) change the Stated Maturity of the principal of, or any
installment of interest on, any Note, or reduce the principal amount
thereof or the rate of interest thereon or any premium payable upon the
redemption thereof, or adversely affect any right of repayment at the
option of any Holder of any Note, or change any place of payment where,
or the currency in which, any Note or any premium or the interest thereon
is payable, or impair the right to institute suit for the enforcement of
any such payment on or after the Stated Maturity thereof (or, in the case
of redemption, on or after the Redemption Date);
(ii) reduce the percentage in principal amount of outstanding
Notes the consent of whose Holders is required for any such supplemental
indenture, for any waiver of compliance with certain provisions of this
Indenture or certain Defaults and their consequences provided for in this
Indenture;
(iii) waive a Default in the payment of principal of, premium, if
any, or interest on, any Note; or
(iv) modify any of the provisions of this Section 9.02, except
to increase any such percentage or to provide that certain other
provisions of this Indenture cannot be modified or waived without the
consent of the Holder of each outstanding Note affected thereby.
It shall not be necessary for the consent of the Holders under this
Section 9.02 to approve the particular form of any proposed amendment,
supplement or waiver, but it shall be sufficient if such consent approves the
substance thereof.
After an amendment, supplement or waiver under this Section 9.02
becomes effective, the Company shall mail to the Holders affected thereby a
notice briefly describing the amendment, supplement or waiver. The Company
will mail supplemental indentures to Holders upon request. Any failure of
the Company to mail such notice, or any defect therein, shall not, however,
in any way impair or affect the validity of any such supplemental indenture
or waiver.
SECTION 9.03. REVOCATION AND EFFECT OF CONSENT. Until an amendment
or waiver becomes effective, a consent to it by a Holder is a continuing
consent by the Holder and every subsequent Holder of a Note or portion of a
Note that evidences the same debt as the Note of the
<PAGE>
76
consenting Holder, even if notation of the consent is not made on any Note.
However, any such Holder or subsequent Holder may revoke the consent as to
its Note or portion of its Note. Such revocation shall be effective only if
the Trustee receives the notice of revocation before the time the amendment,
supplement or waiver becomes effective. An amendment, supplement or waiver
shall become effective on receipt by the Trustee of written consents from the
Holders of the requisite percentage in principal amount of the outstanding
Notes.
The Company may, but shall not be obligated to, fix a record date for
the purpose of determining the Holders entitled to consent to any amendment,
supplement or waiver. If a record date is fixed, then, notwithstanding the
last two sentences of the immediately preceding paragraph, those persons who
were Holders at such record date (or their duly designated proxies) and only
those persons shall be entitled to consent to such amendment, supplement or
waiver or to revoke any consent previously given, whether or not such persons
continue to be Holders after such record date. No such consent shall be
valid or effective for more than 90 days after such record date.
After an amendment, supplement or waiver becomes effective, it shall
bind every Holder unless it is of the type described in any of clauses (i)
through (iv) of Section 9.02. In case of an amendment or waiver of the type
described in clauses (i) through (iv) of Section 9.02, the amendment or
waiver shall bind each Holder who has consented to it and every subsequent
Holder of a Note that evidences the same indebtedness as the Note of the
consenting Holder.
SECTION 9.04. NOTATION ON OR EXCHANGE OF NOTES. If an amendment,
supplement or waiver changes the terms of a Note, the Trustee may require the
Holder to deliver it to the Trustee. The Trustee may place an appropriate
notation on the Note about the changed terms and return it to the Holder and
the Trustee may place an appropriate notation on any Note thereafter
authenticated. Alternatively, if the Company or the Trustee so determines,
the Company in exchange for the Note shall issue and the Trustee shall
authenticate a new Note that reflects the changed terms. Failure to make the
appropriate notation, or issue a new Note, shall not affect the validity and
effect of such amendment, supplement or waiver.
SECTION 9.05. TRUSTEE TO SIGN AMENDMENTS, ETC. The Trustee shall be
entitled to receive, and shall be fully protected in relying upon, an Opinion
of Counsel stating that the execution of any amendment, supplement or waiver
authorized pursuant to this Article Nine is authorized or permitted by this
Indenture and that it will be valid and binding upon the Company. Subject to
the preceding sentence, the Trustee shall sign such amendment, supplement or
waiver if the same does not adversely affect the rights, duties, liabilities
or immunities of the Trustee. The Trustee may, but shall not be obligated
to, execute any such amendment, supplement or waiver that affects the
Trustee's own rights, duties or immunities under this Indenture or otherwise.
<PAGE>
77
SECTION 9.06. CONFORMITY WITH TRUST INDENTURE ACT. Every
supplemental indenture executed pursuant to this Article Nine shall conform
to the requirements of the TIA as then in effect.
ARTICLE TEN
SECURITY
SECTION 10.01. SECURITY. (a) On the Closing Date, the Company shall
(i) enter into the Escrow and Security Agreement and comply with the terms
and provisions thereof and (ii) purchase the Pledged Securities to be pledged
to the Trustee for the benefit of the Holders in an amount equal to the net
proceeds to be received by the Company from the sale of the Notes. At all
times the Company shall maintain Pledged Securities pledged to the Trustee
for the benefit of the Holders in such amount as will be sufficient upon
receipt of scheduled interest and/or principal payments of such Pledged
Securities, in the opinion of a nationally recognized firm of independent
public accountants selected by the Company, to provide for payment in full of
the first six scheduled interest payments due on the outstanding Notes. The
Pledged Securities shall be pledged by the Company to the Trustee for the
benefit of the Holders and shall be held by the Trustee in the Pledge Account
pending disposition pursuant to the Escrow and Security Agreement.
(b) Each Holder, by its acceptance of a Note, consents and agrees
to the terms of the Escrow and Security Agreement (including, without
limitation, the provisions providing for foreclosure and release of the
Pledged Securities) as the same may be in effect or may be amended from time
to time in accordance with its terms, and authorizes and directs the Trustee
to enter into the Escrow and Security Agreement and to perform its respective
obligations and exercise its respective rights thereunder in accordance
therewith. The Company will do or cause to be done all such acts and things
as may be necessary or proper, or as may be required by the provisions of the
Escrow and Security Agreement, to assure and confirm to the Trustee the
security interest in the Pledged Securities contemplated hereby, by the
Escrow and Security Agreement or any part thereof, as from time to time
constituted, so as to render the same available for the security and benefit
of this Indenture and of the Notes secured hereby, according to the intent
and purposes herein expressed. The Company shall take, or shall cause to be
taken, any and all actions reasonably required (and any action requested by
the Trustee) to cause the Escrow and Security Agreement to create and
maintain, as security for the obligations of the Company under this Indenture
and the Notes, valid and enforceable first priority liens in and on all the
Pledged Securities, in favor of the Trustee, superior to and prior to the
rights of third Persons and subject to no other Liens.
(c) The release of any Pledged Securities pursuant to the Escrow
and Security Agreement will not be deemed to impair the security under this
Indenture in contravention of the
<PAGE>
78
provisions hereof if and to the extent the Pledged Securities are released
pursuant to this Indenture and the Escrow and Security Agreement. To the
extent applicable, the Company shall cause TIA Section 314(d) relating to the
release of property or securities from the Lien and security interest of the
Escrow and Security Agreement (other than pursuant to Section 7(a), 7(c) and
7(d) thereof) and relating to the substitution therefor of any property or
securities to be subjected to the Lien and security interest of the Escrow
and Security Agreement to be complied with. Any certificate or opinion
required by TIA Section 314(d) may be made by an Officer of the Company,
except in cases where TIA Section 314(d) requires that such certificate or
opinion be made by an independent Person, which Person shall be an
independent engineer, appraiser or other expert selected by the Company.
(d) The Company shall cause TIA Section 314(b), relating to
opinions of counsel regarding the Lien under the Escrow and Security
Agreement, to be complied with. The Trustee may, to the extent permitted by
Sections 7.01 and 7.02 hereof, accept as conclusive evidence of compliance
with the foregoing provisions the appropriate statements contained in such
instruments.
(e) The Trustee, in its sole discretion and without the consent of
the Holders, may, and at the request of the Holders of at least 25% in
aggregate principal amount of Notes then outstanding shall, on behalf of the
Holders, take all actions it deems necessary or appropriate in order to (i)
enforce any of the terms of the Escrow and Security Agreement and (ii)
collect and receive any and all amounts payable in respect of the obligations
of the Company thereunder. The Trustee shall have power to institute and to
maintain such suits and proceedings as the Trustee may deem expedient to
preserve or protect its interests and the interests of the Holders in the
Pledged Securities (including power to institute and maintain suits or
proceedings to restrain the enforcement of or compliance with any legislative
or other governmental enactment, rule or order that may be unconstitutional
or otherwise invalid if the enforcement of, or compliance with, such
enactment, rule or order would impair the security interest hereunder or be
prejudicial to the interests of the Holders or of the Trustee).
ARTICLE ELEVEN
MISCELLANEOUS
SECTION 11.01. TRUST INDENTURE ACT OF 1939. Prior to the
effectiveness of the Registration Statement, this Indenture shall incorporate
and be governed by the provisions of the TIA that are required to be part of
and to govern indentures qualified under the TIA. After the effectiveness of
the Registration Statement, this Indenture shall be subject to the provisions
of the TIA that are required to be a part of this Indenture and shall, to the
extent applicable, be governed by such provisions.
<PAGE>
79
SECTION 11.02. NOTICES. Any notice or communication shall be
sufficiently given if in writing and delivered in person or mailed by first
class mail addressed as follows:
IF TO THE COMPANY:
Dobson Wireline Company
13439 N. Broadway Extension, Suite 200
Oklahoma City, OK 73114
Attention: Chief Financial Officer
IF TO THE TRUSTEE:
United States Trust Company of New York
114 West 47th Street
New York, NY 10036-1532
Attention: Corporate Trust Department
The Company or the Trustee by notice to the other may designate
additional or different addresses for subsequent notices or communications.
Any notice or communication mailed to a Holder shall be mailed to it
at its address as it appears on the Security Register by first class mail and
shall be sufficiently given to him if so mailed within the time prescribed.
Copies of any such communication or notice to a Holder shall also be mailed
to the Trustee and each Agent at the same time.
Failure to mail a notice or communication to a Holder or any defect in
it shall not affect its sufficiency with respect to other Holders. Except
for a notice to the Trustee, which is deemed given only when received, and
except as otherwise provided in this Indenture, if a notice or communication
is mailed in the manner provided in this Section 11.02, it is duly given,
whether or not the addressee receives it.
Where this Indenture provides for notice in any manner, such notice
may be waived in writing by the Person entitled to receive such notice,
either before or after the event, and such waiver shall be the equivalent of
such notice. Waivers of notice by Holders shall be filed with the Trustee,
but such filing shall not be a condition precedent to the validity of any
action taken in reliance upon such waiver.
In case by reason of the suspension of regular mail service or by
reason of any other cause it shall be impracticable to give such notice by
mail, then such notification as shall be made with the approval of the
Trustee shall constitute a sufficient notification for every purpose
hereunder.
<PAGE>
80
SECTION 11.03. CERTIFICATE AND OPINION AS TO CONDITIONS PRECEDENT.
Upon any request or application by the Company to the Trustee to take any
action under this Indenture, the Company shall furnish to the Trustee:
(i) an Officers' Certificate stating that, in the opinion of
the signers, all conditions precedent, if any, provided for in this
Indenture relating to the proposed action have been complied with; and
(ii) an Opinion of Counsel stating that, in the opinion of such
Counsel, all such conditions precedent have been complied with.
SECTION 11.04. STATEMENTS REQUIRED IN CERTIFICATE OR OPINION. Each
certificate or opinion with respect to compliance with a condition or
covenant provided for in this Indenture shall include:
(i) a statement that each person signing such certificate or
opinion has read such covenant or condition and the definitions herein
relating thereto;
(ii) a brief statement as to the nature and scope of the
examination or investigation upon which the statement or opinion
contained in such certificate or opinion is based;
(iii) a statement that, in the opinion of each such person, he
has made such examination or investigation as is necessary to enable him
to express an informed opinion as to whether or not such covenant or
condition has been complied with; and
(iv) a statement as to whether or not, in the opinion of each
such person, such condition or covenant has been complied with; PROVIDED,
HOWEVER, that, with respect to matters of fact, an Opinion of Counsel may
rely on an Officers' Certificate or certificates of public officials.
SECTION 11.05. RULES BY TRUSTEE, PAYING AGENT OR REGISTRAR. The
Trustee may make reasonable rules for action by or at a meeting of Holders.
The Paying Agent or Registrar may make reasonable rules for its functions.
SECTION 11.06. PAYMENT DATE OTHER THAN A BUSINESS DAY. If an
Interest Payment Date, Redemption Date, Payment Date, Stated Maturity or date
of maturity of any Note shall not be a Business Day, then payment of
principal of, premium, if any, or interest on such Note, as the case may be,
need not be made on such date, but may be made on the next succeeding
Business Day with the same force and effect as if made on the Interest
Payment Date, Payment Date or
<PAGE>
81
Redemption Date, or at the Stated Maturity or date of maturity of such Note;
PROVIDED that no interest shall accrue for the period from and after such
Interest Payment Date, Payment Date, Redemption Date, Stated Maturity or date
of maturity, as the case may be.
SECTION 11.07. GOVERNING LAW. The laws of the State of New York
shall govern this Indenture and the Notes. The Trustee, the Company and the
Holders agree to submit to the jurisdiction of the courts of the State of New
York in any action or proceeding arising out of or relating to this Indenture
or the Notes.
SECTION 11.08. NO ADVERSE INTERPRETATION OF OTHER AGREEMENTS. This
Indenture may not be used to interpret another indenture, loan or debt
agreement of the Company or any Subsidiary of the Company. Any such
indenture, loan or debt agreement may not be used to interpret this Indenture.
SECTION 11.09. NO RECOURSE AGAINST OTHERS. No recourse for the
payment of the principal of, premium, if any, or interest on any of the
Notes, or for any claim based thereon or otherwise in respect thereof, and no
recourse under or upon any obligation, covenant or agreement of the Company
contained in this Indenture, or in any of the Notes, or because of the
creation of any Indebtedness represented thereby, shall be had against any
incorporator or against any past, present or future partner, shareholder,
other equityholder, officer, director, employee or controlling person, as
such, of the Company or of any successor Person, either directly or through
the Company or any successor Person, whether by virtue of any constitution,
statute or rule of law, or by the enforcement of any assessment or penalty or
otherwise; it being expressly understood that all such liability is hereby
expressly waived and released as a condition of, and as a consideration for,
the execution of this Indenture and the issue of the Notes.
SECTION 11.10. SUCCESSORS. All agreements of the Company in this
Indenture and the Notes shall bind its successors. All agreements of the
Trustee in this Indenture shall bind its successor.
SECTION 11.11. DUPLICATE ORIGINALS. The parties may sign any number
of copies of this Indenture. Each signed copy shall be an original, but all
of them together represent the same agreement.
SECTION 11.12. SEPARABILITY. In case any provision in this Indenture
or in the Notes shall be invalid, illegal or unenforceable, the validity,
legality and enforceability of the remaining provisions shall not in any way
be affected or impaired thereby.
SECTION 11.13. TABLE OF CONTENTS, HEADINGS, ETC. The Table of Contents,
Cross-Reference Table and headings of the Articles and Sections of this
Indenture have been inserted
<PAGE>
82
for convenience of reference only, are not to be considered a part hereof and
shall in no way modify or restrict any of the terms and provisions hereof.
<PAGE>
83
SIGNATURES
IN WITNESS WHEREOF, the parties hereto have caused this Indenture to
be duly executed, all as of the date first written above.
DOBSON WIRELINE COMPANY
By:
------------------------------------
Name:
Title:
UNITED STATES TRUST COMPANY
OF NEW YORK
By:
------------------------------------
Name:
Title:
<PAGE>
EXHIBIT A
[FACE OF NOTE]
DOBSON WIRELINE COMPANY
12 1/4% Senior Note due 2008
[CUSIP] [CINS] [ISIN] [__________]
No. $_________
DOBSON WIRELINE COMPANY, an Oklahoma corporation (the "Company", which
term includes any successor under the Indenture hereinafter referred to), for
value received, promises to pay to _____________, or its registered assigns, the
principal sum of ____________ ($____) on June 15, 2008.
Interest Payment Dates: June 15 and December 15, commencing December 15,
1998.
Regular Record Dates: June 1 and December 1.
Reference is hereby made to the further provisions of this Note set forth
on the reverse hereof, which further provisions shall for all purposes have the
same effect as if set forth at this place.
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Note to be signed
manually or by facsimile by its duly authorized officers.
Date: DOBSON WIRELINE COMPANY
By:
-----------------------------------
Name:
Title:
By:
-----------------------------------
Name:
Title:
(Trustee's Certificate of Authentication)
This is one of the 12 1/4% Senior Notes due 2008 described in the within-
mentioned Indenture.
UNITED STATES TRUST COMPANY OF
NEW YORK
as Trustee
By:
-----------------------------------
Authorized Signatory
<PAGE>
A-3
[REVERSE SIDE OF NOTE]
DOBSON WIRELINE COMPANY
12 1/4% Senior Note due 2008
1. PRINCIPAL AND INTEREST.
The Company will pay the principal of this Note on June 15, 2008.
The Company promises to pay interest on the principal amount of this Note
on each Interest Payment Date, as set forth below, at the rate per annum shown
above.
Interest will be payable semiannually (to the holders of record of the
Notes at the close of business on the June 1 or December 1 immediately preceding
the Interest Payment Date) on each Interest Payment Date, commencing December
15, 1998.
If an exchange offer (the "Exchange Offer") registered under the
Securities Act is not consummated, or a Shelf Registration Statement under the
Securities Act with respect to resales of the Notes is not declared effective by
the Commission, on or before December 12, 1998 in accordance with the terms of
the Registration Rights Agreement dated June 10, 1998 between the Company and
Morgan Stanley & Co. Incorporated and NationsBanc Montgomery Securities LLC, the
annual interest rate borne by the Notes shall be increased by 0.5% from the rate
shown above accruing from December 12, 1998, payable in cash semiannually, in
arrears, on each Interest Payment Date, commencing December 15, 1998 until the
Exchange Offer is consummated or the Shelf Registration Statement is declared
effective. The Holder of this Note is entitled to the benefits of such
Registration Rights Agreement.
Interest on the Notes will accrue from the most recent date to which
interest has been paid or, if no interest has been paid, from June 12, 1998;
PROVIDED that, if there is no existing default in the payment of interest and
this Note is authenticated between a Regular Record Date referred to on the face
hereof and the next succeeding Interest Payment Date, interest shall accrue from
such Interest Payment Date. Interest will be computed on the basis of a 360-day
year of twelve 30-day months.
The Company shall pay interest on overdue principal and premium, if any,
and interest on overdue installments of interest, to the extent lawful, at a
rate per annum that is 2% in excess of the rate otherwise payable.
<PAGE>
A-4
2. METHOD OF PAYMENT.
The Company will pay interest (except defaulted interest) on the
principal amount of the Notes as provided above on each June 15 and December 15
commencing December 15, 1998 to the persons who are Holders (as reflected in the
Security Register at the close of business on the June 1 or December 1,
immediately preceding the Interest Payment Date), in each case, even if the Note
is cancelled on registration of transfer or registration of exchange after such
record date; PROVIDED that, with respect to the payment of principal, the
Company will make payment to the Holder that surrenders this Note to a Paying
Agent on or after June 15, 2008.
The Company will pay principal, premium, if any, and as provided above,
interest in money of the United States that at the time of payment is legal
tender for payment of public and private debts. However, the Company may pay
principal, premium, if any, and interest by its check payable in such money. It
may mail an interest check to a Holder's registered address (as reflected in the
Security Register). If a payment date is a date other than a Business Day at a
place of payment, payment may be made at that place on the next succeeding day
that is a Business Day and no interest shall accrue for the intervening period.
3. PAYING AGENT AND REGISTRAR.
Initially, the Trustee will act as authenticating agent, Paying Agent and
Registrar. The Company may change any authenticating agent, Paying Agent or
Registrar without notice. The Company, any Subsidiary or any Affiliate of any
of them may act as Paying Agent, Registrar or co-Registrar.
4. INDENTURE; LIMITATIONS.
The Company issued the Notes under an Indenture dated as of June 12, 1998
(the "Indenture"), between the Company and United States Trust Company of New
York, trustee (the "Trustee"). Capitalized terms herein are used as defined in
the Indenture unless otherwise indicated. The terms of the Notes include those
stated in the Indenture and those made part of the Indenture by reference to the
Trust Indenture Act. The Notes are subject to all such terms, and Holders are
referred to the Indenture and the Trust Indenture Act for a statement of all
such terms. To the extent permitted by applicable law, in the event of any
inconsistency between the terms of this Note and the terms of the Indenture, the
terms of the Indenture shall control.
The Notes are general obligations of the Company.
The Company may, subject to Article Four of the Indenture and applicable
law, issue additional Notes under the Indenture.
<PAGE>
A-5
5. OPTIONAL REDEMPTION.
The Notes will be redeemable, at the Company's option, in whole or in
part, at any time on or after June 15, 2003 and prior to maturity, upon not
less than 30 nor more than 60 days' prior notice mailed by first-class mail to
each Holder's last address as it appears in the Security Register, at the
following Redemption Prices (expressed in percentages of their principal
amount), plus accrued and unpaid interest to the Redemption Date (subject to the
right of Holders of record on the relevant Regular Record Date that is on or
prior to the Redemption Date to receive interest due on an Interest Payment
Date), if redeemed during the 12-month period commencing on June 15 of the
applicable year set forth below:
<TABLE>
Redemption
Year Price
---- ----------
<S> <C>
2003 106.125%
2004 104.083
2005 102.042
2006 and thereafter 100.000
</TABLE>
At any time prior to June 15, 2001, the Company may redeem up to 35% of
the aggregate principal amount of the Notes with the Net Cash Proceeds from one
or more sales of Capital Stock of the Company (other than Disqualified Stock),
at any time as a whole or from time to time in part, upon not less than 30 nor
more than 60 days' prior notice mailed by first-class mail to each Holder's last
address as it appears in the Security Register, at a Redemption Price (expressed
in percentages of their principal amount) of 112.250%, plus accrued and unpaid
interest to the Redemption Date (subject to the right of Holders of record on
the relevant Regular Record Date that is on or prior to the Redemption Date to
receive interest due on an Interest Payment Date); PROVIDED that at least 65% of
the aggregate principal amount of Notes originally issued on the Closing Date
remains outstanding after each such redemption and notice of any such redemption
is mailed within 60 days after the related sale of Capital Stock.
Notes in original denominations larger than $1,000 may be redeemed in
part. On and after the Redemption Date, interest ceases to accrue on Notes or
portions of Notes called for redemption, unless the Company defaults in the
payment of the Redemption Price.
6. SPECIAL REDEMPTION.
In the event the American Telco Acquisition is not consummated by
September 15, 1998, or it appears in the sole judgment of the Company that the
American Telco Acquisition will not be consummated by such date, the Company
will be required to redeem the Notes, in whole, on 10 days' prior notice mailed
by first class mail to each Holder's last address as it appears in the
<PAGE>
A-6
Security Register, at a redemption price equal to 101% of their principal
amount, plus accrued and unpaid interest to the Redemption Date.
7. REPURCHASE UPON CHANGE OF CONTROL.
Upon the occurrence of any Change of Control, each Holder shall have the
right to require the repurchase of its Notes by the Company in cash pursuant to
the offer described in the Indenture at a purchase price equal to 101% of the
principal amount thereof plus accrued and unpaid interest to the date of
purchase (the "Payment Date").
A notice of such Change of Control will be mailed within 30 days after
any Change of Control occurs to each Holder at its last address as it appears in
the Security Register. Notes in original denominations larger than $1,000 may
be sold to the Company in part. On and after the Payment Date, interest ceases
to accrue on Notes or portions of Notes surrendered for purchase by the Company,
unless the Company defaults in the payment of the purchase price.
8. DENOMINATIONS; TRANSFER; EXCHANGE.
The Notes are in registered form without coupons in denominations of
$1,000 of principal amount and multiples of $1,000 in excess thereof. A Holder
may register the transfer or exchange of Notes in accordance with the Indenture.
The Registrar may require a Holder, among other things, to furnish appropriate
endorsements and transfer documents and to pay any taxes and fees required by
law or permitted by the Indenture. The Registrar need not register the transfer
or exchange of any Notes selected for redemption. Also, it need not register
the transfer or exchange of any Notes for a period of 15 days before the day of
mailing of a notice of redemption of Notes selected for redemption.
9. PERSONS DEEMED OWNERS.
A Holder shall be treated as the owner of a Note for all purposes.
10. UNCLAIMED MONEY.
If money for the payment of principal, premium, if any, or interest
remains unclaimed for two years, the Trustee and the Paying Agent will pay the
money back to the Company at its request. After that, Holders entitled to the
money must look to the Company for payment, unless an abandoned property law
designates another Person, and all liability of the Trustee and such Paying
Agent with respect to such money shall cease.
11. DISCHARGE PRIOR TO REDEMPTION OR MATURITY.
<PAGE>
A-7
If the Company deposits with the Trustee money or U.S. Government
Obligations sufficient to pay the then outstanding principal of, premium, if
any, and accrued interest on the Notes (a) to redemption or maturity, the
Company will be discharged from the Indenture and the Notes, except in certain
circumstances for certain sections thereof, and (b) to the Stated Maturity, the
Company will be discharged from certain covenants set forth in the Indenture.
12. AMENDMENT; SUPPLEMENT; WAIVER.
Subject to certain exceptions, the Indenture or the Notes may be amended
or supplemented with the consent of the Holders of at least a majority in
principal amount of the Notes then outstanding, and any existing default or
compliance with any provision may be waived with the consent of the Holders of
at least a majority in principal amount of the Notes then outstanding. Without
notice to or the consent of any Holder, the parties thereto may amend or
supplement the Indenture or the Notes to, among other things, cure any
ambiguity, defect or inconsistency and make any change that does not materially
and adversely affect the rights of any Holder.
13. RESTRICTIVE COVENANTS.
The Indenture imposes certain limitations on the ability of the Company
and its Restricted Subsidiaries, among other things, to Incur additional
Indebtedness, make Restricted Payments, use the proceeds from Asset Sales,
engage in transactions with Affiliates or merge, consolidate or transfer
substantially all of its assets. Within 45 days after the end of each fiscal
quarter (90 days after the end of the last fiscal quarter of each year), the
Company must report to the Trustee on compliance with such limitations.
14. SUCCESSOR PERSONS.
When a successor person or other entity assumes all the obligations of
its predecessor under the Notes and the Indenture, the predecessor person will
be released from those obligations.
15. DEFAULTS AND REMEDIES.
The following events constitute "Events of Default" under the Indenture:
(a) default in the payment of principal of (or premium, if any, on) any Note
when the same becomes due and payable at maturity, upon acceleration, redemption
or otherwise; (b) default in the payment of interest on any Note when the same
becomes due and payable, and such default continues for a period of 30 days;
PROVIDED that a failure to make any of the first six scheduled interest payments
on the Notes on the applicable Interest Payment Date will constitute an Event of
Default with no grace or cure period; (c) default in the performance or breach
of Article Five of the Indenture or
<PAGE>
A-8
the failure to make or consummate an Offer to Purchase in accordance with
Section 4.10 or 4.11 of the Indenture; (d) the Company defaults in the
performance of or breaches any other covenant or agreement of the Company in
the Indenture or under the Notes (other than a default specified in clause
(a), (b) or (c) above) and such default or breach continues for a period of
30 consecutive days after written notice by the Trustee or the Holders of 25%
or more in aggregate principal amount of the Notes; (e) there occurs with
respect to any issue or issues of Indebtedness of the Company or any
Significant Subsidiary having an outstanding principal amount of $5 million
or more in the aggregate for all such issues of all such Persons, whether
such Indebtedness now exists or shall hereafter be created, (I) an event of
default that has caused the holder thereof to declare such Indebtedness to be
due and payable prior to its Stated Maturity and such Indebtedness has not
been discharged in full or such acceleration has not been rescinded or
annulled within 30 days of such acceleration and/or (II) the failure to make
a principal payment at the final (but not any interim) fixed maturity and
such defaulted payment shall not have been made, waived or extended within 30
days of such payment default; (f) any final judgment or order (not covered by
insurance) for the payment of money in excess of $5 million in the aggregate
for all such final judgments or orders against all such Persons (treating any
deductibles, self-insurance or retention as not so covered) shall be rendered
against the Company or any Significant Subsidiary and shall not be paid or
discharged, and there shall be any period of 30 consecutive days following
entry of the final judgment or order that causes the aggregate amount for all
such final judgments or orders outstanding and not paid or discharged against
all such Persons to exceed $5 million during which a stay of enforcement of
such final judgment or order, by reason of a pending appeal or otherwise,
shall not be in effect; (g) a court having jurisdiction in the premises
enters a decree or order for (A) relief in respect of the Company or any
Significant Subsidiary in an involuntary case under any applicable
bankruptcy, insolvency or other similar law now or hereafter in effect, (B)
appointment of a receiver, liquidator, assignee, custodian, trustee,
sequestrator or similar official of the Company or any Significant Subsidiary
or for all or substantially all of the property and assets of the Company or
any Significant Subsidiary or (C) the winding up or liquidation of the
affairs of the Company or any Significant Subsidiary and, in each case, such
decree or order shall remain unstayed and in effect for a period of 30
consecutive days; (h) the Company or any Significant Subsidiary (A) commences
a voluntary case under any applicable bankruptcy, insolvency or other similar
law now or hereafter in effect, or consents to the entry of an order for
relief in an involuntary case under any such law, (B) consents to the
appointment of or taking possession by a receiver, liquidator, assignee,
custodian, trustee, sequestrator or similar official of the Company or any
Significant Subsidiary or for all or substantially all of the property and
assets of the Company or any of its Significant Subsidiaries or (C) effects
any general assignment for the benefit of creditors; or (i) the Escrow and
Security Agreement shall cease to be in full force and effect or enforceable
in accordance with its terms, other than in accordance with its terms.
If an Event of Default, as defined in the Indenture, occurs and is
continuing, the Trustee or the Holders of at least 25% in aggregate principal
amount of the Notes may declare all the
<PAGE>
A-9
Notes to be due and payable. If a bankruptcy or insolvency default with
respect to the Company occurs and is continuing, the Notes automatically
become due and payable. Holders may not enforce the Indenture or the Notes
except as provided in the Indenture. The Trustee may require indemnity
satisfactory to it before it enforces the Indenture or the Notes. Subject to
certain limitations, Holders of at least a majority in aggregate principal
amount of the Notes then outstanding may direct the Trustee in its exercise
of any trust or power.
16. COLLATERAL.
The payment of the Notes will be secured by Government Securities held in
an account to secure and fund the first six scheduled interest payments on the
Notes. Once the first six scheduled interest payments are made, the Notes will
be unsecured.
17. TRUSTEE DEALINGS WITH COMPANY.
The Trustee under the Indenture, in its individual or any other capacity,
may make loans to, accept deposits from and perform services for the Company or
its Affiliates and may otherwise deal with the Company or its Affiliates as if
it were not the Trustee.
18. NO RECOURSE AGAINST OTHERS.
No incorporator or any past, present or future partner, stockholder,
other equity holder, officer, director, employee or controlling person as such,
of the Company or of any successor Person shall have any liability for any
obligations of the Company under Escrow and Security Agreement, the Notes or the
Indenture or for any claim based on, in respect of or by reason of, such
obligations or their creation. Each Holder by accepting a Note waives and
releases all such liability. The waiver and release are part of the
consideration for the issuance of the Notes.
19. AUTHENTICATION.
This Note shall not be valid until the Trustee or authenticating agent
signs the certificate of authentication on the other side of this Note.
20. ABBREVIATIONS.
Customary abbreviations may be used in the name of a Holder or an
assignee, such as: TEN COM (= tenants in common), TEN ENT (= tenants by the
entireties), JT TEN (= joint tenants with right of survivorship and not as
tenants in common), CUST (= Custodian) and U/G/M/A (= Uniform Gifts to Minors
Act).
<PAGE>
A-10
The Company will furnish to any Holder upon written request and without
charge a copy of the Indenture. Requests may be made to Dobson Wireline
Company, 13439 N. Broadway Extension, Suite 200, Oklahoma City, OK 73114
Attention: Chief Financial Officer.
<PAGE>
A-11
[FORM OF TRANSFER NOTICE]
FOR VALUE RECEIVED the undersigned registered holder hereby sell(s),
assign(s) and transfer(s) unto
INSERT TAXPAYER IDENTIFICATION NO.
- --------------------------------------------------------------------------------
Please print or typewrite name and address including zip code of assignee
- --------------------------------------------------------------------------------
the within Note and all rights thereunder, hereby irrevocably constituting and
appointing ____________________________________________________________________
attorney to transfer said Note on the books of the Company with full power of
substitution in the premises.
[THE FOLLOWING PROVISION TO BE INCLUDED
ON ALL NOTES OTHER THAN EXCHANGE NOTES,
PERMANENT OFFSHORE GLOBAL NOTES AND
PERMANENT OFFSHORE PHYSICAL NOTES]
In connection with any transfer of this Note occurring prior to the date
which is the earlier of (i) the date the Shelf Registration Statement is
declared effective or (ii) the end of the period referred to in Rule 144(k)
under the Securities Act, the undersigned confirms that without utilizing any
general solicitation or general advertising that:
[CHECK ONE]
[ ] (a) this Note is being transferred in compliance with the exemption
from registration under the Securities Act of 1933 provided by
Rule 144A thereunder.
OR
[ ] (b) this Note is being transferred other than in accordance with
(a) above and documents are being furnished which comply with the
conditions of transfer set forth in this Note and the Indenture.
<PAGE>
A-12
If none of the foregoing boxes is checked, the Trustee or other Registrar shall
not be obligated to register this Note in the name of any Person other than the
Holder hereof unless and until the conditions to any such transfer of
registration set forth herein and in Section 2.08 of the Indenture shall have
been satisfied.
Date:
---------------------- ---------------------------------------------
NOTICE: The signature to this assignment
must correspond with the name as written upon
the face of the within-mentioned instrument
in every particular, without alteration or
any change whatsoever.
TO BE COMPLETED BY PURCHASER IF (a) ABOVE IS CHECKED.
The undersigned represents and warrants that it is purchasing this Note
for its own account or an account with respect to which it exercises sole
investment discretion and that it and any such account is a "qualified
institutional buyer" within the meaning of Rule 144A under the Securities Act of
1933 and is aware that the sale to it is being made in reliance on Rule 144A and
acknowledges that it has received such information regarding the Company as the
undersigned has requested pursuant to Rule 144A or has determined not to request
such information and that it is aware that the transferor is relying upon the
undersigned's foregoing representations in order to claim the exemption from
registration provided by Rule 144A.
Dated:
--------------------- --------------------------------------
NOTICE: To be executed by an
executive officer
<PAGE>
A-13
OPTION OF HOLDER TO ELECT PURCHASE
If you wish to have this Note purchased by the Company pursuant to
Section 4.10 or 4.11 of the Indenture, check the Box: / /
If you wish to have a portion of this Note purchased by the Company
pursuant to Section 4.10 or 4.11 of the Indenture, state the amount:
$___________________.
Date:
--------------------------
Your Signature:
----------------------------------------------------------------
(Sign exactly as your name appears on the other side of this
Note)
Signature Guarantee:
--------------------------------
<PAGE>
EXHIBIT B
FORM OF CERTIFICATE
_________, ____
United States Trust Company
of New York
114 W. 47th Street
New York, NY 10036-1532
Attention: Corporate Trust Department
Re: Dobson Wireline Company (the "Company")
12 1/4% Senior Notes due 2008 (the "Notes")
-------------------------------------------
Dear Sirs:
This letter relates to U.S. $_______________ principal amount of Notes
represented by a Note (the "Legended Note") which bears a legend outlining
restrictions upon transfer of such Legended Note. Pursuant to Section 2.01
of the Indenture dated as of June 12, 1998 (the "Indenture") relating to the
Notes, we hereby certify that we are (or we will hold such securities on
behalf of) a person outside the United States to whom the Notes could be
transferred in accordance with Rule 904 of Regulation S promulgated under the
U.S. Securities Act of 1933. Accordingly, you are hereby requested to
exchange the legended certificate for an unlegended certificate representing
an identical principal amount of Notes, all in the manner provided for in the
Indenture.
You and the Company are entitled to rely upon this letter and are
irrevocably authorized to produce this letter or a copy hereof to any
interested party in any administrative or legal proceedings or official
inquiry with respect to the matters covered hereby. Terms used in this
certificate have the meanings set forth in Regulation S.
Very truly yours,
[Name of Holder]
By:
----------------------------------
Authorized Signature
<PAGE>
EXHIBIT C
Form of Certificate to Be
Delivered in Connection with
Transfers to Non-QIB Accredited Investors
-----------------------------------------
_________, ____
United States Trust Company
of New York
114 W. 47th Street
New York, NY 10036-1532
Attention: Corporate Trust Department
Re: Dobson Wireline Company (the "Company")
12 1/4% Senior Notes due 2008 (the "Notes")
--------------------------------------------
Dear Sirs:
In connection with our proposed purchase of $_____________ aggregate
principal amount of the Notes, we confirm that:
1. We understand that any subsequent transfer of the Notes is subject
to certain restrictions and conditions set forth in the Indenture dated as of
June 12, 1998 (the "Indenture"), relating to the Notes, and the undersigned
agrees to be bound by, and not to resell, pledge or otherwise transfer the
Notes except in compliance with, such restrictions and conditions and the
Securities Act of 1933 (the "Securities Act").
2. We understand that the offer and sale of the Notes have not been
registered under the Securities Act, and that the Notes may not be offered or
sold except as permitted in the following sentence. We agree, on our own
behalf and on behalf of any accounts for which we are acting as hereinafter
stated, that if we should sell any Notes within the time period referred to
in Rule 144(k) of the Securities Act, we will do so only (A) to the Company
or any subsidiary thereof, (B) in accordance with Rule 144A under the
Securities Act to a "qualified institutional buyer" (as defined therein), (C)
to an institutional "accredited investor" (as defined below) that, prior to
such transfer, furnishes (or has furnished on its behalf by a U.S.
broker-dealer) to you and to the Company a signed letter substantially in the
form of this letter and, if such transfer is in respect of an aggregate
principal amount of Notes of less than $100,000, an opinion of counsel
acceptable to the Company that such transfer is in compliance with the
Securities Act, (D) outside the United States in accordance with Rule 904 of
Regulation S under the Securities Act, (E) pursuant to the exemption from
registration provided by Rule 144 under the Securities Act (if
<PAGE>
C-2
available), or (F) pursuant to an effective registration statement under the
Securities Act, and we further agree to provide to any person purchasing any
of the Notes from us a notice advising such purchaser that resales of the
Notes are restricted as stated herein.
3. We understand that, on any proposed resale of any Notes, we will
be required to furnish to you and the Company such certifications, legal
opinions and other information as you and the Company may reasonably require
to confirm that the proposed sale complies with the foregoing restrictions.
We further understand that the Notes purchased by us will bear a legend to
the foregoing effect.
4. We are an institutional "accredited investor" (as defined in Rule
501(a)(1), (2), (3) or (7) of Regulation D under the Securities Act) and have
such knowledge and experience in financial and business matters as to be
capable of evaluating the merits and risks of our investment in the Notes,
and we and any accounts for which we are acting are each able to bear the
economic risk of our or its investment.
5. We are acquiring the Notes purchased by us for our own account or
for one or more accounts (each of which is an institutional "accredited
investor") as to each of which we exercise sole investment discretion.
You and the Company are entitled to rely upon this letter and are
irrevocably authorized to produce this letter or a copy hereof to any
interested party in any administrative or legal proceedings or official
inquiry with respect to the matters covered hereby.
Very truly yours,
[Name of Transferee]
By:
------------------------------
Authorized Signature
<PAGE>
EXHIBIT D
Form of Certificate to Be Delivered in
Connection with Transfers Pursuant to Regulation S
--------------------------------------------------
____________, ____
United States Trust Company
of New York
114 W. 47th Street
New York, NY 10036-1532
Attention: Corporate Trust Department
Re: Dobson Wireline Company (the "Company")
12 1/4% Senior Notes due 2008 (the "Notes")
-------------------------------------------
Dear Sirs:
In connection with our proposed sale of U.S. $______________ aggregate
principal amount of the Notes, we confirm that such sale has been effected
pursuant to and in accordance with Regulation S under the Securities Act of
1933 and, accordingly, we represent that:
(1) the offer of the Notes was not made to a person in the United
States;
(2) at the time the buy order was originated, the transferee was
outside the United States or we and any person acting on our behalf
reasonably believed that the transferee was outside the United States;
(3) no directed selling efforts have been made by us in the United
States in contravention of the requirements of Rule 903(b) or Rule 904(b) of
Regulation S, as applicable; and
(4) the transaction is not part of a plan or scheme to evade the
registration requirements of the U.S. Securities Act of 1933.
You and the Company are entitled to rely upon this letter and are
irrevocably authorized to produce this letter or a copy hereof to any
interested party in any administrative or legal proceedings or official
inquiry with respect to the matters covered hereby. Terms used in this
certificate have the meanings set forth in Regulation S.
Very truly yours,
[Name of Transferor]
By:
-------------------------------
Authorized Signature
<PAGE>
EXHIBIT 4.6
- -------------------------------------------------------------------------------
ESCROW AND SECURITY AGREEMENT
Dated as of June 12, 1998
Between
DOBSON WIRELINE COMPANY
and
UNITED STATES TRUST COMPANY OF NEW YORK
- -------------------------------------------------------------------------------
<PAGE>
ESCROW AND SECURITY AGREEMENT
This ESCROW AND SECURITY AGREEMENT (this "ESCROW AGREEMENT") is
made and entered into as of June 12, 1998 by DOBSON WIRELINE COMPANY, an
Oklahoma corporation (the "PLEDGOR"), having its principal office at 13439 N.
Broadway Extension, Suite 200, Oklahoma City, Oklahoma 73114, in favor of
UNITED STATES TRUST COMPANY OF NEW YORK, a bank and trust company organized
under the New York banking law, having an office at 114 W. 47th Street, New
York, New York 10036, as trustee (the "TRUSTEE") for the holders (the
"HOLDERS") of the Notes (as defined herein) issued by the Pledgor under the
Indenture referred to below. Capitalized terms used herein and not otherwise
defined herein shall have the meanings given to such terms in the Indenture.
W I T N E S S E T H
WHEREAS, the Pledgor and United States Trust Company of New York,
as Trustee, have entered into that certain indenture dated as of the date
hereof (as amended, restated, supplemented or otherwise modified from time to
time, the "INDENTURE"), pursuant to which the Pledgor is issuing on the date
hereof $350,000,000 in aggregate principal amount of 12 1/4% Senior Notes due
2008 (the "NOTES"); and
WHEREAS, the Pledgor has agreed, pursuant to the Indenture, to
deposit on the date hereof (the "CLOSING DATE") $339,500,000 (the "FUNDS")
with the Trustee to be held by the Trustee for the benefit of the Holders of
the Notes; and
WHEREAS, the Pledgor has opened a non-interest bearing collateral
account (the "COLLATERAL ACCOUNT") with United States Trust Company of New
York at its office at 114 W. 47th Street, New York, New York 10036, Account
No. 04082600 in the name of "DOBSON WIRELINE CO. COLLATERAL AC" but under
the sole dominion and control of the Trustee and subject to the terms of this
Escrow Agreement; and
WHEREAS, to secure the obligations of the Pledgor under the
Indenture and the Notes to (i) provide for payment in full of the first six
scheduled interest payments due on the Notes, (ii) redeem all of the Notes at
101% of their principal amount, plus accrued and unpaid interest to the
Special Redemption Date (as defined herein) in the event that the American
Telco Acquisition (as defined in the Indenture) is not consummated by
September 15, 1998 (the "TERMINATION DATE") and (iii) secure repayment of the
principal, premium (if any) and interest on the Notes in the event that the
Notes become due and payable prior to such time as the first six
<PAGE>
2
scheduled interest payments thereon shall have been paid in full
(collectively, the "OBLIGATIONS"), the Pledgor has agreed (a) to pledge to
the Trustee for its benefit and the ratable benefit of the Holders of the
Notes, a security interest in the Collateral (as defined herein) and (b) to
execute and deliver this Escrow Agreement in order to secure the payment and
performance by the Pledgor of all the Obligations; and
WHEREAS, it is a condition precedent to the initial purchase of the
Notes by the initial Holders thereof that the Pledgor shall have granted the
security interest and made the pledge contemplated by this Escrow Agreement;
and
WHEREAS, unless otherwise defined herein or in the Indenture, terms
used in Articles 8 or 9 of the Uniform Commercial Code ("UCC") as in effect
in the State of New York are used herein as therein defined.
AGREEMENT
NOW, THEREFORE, in consideration of the mutual promises herein
contained, and in order to induce the Holders of the Notes to purchase the
Notes, the Pledgor hereby agrees with the Trustee, for the benefit of the
Trustee and for the ratable benefit of the Holders of the Notes, as follows:
SECTION 1. CERTAIN DEFINITIONS; APPOINTMENT OF THE TRUSTEE;
PLEDGE AND GRANT OF SECURITY INTEREST; DEPOSIT OF FUNDS
1.1 CERTAIN DEFINITIONS.
"CASH EQUIVALENTS" means, to the extent owned free and clear of all
liens other than liens created hereunder, Government Securities.
"GOVERNMENT BOOK-ENTRY SECURITY" means Government Securities
maintained in book-entry form through the United States Federal Reserve
Banks pursuant to (A) the United States Treasury Department regulations
codified at 31 C.F.R. Part 357, as modified by the amendments promulgated
at 61 Fed. Reg. 43, 626-43, 638 (Aug. 23, 1996), or (B) substantially
identical regulations promulgated by any other agency or instrumentality of
the United States whose securities qualify as "Government Securities"
hereunder.
"GOVERNMENT SECURITIES" means direct obligations of, obligations fully
guaranteed by, or participations in pools consisting of obligations of or
obligations guaranteed by, the United States of America for the payment of
which guarantee or
<PAGE>
3
obligations the full faith and credit of the United States of America is
pledged and which are not callable or redeemable at the option of the
issuer thereof.
1.2 APPOINTMENT OF THE TRUSTEE. The Pledgor hereby appoints
United States Trust Company of New York as Trustee in accordance with the
terms and conditions set forth herein and the Trustee hereby accepts such
appointment.
1.3 PLEDGE AND GRANT OF SECURITY INTEREST. The Pledgor hereby
pledges to the Trustee for its benefit and for the ratable benefit of the
Holders of the Notes, and hereby grants to the Trustee for its benefit and
for the ratable benefit of the Holders of the Notes, a continuing first
priority security interest in and to all of the Pledgor's right, title and
interest in, to and under the following (hereinafter collectively referred to
as the "COLLATERAL"), whether characterized as investment property, general
intangibles or otherwise: (a) the Collateral Account, all funds held therein
and all certificates and instruments, if any, from time to time representing
or evidencing the Collateral Account, and all Collateral Investments (as
hereinafter defined) and all certificates and instruments, if any,
representing or evidencing the Collateral Investments, and any and all
security entitlements to the Collateral Investments, and any and all related
securities accounts in which security entitlements to the Collateral
Investments are carried, (b) all notes, certificates of deposit, deposit
accounts, checks and other instruments from time to time hereafter delivered
to or otherwise possessed by the Trustee for or on behalf of the Pledgor in
substitution for or in addition to any or all the then existing Collateral,
(c) all interest, dividends, cash, instruments and other property from time
to time received, receivable or otherwise distributed in respect of or in
exchange for any or all of the then existing Collateral, and (d) all proceeds
of any and all of the foregoing Collateral (including, without limitation,
proceeds that constitute property of the types described in clauses (a) - (d)
of this Section 1) and, to the extent not otherwise included, all cash.
1.4 DEPOSIT OF FUNDS. On the Closing Date, the Pledgor shall
direct that all Funds be deposited into the Collateral Account.
SECTION 2. SECURITY FOR OBLIGATION. This Escrow Agreement and
the grant of a security interest in the Collateral hereunder secures the
prompt payment and performance when due (whether at stated maturity, by
acceleration or otherwise) of all the Obligations. Without limiting the
generality of the foregoing, this Escrow Agreement and the grant of a
security interest in the Collateral hereunder secures the payment of all
amounts that constitute part of the Obligations and would be owed by the
Pledgor to the Trustee or the Holders under the Notes or the Indenture but
for the fact that they are unenforceable or not allowable due to the
existence of a bankruptcy, reorganization or similar proceeding involving the
Pledgor.
SECTION 3. DELIVERY OF COLLATERAL. (a) All certificates or
instruments representing or evidencing the Collateral, including, without
limitation, amounts invested as
<PAGE>
4
provided in Section 5, shall be delivered to (as set forth in Section 6) and
held by or on behalf of the Trustee pursuant hereto and shall be in suitable
form for transfer by delivery, or shall be accompanied by duly executed
instruments of transfer or assignment in blank, all in form and substance
sufficient to establish and maintain in favor of the Trustee a valid security
interest in such Collateral, and shall be credited to the Collateral Account.
In addition, the Trustee shall have the right at any time to exchange
certificates or instruments representing or evidencing the Collateral for
certificates or instruments of smaller or larger denominations.
(b) Concurrently with the execution and delivery of this Escrow
Agreement, the Trustee is delivering to the Pledgor and Morgan Stanley &
Co. Incorporated a duly executed Notification and Control Agreement
("CONTROL AGREEMENT"), substantially in the form of EXHIBIT A hereto,
confirming the Trustee's establishment and separate maintenance of the
Collateral Account, all in accordance with this Escrow Agreement.
SECTION 4. MAINTAINING THE COLLATERAL ACCOUNT. (a) So long as
any Obligation shall remain unpaid, the Trustee will maintain separately the
Collateral Account with United States Trust Company of New York, which
account shall at all times be under the sole dominion and control of the
Trustee and subject to the terms and conditions of this Escrow Agreement.
(b) It shall be a term and condition of the Collateral Account,
notwithstanding any term or condition to the contrary in any other
agreement relating to the Collateral Account, and except as otherwise
provided by the provisions of Section 7 and Section 14 hereof, that no
amount (including interest on Collateral Investments) shall be paid or
released to or for the account of, or withdrawn by or for the account of,
the Pledgor or any other Person from the Collateral Account.
The Collateral Account shall be subject to such applicable laws,
and such applicable regulations of the Board of Governors of the Federal
Reserve System and of any other appropriate banking or governmental
authority, as may now or hereafter be in effect.
SECTION 5. INVESTING OF AMOUNTS IN THE COLLATERAL ACCOUNT. If
directed by the Pledgor in writing, the Trustee will, subject to the
provisions of Section 7 and Section 14 hereof, from time to time (a) invest
amounts on deposit in the Collateral Account in such Cash Equivalents, each
in the name of or for the account of the Trustee, as the Pledgor may select
and the Trustee may approve and (b) invest interest paid on the Cash
Equivalents referred to in clause (a) above, and reinvest other proceeds of
any such Cash Equivalents that may mature or be sold, in each case in such
Cash Equivalents, each in the name of or for the account of the Trustee, as
the Pledgor may select and the Trustee may approve (the Cash Equivalents
referred to in clauses (a) and (b) above being collectively "COLLATERAL
INVESTMENTS"); PROVIDED,
<PAGE>
5
HOWEVER, that following the disbursement of funds from the Collateral Account
by the Trustee in accordance with Section 7(c), the amount on deposit in the
Collateral Account must include Government Securities sufficient, in the
opinion of a nationally recognized firm of independent public accountants
selected by the Pledgor, to provide for the payment in full of the first six
scheduled interest payments on all of the Notes then outstanding (including
any interest that may be due in the event the Exchange Offer is not
consummated or the Shelf Registration Statement is not declared effective as
required by the Registration Rights Agreement). Interest and proceeds that
are not invested or reinvested in Collateral Investments as provided above
shall be deposited and held in the Collateral Account. The Trustee shall in
no event be liable for any loss in the investment or reinvestment of amounts
held in the Collateral Account.
SECTION 6. DELIVERY OF COLLATERAL INVESTMENTS. (a) The Trustee
shall become the holder of the Collateral Investments (and any applicable
security entitlements thereto) through the following delivery procedures: (i)
in the case of Collateral Investments which are certificated securities in
registered form, delivery of the applicable certificate(s), specially
endorsed to the Trustee or registered in the name of the Trustee or
accompanied by duly executed instruments of transfer or assignment in blank,
all in form and substance satisfactory to the Trustee, to the possession of
(A) the Trustee, (B) a securities intermediary or financial intermediary
acting on behalf of the Trustee, or (C) another person, other than a
securities intermediary or financial intermediary, which person acknowledges
that it holds for the Trustee; (ii) in the case of Collateral Investments
which are uncertificated securities, registration of one of the following as
owner of such uncertificated securities: the Trustee or a person designated
by the Trustee, or person other than a securities intermediary or financial
intermediary, that becomes the registered owner of such uncertificated
securities and acknowledges that it holds the same for the Trustee; and (iii)
in the case of Collateral Investments in the form of Government Book-Entry
Securities, the making by a financial intermediary or securities intermediary
(other than a clearing corporation) to whose account such Government
Book-Entry Securities have been credited on the books of a Federal Reserve
Bank (or on the books of another such financial intermediary or securities
intermediary (other than a clearing corporation)), of book entries indicating
that such Government Book-Entry Securities have been credited to an account
of the Trustee, and the sending by such financial intermediary or securities
intermediary to the Trustee of confirmation of such transfer to the Trustee's
account.
(b) Upon delivery of any Collateral Investments to the Trustee (or
the Trustee's acquisition of a security entitlement thereto), the Trustee
shall make appropriate book entries indicating that such Collateral
Investment and/or such security entitlement has been credited to and is
held in the Collateral Account. Subject to the terms and conditions of
this Escrow Agreement, all Collateral Investments held by the Trustee
pursuant to this Escrow Agreement shall be held in the Collateral Account
<PAGE>
6
under the exclusive dominion and control of the Trustee and for the benefit
of the Trustee and the ratable benefit of the Holders of the Notes and
segregated from all other funds or other property otherwise held by the
Trustee.
SECTION 7. DISBURSEMENTS. The Trustee shall hold the assets in
the Collateral Account and release the same, or a portion thereof, only as
follows:
(a) At least five Business Days prior to the due date of any of the
first six scheduled interest payments on the Notes, the Pledgor may,
pursuant to written instructions executed by the Pledgor (an "ISSUER
ORDER"), direct the Trustee to release from the Collateral Account, and if
necessary liquidate Collateral Investments in the Collateral Account and
pay to the Holders of the Notes funds sufficient to provide for payment in
full of such interest then due on the Notes. Upon receipt of an Issuer
Order, the Trustee will take any action necessary to provide for the
payment of the interest on the Notes in accordance with the payment
provisions of the Indenture to the Holders of the Notes from (and to the
extent of) funds available in the Collateral Account.
(b) If the Pledgor makes any interest payment or portion of an
interest payment for which the Collateral is security from a source of
funds other than the Collateral Account ("PLEDGOR FUNDS"), the Pledgor may,
after payment in full of such interest payment or portion thereof from
proceeds of the Collateral or such Pledgor Funds or both, direct the
Trustee to release to the Pledgor or to another party at the direction of
the Pledgor (a "PLEDGOR DESIGNEE") funds from the Collateral Account, and
if necessary liquidate Collateral Investments in the Collateral Account, in
an amount less than or equal to the amount of Pledgor Funds applied to such
interest payment. Upon receipt of an Issuer Order by the Trustee, the
Trustee shall pay over to the Pledgor or the Pledgor's Designee, as the
case may be, the requested amount from funds in the Collateral Account.
Concurrently with any release of funds to the Pledgor pursuant to this
Section 7(b), the Pledgor shall deliver to the Trustee a certificate signed
by an officer of the Pledgor stating that such release has been duly
authorized by the Pledgor and will not contravene any provision of
applicable law or the Certificate of Incorporation of the Pledgor or any
material agreement or other material instrument binding upon the Pledgor or
any of its subsidiaries or any judgment, order or decree of any
governmental body, agency or court having jurisdiction over the Pledgor or
any of its subsidiaries or result in the creation or imposition of any Lien
on any assets of the Pledgor, except for the security interest granted
under this Escrow Agreement.
(c) If the Trustee receives, prior to 5:00 P.M. New York City time
on the Termination Date, (i) a certificate signed by the President or any
Vice President of the
<PAGE>
7
Pledgor stating that (A) the American Telco Acquisition has been consummated
(or will be consummated promptly on the date of the release of the proceeds
held hereby to the Pledgor), (B) all consents and approvals required by the
Federal Communications Commission and the state public utility commission of
Texas with respect to consummation of the American Telco Acquisition have
been received, (C) no Event of Default exists under the Indenture and (D)
consummation of the American Telco Acquisition does not violate or conflict
with or give rise to a right to terminate any material agreement or
instrument to which the Pledgor or American Telco or any of their direct or
indirect subsidiaries is a party (the "ACQUISITION OFFICERS' CERTIFICATE")
and, (ii) an opinion of McAfee & Taft substantially in the form attached
hereto as Exhibit B, (iii) an opinion of Swidler & Berlin substantially in
the form attached hereto as Exhibit C and (iv) an opinion of Pate, Kempf &
Knnar substantially in the form attached hereto as Exhibit D (together with
the opinions of McAfee & Taft and Swidler & Berlin described in (ii) and
(iii) above, the "ACQUISITION OPINIONS OF COUNSEL"), the Trustee shall
disburse by the close of business on such date funds and/or Cash Equivalents
and/or Collateral Investments from the Collateral Account to the Pledgor,
and/or to a Pledgor Designee at the written direction of the Pledgor, such
that the amount remaining in the Collateral Account equals an amount
sufficient to purchase Government Securities in such amount as will be
sufficient upon receipt of scheduled interest and principal payments on such
securities, in the opinion of a nationaly recognized firm of independent
public accountants selected by the Pledgor (which opinion shall be delivered
to the Trustee), to provide for payment in full of the first six scheduled
interest payments due on the Notes, including any interest that may be due in
the event the Exchange Offer is not consummated or the Shelf Registration
Statement is not declared effective as required by the Registration Rights
Agreement); PROVIDED, HOWEVER, that if the Acquisition Officer's Certificate,
the Acquisition Opinions of Counsel and the opinion of a nationally
recognized firm of independent public accountants referred to above are
received by the Trustee (i) on a day other than a Business Day or (ii) after
1:00 P.M. New York City time on any date, then, in either instance, the
Trustee may disburse the proceeds by the close of business on the next
Business Day.
(d) (i) On the Termination Date (or, in the event the Trustee receives
a certificate signed by the President or any Vice President of the Pledgor
stating that the Acquisition Officer's Certificate and Acquisition Opinions
of Counsel will not be delivered to the Trustee by the Termination Date, on
such date), if the conditions required for release of funds and/or Cash
Equivalents as provided in clause (c) above have not been satisfied, the
Trustee shall mail a notice by first class mail to each Holder's last address
as it appears on the Security Register (as determined in the Indenture)
stating that all of the outstanding Notes shall be redeemed 10 days after the
<PAGE>
8
date of such notice (the "SPECIAL REDEMPTION DATE"), at 101% of the principal
amount thereof plus accrued and unpaid interest to the Special Redemption
Date (the "SPECIAL REDEMPTION PRICE"), and shall state that the Notes must be
surrendered to the Trustee in order to collect the Special Redemption Price.
(ii) On the Business Day prior to the Special Redemption Date,
the Trustee shall release all Collateral to the Paying Agent. The
Notes shall be redeemed as specified in the Indenture.
(e) If the Pledgor is required to effect a Special Redemption
contemplated by clause (d) above and for any reason the amount of Collateral
to be released is insufficient to pay the aggregate Special Redemption Price,
the Pledgor agrees to pay to the Paying Agent, on or prior to the Special
Redemption Date the amount of funds necessary to permit the payment of the
aggregate Special Redemption Price.
(f) Upon the release of any Collateral from the Collateral Account in
accordance with the terms of this Escrow Agreement, the security interest
evidenced by this Escrow Agreement in such released Collateral will
automatically terminate and be of no further force and effect.
(g) The Trustee shall not be required to liquidate any Collateral
Investment in order to make any payment hereunder unless instructed to do so
pursuant to an Issuer Order, the Acquisition Officers' Certificate or to
effect a Special Redemption, or pursuant to Section 14 hereof.
(h) Nothing contained in Section 1, Section 5, Section 6, this Section
7 or any other provision of this Escrow Agreement shall (i) afford the
Pledgor any right to issue entitlement orders with respect to any security
entitlement to any of the Collateral Investments or any securities account in
which any such security entitlement may be carried, or otherwise afford the
Pledgor control of any such security entitlement or (ii) otherwise give rise
to any rights of the Pledgor with respect to any of the Collateral
Investments, any security entitlement thereto or any securities account in
which any such security entitlement may be carried, other than the Pledgor's
beneficial interest under this Escrow Agreement in collateral pledged to and
subject to the exclusive dominion and control (consistent with this Escrow
Agreement) of the Trustee in its capacity as such (and not as a securities
intermediary). The Pledgor acknowledges, confirms and agrees that the
Trustee holds a security entitlement to the Collateral Investments solely as
trustee for the Holders of the Notes and not as a securities intermediary or
financial intermediary.
<PAGE>
9
(i) Nothing in this Section 7 shall affect the Trustee's rights to
apply the Collateral to the payments of amounts due on the Notes upon
acceleration thereof.
(j) At least three Business Days prior to the due date of any of the
first six scheduled interest payments on the Notes, the Pledgor covenants
to give the Trustee (by Issuer Order) notice as to whether payment of
interest will be made pursuant to Section 7(a) or Section 7(b) and as to
the respective amounts of interest that will be paid pursuant to Section
7(a) or Section 7(b). If no such notice is given, the Trustee will act
pursuant to Section 7(a) as if it had received an Issuer Order pursuant
thereto for the payment in full of the interest then due.
SECTION 8. REPRESENTATIONS AND WARRANTIES. The Pledgor hereby
represents and warrants that:
(a) The execution and delivery by the Pledgor of, and the performance
by the Pledgor of its obligations under, this Escrow Agreement and the
Control Agreement will not contravene any provision of applicable law or
the certificate of incorporation or by-laws of the Pledgor, or any material
agreement or other material instrument binding upon the Pledgor or any of
its subsidiaries or any judgment, order or decree of any governmental body,
agency or court having jurisdiction over the Pledgor or any of its
subsidiaries, or result in the creation or imposition of any Lien on any
assets of the Pledgor, except for the security interests granted under this
Escrow Agreement.
(b) No consent of any other person and no approval, authorization,
order of, or filing, declaration or qualification with, any governmental
body or agency is required (i) for the execution, delivery or performance
by the Pledgor of its obligations under either this Escrow Agreement or the
Control Agreement, (ii) for the grant by the Pledgor of the security
interest created hereby or (ii) for the pledge by the Pledgor of the
Collateral pursuant to either this Escrow Agreement or the Control
Agreement, except for any such consents, approvals, authorizations or
orders required to be obtained by the Trustee (or the Holders) for reasons
other than the consummation of this transaction, for the exercise by the
Trustee of the rights provided for in either this Escrow Agreement or the
Control Agreement or the remedies in respect of the Collateral pursuant to
either this Escrow Agreement or the Control Agreement.
(c) The Pledgor is the beneficial owner of the Collateral, free and
clear of any Lien or claims of any person or entity (except for the
security interests created by this Escrow Agreement). No financing
statement or instrument similar in effect covering all or any part of the
Pledgor's interest in the Collateral is on file in any public or recording
office, other than the financing statements filed pursuant to this Escrow
Agreement. The Pledgor has no trade names.
<PAGE>
10
(d) This Escrow Agreement has been duly authorized, validly executed
and delivered by the Pledgor and constitutes a valid and binding agreement
of the Pledgor, enforceable against the Pledgor in accordance with its
terms, except as (i) the enforceability hereof may be limited by
bankruptcy, insolvency or similar laws affecting creditors' rights
generally, (ii) the availability of equitable remedies may be limited by
equitable principles of general applicability, (iii) the exculpation
provisions and rights to indemnification hereunder may be limited by U.S.
federal and state securities laws and public policy considerations and
(iv) the waiver of rights and defenses contained in Section 14(d),
Section 17.11 and Section 17.15 hereof may be limited by applicable law.
(e) Upon the transfer to the Trustee of the Funds and the acquisition
by the Trustee of a security entitlement thereto, in accordance with
Section 3 above, the pledge and grant of a security interest in the
Collateral pursuant to this Escrow Agreement for the benefit of the Trustee
and the Holders of the Notes will constitute a valid and perfected first
priority security interest in such Collateral, securing the payment of the
Obligations enforceable as such against all creditors of the Pledgor (and
any persons purporting to purchase any of the Collateral from the Pledgor).
(f) There are no legal or governmental proceedings pending or, to the
best of the Pledgor's knowledge, threatened to which the Pledgor or any of
its subsidiaries is a party or to which any of the properties of the
Pledgor or any such subsidiary is subject that would materially adversely
affect the power or ability of the Pledgor to perform its obligations under
this Escrow Agreement or to consummate the transactions contemplated
hereby.
(g) The pledge of the Collateral pursuant to this Escrow Agreement is
not prohibited by law or governmental regulation (including, without
limitation, Regulations G, T, U and X of the Board of Governors of the
Federal Reserve System) applicable to the Pledgor.
(h) No Event of Default (as defined herein) exists.
SECTION 9. FILING; FURTHER ASSURANCES. (a) Concurrently with
the execution and delivery of this Escrow Agreement, the Pledgor is
delivering to the Trustee acknowledgment copies or stamped receipt copies of
proper financing statements, duly filed on or before the Closing Date in
accordance with the Uniform Commercial Code as in effect in the State of New
York and the State of Oklahoma, covering the categories of Collateral
described in this Escrow Agreement.
<PAGE>
11
(b) The Pledgor agrees that from time to time, at the expense of the
Pledgor, the Pledgor will, promptly upon request by the Trustee (which
request the Trustee may submit at the direction of the holders of a
majority in principal amount of the Notes then outstanding), execute and
deliver or cause to be executed and delivered, or use its reasonable best
efforts to procure, all assignments, instruments and other documents, all
in form and substance satisfactory to the Trustee, deliver any instruments
to the Trustee and take any other actions that may be necessary or, in the
opinion of the Trustee, desirable to perfect, continue the perfection of,
or protect the first priority of the Trustee's security interest in and to
the Collateral, including the filing of all necessary financing and
continuation statements, to protect the Collateral against the rights,
claims, or interests of third persons (other than any such rights, claims
or interests created by or arising through the Trustee) or to effect the
purposes of this Escrow Agreement.
(c) The Pledgor hereby authorizes the Trustee to file any financing
or continuation statements in the United States with respect to the
Collateral without the signature of the Pledgor (to the extent permitted by
applicable law). A photocopy or other reproduction of this Escrow Agreement
or any financing statement covering the Collateral or any part thereof
shall be sufficient as a financing statement where permitted by law.
(d) The Pledgor will promptly pay all costs incurred in connection
with this Escrow Agreement within 45 days of receipt of an invoice
therefor.
SECTION 10. COVENANTS. The Pledgor covenants and agrees with the
Trustee and the Holders of the Notes that from and after the date of this
Escrow Agreement until the earlier of the (x) the delivery of the Acquisition
Officer's Certificate and Acquisition Opinions of Counsel pursuant to Section
7(c) and (y) the payment in full of all obligations due and owing under the
Indenture and the Notes:
(a) that (i) it will not (and will not purport to) sell or otherwise
dispose of, or grant any option or warrant with respect to, any of the
Collateral or its beneficial interest therein, and (ii) it will not create
or permit to exist any Lien or other adverse interest in or with respect to
its beneficial interest in any of the Collateral (except for the security
interests granted under this Escrow Agreement); and
(b) that it will not (i) enter into any agreement or understanding
that restricts or inhibits or purports to restrict or inhibit the Trustee's
rights or remedies hereunder, including, without limitation, the Trustee's
right to sell or otherwise dispose of the Collateral or (ii) fail to pay or
discharge any tax, assessment or levy of any nature with respect to its
beneficial interest in the Collateral not later than five days prior to the
date
<PAGE>
12
of any proposed sale under any judgment, writ or warrant of attachment
with respect to such beneficial interest.
SECTION 11. POWER OF ATTORNEY. In addition to all of the powers
granted to the Trustee pursuant to the Indenture, the Pledgor hereby appoints
and constitutes the Trustee as the Pledgor's attorney-in-fact (with full
power of substitution), with full authority in the place and stead of the
Pledgor and in the name of the Pledgor or otherwise, from time to time in the
Trustee's discretion to take any action and to execute any instrument that
the Trustee may deem necessary or advisable to accomplish the purposes of
this Escrow Agreement, including, without limitation:
(a) to ask for, demand, collect, sue for, recover, compromise,
receive and give acquittance and receipts for moneys due and to become due
under or in respect of any of the Collateral,
(b) to receive, indorse and collect any drafts or other instruments,
documents and chattel paper, in connection with clause (a) above,
(c) to file any claims or take any action or institute any
proceedings that the Trustee may deem necessary or desirable for the
collection of any of the Collateral or otherwise to enforce the rights of
the Trustee with respect to any of the Collateral,
(d) to pay or discharge taxes or Liens levied or placed upon the
Collateral, the legality or validity thereof and the amounts necessary to
discharge the same to be determined by the Trustee in its sole reasonable
discretion, and such payments made by the Trustee to become part of the
Obligations of the Pledgor to the Trustee, due and payable immediately upon
demand, and
(e) to convey any item of Collateral to any purchaser thereof and
give any notices or recordings of any Liens under Section 6 hereof;
PROVIDED, HOWEVER, that the Trustee shall have no obligation to perform any
of the foregoing actions. The Trustee's authority under this Section 11
shall include, without limitation, the authority to execute or endorse (a)
any checks or instruments representing proceeds of Collateral in the name of
the Pledgor, (b) any receipts for any certificate of ownership or any
document constituting Collateral or transferring title to any item of
Collateral, (c) any financing statements (to the extent permitted by
applicable law) or (d) any other documents deemed necessary or appropriate by
the Trustee to preserve, protect or perfect the security interest in the
Collateral and to file the same, prepare, file and sign the Pledgor's name on
any notice of Lien, and to take any
<PAGE>
13
other actions arising from or incident to the powers granted to the Trustee
in this Escrow Agreement. This power of attorney is coupled with an interest
and is irrevocable by the Pledgor.
SECTION 12. NO ASSUMPTION OF DUTIES; REASONABLE CARE. The rights
and powers conferred on the Trustee hereunder are solely to preserve and
protect the security interest of the Trustee and the Holders of the Notes in
and to the Collateral granted hereby and shall not be interpreted to, and
shall not impose any duties on the Trustee in connection therewith other than
those expressly provided herein or imposed under applicable law. Except as
provided by applicable law or by the Indenture, the Trustee shall be deemed
to have exercised reasonable care in the custody and preservation of the
Collateral in its possession if the Collateral is accorded treatment
substantially equal to that which the Trustee accords similar property held
by the Trustee for its own account, it being understood that the Trustee in
its capacity as such shall not have any responsibility for (a) ascertaining
or taking action with respect to calls, conversions, exchanges, maturities or
other matters relative to any Collateral, whether or not the Trustee has or
is deemed to have knowledge of such matters, (b) taking any necessary steps
to preserve rights against any parties with respect to any Collateral or (c)
investing or reinvesting any of the Collateral or any loss on any investment.
SECTION 13. INDEMNITY; TRUSTEE'S LIMITATION OF LIABILITY TO
PLEDGOR. (a) The Pledgor shall indemnify, reimburse, hold harmless and
defend the Trustee and its directors, officers, agents and employees, from
and against any and all claims, actions, obligations, liabilities and
expenses, including reasonable defense costs, reasonable investigative fees
and costs, and reasonable legal fees and damages arising from the Trustee's
performance or lack of performance as Trustee under this Escrow Agreement,
except to the extent that such claim, action, obligation, liability or
expense is directly attributable to the bad faith, gross negligence or wilful
misconduct of such indemnified person. This indemnity shall be a continuing
obligation of the Pledgor, its respective successors and assigns,
notwithstanding the termination of this Escrow Agreement.
(b) If at any time the Trustee is served with any judicial or
administrative order, judgment, decree, writ or other form of judicial or
administrative process which in any way affects Collateral (including, but
not limited to, orders of attachment or garnishment or other forms of
levies or injunctions or stays relating to the transfer of Collateral), the
Trustee is authorized to comply therewith in any manner as it or its legal
counsel of its own choosing deems appropriate and if the Trustee complies
with any such judicial or administrative order, judgment, decree, writ or
other form of judicial or administrative process, the Trustee shall not be
liable to the Pledgor even though such order, judgment, decree, writ or
process may be subsequently modified or vacated or otherwise determined to
have been without legal force or effect.
<PAGE>
14
(c) The Trustee shall not incur any liability to the Pledgor for not
performing any act or fulfilling any duty, obligation or responsibility
hereunder by reason of any occurrence beyond the control of the Trustee
(including, but not limited to, any act or provision or any present or
future law or regulation or governmental authority, any act of God or war,
or the unavailability of the Federal Reserve Bank wire or telex or other
wire or communication facility).
(d) The Trustee shall not be responsible in any respect for the form,
execution, validity, value or genuineness of documents or securities
deposited hereunder, or for any description therein, or for the identity,
authority or rights of persons executing or delivering or purporting to
execute or deliver any such document, security or endorsement.
SECTION 14. REMEDIES UPON EVENT OF DEFAULT. If any Event of
Default under the Indenture or default hereunder (any such Event of Default
or default being referred to in this Escrow Agreement as an "EVENT OF
DEFAULT") shall have occurred and be continuing:
(a) The Trustee and the Holders of the Notes may exercise, in
addition to all other rights given by law or by this Escrow Agreement or
the Indenture, all of the rights and remedies with respect to the
Collateral of a secured party under the UCC in effect in the State of New
York at that time and also may (i) require the Pledgor to, and the Pledgor
hereby agrees that it will at its expense and upon request of the Trustee
forthwith, assemble all or part of the Collateral as directed by the
Trustee and make it available to the Trustee at a place to be designated by
the Trustee that is reasonably convenient to both parties and (ii) without
notice except as specified below, sell the Collateral or any part thereof
in one or more parcels at any broker's board or at public or private sale,
in one or more sales or lots, at any of the Trustee's offices or elsewhere,
for cash, on credit or for future delivery, and upon such other terms as
the Trustee may deem commercially reasonable. The Pledgor agrees that, to
the extent notice of sale shall be required by law, at least ten days'
notice to the Pledgor of the time and place of any public sale or the time
after which any private sale is to be made shall constitute reasonable
notification. The Trustee shall not be obligated to make any sale of
Collateral regardless of notice of sale having been given. The Trustee may
adjourn any public or private sale from time to time by announcement at the
time and place fixed therefor, and such sale may, without further notice,
be made at the time and place to which it was so adjourned. The purchaser
of any or all Collateral so sold shall thereafter hold the same absolutely,
free from any claim, encumbrance or right of any kind whatsoever created by
or through the Pledgor. Any sale of the Collateral conducted in conformity
with reasonable commercial practices of banks, insurance companies,
commercial finance companies, or other financial institutions disposing of
<PAGE>
15
property similar to the Collateral shall be deemed to be commercially
reasonable. The Trustee or any Holder of Notes may, in its own name or in
the name of a designee or nominee, buy any of the Collateral at any public
sale and, if permitted by applicable law, at any private sale. All
expenses (including court costs and reasonable attorneys' fees, expenses
and disbursements) of, or incident to, the enforcement of any of the
provisions hereof shall be recoverable from the proceeds of the sale or
other disposition of the Collateral.
(b) All cash proceeds received by the Trustee in respect of any sale
of, collection from, or other realization upon all or any part of the
Collateral may, in the discretion of the Trustee, be held by the Trustee as
collateral for, and/or then or at any time thereafter applied (after
payment of any amounts payable to the Trustee pursuant to Section 15) in
whole or in part by the Trustee for the ratable benefit of the Holders of
the Notes against, all or any part of the Obligations in such order as the
Trustee shall elect or the Holders of at least 25% in aggregate principal
amount of the Notes then outstanding shall request. Any surplus of such
cash or cash proceeds held by the Trustee and remaining after payment in
full of all the Obligations shall be paid over to the Pledgor or to
whomsoever may be lawfully entitled to receive such surplus.
(c) The Pledgor further agrees to use its reasonable best efforts to
do or cause to be done all such other acts as may be necessary to make such
sale or sales of all or any portion of the Collateral pursuant to this
Section 14 valid and binding and in compliance with any and all other
applicable requirements of law. The Pledgor further agrees that a breach
of any of the covenants contained in this Section 14 will cause irreparable
injury to the Trustee and the Holders of the Notes, that the Trustee and
the Holders of the Notes have no adequate remedy at law in respect of such
breach and, as a consequence, that each and every covenant contained in
this Section 14 shall be specifically enforceable against the Pledgor, and
the Pledgor hereby waives and agrees not to assert any defenses against an
action for specific performance of such covenants except for a defense that
no Event of Default has occurred.
SECTION 15. EXPENSES. The Pledgor will upon demand pay to the
Trustee the amount of any and all reasonable expenses, including, without
limitation, the reasonable fees, expenses and disbursements of its counsel,
experts and agents retained by the Trustee, that the Trustee may incur in
connection with (a) the review, negotiation and administration of this Escrow
Agreement, (b) the custody or preservation of, or the sale of, collection
from, or other realization upon, any of the Collateral, (c) the exercise or
enforcement of any of the rights of the Trustee and the Holders of the Notes
hereunder or (d) the failure by the Pledgor to perform or observe any of the
provisions hereof.
<PAGE>
16
SECTION 16. SECURITY INTEREST ABSOLUTE. All rights of the
Trustee and the Holders of the Notes and security interests hereunder, and
all obligations of the Pledgor hereunder, shall be absolute and unconditional
irrespective of:
(a) any lack of validity or enforceability of the Indenture or Notes
or any other agreement or instrument relating thereto;
(b) any change in the time, manner or place of payment of, or in any
other term of, all or any of the Obligations, or any other amendment or
waiver of or any consent to any departure from the Indenture;
(c) any taking, exchange, surrender, release or non-perfection of any
Liens on any other collateral for all or any of the Obligations;
(d) any manner of application of collateral, or proceeds thereof, to
all or any of the Obligations, or any manner of sale or other disposition
of any collateral for all or any of the Obligations or any other assets of
the Pledgor;
(e) any change, restructuring or termination of the corporate
structure or existence of the Pledgor; or
(f) to the extent permitted by applicable law, any other circumstance
which might otherwise constitute a defense available to, or a discharge of,
the Pledgor in respect of the Obligations or of this Escrow Agreement.
SECTION 17. MISCELLANEOUS PROVISIONS.
Section 17.1. NOTICES. Any notice or communication given
hereunder and any deliveries made hereunder shall be sufficiently given if in
writing and delivered in person or mailed by first class mail, commercial
courier service or telecopier communication, addressed as follows:
IF TO THE PLEDGOR:
Dobson Wireline Company
13439 N. Broadway Extension, Suite 200
Oklahoma City, Oklahoma 73114
Fax: (405) 391-8515
Attention: Bruce R. Knooihuizen
<PAGE>
17
IF TO THE TRUSTEE:
United States Trust Company of New York
114 W. 47th Street
New York, New York 10036
Fax: (212) 852-1626
Attention: Louis Young, Corporate Trust Administration
All such deliveries, notices and other communications shall be effective when
received.
Section 17.2. NO ADVERSE INTERPRETATION OF OTHER AGREEMENTS.
This Escrow Agreement may not be used to interpret another pledge, security
or debt agreement of the Pledgor or any subsidiary thereof. No such pledge,
security or debt agreement (other than the Indenture) may be used to
interpret this Escrow Agreement.
Section 17.3. SEVERABILITY. The provisions of this Escrow
Agreement are severable, and if any clause or provision shall be held
invalid, illegal or unenforceable in whole or in part in any jurisdiction,
then such invalidity or unenforceability shall affect in that jurisdiction
only such clause or provision, or part thereof, and shall not in any manner
affect such clause or provision in any other jurisdiction or any other clause
or provision of this Escrow Agreement in any jurisdiction.
Section 17.4. HEADINGS. The headings in this Escrow Agreement
have been inserted for convenience of reference only, are not to be
considered a part hereof and shall in no way modify or restrict any of the
terms or provisions hereof.
Section 17.5. COUNTERPART ORIGINALS. This Escrow Agreement may
be signed in two or more counterparts, each of which shall be deemed an
original, but all of which shall together constitute one and the same
agreement.
Section 17.6. BENEFITS OF ESCROW AGREEMENT. Nothing in this
Escrow Agreement, express or implied, shall give to any person, other than
the parties hereto and their successors hereunder, and the Holders of the
Notes, any benefit or any legal or equitable right, remedy or claim under
this Escrow Agreement.
Section 17.7. AMENDMENTS, WAIVERS AND CONSENTS. Any amendment or
waiver of any provision of this Escrow Agreement and any consent to any
departure by the Pledgor from any provision of this Escrow Agreement shall be
effective only if made or duly given in compliance with all of the terms and
provisions of the Indenture, and then such waiver or consent shall be
effective only in the specific instance and for the specific purpose for
which given.
<PAGE>
18
Neither the Trustee nor any Holder of Notes shall be deemed, by any act,
delay, indulgence, omission or otherwise, to have waived any right or remedy
hereunder or to have acquiesced in any Default or Event of Default or in any
breach of any of the terms and conditions hereof. Failure of the Trustee or
any Holder of Notes to exercise, or delay in exercising, any right, power or
privilege hereunder shall not preclude any other or further exercise thereof
or the exercise of any other right, power or privilege. A waiver by the
Trustee or any Holder of Notes of any right or remedy hereunder on any one
occasion shall not be construed as a bar to any right or remedy that the
Trustee or such Holder of Notes would otherwise have on any future occasion.
The rights and remedies herein provided are cumulative, may be exercised
singly or concurrently and are not exclusive of any rights or remedies
provided by law.
Section 17.8. INTERPRETATION OF AGREEMENT. As long as the
Trustee acts in good faith to the extent a term or provision of this Escrow
Agreement conflicts with the Indenture, the Indenture shall control with
respect to the subject matter of such term or provision. Notwithstanding the
foregoing and any other provision of this Escrow Agreement or the Indenture,
the Trustee shall have no fiduciary responsibility under this Escrow
Agreement.
Section 17.9. CONTINUING SECURITY INTEREST; TERMINATION. (a)
This Escrow Agreement shall create a continuing security interest in and to
the Collateral and shall, unless otherwise provided in this Escrow Agreement,
remain in full force and effect until the payment in full in cash of the
Obligations. This Escrow Agreement shall be binding upon the Pledgor, its
transferees, successors and assigns, and shall inure, together with the
rights and remedies of the Trustee hereunder, to the benefit of the Trustee,
the Holders of the Notes and their respective successors, transferees and
assigns.
(b) So long as no Event of Default shall have occurred and be
continuing, this Escrow Agreement (other than Pledgor's obligations under
Sections 13 and 15) shall terminate upon the payment in full in cash of the
Obligations. At such time, the Trustee shall, pursuant to an Issuer Order,
reassign and redeliver to the Pledgor all of the Collateral hereunder that
has not been sold, disposed of, retained or applied by the Trustee in
accordance with the terms of this Escrow Agreement and the Indenture and take
all actions requested by the Pledgor that are necessary to release the
security interest created by this Escrow Agreement in and to the Collateral,
including the execution and delivery of all termination statements necessary
to terminate any financing or continuation statements filed with respect to
the Collateral. Such reassignment and redelivery shall be without warranty
by or recourse to the Trustee in its capacity as such and shall be at the
reasonable expense of the Pledgor.
Section 17.10. SURVIVAL OF REPRESENTATIONS AND COVENANTS. All
representations, warranties and covenants of the Pledgor contained herein
shall survive the execution and delivery of this Escrow Agreement, and shall
terminate only upon the termination of this Escrow
<PAGE>
19
Agreement. The obligations of the Pledgor under Sections 13 and 15 hereof
shall survive the termination of this Agreement.
Section 17.11. WAIVERS. The Pledgor waives presentment and
demand for payment of any of the Obligations, protest and notice of dishonor
or default with respect to any of the Obligations, and all other notices to
which the Pledgor might otherwise be entitled, except as otherwise expressly
provided herein or in the Indenture.
Section 17.12. AUTHORITY OF THE TRUSTEE. (a) The Trustee shall
have and be entitled to exercise all powers hereunder that are specifically
granted to the Trustee by the terms hereof, together with such powers as are
reasonably incident thereto. The Trustee may perform any of its duties
hereunder or in connection with the Collateral by or through agents or
employees and shall be entitled to retain counsel and to act in reliance upon
the advice of counsel concerning all such matters. Except as otherwise
expressly provided in this Pledge Agreement or the Indenture, neither the
Trustee nor any director, officer, employee, attorney or agent of the Trustee
shall be liable to the Pledgor for any action taken or omitted to be taken by
the Trustee, in its capacity as Trustee, hereunder, except for its own bad
faith, gross negligence or willful misconduct, and the Trustee shall not be
responsible for the validity, effectiveness or sufficiency hereof or of any
document or security furnished pursuant hereto. The Trustee and its
directors, officers, employees, attorneys and agents shall be entitled to
rely on any communication, instrument or document believed by it or them to
be genuine and correct and to have been signed or sent by the proper person
or persons.
(b) The Pledgor acknowledges that the rights and responsibilities
of the Trustee under this Escrow Agreement with respect to any action taken
by the Trustee or the exercise or non-exercise by the Trustee of any option,
right, request, judgment or other right or remedy provided for herein or
resulting or arising out of this Escrow Agreement shall, as between the
Trustee and the Holders of the Notes, be governed by the Indenture and by
such other agreements with respect thereto as may exist from time to time
among them, but, as between the Trustee and the Pledgor, the Trustee shall be
conclusively presumed to be acting as agent for the Holders of the Notes with
full and valid authority so to act or refrain from acting, and the Pledgor
shall not be obligated or entitled to make any inquiry respecting such
authority.
Section 17.13 FINAL EXPRESSION. This Escrow Agreement, together
with the Indenture and any other agreement executed in connection herewith,
is intended by the parties as a final expression of this Escrow Agreement and
is intended as a complete and exclusive statement of the terms and conditions
thereof.
Section 17.14. RIGHTS OF HOLDERS OF THE NOTES. No Holder of
Notes shall have any independent rights hereunder other than those rights
granted to individual Holders of the
<PAGE>
20
Notes pursuant to Section 6.07 of the Indenture; PROVIDED that nothing in
this subsection shall limit any rights granted to the Trustee under the Notes
or the Indenture.
Section 17.15. GOVERNING LAW; SUBMISSION TO JURISDICTION; WAIVER
OF JURY TRIAL; WAIVER OF DAMAGES. (a) THIS ESCROW AGREEMENT SHALL BE
GOVERNED BY AND INTERPRETED UNDER THE LAWS OF THE STATE OF NEW YORK, AND ANY
DISPUTE ARISING OUT OF, CONNECTED WITH, RELATED TO, OR INCIDENTAL TO THE
RELATIONSHIP ESTABLISHED BETWEEN THE PLEDGOR, THE TRUSTEE AND THE HOLDERS OF
THE NOTES IN CONNECTION WITH THIS ESCROW AGREEMENT, AND WHETHER ARISING IN
CONTRACT, TORT, EQUITY OR OTHERWISE, SHALL BE RESOLVED IN ACCORDANCE WITH THE
LAWS OF THE STATE OF NEW YORK.
(b) THE PLEDGOR HEREBY APPOINTS CT CORPORATION SYSTEM, 1633
BROADWAY, NEW YORK, NEW YORK 10019, AS ITS AGENT FOR SERVICE OF PROCESS IN
ANY SUIT, ACTION OR PROCEEDING WITH RESPECT TO THIS ESCROW AGREEMENT AND FOR
ACTIONS BROUGHT UNDER U.S. FEDERAL OR STATE SECURITIES LAWS BROUGHT IN ANY
FEDERAL OR STATE COURT LOCATED IN THE CITY OF NEW YORK AND AGREES TO SUBMIT
TO THE JURISDICTION OF ANY SUCH COURT.
(c) THE PLEDGOR AGREES THAT THE TRUSTEE SHALL, IN ITS CAPACITY AS
TRUSTEE OR IN THE NAME AND ON BEHALF OF ANY HOLDER OF NOTES, HAVE THE RIGHT,
TO THE EXTENT PERMITTED BY APPLICABLE LAW, TO PROCEED AGAINST THE PLEDGOR OR
THE COLLATERAL IN A COURT IN ANY LOCATION REASONABLY SELECTED IN GOOD FAITH
(AND HAVING PERSONAL OR IN REM JURISDICTION OVER THE PLEDGOR OR THE
COLLATERAL, AS THE CASE MAY BE) TO ENABLE THE TRUSTEE TO REALIZE ON SUCH
COLLATERAL, OR TO ENFORCE A JUDGMENT OR OTHER COURT ORDER ENTERED IN FAVOR OF
THE TRUSTEE. THE PLEDGOR AGREES THAT IT WILL NOT ASSERT ANY COUNTERCLAIMS,
SETOFFS OR CROSSCLAIMS IN ANY PROCEEDING BROUGHT BY THE TRUSTEE TO REALIZE ON
SUCH PROPERTY OR TO ENFORCE A JUDGMENT OR OTHER COURT ORDER IN FAVOR OF THE
TRUSTEE, EXCEPT FOR SUCH COUNTERCLAIMS, SETOFFS OR CROSSCLAIMS WHICH, IF NOT
ASSERTED IN ANY SUCH PROCEEDING, COULD NOT OTHERWISE BE BROUGHT OR ASSERTED.
THE PLEDGOR WAIVES ANY OBJECTION THAT IT MAY HAVE TO THE LOCATION OF THE
COURT IN THE CITY OF NEW YORK ONCE THE TRUSTEE HAS COMMENCED A PROCEEDING
DESCRIBED IN THIS PARAGRAPH INCLUDING, WITHOUT LIMITATION, ANY OBJECTION TO
THE LAYING OF VENUE OR BASED ON THE GROUNDS OF FORUM NON CONVENIENS.
<PAGE>
21
(d) THE PLEDGOR AGREES THAT NEITHER ANY HOLDER OF NOTES NOR
(EXCEPT AS OTHERWISE PROVIDED IN THIS ESCROW AGREEMENT OR THE INDENTURE) THE
TRUSTEE IN ITS CAPACITY AS TRUSTEE SHALL HAVE ANY LIABILITY TO THE PLEDGOR
(WHETHER ARISING IN TORT, CONTRACT OR OTHERWISE) FOR LOSSES SUFFERED BY THE
PLEDGOR IN CONNECTION WITH, ARISING OUT OF, OR IN ANY WAY RELATED TO, THE
TRANSACTIONS CONTEMPLATED AND THE RELATIONSHIP ESTABLISHED BY THIS ESCROW
AGREEMENT, OR ANY ACT, OMISSION OR EVENT OCCURRING IN CONNECTION THEREWITH,
UNLESS IT IS DETERMINED BY A FINAL AND NONAPPEALABLE JUDGMENT OF A COURT THAT
IS BINDING ON THE TRUSTEE OR SUCH HOLDER OF NOTES, AS THE CASE MAY BE, THAT
SUCH LOSSES WERE THE RESULT OF ACTS OR OMISSIONS ON THE PART OF THE TRUSTEE
OR SUCH HOLDERS OF NOTES, AS THE CASE MAY BE, CONSTITUTING BAD FAITH, GROSS
NEGLIGENCE OR WILLFUL MISCONDUCT.
(e) TO THE EXTENT PERMITTED BY APPLICABLE LAW, THE PLEDGOR WAIVES
THE POSTING OF ANY BOND OTHERWISE REQUIRED OF THE TRUSTEE OR ANY HOLDER OF
NOTES IN CONNECTION WITH ANY JUDICIAL PROCESS OR PROCEEDING TO ENFORCE ANY
JUDGMENT OR OTHER COURT ORDER PERTAINING TO THIS ESCROW AGREEMENT OR ANY
RELATED AGREEMENT OR DOCUMENT ENTERED IN FAVOR OF THE TRUSTEE OR ANY HOLDER
OF NOTES, OR TO ENFORCE BY SPECIFIC PERFORMANCE, TEMPORARY RESTRAINING ORDER
OR PRELIMINARY OR PERMANENT INJUNCTION, THIS ESCROW AGREEMENT OR ANY RELATED
AGREEMENT OR DOCUMENT BETWEEN THE PLEDGOR ON THE ONE HAND AND THE TRUSTEE
AND/OR THE HOLDERS OF THE NOTES ON THE OTHER HAND.
<PAGE>
IN WITNESS WHEREOF, the Pledgor and the Trustee have each caused
this Escrow Agreement to be duly executed and delivered as of the date first
above written.
Pledgor:
DOBSON WIRELINE COMPANY
By:
------------------------------------
Name:
Title:
Trustee:
UNITED STATES TRUST COMPANY OF NEW YORK
By:
------------------------------------
Name:
Title:
<PAGE>
EXHIBIT A
NOTIFICATION AND CONTROL AGREEMENT
THIS NOTIFICATION AND CONTROL AGREEMENT (the "AGREEMENT") dated as
of June 12, 1998 by and among Dobson Wireline Company (the "PLEDGOR") and the
United States Trust Company of New York, a bank and trust company organized
under the new York banking law, in its capacity as trustee (the "TRUSTEE")
and in its capacity as a bank (the "BANK") at which the Pledgor maintains the
Collateral Account.
A. The Pledgor has granted to the Trustee a security interest in
the Collateral, pursuant to, and as more particularly described in, an Escrow
and Security Agreement dated as of June 12, 1998 between the Pledgor and the
Trustee (as the same may hereafter be amended, supplemented or otherwise
modified from time to time, the "ESCROW AGREEMENT"; terms defined in the
Escrow Agreement and not otherwise defined herein are used herein as therein
defined).
B. Terms defined in Articles 8 or 9 of the Uniform Commercial
Code as in effect in the State of New York (the "UCC") are used in this
Agreement (including, without limitation, paragraph A above) as defined in
Articles 8 or 9, respectively, of the UCC.
C. Pursuant to the Escrow Agreement, the Trustee has required the
execution and delivery of this Agreement.
NOW, THEREFORE, for valuable consideration and intending to be
legally bound, the parties hereto agree and acknowledge as follows:
1. NOTICE OF SECURITY INTEREST. The Pledgor and Trustee are
entering into this Agreement to perfect, and confirm the first priority lien
of, the Trustee's security interest in the Collateral. The Bank agrees to
promptly make all necessary entries or notations in its books and records to
reflect the Trustee's security interest in the Collateral and to apply any
value distributed on account of any Collateral as provided in the Escrow
Agreement without further consent from the Pledgor. The Bank acknowledges
that the Trustee has control over the Collateral Account.
2. SEPARATE ACCOUNT; TRUSTEE REPRESENTATIONS AND WARRANTIES. (a)
The Trustee hereby instructs the Bank, and the Bank hereby confirms and
agrees that, unless the Trustee shall otherwise direct the Bank in writing,
the Collateral Account is to be maintained separately at all times.
<PAGE>
2
(b) The Trustee hereby represents and warrants that it has
acquired its security interest in, and security entitlement to, the
Collateral for value and without notice of any adverse claim thereto.
Without limiting the generality of the foregoing, the Collateral is not, to
the Trustee's knowledge, subject to any Lien granted by the Trustee in favor
of any securities intermediary (including, without limitation, the Bank or
the Federal Reserve Bank of New York) and the Trustee has not knowingly or
purposefully caused or permitted the Collateral to become subject to any Lien
created by or arising through the Bank.
3. CONTROL. The Bank hereby agrees, upon written direction from
the Trustee and in accordance with the terms of the Escrow Agreement, and
without further consent from the Pledgor, (a) to comply with all
instructions, entitlement orders and directions of any kind originated by the
Trustee concerning the Collateral, to liquidate or otherwise dispose of the
Collateral as and to the extent directed by the Trustee and pay over to the
Trustee all proceeds and other value therefrom or otherwise distributed with
respect thereto without any set off or deduction, and (b) except as otherwise
directed by the Trustee, not to comply with the instructions or directions of
the Pledgor or any other person.
4. OTHER AGREEMENTS; TERMINATION; SUCCESSOR TRUSTEES. The Bank
shall simultaneously send to the Trustee and the Pledgor copies of all
notices given and statements rendered pursuant to the Collateral Account. So
long as the Escrow Agreement remains in effect, neither the Pledgor nor the
Bank shall terminate the Collateral Account without thirty (30) days' prior
written notice to the other party and the Trustee. In the event of any
conflict between the provisions of this Agreement and any other agreement
governing the Collateral Account, the provisions hereof shall control. In
the event the Trustee no longer serves as Trustee for the Collateral, the
Collateral Account shall be transferred to a successor trustee satisfactory
to the Trustee, provided that prior to such transfer, such successor trustee
executes an agreement that is in all material respects the same as this
Agreement or is otherwise in form and substance satisfactory to the Trustee.
5. INDEMNITY. The Pledgor shall indemnify and hold the Trustee
and the Bank harmless from any and all losses, claims, damages, liabilities,
expenses and fees, including reasonable counsel fees, resulting from the
execution of or performance under this Agreement and delivery by the Trustee
of all or any part of the Collateral to the Bank pursuant to this Agreement,
except claims, losses or liabilities resulting from the Trustee's or the
Bank's gross negligence, bad faith or willful misconduct as determined by a
final judgment of a court of competent jurisdiction. This indemnification
shall survive the termination of this Agreement.
6. PROTECTION OF BANK. Except as required by Paragraph 3
hereof, the Bank shall have no duty to determine that the amount and form of
assets constituting Collateral comply
<PAGE>
3
with any applicable requirements. The Bank may rely and shall be protected
in acting upon any notice, instruction, or other communication which it
reasonably believes to be genuine and authorized.
7. TERMINATION/RELEASE OF COLLATERAL. This Agreement shall
terminate automatically upon receipt by the Bank of written notice executed
by two officers of the Trustee holding titles of Vice President or higher
that (a) all of the obligations secured by the Collateral have been
satisfied, or (b) all of the Collateral has been released, whichever is
sooner, and the Bank shall thereafter be relieved of all duties and
obligations hereunder.
8. WAIVER AND SUBORDINATION OF RIGHTS. The Bank hereby waives
its right to set off any obligations of the Pledgor to the Bank against any
or all assets held by the Trustee as Collateral, and hereby agrees that any
and all liens, encumbrances, claims or security interests which the Bank may
have against the Collateral, either now or in the future are and shall be
subordinate and junior to the prior payment in full of all obligations of the
Pledgor now or hereafter existing under the Indenture, Notes and all other
documents related thereto whether for principal, interest (including, without
limitation, interest, as provided in the Notes, whether or not such interest
accrues after the filing of such petition for purposes of the Bankruptcy Code
or is an allowed claim in such proceeding), indemnities, fees, premiums,
expenses or otherwise. The Bank will not agree with any third party that the
Bank will comply with any instructions or directions of any kind concerning
the Collateral originated by such third party without the prior written
consent of the Trustee. Except for the claims and interests of the Trustee
and the Pledgor in the Collateral, the Bank does not know of any claim to or
security interest or other interest in the Collateral.
9. EXPENSES. The Pledgor shall pay upon demand all fees, costs
and expenses (including reasonable fees and expenses of counsel) of enforcing
the Bank's rights and remedies upon any breach (by the Trustee or the
Pledgor) of any of the provisions of this Agreement.
10. NOTICES. All notices, demands, requests, consents, approvals
and other communications required or permitted hereunder must be in writing
and will be effective upon receipt if delivered personally, or if sent by
facsimile transmission with confirmation of delivery, or by nationally
recognized overnight courier service with confirmation of delivery, to the
Pledgor's and the Trustee's addresses as set forth in the Escrow Agreement,
and to the Bank's address as set forth below, or to such other address as any
party may give to the others in writing for such purpose.
11. CHANGES IN WRITING. No modification, amendment or waiver of
any provision of this Agreement nor consent to any departure by any party
therefrom will be effective
<PAGE>
4
unless made in writing signed by the parties hereto, and then such waiver or
consent shall be effective only in the specific instance and for the purpose
for which given.
12. ENTIRE AGREEMENT. This Agreement (including the documents and
instruments referred to herein) constitutes the entire agreement and
supersedes all other prior agreements and understandings, both written and
oral, among the parties with respect to the subject matter hereof.
13. COUNTERPARTS. This Agreement may be signed in any number of
counterpart copies and by the parties hereto on separate counterparts
(including by facsimile transmission), but all such copies shall constitute
one and the same instrument.
14. SUCCESSORS AND ASSIGNS. This Agreement will be binding upon
and inure to the benefit of the parties hereto and their respective heirs,
executors, administrators, successors and assigns.
15. GOVERNING LAW AND JURISDICTION. This Agreement has been
delivered to and accepted by the Trustee and will be deemed to be made in the
State of New York. THIS AGREEMENT WILL BE INTERPRETED AND THE RIGHTS AND
LIABILITIES OF THE PARTIES HERETO DETERMINED IN ACCORDANCE WITH THE LAWS OF
THE STATE OF NEW YORK. Each of the parties hereby irrevocably submits for
itself and its property in any legal action or proceeding relating to this
Agreement, or for recognition and enforcement of any judgment in respect
thereof, to the non-exclusive general jurisdiction and venue of the courts of
the State of New York, the courts of the United States of America in New
York, and appellate courts from any thereof.
16. WAIVER OF JURY TRIAL. EACH OF THE PARTIES HERETO IRREVOCABLY
WAIVES ANY AND ALL RIGHT IT MAY HAVE TO A TRIAL BY JURY IN ANY ACTION,
PROCEEDING OR CLAIM (WHETHER BASED ON CONTRACT, TORT OR OTHERWISE) OF ANY
NATURE RELATING TO THIS AGREEMENT, ANY DOCUMENTS EXECUTED IN CONNECTION WITH
THIS AGREEMENT OR ANY TRANSACTION CONTEMPLATED IN ANY OF SUCH DOCUMENTS.
EACH PARTY HERETO ACKNOWLEDGES THAT THE FOREGOING WAIVER IS KNOWING AND
VOLUNTARY.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement
to be executed by their respective officers thereunto duly authorized, as of
the date first above written.
PLEDGOR:
DOBSON WIRELINE COMPANY
By:
----------------------------------
Name:
----------------------------------
Title:
----------------------------------
TRUSTEE:
UNITED STATES TRUST COMPANY OF
NEW YORK, AS TRUSTEE
By:
----------------------------------
Name:
----------------------------------
Title:
----------------------------------
BANK'S ADDRESS FOR BANK:
NOTICES:
UNITED STATES TRUST COMPANY OF NEW YORK
114 W. 47th Street By:
New York, New York 10036 ----------------------------------
Attention: Louis Young Name:
Facsimile Number: (212) 852-1626 ----------------------------------
Title:
----------------------------------
<PAGE>
EXHIBIT B
[Draft Opinion of McAfee & Taft]
(A) the American Telco Acquisition has been duly and validly
authorized by the Company and all corporate action on the part of the Company
and its stockholders necessary to approve the American Telco Acquisition has
been accomplished;
(B) no consent, approval, authorization or order of, or
qualification with, any United States or state governmental body, agency or
court having jurisdiction over the Company or any of its subsidiaries is
required for the consummation of the American Telco Acquisition in accordance
with the Stock Purchase Agreement relating to the American Telco Acquisition
dated as of March 26, 1998 among the Company and the shareholders of American
Telco (the "Acquisition Agreement") except such as may be required under the
federal and state communications laws; and
(C) the execution and delivery by the Company of, and the
performance by the Company of its obligations under Acquisition Agreement and
the consummation of the American Telco Acquisition by the Company do not
contravene (i) any provision of applicable law (other than federal and state
communications law as to which no opinion is expressed), (ii) the certificate
of incorporation or by-laws of the Company, (iii) to such counsel's
knowledge, any material agreement or other instrument binding upon the
Company or any of its subsidiaries and (iv) to such counsel's knowledge, any
judgment, order or decree of any governmental body, agency or court having
jurisdiction over the Company or any subsidiary.
<PAGE>
EXHIBIT C
[Draft Opinion of Swidler & Berlin]
No consent, approval, authorization or order of or qualification
with any governmental body or agency under the federal telecommunications
laws, rules or regulations, or under the laws, rule or regulations relating
to telecommunications of Texas, is required for the consummation by the
Company of the American Telco Acquisition.
<PAGE>
EXHIBIT D
[Draft Opinion of Pate, Kempf & Knnar]
The waiting period under the Hart-Scott Rodino Antitrust
Improvements Act of 1976, as amended, applicable to the American Telco
Acquisition has expired.
<PAGE>
- -------------------------------------------------------------------------------
REGISTRATION RIGHTS AGREEMENT
Dated June 10, 1998
between
DOBSON WIRELINE COMPANY
and
MORGAN STANLEY & CO. INCORPORATED
NATIONSBANC MONTGOMERY SECURITIES LLC
- -------------------------------------------------------------------------------
<PAGE>
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT (the "Agreement") is made and
entered into June 10, 1998, between DOBSON WIRELINE COMPANY, an Oklahoma
corporation (the "Company"), and MORGAN STANLEY & CO. INCORPORATED AND
NATIONSBANC MONTGOMERY SECURITIES LLC (the "Placement Agents").
This Agreement is made pursuant to the Placement Agreement dated the
date hereof, between the Company and the Placement Agents (the "Placement
Agreement"), which provides for the sale by the Company to the Placement Agents
of an aggregate of $350,000,000 principal amount of the Company's 12 1/4% Senior
Notes due 2008 (the "Securities"). In order to induce the Placement Agents to
enter into the Placement Agreement, the Company has agreed to provide to the
Placement Agents and their direct and indirect transferees the registration
rights set forth in this Agreement. The execution of this Agreement is a
condition to the closing under the Placement Agreement.
In consideration of the foregoing, the parties hereto agree as
follows:
1. DEFINITIONS.
As used in this Agreement, the following capitalized defined terms
shall have the following meanings:
"1933 ACT" shall mean the Securities Act of 1933, as amended from time
to time.
"1934 ACT" shall mean the Securities Exchange Act of 1934, as amended
from time to time.
"CLOSING DATE" shall mean the Closing Date as defined in the Placement
Agreement.
"COMPANY" shall have the meaning set forth in the preamble to this
Agreement and shall also include the Company's successors.
"EXCHANGE OFFER" shall mean the exchange offer by the Company of
Exchange Securities for Registrable Securities pursuant to Section 2(a)
hereof.
<PAGE>
2
"EXCHANGE OFFER REGISTRATION" shall mean a registration under the 1933
Act effected pursuant to Section 2(a) hereof.
"EXCHANGE OFFER REGISTRATION STATEMENT" shall mean an exchange offer
registration statement on Form S-4 (or, if applicable, on another
appropriate form) and all amendments and supplements to such registration
statement, in each case including the Prospectus contained therein, all
exhibits thereto and all material incorporated by reference therein.
"EXCHANGE SECURITIES" shall mean securities issued by the Company
under the Indenture containing terms identical to the Securities (except
that the Exchange Securities will not contain restrictions on transfer) and
to be offered to Holders of Securities in exchange for Securities pursuant
to the Exchange Offer.
"HOLDER" shall mean the Placement Agents, for so long as they own any
Registrable Securities, and each of their successors, assigns and direct
and indirect transferees who become registered owners of Registrable
Securities under the Indenture; PROVIDED that for purposes of Sections 4
and 5 of this Agreement, the term "Holder" shall include Participating
Broker-Dealers (as defined in Section 4(a)).
"INDENTURE" shall mean the Indenture relating to the Securities to be
dated as of June 12, 1998 between the Company and United States Trust
Company of New York, as the same may be amended from time to time in
accordance with the terms thereof.
"MAJORITY HOLDERS" shall mean the Holders of a majority of the
aggregate principal amount of outstanding Registrable Securities; PROVIDED
that whenever the consent or approval of Holders of a specified percentage
of Registrable Securities is required hereunder, Registrable Securities
held by the Company or any of its affiliates (as such term is defined in
Rule 405 under the 1933 Act) (other than the Placement Agents or subsequent
Holders of Registrable Securities if such subsequent Holders are deemed to
be such affiliates solely by reason of their holding of such Registrable
Securities) shall not be counted in determining whether such consent or
approval was given by the Holders of such required percentage or amount.
"PERSON" shall mean an individual, partnership, corporation, trust or
unincorporated organization, or a government or agency or political
subdivision thereof.
"PLACEMENT AGENTS" shall have the meaning set forth in the preamble to
this Agreement.
<PAGE>
3
"PLACEMENT AGREEMENT" shall have the meaning set forth in the preamble
to this Agreement.
"PROSPECTUS" shall mean the prospectus included in a Registration
Statement, including any preliminary prospectus, and any such prospectus as
amended or supplemented by any prospectus supplement, including a
prospectus supplement with respect to the terms of the offering of any
portion of the Registrable Securities covered by a Shelf Registration
Statement, and by all other amendments and supplements to such prospectus,
and in each case including all material incorporated by reference therein.
"REGISTRABLE SECURITIES" shall mean the Securities; PROVIDED, HOWEVER,
that the Securities shall cease to be Registrable Securities (i) when a
Registration Statement with respect to such Securities shall have been
declared effective under the 1933 Act and such Securities shall have been
disposed of pursuant to such Registration Statement, (ii) when such
Securities have been sold to the public pursuant to Rule 144 (or any
similar provision then in force, but not Rule 144A) under the 1933 Act or
(iii) when such Securities shall have ceased to be outstanding.
"REGISTRATION EXPENSES" shall mean any and all expenses incident to
performance of or compliance by the Company with this Agreement, including
without limitation: (i) all SEC, stock exchange or National Association of
Securities Dealers, Inc. registration and filing fees, (ii) all fees and
expenses incurred in connection with compliance with state securities or
blue sky laws (including reasonable fees and disbursements of counsel for
any underwriters or Holders in connection with blue sky qualification of
any of the Exchange Securities or Registrable Securities), (iii) all
expenses of any Persons in preparing or assisting in preparing, word
processing, printing and distributing any Registration Statement, any
Prospectus, any amendments or supplements thereto, any underwriting
agreements, securities sales agreements and other documents relating to the
performance of and compliance with this Agreement, (iv) all rating agency
fees, (v) all fees and disbursements relating to the qualification of the
Indenture under applicable securities laws, (vi) the fees and disbursements
of the Trustee and its counsel, (vii) the fees and disbursements of counsel
for the Company and, in the case of a Shelf Registration Statement, the
fees and disbursements of one counsel for the Holders (which counsel shall
be selected by the Majority Holders and which counsel may also be counsel
for the Placement Agents) and (viii) the fees and disbursements of the
independent public accountants of the Company, including the expenses of
any special audits or "cold comfort" letters required by or incident to
such performance and compliance, but excluding fees and expenses of counsel
to the underwriters (other than fees and expenses set forth in clause (ii)
above) or the Holders
<PAGE>
4
and underwriting discounts and commissions and transfer taxes, if any,
relating to the sale or disposition of Registrable Securities by a Holder.
"REGISTRATION STATEMENT" shall mean any registration statement of the
Company that covers any of the Exchange Securities or Registrable
Securities pursuant to the provisions of this Agreement and all amendments
and supplements to any such Registration Statement, including
post-effective amendments, in each case including the Prospectus contained
therein, all exhibits thereto and all material incorporated by reference
therein.
"SEC" shall mean the Securities and Exchange Commission.
"SHELF REGISTRATION" shall mean a registration effected pursuant to
Section 2(b) hereof.
"SHELF REGISTRATION STATEMENT" shall mean a "shelf" registration
statement of the Company pursuant to the provisions of Section 2(b) of this
Agreement which covers all of the Registrable Securities (but no other
securities unless approved by the Holders whose Registrable Securities are
covered by such Shelf Registration Statement) on an appropriate form under
Rule 415 under the 1933 Act, or any similar rule that may be adopted by the
SEC, and all amendments and supplements to such registration statement,
including post-effective amendments, in each case including the Prospectus
contained therein, all exhibits thereto and all material incorporated by
reference therein.
"TRUSTEE" shall mean the trustee with respect to the Securities under
the Indenture.
"UNDERWRITTEN REGISTRATION" or "UNDERWRITTEN OFFERING" shall mean a
registration in which Registrable Securities are sold to an Underwriter (as
hereinafter defined) for reoffering to the public.
2. REGISTRATION UNDER THE 1933 ACT.
(a) To the extent not prohibited by any applicable law or applicable
interpretation of the Staff of the SEC, the Company shall use its best efforts
to cause to be filed, no later than 90 days after the Closing Date, an Exchange
Offer Registration Statement covering the offer by the Company to the Holders to
exchange all of the Registrable Securities for Exchange Securities and to have
such Registration Statement remain effective until the closing of the Exchange
Offer. The Company shall commence the Exchange Offer promptly after the
Exchange Offer Registration Statement has been declared effective by the SEC and
<PAGE>
5
use its best efforts to have the Exchange Offer consummated not later than 60
days after such effective date. The Company shall commence the Exchange Offer
by mailing the related exchange offer Prospectus and accompanying documents to
each Holder stating, in addition to such other disclosures as are required by
applicable law:
(i) that the Exchange Offer is being made pursuant to this
Registration Rights Agreement and that all Registrable Securities validly
tendered will be accepted for exchange;
(ii) the dates of acceptance for exchange (which shall be a period of
at least 20 business days from the date such notice is mailed) (the
"Exchange Dates");
(iii) that any Registrable Security not tendered will remain
outstanding and continue to accrue interest, but will not retain any rights
under this Registration Rights Agreement;
(iv) that Holders electing to have a Registrable Security exchanged
pursuant to the Exchange Offer will be required to surrender such
Registrable Security, together with the enclosed letters of transmittal, to
the institution and at the address specified in the notice prior to the
close of business on the last Exchange Date; and
(v) that Holders will be entitled to withdraw their election, not
later than the close of business on the last Exchange Date, by sending to
the institution and at the address specified in the notice a telegram,
telex, facsimile transmission or letter setting forth the name of such
Holder, the principal amount of Registrable Securities delivered for
exchange and a statement that such Holder is withdrawing his election to
have such Securities exchanged.
As soon as practicable after the last Exchange Date, the Company
shall:
(i) accept for exchange Registrable Securities or portions thereof
validly tendered and not validly withdrawn pursuant to the Exchange Offer;
and
(ii) deliver, or cause to be delivered, to the Trustee for
cancellation all Registrable Securities or portions thereof so accepted for
exchange by the Company and issue, and cause the Trustee to promptly
authenticate and mail to each Holder, an Exchange Security equal in
principal amount to the principal amount of the Registrable Securities
surrendered by such Holder.
The Company shall use its best efforts to complete the Exchange Offer as
provided above and shall comply with the applicable requirements of the 1933
Act, the 1934 Act and other
<PAGE>
6
applicable laws and regulations in connection with the Exchange Offer. The
Exchange Offer shall not be subject to any conditions, other than that the
Exchange Offer does not violate applicable law or any applicable
interpretation of the Staff of the SEC. The Company shall inform the
Placement Agents of the names and addresses of the Holders to whom the
Exchange Offer is made, and the Placement Agents shall have the right,
subject to applicable law, to contact such Holders and otherwise facilitate
the tender of Registrable Securities in the Exchange Offer.
(b) In the event that (i) the Company determines that the Exchange
Offer Registration provided for in Section 2(a) above is not available or may
not be consummated as soon as practicable after the last Exchange Date because
it would violate applicable law or the applicable interpretations of the Staff
of the SEC, (ii) the Exchange Offer is not for any other reason consummated by
December 12, 1998 or (iii) the Exchange Offer has been completed and in the
opinion of counsel for the Placement Agents a Registration Statement must be
filed and a Prospectus must be delivered by the Placement Agents in connection
with any offering or sale of Registrable Securities, the Company shall use its
best efforts to cause to be filed as soon as practicable after such
determination, date or notice of such opinion of counsel is given to the
Company, as the case may be, a Shelf Registration Statement providing for the
sale by the Holders of all of the Registrable Securities and to have such Shelf
Registration Statement declared effective by the SEC. In the event the Company
is required to file a Shelf Registration Statement solely as a result of the
matters referred to in clause (iii) of the preceding sentence, the Company shall
file and use its best efforts have declared effective by the SEC both an
Exchange Offer Registration Statement pursuant to Section 2(a) with respect to
all Registrable Securities and a Shelf Registration Statement (which may be a
combined Registration Statement with the Exchange Offer Registration Statement)
with respect to offers and sales of Registrable Securities held by the Placement
Agents after completion of the Exchange Offer. The Company agrees to use its
best efforts to keep the Shelf Registration Statement continuously effective
until the expiration of the period referred to in Rule 144(k) with respect to
all Registrable Securities covered by the Shelf Registration Statement or such
shorter period that will terminate when all of the Registrable Securities
covered by the Shelf Registration Statement have been sold pursuant to the Shelf
Registration Statement. The Company further agrees to supplement or amend the
Shelf Registration Statement if required by the rules, regulations or
instructions applicable to the registration form used by the Company for such
Shelf Registration Statement or by the 1933 Act or by any other rules and
regulations thereunder for shelf registration or if reasonably requested by a
Holder with respect to information relating to such Holder, and to use its best
efforts to cause any such amendment to become effective and such Shelf
Registration Statement to become usable as soon as thereafter practicable. The
Company agrees to furnish to the Holders of Registrable Securities copies of any
such supplement or amendment promptly after its being used or filed with the
SEC.
<PAGE>
7
(c) The Company shall pay all Registration Expenses in connection
with the registration pursuant to Section 2(a) or Section 2(b). Each Holder
shall pay all underwriting discounts and commissions and transfer taxes, if any,
relating to the sale or disposition of such Holder's Registrable Securities
pursuant to the Shelf Registration Statement.
(d) An Exchange Offer Registration Statement pursuant to Section 2(a)
hereof or a Shelf Registration Statement pursuant to Section 2(b) hereof will
not be deemed to have become effective unless it has been declared effective by
the SEC; PROVIDED, HOWEVER, that, if, after it has been declared effective, the
offering of Registrable Securities pursuant to a Shelf Registration Statement is
interfered with by any stop order, injunction or other order or requirement of
the SEC or any other governmental agency or court, such Registration Statement
will be deemed not to have become effective during the period of such
interference until the offering of Registrable Securities pursuant to such
Registration Statement may legally resume. As provided for in the Indenture, in
the event that the Exchange Offer is not consummated and the Shelf Registration
Statement is not declared effective on or prior to December 12, 1998, interest
on the Securities (in addition to the accrual of interest otherwise due on the
Securities) will accrue from December 12, 1998, at a rate of 0.5% per annum, and
be payable in cash semi-annually, commencing December 15, 1998, until the
Exchange Offer is consummated or a Shelf Registration Statement is declared
effective by the SEC.
(e) Without limiting the remedies available to the Placement Agents
and the Holders, the Company acknowledges that any failure by the Company to
comply with its obligations under Section 2(a) and Section 2(b) hereof may
result in material irreparable injury to the Placement Agents or the Holders for
which there is no adequate remedy at law, that it will not be possible to
measure damages for such injuries precisely and that, in the event of any such
failure, the Placement Agents or any Holder may obtain such relief as may be
required to specifically enforce the Company's obligations under Section 2(a)
and Section 2(b) hereof.
3. REGISTRATION PROCEDURES.
In connection with the obligations of the Company with respect to the
Registration Statements pursuant to Section 2(a) and Section 2(b) hereof, the
Company shall as expeditiously as possible:
(a) prepare and file with the SEC a Registration Statement on the
appropriate form under the 1933 Act, which form (x) shall be selected by
the Company and (y) shall, in the case of a Shelf Registration, be
available for the sale of the Registrable Securities by the selling Holders
thereof and (z) shall comply as to form in all material respects with the
requirements of the applicable form and include all financial statements
required by the SEC to be filed therewith, and use its best efforts
<PAGE>
8
to cause such Registration Statement to become effective and remain
effective in accordance with Section 2 hereof;
(b) prepare and file with the SEC such amendments and post-effective
amendments to each Registration Statement as may be necessary to keep such
Registration Statement effective for the applicable period and cause each
Prospectus to be supplemented by any required prospectus supplement and, as
so supplemented, to be filed pursuant to Rule 424 under the 1933 Act; to
keep each Prospectus current during the period described under Section 4(3)
and Rule 174 under the 1933 Act that is applicable to transactions by
brokers or dealers with respect to the Registrable Securities or Exchange
Securities;
(c) in the case of a Shelf Registration, furnish to each Holder of
Registrable Securities, to counsel for the Placement Agents, to counsel for
the Holders and to each Underwriter of an Underwritten Offering of
Registrable Securities, if any, without charge, as many copies of each
Prospectus, including each preliminary Prospectus, and any amendment or
supplement thereto and such other documents as such Holder or Underwriter
may reasonably request, in order to facilitate the public sale or other
disposition of the Registrable Securities; and the Company consents to the
use of such Prospectus and any amendment or supplement thereto in
accordance with applicable law by each of the selling Holders of
Registrable Securities and any such Underwriters in connection with the
offering and sale of the Registrable Securities covered by and in the
manner described in such Prospectus or any amendment or supplement thereto
in accordance with applicable law;
(d) use its best efforts to register or qualify the Registrable
Securities under all applicable state securities or "blue sky" laws of such
jurisdictions as any Holder of Registrable Securities covered by a
Registration Statement shall reasonably request in writing by the time the
applicable Registration Statement is declared effective by the SEC, to
cooperate with such Holders in connection with any filings required to be
made with the National Association of Securities Dealers, Inc. and do any
and all other acts and things which may be reasonably necessary or
advisable to enable such Holder to consummate the disposition in each such
jurisdiction of such Registrable Securities owned by such Holder; PROVIDED,
HOWEVER, that the Company shall not be required to (i) qualify as a foreign
corporation or as a dealer in securities in any jurisdiction where it would
not otherwise be required to qualify but for this Section 3(d), (ii) file
any general consent to service of process or (iii) subject itself to
taxation in any such jurisdiction if it is not so subject;
(e) in the case of a Shelf Registration, notify each Holder of
Registrable Securities, counsel for the Holders and counsel for the
Placement Agents promptly and,
<PAGE>
9
if requested by any such Holder or counsel, confirm such advice in writing
(i) when a Registration Statement has become effective and when any
post-effective amendment thereto has been filed and becomes effective, (ii)
of any request by the SEC or any state securities authority for amendments
and supplements to a Registration Statement and Prospectus or for
additional information after the Registration Statement has become
effective, (iii) of the issuance by the SEC or any state securities
authority of any stop order suspending the effectiveness of a Registration
Statement or the initiation of any proceedings for that purpose, (iv) if,
between the effective date of a Registration Statement and the closing of
any sale of Registrable Securities covered thereby, the representations
and warranties of the Company contained in any underwriting agreement,
securities sales agreement or other similar agreement, if any, relating to
the offering cease to be true and correct in all material respects or if
the Company receives any notification with respect to the suspension of
the qualification of the Registrable Securities for sale in any
jurisdiction or the initiation of any proceeding for such purpose, (v) of
the happening of any event during the period a Shelf Registration Statement
is effective which makes any statement made in such Registration Statement
or the related Prospectus untrue in any material respect or which requires
the making of any changes in such Registration Statement or Prospectus in
order to make the statements therein not misleading and (vi) of any
determination by the Company that a post-effective amendment to a
Registration Statement would be appropriate;
(f) make every reasonable effort to obtain the withdrawal of any
order suspending the effectiveness of a Registration Statement at the
earliest possible moment and provide immediate notice to each Holder of the
withdrawal of any such order;
(g) in the case of a Shelf Registration, furnish to each Holder of
Registrable Securities, without charge, at least one conformed copy of each
Registration Statement and any post-effective amendment thereto (without
documents incorporated therein by reference or exhibits thereto, unless
requested);
(h) in the case of a Shelf Registration, cooperate with the selling
Holders of Registrable Securities to facilitate the timely preparation and
delivery of certificates representing Registrable Securities to be sold and
not bearing any restrictive legends and enable such Registrable Securities
to be in such denominations (consistent with the provisions of the
Indenture) and registered in such names as the selling Holders may
reasonably request at least one business day prior to the closing of any
sale of Registrable Securities;
(i) in the case of a Shelf Registration, upon the occurrence of any
event contemplated by Section 3(e)(v) or (vi) hereof, use its best efforts
to prepare and file with the SEC a supplement or post-effective amendment
to a Registration Statement or
<PAGE>
10
the related Prospectus or any document incorporated therein by reference
or file any other required document so that, as thereafter delivered to
the purchasers of the Registrable Securities, such Prospectus will not
contain any untrue statement of a material fact or omit to state a
material fact necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading. The Company
agrees to notify the Holders to suspend use of the Prospectus as promptly
as practicable after the occurrence of such an event, and the Holders
hereby agree to suspend use of the Prospectus upon receipt of such notice
until the Company has amended or supplemented the Prospectus to correct
such misstatement or omission;
(j) a reasonable time prior to the filing of any Registration
Statement, any Prospectus, any amendment to a Registration Statement or
amendment or supplement to a Prospectus or any document which is to be
incorporated by reference into a Registration Statement or a Prospectus
after initial filing of a Registration Statement, provide copies of such
document to the Placement Agents and their counsel (and, in the case of a
Shelf Registration Statement, the Holders and their counsel) and make such
of the representatives of the Company as shall be reasonably requested by
the Placement Agents or their counsel (and, in the case of a Shelf
Registration Statement, the Holders or their counsel) available for
discussion of such document, and shall not at any time file or make any
amendment to the Registration Statement, any Prospectus or any amendment of
or supplement to a Registration Statement or a Prospectus or any document
which is to be incorporated by reference into a Registration Statement or a
Prospectus, of which the Placement Agents and their counsel (and, in the
case of a Shelf Registration Statement, the Holders and their counsel)
shall not have previously been advised and furnished a copy or to which the
Placement Agents or their counsel (and, in the case of a Shelf Registration
Statement, the Holders or their counsel) shall reasonably object;
(k) obtain a CUSIP number for all Exchange Securities or Registrable
Securities, as the case may be, not later than the effective date of a
Registration Statement;
(l) cause the Indenture to be qualified under the Trust Indenture Act
of 1939, as amended (the "TIA"), in connection with the registration of the
Exchange Securities or Registrable Securities, as the case may be,
cooperate with the Trustee and the Holders to effect such changes to the
Indenture as may be required for the Indenture to be so qualified in
accordance with the terms of the TIA and execute, and use its best efforts
to cause the Trustee to execute, all documents as may be required to effect
such changes and all other forms and documents required to be filed with
the SEC to enable the Indenture to be so qualified in a timely manner;
<PAGE>
11
(m) in the case of a Shelf Registration, make available for
inspection by a representative of the Holders of the Registrable
Securities, any Underwriter participating in any disposition pursuant to
such Shelf Registration Statement, and attorneys and accountants designated
by the Holders, at reasonable times and in a reasonable manner, all
financial and other records, pertinent documents and properties of the
Company, and cause the respective officers, directors and employees of the
Company to supply all information reasonably requested by any such
representative, Underwriter, attorney or accountant in connection with a
Shelf Registration Statement;
(n) in the case of a Shelf Registration, use its best efforts to
cause all Registrable Securities to be listed on any securities exchange or
any automated quotation system on which similar securities issued by the
Company are then listed if requested by the Majority Holders, to the extent
such Registrable Securities satisfy applicable listing requirements;
(o) use its best efforts to cause the Exchange Securities to be rated
or continue to be rated by two nationally recognized statistical rating
organizations (as such term is defined in Rule 436(g)(2) under the 1933
Act), if the Registrable Securities have been rated;
(p) in case of a Shelf Registration, if reasonably requested by any
Holder of Registrable Securities covered by a Registration Statement, (i)
promptly incorporate in a Prospectus supplement or post-effective amendment
such information with respect to such Holder as such Holder reasonably
requests to be included therein and (ii) make all required filings of such
Prospectus supplement or such post-effective amendment as soon as the
Company has received notification of the matters to be incorporated in such
filing; and
(q) in the case of a Shelf Registration, enter into such customary
agreements and take all such other actions in connection therewith
(including those requested by the Holders of a majority of the Registrable
Securities being sold) in order to expedite or facilitate the disposition
of such Registrable Securities including, but not limited to, an
Underwritten Offering and in such connection, (i) to the extent possible,
make such representations and warranties to the Holders and, in the event
of an Underwritten Offering, any Underwriters of such Registrable
Securities with respect to the business of the Company and its
subsidiaries, the Registration Statement, Prospectus and documents
incorporated by reference or deemed incorporated by reference, if any, in
each case, in form, substance and scope as are customarily made by issuers
to underwriters in underwritten offerings and confirm the same if and when
requested, (ii) obtain opinions of counsel to the Company (which counsel
and opinions, in form, scope and substance, shall be reasonably
satisfactory to the Holders and such
<PAGE>
12
Underwriters and their respective counsel) addressed to each selling Holder
and Underwriter of Registrable Securities, covering the matters customarily
covered in opinions requested in underwritten offerings, (iii) obtain
"cold comfort" letters from the independent certified public accountants of
the Company (and, if necessary, any other certified public accountant of
any subsidiary of the Company, or of any business acquired by the Company
for which financial statements and financial data are or are required to be
included in the Registration Statement) addressed to each selling Holder
and Underwriter of Registrable Securities, such letters to be in customary
form and covering matters of the type customarily covered in "cold comfort"
letters in connection with underwritten offerings, and (iv) deliver such
documents and certificates as may be reasonably requested by the Holders
of a majority in principal amount of the Registrable Securities being sold
or the Underwriters, and which are customarily delivered in underwritten
offerings, to evidence the continued validity of the representations and
warranties of the Company made pursuant to clause (i) above and to
evidence compliance with any customary conditions contained in an
underwriting agreement.
In the case of a Shelf Registration Statement, the Company may require
each Holder of Registrable Securities to furnish to the Company such information
regarding the Holder and the proposed distribution by such Holder of such
Registrable Securities as the Company may from time to time reasonably request
in writing.
In the case of a Shelf Registration Statement, each Holder agrees
that, upon receipt of any notice from the Company of the happening of any event
of the kind described in Section 3(e)(v) or (vi) hereof, such Holder will
forthwith discontinue disposition of Registrable Securities pursuant to a
Registration Statement until such Holder's receipt of the copies of the
supplemented or amended Prospectus contemplated by Section 3(i) hereof, and, if
so directed by the Company, such Holder will deliver to the Company (at its
expense) all copies in its possession, other than permanent file copies then in
such Holder's possession, of the Prospectus covering such Registrable Securities
current at the time of receipt of such notice. If the Company shall give any
such notice to suspend the disposition of Registrable Securities pursuant to a
Registration Statement, the Company shall extend the period during which the
Registration Statement shall be maintained effective pursuant to this Agreement
by the number of days during the period from and including the date of the
giving of such notice to and including the date when the Holders shall have
received copies of the supplemented or amended Prospectus necessary to resume
such dispositions. There may not be more than 90 days during any consecutive
365 day period in which such suspensions are in effect.
The Holders of Registrable Securities covered by a Shelf Registration
Statement who desire to do so may sell such Registrable Securities in an
Underwritten Offering. In any such Underwritten Offering, the investment banker
or investment bankers and manager or
<PAGE>
13
managers (the "Underwriters") that will administer the offering will be
selected by the Majority Holders of the Registrable Securities included in
such offering.
4. PARTICIPATION OF BROKER-DEALERS IN EXCHANGE OFFER.
(a) The Staff of the SEC has taken the position that any
broker-dealer that receives Exchange Securities for its own account in the
Exchange Offer in exchange for Securities that were acquired by such
broker-dealer as a result of market-making or other trading activities (a
"Participating Broker-Dealer"), may be deemed to be an "underwriter" within
the meaning of the 1933 Act and must deliver a prospectus meeting the
requirements of the 1933 Act in connection with any resale of such Exchange
Securities.
The Company understands that it is the Staff's position that if the
Prospectus contained in the Exchange Offer Registration Statement includes a
plan of distribution containing a statement to the above effect and the means by
which Participating Broker-Dealers may resell the Exchange Securities, without
naming the Participating Broker-Dealers or specifying the amount of Exchange
Securities owned by them, such Prospectus may be delivered by Participating
Broker-Dealers to satisfy their prospectus delivery obligation under the 1933
Act in connection with resales of Exchange Securities for their own accounts, so
long as the Prospectus otherwise meets the requirements of the 1933 Act.
(b) In light of the above, notwithstanding the other provisions of
this Agreement, the Company agrees that the provisions of this Agreement as they
relate to a Shelf Registration shall also apply to an Exchange Offer
Registration to the extent, and with such reasonable modifications thereto as
may be, reasonably requested by the Placement Agents or by one or more
Participating Broker-Dealers, in each case as provided in clause (ii) below, in
order to expedite or facilitate the disposition of any Exchange Securities by
Participating Broker-Dealers consistent with the positions of the Staff recited
in Section 4(a) above; PROVIDED that:
(i) the Company shall not be required to amend or supplement the
Prospectus contained in the Exchange Offer Registration Statement, as would
otherwise be contemplated by Section 3(i), for a period exceeding 180 days
after the last Exchange Date (as such period may be extended pursuant to
the penultimate paragraph of Section 3 of this Agreement) and Participating
Broker-Dealers shall not be authorized by the Company to deliver and shall
not deliver such Prospectus after such period in connection with the
resales contemplated by this Section 4; and
(ii) the application of the Shelf Registration procedures set forth in
Section 3 of this Agreement to an Exchange Offer Registration, to the
extent not required by the positions of the Staff of the SEC or the 1933
Act and the rules and regulations
<PAGE>
14
thereunder, will be in conformity with the reasonable request to the
Company by the Placement Agents or with the reasonable request in writing
to the Company by one or more broker-dealers who certify to the Placement
Agents and the Company in writing that they anticipate that they will be
Participating Broker-Dealers; and PROVIDED FURTHER that, in connection
with such application of the Shelf Registration procedures set forth in
Section 3 to an Exchange Offer Registration, the Company shall be
obligated (x) to deal only with one entity representing the Participating
Broker-Dealers, which shall be Morgan Stanley & Co. Incorporated unless
it elects not to act as such representative, (y) to pay the fees and
expenses of only one counsel representing the Participating Broker-Dealers,
which shall be counsel to the Placement Agents unless such counsel elects
not to so act and (z) to cause to be delivered only one, if any, "cold
comfort" letter with respect to the Prospectus in the form existing on the
last Exchange Date and with respect to each subsequent amendment or
supplement, if any, effected during the period specified in clause (i)
above.
(c) The Placement Agents shall have no liability to the Company or
any Holder with respect to any request that it may make pursuant to Section 4(b)
above.
5. INDEMNIFICATION AND CONTRIBUTION.
(a) The Company agrees to indemnify and hold harmless the Placement
Agents, each Holder and each Person, if any, who controls any Placement Agent or
any Holder within the meaning of either Section 15 of the 1933 Act or Section 20
of the 1934 Act, or is under common control with, or is controlled by, any
Placement Agent or any Holder, from and against all losses, claims, damages and
liabilities (including, without limitation, any legal or other expenses
reasonably incurred by the Placement Agent, any Holder or any such controlling
or affiliated Person in connection with defending or investigating any such
action or claim) caused by any untrue statement or alleged untrue statement of a
material fact contained in any Registration Statement (or any amendment thereto)
pursuant to which Exchange Securities or Registrable Securities were registered
under the 1933 Act, including all documents incorporated therein by reference,
or caused by any omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading, or caused by any untrue statement or alleged untrue statement of a
material fact contained in any Prospectus (as amended or supplemented if the
Company shall have furnished any amendments or supplements thereto), or caused
by any omission or alleged omission to state therein a material fact necessary
to make the statements therein in light of the circumstances under which they
were made not misleading, except insofar as such losses, claims, damages or
liabilities are caused by any such untrue statement or omission or alleged
untrue statement or omission based upon information relating to the Placement
Agents or any Holder furnished to the Company in writing by the Placement Agents
or any selling Holder expressly for use therein. In connection with any
Underwritten Offering permitted by Section
<PAGE>
15
3, the Company will also indemnify the Underwriters, if any, selling brokers,
dealers and similar securities industry professionals participating in the
distribution, their officers and directors and each Person who controls such
Persons (within the meaning of the 1933 Act and the 1934 Act) to the same
extent as provided above with respect to the indemnification of the Holders,
if requested in connection with any Registration Statement.
(b) Each Holder agrees, severally and not jointly, to indemnify and
hold harmless the Company, the Placement Agents and the other selling Holders,
and each of their respective directors, officers who sign the Registration
Statement and each Person, if any, who controls the Company, any Placement Agent
and any other selling Holder within the meaning of either Section 15 of the 1933
Act or Section 20 of the 1934 Act to the same extent as the foregoing indemnity
from the Company to the Placement Agents and the Holders, but only with
reference to information relating to such Holder furnished to the Company in
writing by such Holder expressly for use in any Registration Statement (or any
amendment thereto) or any Prospectus (or any amendment or supplement thereto).
(c) In case any proceeding (including any governmental investigation)
shall be instituted involving any Person in respect of which indemnity may be
sought pursuant to either paragraph (a) or paragraph (b) above, such Person (the
"indemnified party") shall promptly notify the Person against whom such
indemnity may be sought (the "indemnifying party") in writing and the
indemnifying party, upon request of the indemnified party, shall retain counsel
reasonably satisfactory to the indemnified party to represent the indemnified
party and any others the indemnifying party may designate in such proceeding and
shall pay the fees and disbursements of such counsel related to such proceeding.
In any such proceeding, any indemnified party shall have the right to retain its
own counsel, but the fees and expenses of such counsel shall be at the expense
of such indemnified party unless (i) the indemnifying party and the indemnified
party shall have mutually agreed to the retention of such counsel or (ii) the
named parties to any such proceeding (including any impleaded parties) include
both the indemnifying party and the indemnified party and representation of both
parties by the same counsel would be inappropriate due to actual or potential
differing interests between them. It is understood that the indemnifying party
shall not, in connection with any proceeding or related proceedings in the same
jurisdiction, be liable for (a) the fees and expenses of more than one separate
firm (in addition to any local counsel) for the Placement Agents and all
Persons, if any, who control any Placement Agent within the meaning of either
Section 15 of the 1933 Act or Section 20 of the 1934 Act, (b) the fees and
expenses of more than one separate firm (in addition to any local counsel) for
the Company, its directors, its officers who sign the Registration Statement and
each Person, if any, who controls the Company within the meaning of either such
Section and (c) the fees and expenses of more than one separate firm (in
addition to any local counsel) for all Holders and all Persons, if any, who
control any Holders within the meaning of either such Section, and that all such
fees and expenses shall be reimbursed as they are incurred. In such case
involving the Placement
<PAGE>
16
Agents and Persons who control the Placement Agent, such firm shall be
designated in writing by Morgan Stanley & Co. Incorporated. In such case
involving the Holders and such Persons who control Holders, such firm shall
be designated in writing by the Majority Holders. In all other cases, such
firm shall be designated by the Company. The indemnifying party shall not be
liable for any settlement of any proceeding effected without its written
consent but, if settled with such consent or if there be a final judgment for
the plaintiff, the indemnifying party agrees to indemnify the indemnified
party from and against any loss or liability by reason of such settlement or
judgment. Notwithstanding the foregoing sentence, if at any time an
indemnified party shall have requested an indemnifying party to reimburse the
indemnified party for fees and expenses of counsel as contemplated by the
second and third sentences of this paragraph, the indemnifying party agrees
that it shall be liable for any settlement of any proceeding effected without
its written consent if (i) such settlement is entered into more than 30 days
after receipt by such indemnifying party of the aforesaid request and (ii)
such indemnifying party shall not have reimbursed the indemnified party for
such fees and expenses of counsel in accordance with such request prior to
the date of such settlement. No indemnifying party shall, without the prior
written consent of the indemnified party, effect any settlement of any
pending or threatened proceeding in respect of which such indemnified party
is or could have been a party and indemnity could have been sought hereunder
by such indemnified party, unless such settlement includes an unconditional
release of such indemnified party from all liability on claims that are the
subject matter of such proceeding.
(d) If the indemnification provided for in paragraph (a) or paragraph
(b) of this Section 4 is unavailable to an indemnified party or insufficient in
respect of any losses, claims, damages or liabilities, then each indemnifying
party under such paragraph, in lieu of indemnifying such indemnified party
thereunder, shall contribute to the amount paid or payable by such indemnified
party as a result of such losses, claims, damages or liabilities in such
proportion as is appropriate to reflect the relative fault of the indemnifying
party or parties on the one hand and of the indemnified party or parties on the
other hand in connection with the statements or omissions that resulted in such
losses, claims, damages or liabilities, as well as any other relevant equitable
considerations. The relative fault of the Company and the Holders shall be
determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or the omission or alleged omission to state
a material fact relates to information supplied by the Company or by the Holders
and the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such statement or omission. The Holders'
respective obligations to contribute pursuant to this Section 5(d) are several
in proportion to the respective principal amount of Registrable Securities of
such Holder that were registered pursuant to a Registration Statement.
(e) The Company and each Holder agree that it would not be just or
equitable if contribution pursuant to this Section 5 were determined by PRO RATA
allocation or by any other method of allocation that does not take account of
the equitable considerations
<PAGE>
17
referred to in paragraph (d) above. The amount paid or payable by an
indemnified party as a result of the losses, claims, damages and liabilities
referred to in paragraph (d) above shall be deemed to include, subject to the
limitations set forth above, any legal or other expenses reasonably incurred
by such indemnified party in connection with investigating or defending any
such action or claim. Notwithstanding the provisions of this Section 5, no
Holder shall be required to indemnify or contribute any amount in excess of
the amount by which the total price at which Registrable Securities were sold
by such Holder exceeds the amount of any damages that such Holder has
otherwise been required to pay by reason of such untrue or alleged untrue
statement or omission or alleged omission. No Person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the 1933 Act) shall
be entitled to contribution from any Person who was not guilty of such
fraudulent misrepresentation. The remedies provided for in this Section 5
are not exclusive and shall not limit any rights or remedies which may
otherwise be available to any indemnified party at law or in equity.
The indemnity and contribution provisions contained in this Section 5
shall remain operative and in full force and effect regardless of (i) any
termination of this Agreement, (ii) any investigation made by or on behalf of
the Placement Agents, any Holder or any Person controlling any Placement Agent
or any Holder, or by or on behalf of the Company, its officers or directors or
any Person controlling the Company, (iii) acceptance of any of the Exchange
Securities and (iv) any sale of Registrable Securities pursuant to a Shelf
Registration Statement.
6. MISCELLANEOUS.
(a) NO INCONSISTENT AGREEMENTS. The Company has not entered into,
and on or after the date of this Agreement will not enter into, any agreement
which is inconsistent with the rights granted to the Holders of Registrable
Securities in this Agreement or otherwise conflicts with the provisions hereof.
The rights granted to the Holders hereunder do not in any way conflict with and
are not inconsistent with the rights granted to the holders of the Company's
other issued and outstanding securities under any such agreements.
(b) AMENDMENTS AND WAIVERS. The provisions of this Agreement,
including the provisions of this sentence, may not be amended, modified or
supplemented, and waivers or consents to departures from the provisions hereof
may not be given unless the Company has obtained the written consent of Holders
of at least a majority in aggregate principal amount of the outstanding
Registrable Securities affected by such amendment, modification, supplement,
waiver or consent; PROVIDED, HOWEVER, that no amendment, modification,
supplement, waiver or consent to any departure from the provisions of Section 5
hereof shall be effective as against any Holder of Registrable Securities unless
consented to in writing by such Holder.
<PAGE>
18
(c) NOTICES. All notices and other communications provided for or
permitted hereunder shall be made in writing by hand-delivery, registered
first-class mail, telex, telecopier, or any courier guaranteeing overnight
delivery (i) if to a Holder, at the most current address given by such Holder
to the Company by means of a notice given in accordance with the provisions
of this Section 6(c), which address initially is, with respect to the
Placement Agents, the address set forth in the Placement Agreement; and (ii)
if to the Company, initially at the Company's address set forth in the
Placement Agreement and thereafter at such other address, notice of which is
given in accordance with the provisions of this Section 6(c).
All such notices and communications shall be deemed to have been duly
given: at the time delivered by hand, if personally delivered; five business
days after being deposited in the mail, postage prepaid, if mailed; when
answered back, if telexed; when receipt is acknowledged, if telecopied; and on
the next business day if timely delivered to an air courier guaranteeing
overnight delivery.
Copies of all such notices, demands, or other communications shall be
concurrently delivered by the Person giving the same to the Trustee, at the
address specified in the Indenture.
(d) SUCCESSORS AND ASSIGNS. This Agreement shall inure to the
benefit of and be binding upon the successors, assigns and transferees of each
of the parties, including, without limitation and without the need for an
express assignment, subsequent Holders; PROVIDED that nothing herein shall be
deemed to permit any assignment, transfer or other disposition of Registrable
Securities in violation of the terms of the Placement Agreement. If any
transferee of any Holder shall acquire Registrable Securities, in any manner,
whether by operation of law or otherwise, such Registrable Securities shall be
held subject to all of the terms of this Agreement, and by taking and holding
such Registrable Securities such Person shall be conclusively deemed to have
agreed to be bound by and to perform all of the terms and provisions of this
Agreement and such Person shall be entitled to receive the benefits hereof. The
Placement Agents (in their capacity as Placement Agents) shall have no liability
or obligation to the Company with respect to any failure by a Holder to comply
with, or any breach by any Holder of, any of the obligations of such Holder
under this Agreement.
(e) PURCHASES AND SALES OF SECURITIES. The Company shall not, and
shall use its best efforts to cause its affiliates (as defined in Rule 405 under
the 1933 Act) not to, purchase and then resell or otherwise transfer any
Securities.
(f) THIRD PARTY BENEFICIARY. The Holders shall be third party
beneficiaries to the agreements made hereunder between the Company, on the one
hand, and the Placement Agents, on the other hand, and shall have the right to
enforce such agreements directly to the
<PAGE>
19
extent it deems such enforcement necessary or advisable to protect its rights
or the rights of Holders hereunder.
(g) COUNTERPARTS. This Agreement may be executed in any number of
counterparts and by the parties hereto in separate counterparts, each of which
when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.
(h) HEADINGS. The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof.
(i) GOVERNING LAW. This Agreement shall be governed by and construed
in accordance with the laws of the State of New York.
(j) SEVERABILITY. In the event that any one or more of the
provisions contained herein, or the application thereof in any circumstance, is
held invalid, illegal or unenforceable, the validity, legality and
enforceability of any such provision in every other respect and of the remaining
provisions contained herein shall not be affected or impaired thereby.
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first written above.
DOBSON WIRELINE COMPANY
By
--------------------------------------
Name:
Title:
Confirmed and accepted as of
the date first above written:
MORGAN STANLEY & CO. INCORPORATED
NATIONSBANC MONTGOMERY SECURITIES LLC
By: MORGAN STANLEY & CO. INCORPORATED
By
--------------------------------
Name:
Title:
<PAGE>
EXHIBIT 5
[MCAFEE & TAFT LETTERHEAD]
July 8, 1998
Dobson Wireline Company
13439 N. Broadway Extension, Suite 200
Oklahoma City, OK
Re: 12 1/4% Senior Notes due 2008
Ladies and Gentlemen:
We have acted as special counsel to Dobson Wireline Company ("Dobson" or
the "Company") in connection with the issuance and sale of $350,000,000
aggregate principal amount of the Company's 12 1/4% Senior Notes due 2008
(which are referred to herein as the "Old Notes") and the filing of the
Company's Registration Statement on Form S-4 (the "Registration Statement")
of which this opinion is a part seeking the registration under the Securities
Act of 1933 of $350,000,000 aggregate principal amount of the Company's 12 1/4%
Notes due 2008 (the "New Notes"). The New Notes are to be offered in exchange
for all outstanding Old Notes (the "Exchange Offer") as more fully set forth
in the Prospectus which forms a part of the Registration Statement.
In this connection we have examined the Company's Certificate of
Incorporation and Bylaws, minutes of certain meetings of the Company's
Board of Directors and the Indenture dated as of June 12, 1998 between the
Company and United States Trust Company of New York as Trustee, governing the
Old Notes and the New Notes, and have made such other investigations of fact
and law as we deem necessary to render the opinions set forth herein.
Based on the foregoing, we are of the opinion that the New Notes to be
exchanged for the Old Notes in the Exchange Offer, when issued in accordance
therewith, will be legally issued, fully paid and non-assessable and will be
binding obligations of the Company.
The opinion expressed herein as to the New Notes constituting binding
obligations of the Company is subject to the exceptions that (1) enforcement
may be limited by bankruptcy, insolvency (including, without limitation, all
laws relating to fraudulent transfers), reorganization, moratorium or similar
laws affecting enforcement of creditors rights generally, and (2) enforcement
is subject to general principles of equity (regardless of whether enforcement
is considered a proceeding in equity or at law).
We hereby consent to the reference to our firm in the Prospectus under
the caption "Legal Matters".
Very truly yours,
/s/ MCAFEE & TAFT
-----------------------------
MCAFEE & TAFT
A Professional Corporation
<PAGE>
Exhibit 11
Dobson Wireline Company
Earnings per Common Share
<TABLE>
<CAPTION>
Years ended December 31,
---------------------------------
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Income before extraordinary items $ 549,629 $ 331,058 $ 499,543
Extraordinary item (217,488) - -
--------- --------- ---------
Net income $ 332,141 $ 331,058 $ 499,543
--------- --------- ---------
--------- --------- ---------
Basic net income (loss) per common share:
Weighted average common shares outstanding 100 100 100
--------- --------- ---------
--------- --------- ---------
Income before extraordinary items $ 5,496 $ 3,311 $ 4,995
Extraordinary item (2,175) - -
--------- --------- ---------
Basic net income per common share $ 3,321 $ 3,311 $ 4,995
--------- --------- ---------
--------- --------- ---------
</TABLE>
<PAGE>
Exhibit 12
Dobson Wireline Company
Computation of Ratio of Earnings to Fixed Charges
<TABLE>
<CAPTION>
1997 1996 1995 1994 1993
----------- ------------ ---------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Net income (loss) $ 332,141 $ 331,058 $ 499,543 $ (110,158) $ 1,226,328
Extraordinary (gain) loss 217,488 - - - -
Accounting changes - - - - (872,944)
Interest expense, net 2,443,914 2,194,169 1,975,071 1,771,385 1,529,528
Income tax provision (benefit) 336,870 182,512 391,149 (49,511) 231,896
----------- ------------ ---------- ----------- -----------
Earnings $ 3,330,413 $ 2,707,739 $ 2,865,763 $ 1,611,716 $ 2,154,808
Interest expense $ 2,443,914 $ 2,194,169 $ 1,975,071 $ 1,771,385 $ 1,529,528
----------- ------------ ---------- ----------- -----------
Fixed charges $ 2,443,914 $ 2,194,169 $ 1,975,071 $ 2,932,110 $ 1,529,528
Ratio of Earnings to Fixed Charges 1.36 1.23 1.45 (1) 1.41
----------- ------------ ---------- ----------- -----------
----------- ------------ ---------- ----------- -----------
</TABLE>
1. Earnings were insufficient to cover fixed charges by $159,669.
<PAGE>
(Exhibit 21)
DOBSON WIRELINE COMPANY
SUBSIDIARIES
Name State of Incorporation
- ---- ----------------------
Dobson Fiber Company, Inc. Oklahoma
Dobson Fiber/Forte Colorado, Inc. Oklahoma
Dobson Network Management, Inc. Oklahoma
Dobson Telephone Company, Inc. Oklahoma
Logix Communications Corporation
(formerly known as Dobson Wireline, Inc.) Oklahoma
<PAGE>
[LETTERHEAD]
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our report as
it relates to Dobson Wireline Company (and to all references to our Firm)
included in or made a part of this registration statement.
ARTHUR ANDERSEN LLP
Oklahoma City, Oklahoma
July 7, 1998
<PAGE>
Exhibit 23.3
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Form S-4 of Dobson Wireline Company of our report
dated March 12, 1998 relating to the combined financial statements of
American Telco, Inc. and American Telco Network Services, Inc., which appears
in such Prospectus. We also consent to the reference to us under the heading
"Experts" in such Prospectus.
PricewaterhouseCoopers LLP
Houston, Texas
July 8, 1998
<PAGE>
EXHIBIT 24
POWER OF ATTORNEY
DOBSON WIRELINE COMPANY
We, the undersigned officers and directors of Dobson Wireline Company
(hereinafter, the "Company"), hereby severally constitute Everett R. Dobson,
Stephen T. Dobson and Bruce R. Knooihuizen and each of them, severally, our
true and lawful attorneys-in-fact with full power to them and each of them to
sign for us, and in our names as officers or directors, or both, of the
Company, one or more Registration Statements on Form S-4, and any amendments
thereto (including post-effective amendments), for the purpose of registering
under the Securities Act of 1933 shares of the Company's 12 1/4% Senior Notes
due 2008, granting unto said attorneys-in-fact and agents, and each of them,
full power and authority to do and to perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents, or any of them, may
lawfully do or cause to be done by virtue hereof.
DATED this 8th day of July, 1998.
NAME AND TILE
- ------------------------------------------------------------------------
/s/ EVERETT R. DOBSON Chairman of the Board and Chief
- ------------------------------ Executive Officer (Principal
Everett R. Dobson Executive Officer)
/s/ STEPHEN T. DOBSON
- ------------------------------ President and Director
Stephen T. Dobson
/s/ BRUCE R. KNOOIHUIZEN
- ------------------------------ Vice President and Chief Financial
Bruce R. Knooihuizen Officer (Principal Financial Officer)
/s/ TRENTON W. LEFORCE
- ------------------------------ Corporate Controller (Principal
Trenton W. LeForce Accounting Officer)
/s/ RUSSELL L. DOBSON
- ------------------------------ Director
Russell L. Dobson
/s/ JUSTIN L. JASCHKE
- ------------------------------ Director
Justin L. Jaschke
/s/ THADEUS J. MOCARSKI
- ------------------------------ Director
Thadeus J. Mocarski
<PAGE>
FORM T-1
----------------------------------------------
----------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------
STATEMENT OF ELIGIBILITY
UNDER THE TRUST INDENTURE ACT OF 1939 OF
A CORPORATION DESIGNATED TO ACT AS TRUSTEE
---------------------
CHECK IF AN APPLICATION TO DETERMINE
ELIGIBILITY OF A TRUSTEE PURSUANT TO
SECTION 305(b)(2)
-------
---------------------
UNITED STATES TRUST COMPANY OF NEW YORK
(Exact name of trustee as specified in its charter)
New York 13-3818954
(Jurisdiction of incorporation (I.R.S. employer
if not a U.S. national bank) identification No.)
114 West 47th Street 10036-1532
New York, NY (Zip Code)
(Address of principal
executive offices)
---------------------
DOBSON WIRELINE COMPANY
(Exact name of obligors as specified in its charter)
Oklahoma 73-1533356
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification No.)
13439 North Broadway Extension
Suite 200
Oklahoma City, Oklahoma 73114
(Address of principal executive offices) (Zip Code)
---------------------
12 1/4% Senior Notes due 2008
(Title of the indenture securities)
----------------------------------------------
----------------------------------------------
<PAGE>
- 2 -
GENERAL
1. GENERAL INFORMATION
Furnish the following information as to the trustee:
(a) Name and address of each examining or supervising authority to which
it is subject.
Federal Reserve Bank of New York (2nd District), New York,
New York (Board of Governors of the Federal Reserve System)
Federal Deposit Insurance Corporation, Washington, D.C.
New York State Banking Department, Albany, New York
(b) Whether it is authorized to exercise corporate trust powers.
The trustee is authorized to exercise corporate trust powers.
2. AFFILIATIONS WITH THE OBLIGOR
If the obligor is an affiliate of the trustee, describe each such
affiliation.
None
3, 4, 5, 6, 7, 8, 9, 10, 11, 12, 13, 14 and 15:
Dobson Wireline Company currently is not in default under any of its
outstanding securities for which United States Trust Company of New York is
Trustee. Accordingly, responses to Items 3, 4, 5, 6, 7, 8, 9, 10, 11, 12,
13, 14 and 15 of Form T-1 are not required under General Instruction B.
16. LIST OF EXHIBITS
T-1.1 -- Organization Certificate, as amended, issued by the State of
New York Banking Department to transact business as a Trust
Company, is incorporated by reference to Exhibit T-1.1 to
Form T-1 filed on September 15, 1995 with the Commission
pursuant to the Trust Indenture Act of 1939, as amended
by the Trust Indenture Reform Act of 1990 (Registration
No. 33-97056).
T-1.2 -- Included in Exhibit T-1.1.
T-1.3 -- Included in Exhibit T-1.1.
<PAGE>
- 3 -
16. LIST OF EXHIBITS
(CONT'D)
T-1.4 -- The By-Laws of United States Trust Company of New York, as
amended, is incorporated by reference to Exhibit T-1.4 to
Form T-1 filed on September 15, 1995 with the Commission
pursuant to the Trust Indenture Act of 1939, as amended by
the Trust Indenture Reform Act of 1990 (Registration No.
33-97056).
T-1.6 -- The consent of the trustee required by Section 321(b) of
the Trust Indenture Act of 1939, as amended by the Trust
Indenture Reform Act of 1990.
T-1.7 -- A copy of the latest report of condition of the trustee
pursuant to law or the requirements of its supervising or
examining authority.
NOTE
As of July 6, 1998, the trustee had 2,999,020 shares of Common Stock
outstanding, all of which are owned by its parent company, U.S. Trust
Corporation. The term "trustee" in Item 2, refers to each of United States
Trust Company of New York and its parent company, U. S. Trust Corporation.
In answering Item 2 in this statement of eligibility as to matters peculiarly
within the knowledge of the obligor or its directors, the trustee has relied
upon information furnished to it by the obligor and will rely on information to
be furnished by the obligor and the trustee disclaims responsibility for the
accuracy or completeness of such information.
---------------------
Pursuant to the requirements of the Trust Indenture Act of 1939, the trustee,
United States Trust Company of New York, a corporation organized and existing
under the laws of the State of New York, has duly caused this statement of
eligibility to be signed on its behalf by the undersigned, thereunto duly
authorized, all in the City of New York, and State of New York, on the 7th day
of July, 1998.
UNITED STATES TRUST COMPANY
OF NEW YORK, Trustee
By:
------------------------
Louis P. Young
Vice President
<PAGE>
EXHIBIT T-1.6
The consent of the trustee required by Section 321(b) of the Act.
United States Trust Company of New York
114 West 47th Street
New York, NY 10036
January 7, 1997
Securities and Exchange Commission
450 5th Street, N.W.
Washington, DC 20549
Gentlemen:
Pursuant to the provisions of Section 321(b) of the Trust Indenture Act of 1939,
as amended by the Trust Indenture Reform Act of 1990, and subject to the
limitations set forth therein, United States Trust Company of New York ("U.S.
Trust") hereby consents that reports of examinations of U.S. Trust by Federal,
State, Territorial or District authorities may be furnished by such authorities
to the Securities and Exchange Commission upon request therefor.
Very truly yours,
UNITED STATES TRUST COMPANY
OF NEW YORK
/s/ Gerard F. Ganey
---------------------
By: Gerard F. Ganey
Senior Vice President
<PAGE>
EXHIBIT T-1.7
UNITED STATES TRUST COMPANY OF NEW YORK
CONSOLIDATED STATEMENT OF CONDITION
MARCH 31, 1998
($ IN THOUSANDS)
<TABLE>
<S> <C>
ASSETS
- ------
Cash and Due from Banks $ 303,692
Short-Term Investments 325,044
Securities, Available for Sale 650,954
Loans 1,717,101
Less: Allowance for Credit Losses 16,546
----------
Net Loans 1,700,555
Premises and Equipment 58,868
Other Assets 120,865
----------
TOTAL ASSETS $3,159,978
----------
----------
LIABILITIES
- -----------
Deposits:
Non-Interest Bearing $ 602,769
Interest Bearing 1,955,571
----------
TOTAL DEPOSITS 2,558,340
Short-Term Credit Facilities 293,185
Accounts Payable and Accrued Liabilities 136,396
----------
TOTAL LIABILITIES $2,987,921
----------
----------
STOCKHOLDER'S EQUITY
- --------------------
Common Stock 14,995
Capital Surplus 49,541
Retained Earnings 105,214
Unrealized Gains on Securities
Available for Sale (Net of Taxes) 2,307
----------
TOTAL STOCKHOLDER'S EQUITY 172,057
----------
TOTAL LIABILITIES AND
STOCKHOLDER'S EQUITY $3,159,978
----------
----------
</TABLE>
I, Richard E. Brinkmann, Senior Vice President & Comptroller of the named
bank do hereby declare that this Statement of Condition has been prepared in
conformance with the instructions issued by the appropriate regulatory
authority and is true to the best of my knowledge and belief.
Richard E. Brinkmann, SVP & Controller
May 6, 1998
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> YEAR 3-MOS
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1998
<PERIOD-START> JAN-01-1997 JAN-01-1998
<PERIOD-END> DEC-31-1997 MAR-31-1998
<CASH> 254,269 1,377,105
<SECURITIES> 0 0
<RECEIVABLES> 1,808,489 2,049,967
<ALLOWANCES> 16,258 0
<INVENTORY> 240,787 0
<CURRENT-ASSETS> 3,011,795 3,981,090
<PP&E> 70,666,044 37,016,990
<DEPRECIATION> 34,689,632 0
<TOTAL-ASSETS> 51,953,356 49,825,793
<CURRENT-LIABILITIES> 2,543,837 2,525,411
<BONDS> 27,498,535 27,164,863
0 0
0 0
<COMMON> 100 100
<OTHER-SE> 20,077,067 18,375,483
<TOTAL-LIABILITY-AND-EQUITY> 51,953,356 49,825,793
<SALES> 20,176,710 5,290,098
<TOTAL-REVENUES> 20,176,710 5,290,098
<CGS> 3,268,343 1,698,813
<TOTAL-COSTS> 3,268,343 1,698,813
<OTHER-EXPENSES> 13,666,238 4,980,123
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 2,458,588 320,957
<INCOME-PRETAX> 886,499 (1,670,132)
<INCOME-TAX> 336,870 (635,000)
<INCOME-CONTINUING> 549,629 (1,035,132)
<DISCONTINUED> 0 0
<EXTRAORDINARY> (217,488) 0
<CHANGES> 0 (699,447)
<NET-INCOME> 332,141 (1,734,579)
<EPS-PRIMARY> 3,321.41 (17,345.79)
<EPS-DILUTED> 0 0
</TABLE>
<PAGE>
LETTER OF TRANSMITTAL
FOR
TENDER OF ALL OUTSTANDING
12 1/4% SENIOR NOTES DUE 2008
IN EXCHANGE FOR
12 1/4% SENIOR NOTES DUE 2008
OF
DOBSON WIRELINE COMPANY
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M.,
NEW YORK CITY TIME, ON ________________, 1998 (THE "EXPIRATION DATE"),
UNLESS EXTENDED BY DOBSON WIRELINE COMPANY
THE EXCHANGE AGENT FOR THE EXCHANGE OFFER IS:
UNITED STATES TRUST COMPANY OF NEW YORK
<TABLE>
BY MAIL: BY OVERNIGHT COURIER: BY HAND: BY FACSIMILE:
<S> <C> <C> <C>
United States Trust United States Trust United States Trust (212) 420-6152
Company of New York Company of New York Company of New York (For Eligible Institutions
P.O. Box 844 Corporate Trust Operations 111 Broadway Only)
Cooper Station Department Lower Level
New York, NY 10276-0844 770 Broadway-13th Floor New York, NY 10006 CONFIRM BY TELEPHONE:
Attention: Corporate New York, NY 10003 Attention: Corporate (800) 548-6565
Trust Services Trust Services
(registered or certified mail
recommended)
</TABLE>
DELIVERY OF THIS LETTER OF TRANSMITTAL TO AN ADDRESS OTHER THAN AS SET
FORTH ABOVE OR TRANSMISSION OF INSTRUCTIONS VIA A FACSIMILE TRANSMISSION TO A
NUMBER OTHER THAN AS SET FORTH ABOVE WILL NOT CONSTITUTE A VALID DELIVERY.
The undersigned acknowledges receipt of the Prospectus dated
______________, 1998 (the "Prospectus") of Dobson Wireline Company ("Dobson")
which, together with this Letter of Transmittal (the "Letter of Transmittal"),
constitutes Dobson's offer (the "Exchange Offer") to exchange $1,000 principal
amount of 12 1/4% Senior Notes due 2008 (the "New Notes") of Dobson for each
$1,000 principal amount of outstanding 12 1/4% Senior Notes due 2008 (the "Old
Notes") of Dobson. The terms of the New Notes are identical in all material
respects (including, with respect to interest and upon redemption) to the terms
of the Old Notes for which they may be exchanged pursuant to the Exchange Offer,
except that the New Notes have been registered under the Securities Act of 1933,
as amended, and, therefore, will not bear legends restricting the transfer
thereof.
The Exchange Offer is being made pursuant to the Registration Rights
Agreement dated as of June 12, 1998 (the "Registration Rights Agreement"), and
all Old Notes validly tendered will be accepted for exchange. Any Old Notes not
tendered will remain outstanding and continue to accrue interest, but will not
retain any rights under the Registration Rights Agreement. Holders electing to
have Old Notes exchanged
<PAGE>
pursuant to the Exchange Offer will be required to surrender such Old Notes,
together with the Letter of Transmittal, to the Exchange Agent at the address
specified herein prior to the close of business on the Expiration Date.
Holders will be entitled to withdraw their election, at any time prior to
5:00 p.m., New York City time on the Expiration Date, by sending to the
Exchange Agent at the address specified herein a facsimile transmission or
letter setting forth the name of such Holder, the principal amount of Old
Notes delivered for exchange and a statement that such Holder is withdrawing
this election to have such Old Notes exchanged.
The undersigned has checked the appropriate boxes below and signed this
Letter of Transmittal to indicate the action the undersigned desires to take
with respect to the Exchange Offer.
PLEASE READ THE ENTIRE LETTER OF TRANSMITTAL AND THE PROSPECTUS CAREFULLY
BEFORE CHECKING ANY BOX BELOW.
THE INSTRUCTIONS INCLUDED WITH THIS LETTER OF TRANSMITTAL MUST BE
FOLLOWED. QUESTIONS AND REQUESTS FOR ASSISTANCE OR FOR ADDITIONAL COPIES OF THE
PROSPECTUS AND THIS LETTER OF TRANSMITTAL MAY BE DIRECTED TO THE EXCHANGE AGENT.
List below the Old Notes to which this Letter of Transmittal relates. If
the space provided below is inadequate, the Certificate Numbers should be listed
on a separate signed schedule affixed hereto.
<TABLE>
- -----------------------------------------------------------------------------------
DESCRIPTION OF OLD NOTES TENDERED HEREWITH
- -----------------------------------------------------------------------------------
<S> <C> <C> <C>
Name(s) and Address(es) of Certificate Aggregate Amount
Registered Holder(s) Number(s) Principal Amount Tendered*
(Please fill in) Represented by Notes
Total
- -----------------------------------------------------------------------------------
* Unless otherwise indicated, the holder will be deemed to have tendered
all Old Notes included. See Instruction 2.
- -----------------------------------------------------------------------------------
</TABLE>
This Letter of Transmittal is to be used if certificates for Old Notes
are to be forwarded herewith.
Unless the context requires otherwise, the term "Holder" for purposes of
this Letter of Transmittal means any person in whose name Old Notes are
registered or any other person who has obtained a properly completed bond power
from the registered holder.
Holders whose Old Notes are not immediately available or who cannot
deliver their Old Notes and all other documents required hereby to the Exchange
Agent on or prior to the Expiration Date may tender
-2-
<PAGE>
their Old Notes according to the guaranteed delivery procedure set forth in
the Prospectus under the captions "The Exchange Offer -- Terms of the
Exchange Offer -- Procedures for Tendering Old Notes" and "The Exchange Offer
- -- Terms of the Exchange Offer -- Guaranteed Delivery Procedures."
/ / CHECK HERE IF TENDERED OLD NOTES ARE BEING DELIVERED PURSUANT TO A NOTICE
OF GUARANTEED DELIVERY AND COMPLETE THE FOLLOWING:
Name of Registered Holder(s):
-------------------------------------------
Name of Eligible Institution that Guaranteed Delivery:
------------------
/ / CHECK HERE IF YOU ARE A BROKER-DEALER AND WISH TO RECEIVE 10 ADDITIONAL
COPIES OF THE PROSPECTUS AND 10 COPIES OF ANY AMENDMENTS OR SUPPLEMENTS
THERETO.
Name:
------------------------------------------------------
Address:
---------------------------------------------------
-3-
<PAGE>
PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY
Ladies and Gentlemen:
Upon the terms and subject to the conditions of the Exchange Offer, the
undersigned hereby tenders to Dobson the above-described aggregate principal
amount of Old Notes. Subject to, and effective upon, the acceptance for exchange
of the Old Notes tendered herewith, the undersigned hereby exchanges, assigns
and transfers to, or upon the order of, Dobson all right, title and interest in
and to such Old Notes. The undersigned hereby irrevocably constitutes and
appoints the Exchange Agent as the true and lawful agent and attorney-in-fact of
the undersigned (with full knowledge that said Exchange Agent acts as the agent
of the undersigned in connection with the Exchange Offer) to cause the Old Notes
to be assigned, transferred and exchanged. The undersigned represents and
warrants that it has full power and authority to tender, exchange, assign and
transfer the Old Notes and to acquire New Notes issuable upon the exchange of
such tendered Old Notes, and that, when the same are accepted for exchange,
Dobson will acquire good and unencumbered title to the tendered Old Notes, free
and clear of all liens, restrictions, charges and encumbrances and not subject
to any adverse claim. The undersigned also warrants that it will, upon request,
execute and deliver any additional documents deemed by Dobson to be necessary or
desirable to complete the exchange, assignment and transfer of tendered Old
Notes or to transfer ownership of such Old Notes on the account books maintained
by The Depository Trust Company.
The Exchange Offer is subject to certain conditions as set forth in the
Prospectus under the caption "The Exchange Offer -- Conditions of the Exchange
Offer." The undersigned recognizes that as a result of these conditions (which
may be waived, in whole or in part, by Dobson) as more particularly set forth in
the Prospectus, Dobson may not be required to exchange any of the Old Notes
tendered hereby and, in such event, the Old Notes not exchanged will be returned
to the undersigned at the address shown below the signature of the undersigned.
By tendering, each Holder of Old Notes represents to Dobson that (i) the
New Notes acquired pursuant to the Exchange Offer are being obtained in the
ordinary course of business of the person receiving such New Notes, whether or
not such person is such Holder, (ii) neither the Holder of Old Notes nor any
such other person has an arrangement or understanding with any person to
participate in the distribution of such New Notes, (iii) if the Holder is not a
broker-dealer or is a broker-dealer but will not receive New Notes for its own
account in exchange for Old Notes, neither the Holder nor any such other person
is engaged in or intends to participate in a distribution of the New Notes and
(iv) neither the Holder nor any such other person is an "affiliate" of Dobson
within the meaning of Rule 405 under the Securities Act of 1933, as amended (the
"Securities Act") or, if such Holder is an "affiliate," that such Holder will
comply with the registration and prospectus delivery requirements of the
Securities Act to the extent applicable. If the tendering Holder is a
broker-dealer (whether or not it is also an "affiliate" of Dobson within the
meaning of Rule 405 under the Securities Act) that will receive New Notes for
its own account in exchange for Old Notes, it acknowledges that it will deliver
a prospectus meeting the requirements of the Securities Act in connection with
any resale of such New Notes. By acknowledging that it will deliver and by
delivering a prospectus meeting the requirements of the Securities Act in
connection with any resale of such New Notes, the undersigned is not deemed to
admit that it is an "underwriter" within the meaning of the Securities Act.
All authority herein conferred or agreed to be conferred shall survive
the death, bankruptcy or incapacity of the undersigned and every obligation of
the undersigned hereunder shall be binding upon the heirs, personal
representatives, executors, administrators, successors, assigns, trustees in
bankruptcy and other
-4-
<PAGE>
legal representatives of the undersigned. Tendered Old Notes may be withdrawn
at any time prior to 5:00 p.m., New York City Time on the Expiration Date.
Certificates for all New Notes delivered in exchange for tendered Old
Notes and any Old Notes delivered herewith but not exchanged, in each case
registered in the name of the undersigned, shall be delivered to the undersigned
at the address shown below the signature of the undersigned.
TENDERING HOLDER(S) SIGN HERE
- -------------------------------------------------------------------------------
Signature(s) of Holder(s)
- -------------------------------------------------------------------------------
Date: _______________, 1998
(Must be signed by registered Holder(s) exactly as name(s) appear(s) on
certificate(s) for Old Notes or by any person(s) authorized to become registered
Holder(s) by endorsements and documents transmitted herewith. If signature by a
trustee, executor, administrator, guardian, attorney-in-fact, officer of a
corporation or other person acting in a fiduciary or representative capacity,
please set forth the full title of such person.) See Instruction 3.
Name(s):
----------------------------------------------------------
- ------------------------------------------------------------------
(Please Print)
Capacity (full title):
--------------------------------------------
Address:
----------------------------------------------------------
(Including Zip Code)
- ------------------------------------------------------------------
Area Code and Telephone No.:
--------------------------------------
Tax Identification No.:
-------------------------------------------
-5-
<PAGE>
GUARANTEE OF SIGNATURE(S)
(IF REQUIRED -- SEE INSTRUCTION 3)
Authorized Signature:
---------------------------------------------
Name:
-------------------------------------------------------------
Title:
------------------------------------------------------------
Address:
----------------------------------------------------------
Name of Firm:
-----------------------------------------------------
Area Code and Telephone No.:
--------------------------------------
Dated: ____________________, 1998
<TABLE>
- -----------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------
PAYOR'S NAME: DOBSON WIRELINE COMPANY
- -----------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------
<S> <C>
SUBSTITUTE Name (If joint names, list first and circle the name of the
FORM W-9 person or entity whose number you enter in Part I below.)
--------------------------------------------------------------------------------------
Address
--------------------------------------------------------------------------------------
City, state and Zip Code
--------------------------------------------------------------------------------------
Department of the Treasury
Internal Revenue Service
--------------------------------------------------------------------------------------
Payor's Request for Taxpayer Part I - PLEASE PROVIDE YOUR TAXPAYER IDENTIFICATION Social Security number of Em-
Identification Number ("TIN") NUMBER ("TIN") IN THE BOX AT RIGHT AND CERTIFY BY ployer Identification Number
Identification SIGNING AND DATING BELOW.
--------------------------------------------------------------------------------------
Part II - If exempt from backup withholding, check the box to the right. / /
Also provide your TIN in Part I and sign and date this form in Part III.
--------------------------------------------------------------------------------------
Part III - Under penalties of perjury, I certify that:
1. The number shown on this form is my correct taxpayer identification number
(or I am waiting for a number to be issued to me), AND
2. I am not subject to backup withholding: (a) I am exempt from backup
withholding; or (b) I have not been notified by the Internal Revenue
Service that I am subject to backup withholding as a result of a failure to
report all interest or dividends, or (c) the IRS has notified me that I am
no longer subject to backup withholding.
CERTIFICATION INSTRUCTIONS. You must cross out item 2 above if you have been
notified by the IRS that you are currently subject to backup withholding because
of underreporting interest or dividends on your tax return.
Signature Date
----------------------- ---------------------
- -----------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
Note: FAILURE TO COMPLETE AND RETURN THIS FORM MAY RESULT IN BACKUP WITHHOLDING
OF 31% OF ANY PAYMENTS MADE TO YOU PURSUANT TO THE EXCHANGE OFFER. PLEASE
REVIEW THE ENCLOSED GUIDELINES FOR CERTIFICATION OF TAXPAYER
IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 FOR ADDITIONAL DETAILS.
-6-
<PAGE>
INSTRUCTIONS
FORMING PART OF THE TERMS AND CONDITIONS
OF THE EXCHANGE OFFER
1. DELIVERY OF THIS LETTER OF TRANSMITTAL AND CERTIFICATES. Certificates
for all physically delivered Old Notes, as well as a properly completed and
duly executed copy of this Letter of Transmittal or facsimile thereof, and
any other documents required by this Letter of Transmittal, must be received
by the Exchange Agent at any of its addresses set forth herein on or prior to
the Expiration Date.
THE METHOD OF DELIVERY OF OLD NOTES, THIS LETTER OF TRANSMITTAL AND ALL
OTHER REQUIRED DOCUMENTS TO THE EXCHANGE AGENT IS AT THE ELECTION AND RISK OF
THE HOLDER AND, EXCEPT AS OTHERWISE PROVIDED BELOW, THE DELIVERY WILL BE DEEMED
MADE ONLY WHEN ACTUALLY RECEIVED BY THE EXCHANGE AGENT. INSTEAD OF DELIVERY BY
MAIL, IT IS RECOMMENDED THAT HOLDERS USE AN OVERNIGHT OR HAND DELIVERY SERVICE.
Holders whose Old Notes are not immediately available or who cannot
deliver their Old Notes and all other required documents to the Exchange Agent
on or prior to the Expiration Date may tender their Old Notes pursuant to the
guaranteed delivery procedure set forth in the Prospectus under "The Exchange
Offer -- Terms of the Exchange Offer -- Guaranteed Delivery Procedures."
Pursuant to such procedure: (i) such tender must be made by or through an
Eligible Institution (as defined in the Prospectus); (ii) on or prior to the
Expiration Date, the Exchange Agent must have received from such Eligible
Institution a letter, telegram or facsimile transmission setting forth the name
and address of the tendering Holder, the name(s) in which such Old Notes are
registered, and the certificate number(s) of the Old Notes to be tendered; and
(iii) all tendered Old Notes as well as this Letter of Transmittal and all other
documents required by this Letter of Transmittal must be received by the
Exchange Agent within three New York Stock Exchange trading days after the date
of execution of such letter, telex, telegram or facsimile transmission, all as
provided in the Prospectus under the caption "The Exchange Offer -- Terms of the
Exchange Offer -- Guaranteed Delivery Procedures."
No alternative, conditional, irregular or contingent tenders will be
accepted. All tendering Holders, by execution of this Letter of Transmittal (or
facsimile thereof), shall waive any right to receive notice of the acceptance of
the Old Notes for exchange.
2. PARTIAL TENDERS; WITHDRAWALS. If less than the entire number of
Old Notes evidenced by a submitted certificate is tendered, the tendering Holder
must fill in the number of shares tendered in the column entitled "Amount
Tendered." A newly issued certificate for the number of Old Notes submitted but
not tendered will be sent to such Holder as soon as practicable after the
Expiration Date. All Old Notes delivered to the Exchange Agent will be deemed
to have been tendered unless otherwise indicated. To withdraw a tender of Old
Notes in the Exchange Offer, a written or facsimile transmission notice of
withdrawal must be received by the Exchange Agent at its address set forth
herein prior to 5:00 p.m., New York City time, on the Expiration Date. Any such
notice of withdrawal must (i) specify the name of the person having deposited
the Old Notes to be withdrawn (the "Depositor"), (ii) identify the Old Notes to
be withdrawn (including the certificate number or number of such Old Notes),
(iii) contain a statement that such Holder is withdrawing its election to have
such Old Notes exchanged, (iv) be signed by the Holder in the same manner as the
original signature on the Letter of Transmittal by which such Old Notes were
tendered (including any required signature guarantees) or be accompanied by
documents of transfer sufficient to have the Trustee with respect to the Old
Notes register the transfer of such Old Notes in the name of the person
withdrawing the tender and (v) specify the name in which any such Old Notes
are to be registered, if different from that of the Depositor. If Old Notes
-7-
<PAGE>
have been tendered pursuant to the procedure for book-entry transfer, any
notice of withdrawal must specify the name and number of the account at the
book-entry transfer facility. All questions as to the validity, form and
eligibility (including time of receipt) of such notices will be determined by
Dobson, whose determination shall be final and binding on all parties. Any
Old Notes so withdrawn will be deemed not to have been validly tendered for
purposes of the Exchange Offer and no New Notes will be issued with respect
thereto unless the Old Notes so withdrawn are validly retendered. Any Old
Notes which have been tendered but which are not accepted for exchange will
be returned to the Holder thereof without cost to such Holder as soon as
practicable after withdrawal, rejection of tender or termination of the
Exchange Offer. Properly withdrawn Old Notes may be retendered by following
one of the procedures described herein at any time prior to the business day
prior to the Expiration Date.
3. SIGNATURE ON THIS LETTER OF TRANSMITTAL; WRITTEN INSTRUMENTS AND
ENDORSEMENTS; GUARANTEE OF SIGNATURES. If this Letter of Transmittal is signed
by the registered Holder(s) of the Old Notes tendered hereby, the signature must
correspond with the name(s) as written on the face of certificates without
alteration, enlargement or any change whatsoever.
If tendered Old Notes are registered in the name of the signer of the
Letter of Transmittal and the New Notes to be issued in exchange therefor are to
be issued (and any untendered Old Notes are to be reissued) in the name of the
registered Holder (including any participant in The Depository Trust Company
(also referred to as a book-entry facility) whose name appears on a security
listing as the owner of Old Notes), the signature of such signer need not be
guaranteed. In any other case, the tendered Old Notes must be endorsed or
accompanied by written instruments of transfer in form satisfactory to Dobson
and duly executed by the registered Holder and the signature on the endorsement
or instrument of transfer must be guaranteed by an eligible guarantor
institution which is a member of one of the following recognized signature
guarantee programs (an "Eligible Institution"): (i) The Securities Transfer
Agents Medallion Program (STAMP), (ii) The New York Stock Exchange Medallion
Signature Program (MSF), or (iii) The Stock Exchange Medallion Program (SEMP).
If the New Notes or Old Notes not exchanged are to be delivered to an
address other than that of the registered Holder appearing on the note register
for the Old Notes, the signature in the Letter of Transmittal must be guaranteed
by an Eligible Institution.
Endorsements on certificates or signatures on separate written
instruments of transfer or exchange required by this Instruction 3 must be
guaranteed by an Eligible Institution.
If any of the Old Notes tendered hereby are owned of record by two or
more joint owners, all such owners must sign this Letter of Transmittal.
If a number of Old Notes registered in different names are tendered, it
will be necessary to complete, sign and submit as many separate copies of this
Letter of Transmittal as there are different registrations of Old Notes.
When this Letter of Transmittal is signed by the registered Holder or
Holders of Old Notes listed and tendered hereby, no endorsements of certificates
or separate written instruments of transfer or exchange are required.
-8-
<PAGE>
If this Letter of Transmittal is signed by a person other than the
registered Holder or Holders of the Old Notes listed, such Old Notes must be
endorsed or accompanied by separate written instruments of transfer or
exchange in form satisfactory to Dobson and duly executed by the registered
Holder or Holders, in either case signed exactly as the name or names of the
registered Holder or Holders appear(s) on the Old Notes.
If this Letter of Transmittal, any certificates or separate written
instruments of transfer or exchange are signed by trustees, executors,
administrators, guardians, attorneys-in-fact, officers of corporations or
others acting in a fiduciary or representative capacity, such persons should
so indicate when signing, and, unless waived by Dobson, proper evidence
satisfactory to Dobson of their authority so to act must be submitted.
4. TRANSFER TAXES. Dobson shall pay all transfer taxes, if any,
applicable to the exchange of Old Notes pursuant to the Exchange Offer. If,
however, certificates representing New Notes, or Old Notes for principal
amounts not tendered or accepted for exchange, are to be delivered to, or are
to be issued in the name of, any person other than the registered Holder of
the Old Notes tendered hereby, or if a transfer tax is imposed for any reason
other than the exchange of Old Notes pursuant to the Exchange Offer, then the
amount of any such transfer taxes (whether imposed on the registered Holder
or any other person) will be payable by the tendering Holder. If
satisfactory evidence of payment of such taxes or exemption therefrom is not
submitted herewith, the amount of such transfer taxes will be billed directly
to such tendering Holder.
Except as provided in this Instruction 4, it will not be necessary for
transfer tax stamps to be affixed to the Old Notes listed in this Letter of
Transmittal.
5. WAIVER OF CONDITIONS. Dobson reserves the absolute right to waive,
in whole or in part, any of the conditions to the Exchange Offer set forth in
the Prospectus.
6. MUTILATED, LOST, STOLEN OR DESTROYED NOTES. Any Holder whose Old
Notes have been mutilated, lost, stolen or destroyed should contact the
Exchange Agent at the address indicated above for further instructions.
7. REQUESTS FOR ASSISTANCE OR ADDITIONAL COPIES. Questions relating
to the procedure for tendering and other questions relating to the Exchange
Offer, as well as requests for assistance or additional copies of the
Prospectus and this Letter of Transmittal, may be directed to the Exchange
Agent at the address and telephone number set forth above and in the
Prospectus.
8. IRREGULARITIES. All questions as to the validity, form,
eligibility (including time of receipt), and acceptance of Letters of
Transmittal or Old Notes will be resolved by Dobson, whose determination will
be final and binding. Dobson reserves the absolute right to reject any or all
Letters of Transmittal or tenders that are not in proper form or the
acceptance of which would, in the opinion of Dobson's counsel, be unlawful.
Dobson also reserves the right to waive any irregularities or conditions of
tender as to the particular Old Notes covered by any Letter of Transmittal or
tendered pursuant to such Letter of Transmittal. None of Dobson, the
Exchange Agent or any other person will be under any duty to give
notification of any defects or irregularities in tenders or incur any
liability for failure to give any such notification. Dobson's interpretation
of the terms and conditions of the Exchange Offer shall be final and binding.
9. DEFINITIONS. Capitalized terms used in this Letter of Transmittal
and not otherwise defined have the meanings given in the Prospectus.
-9-
<PAGE>
10. TAX IDENTIFICATION NUMBER. Federal income tax law requires that a
Holder of any Old Notes which are accepted for exchange must provide Dobson (as
payor) with its correct taxpayer identification number ("TIN"), which, in the
case of a Holder who is an individual, is his or her social security number. If
Dobson is not provided with the correct TIN, the Holder may be subject to a $50
penalty imposed by the Internal Revenue Service. (If withholding results in an
over-payment of taxes, a refund may be obtained.) Certain Holders (including,
among others, all corporations and certain foreign individuals) are not subject
to these backup withholding and reporting requirements; however, these Holders
still must submit the Substitute Form W-9. See the enclosed "Guidelines for
Certification of Taxpayer Identification Number on Substitute Form W-9" for
additional instructions.
To prevent backup withholding, each tendering Holder must provide such
Holder's correct TIN by completing the Substitute Form W-9 set forth herein,
certifying that the TIN provided is correct (or that such Holder is awaiting a
TIN), and that (i) the Holder has not been notified by the Internal Revenue
Service that such Holder is subject to backup withholding as a result of failure
to report all interest or dividends or (ii) the Internal Revenue Service has
notified the Holder that such Holder is no longer subject to backup withholding.
The Form must be signed, even if the Holder is exempt from backup withholding.
If the Old Notes are registered in more than one name or are not in the name of
the actual owner, consult the enclosed "Guidelines for Certification of Taxpayer
Identification Number on Substitute Form W-9" for information on which TIN to
report.
Dobson reserves the right in its sole discretion to take whatever steps
are necessary to comply with its obligation regarding backup withholding.
IMPORTANT: THIS LETTER OF TRANSMITTAL OR A FACSIMILE THEREOF (TOGETHER
WITH CERTIFICATES FOR OLD NOTES AND ALL OTHER REQUIRED DOCUMENTS) OR A NOTICE OF
GUARANTEED DELIVERY MUST BE RECEIVED BY THE EXCHANGE AGENT ON OR PRIOR TO THE
EXPIRATION DATE.
-10-
<PAGE>
NOTICE OF GUARANTEED DELIVERY
FOR
TENDER OF ALL OUTSTANDING
12 1/4% SENIOR NOTES DUE 2008
IN EXCHANGE FOR
12 1/4% SENIOR NOTES DUE 2008
OF
DOBSON WIRELINE COMPANY
Registered holders of outstanding 12 1/4% Senior Notes due 2008 (the "Old
Notes") of Dobson Wireline Company ("Dobson") who wish to tender their Old Notes
in exchange for a like number of 12 1/4% Senior Notes due 2008 (the "New Notes")
of Dobson and, in each case, whose Old Notes are not immediately available or
who cannot deliver their Old Notes and Letter of Transmittal (and any other
documents required by the Letter of Transmittal) to United States Trust Company
of New York (the "Exchange Agent") prior to the Expiration Date may use this
Notice of Guaranteed Delivery or one substantially equivalent hereto. This
Notice of Guaranteed Delivery may be delivered by hand or sent by facsimile
transmission (receipt confirmed by telephone and an original delivered by
guaranteed overnight delivery) or mail to the Exchange Agent. See "The Exchange
Offer -- Terms of the Exchange Offer -- Guaranteed Delivery Procedures" in the
Prospectus.
THE EXCHANGE AGENT FOR THE EXCHANGE OFFER IS:
UNITED STATES TRUST COMPANY OF NEW YORK
<TABLE>
BY MAIL: BY OVERNIGHT COURIER: BY HAND: BY FACSIMILE:
<S> <C> <C> <C>
United States Trust United States Trust United States Trust (212) 420-6152
Company of New York Company of New York Company of New York (For Eligible Institutions
P.O. Box 844 Corporate Trust Operations 111 Broadway Only)
Cooper Station Department Lower Level
New York, NY 10276-0844 770 Broadway-13th Floor New York, NY 10006 CONFIRM BY TELEPHONE:
Attention: Corporate New York, NY 10003 Attention: Corporate (800) 548-6565
Trust Services Trust Services
(registered or certified mail
recommended)
</TABLE>
DELIVERY OF THIS NOTICE OF GUARANTEED DELIVERY TO AN ADDRESS OTHER THAN
AS SET FORTH ABOVE OR TRANSMISSION OF INSTRUCTIONS VIA A FACSIMILE
TRANSMISSION TO A NUMBER OTHER THAN AS SET FORTH ABOVE WILL NOT CONSTITUTE A
VALID DELIVERY.
This Notice of Guaranteed Delivery is not to be used to guarantee signatures. If
a signature on a Letter of Transmittal is required to be guaranteed by an
Eligible Institution, such signature guarantee must appear in the applicable
space provided on the Letter of Transmittal for Guarantee of Signatures.
<PAGE>
Ladies & Gentlemen:
The undersigned hereby tender(s) to Dobson upon the terms and subject to
the conditions set forth in the Exchange Offer and the Letter of Transmittal,
receipt of which is hereby acknowledged, the aggregate principal amount of Old
Notes set forth below pursuant to the guaranteed delivery procedures set forth
in the Prospectus.
The undersigned understands that tenders of Old Notes pursuant to the
Exchange Offer may not be withdrawn after 5:00 p.m., New York City time on the
Expiration Date. Tenders of Old Notes may also be withdrawn if the Exchange
Offer is terminated without any such Old Notes being exchanged thereunder or as
otherwise provided in the Prospectus.
All authority herein conferred or agreed to be conferred by this Notice
of Guaranteed Delivery shall survive the death, bankruptcy or incapacity of the
undersigned and every obligation of the undersigned under this Notice of
Guaranteed Delivery shall be binding upon the heirs, personal representatives,
executors, administrators, successors, assigns, trustees in bankruptcy and other
legal representatives of the undersigned.
PLEASE SIGN AND COMPLETE
Signature(s) of Registered Owner(s) or Name(s) of Registered Holder(s):
Authorized Signatory:
---------------------------------
--------------------------------- ---------------------------------
--------------------------------- ---------------------------------
Principal Amount of Old Notes Tendered Address:
-------------------------
--------------------------------- ---------------------------------
Certificate No(s). of Old Notes (if
available): Area Code and Telephone No.:
--------------------------------- ---------------------------------
Date:
----------------------------
<PAGE>
- --------------------------------------------------------------------------------
This Notice of Guaranteed Delivery must be signed by the registered
holder(s) of Old Notes exactly as its (their) name(s) appear on
certificates for Old Notes or on a security position listing the owners
of Old Notes, or by person(s) authorized to become registered Holder(s)
by endorsements and documents transmitted with this Notice of Guaranteed
Delivery. If signature is by a trustee, executor, administrator, guardian,
attorney-in-fact, officer or other person acting in a fiduciary or
representative capacity, such person must provide the following
information.
PLEASE PRINT NAME(S) AND ADDRESS(ES)
Name(s):
--------------------------------------------------
--------------------------------------------------
Capacity:
-------------------------------------------------
Address(es):
----------------------------------------------
DO NOT SEND OLD NOTES WITH THIS FORM. OLD NOTES SHOULD BE SENT TO THE
EXCHANGE AGENT TOGETHER WITH A PROPERLY COMPLETED AND DULY EXECUTED
LETTER OF TRANSMITTAL.
- --------------------------------------------------------------------------------
GUARANTEE
(Not to be used for signature guarantee)
The undersigned, an eligible guarantor institution which is a member
of one of the following signature guarantee programs (an "Eligible
Institution"): (i) The Securities Transfer Agents Medallion Program
(STAMP), (ii) The New York Stock Exchange Medallion Signature Program
(MSF), or (iii) The Stock Exchange Medallion Program (SEMP), hereby (a)
represents that each holder of Old Notes on whose behalf this tender is
being made "own(s)" the Old Notes covered hereby within the meaning of
Rule 14e-4 under the Securities Exchange Act of 1934, as amended, (b)
represents that such tender of Old Notes complies with such Rule 14e-4,
and (c) guarantees that, within three New York Stock Exchange trading
days from the date of this Notice of Guaranteed Delivery, a properly
completed and duly executed Letter of Transmittal (or a facsimile
thereof), together with certificates representing the Old Notes covered
hereby in proper form for transfer and required documents will be
deposited by the undersigned with the Exchange Agent.
THE UNDERSIGNED ACKNOWLEDGES THAT IT MUST DELIVER THE LETTER OF
TRANSMITTAL AND OLD NOTES TENDERED HEREBY TO THE EXCHANGE AGENT WITHIN
THE TIME SET FORTH ABOVE AND THAT FAILURE TO DO SO COULD RESULT IN
FINANCIAL LOSS TO THE UNDERSIGNED.
Name of Firm: Authorized Signature:
--------------------------
Address:
-------------------------------
--------------------------------------- Name:
-------------------------
Area Code and Telephone No.: Title:
----------- ------------------------
Date:
--------------------------------------- -------------------------
- --------------------------------------------------------------------------------
-3-
<PAGE>
DOBSON WIRELINE COMPANY
OFFER TO EXCHANGE
ITS
12-1/4% SENIOR NOTES DUE 2008
IN EXCHANGE FOR
12-1/4% SENIOR NOTES DUE 2008
TO: BROKERS, DEALERS, COMMERCIAL BANKS,
TRUST COMPANIES AND OTHER NOMINEES:
Dobson Wireline Company (the "Company") is offering to exchange the
"Exchange Offer"), upon and subject to the terms and conditions set forth in
the Prospectus, dated _______________, 1998 (the "Prospectus"), and the
enclosed Letter of Transmittal (the "Letter of Transmittal"), its registered
12-1/4% Senior Notes due 2008 (the "New Notes") for any and all of its
outstanding 12-1/4% Senior Notes due 2008 (the "Old Notes"). The Exchange
Offer is being made in order to satisfy certain obligations of the Company
contained in the Registration Rights Agreement dated as of June 12, 1998,
between the Company and the other signatories thereto.
We are requesting that you contact your clients for whom you hold Old
Notes regarding the Exchange Offer. For your information and for forwarding
to your clients for whom you hold Old Notes registered in your name or in the
name of your nominee, or who hold Old Notes registered in their own names, we
are enclosing the following documents:
1. Prospectus dated _________________, 1998;
2. The Letter of Transmittal for your use and for the information of your
clients;
3. A Notice of Guaranteed Delivery to be used to accept the Exchange
Offer if certificates for Old Notes are not immediately available or time
will not permit all required documents to reach the Exchange Agent prior to
the Expiration Date (as defined below) or if the procedure for book-entry
transfer cannot be completed on a timely basis;
4. A form of letter which may be sent to your clients for whose
account you hold Old Notes registered in your name or the name of your
nominee, with space provided for obtaining such clients' instructions with
regard to the Exchange Offer;
5. Guidelines for Certification of Taxpayer Identification Number on
Substitute Form W-9; and
6. Return envelopes addressed to United States Trust Company Of New
York, the Exchange Agent for the Old Notes.
YOUR PROMPT ACTION IS REQUESTED. THE EXCHANGE OFFER WILL EXPIRE AT 5:00
P.M., NEW YORK CITY TIME, ON __________________, 1998 (THE "EXPIRATION
DATE"), UNLESS EXTENDED BY THE COMPANY. THE Old NOTES TENDERED PURSUANT TO
THE EXCHANGE OFFER MAY BE WITHDRAWN AT ANY TIME BEFORE 5:00 P.M., NEW YORK
CITY TIME, ON THE EXPIRATION DATE.
<PAGE>
To participate in the Exchange Offer, a duly executed and properly
completed Letter of Transmittal (or facsimile thereof), with any required
signature guarantees and any other required documents, should be sent to the
Exchange Agent and certificates representing the Old Notes should be
delivered to the Exchange Agent, all in accordance with the instructions set
forth in the Letter of Transmittal and Prospectus.
If holders of Old Notes wish to tender, but it is impracticable for them
to forward their certificates for Old Notes prior to the expiration of the
Exchange Offer or to comply with the book-entry transfer procedures on a
timely basis, a tender may be effected by following the guaranteed delivery
procedures described in the Prospectus under "The Exchange Offer - Terms of
the Exchange Offer - Guaranteed Delivery Procedures."
The Company will, upon request, reimburse brokers, dealers, commercial
banks and trust companies for reasonable and necessary costs and expenses
incurred by them in forwarding the Prospectus and the related documents to
the beneficial owners of Old Notes held by them as nominee or in a fiduciary
capacity. The Company will pay or cause to be paid all stock transfer taxes
applicable to the exchange of Old Notes pursuant to the Exchange Offer,
except as set forth in Instruction 4 of the Letter of Transmittal.
Any inquiries you may have with respect to the Exchange Offer, or
requests for additional copies of the enclosed materials, should be directed
to the Exchange Agent for the Old Notes, at its address and telephone number
set forth on the front of the Letter of Transmittal.
Very truly yours,
Dobson Wireline Company
NOTHING HEREIN OR IN THE ENCLOSED DOCUMENTS SHALL CONSTITUTE YOU OR ANY
OTHER PERSON AS AN AGENT OF THE COMPANY OR THE EXCHANGE AGENT, OR AUTHORIZE
YOU OR ANY OTHER PERSON TO USE ANY DOCUMENT OR MAKE ANY STATEMENTS ON BEHALF
OF EITHER OF THEM WITH RESPECT TO THE EXCHANGE OFFER, EXCEPT FOR STATEMENTS
EXPRESSLY MADE IN THE PROSPECTUS OR THE LETTER OF TRANSMITTAL.
Enclosures
-2-
<PAGE>
DOBSON WIRELINE COMPANY
OFFER TO EXCHANGE
ITS
12 1/4% SENIOR NOTES DUE 2008
IN EXCHANGE FOR
12 1/4% SENIOR NOTES DUE 2008
To Our Clients:
Enclosed for your consideration are the Prospectus, dated
_______________, 1998 (the "Prospectus"), and the related Letter of
Transmittal (which together with the Prospectus constitute the "Exchange
Offer") in connection with the offer by Dobson Wireline Company, an Oklahoma
corporation (the "Company"), to exchange its 12 1/4% Senior Notes due 2008
(the "New Notes") for any and all of its outstanding 12 1/4% Senior Notes due
2008 (the "Old Notes"), upon the terms and subject to the conditions set
forth in the Exchange Offer.
We are the Registered Holder of Old Notes held for your account. An
exchange of the Old Notes can be made only by us as the Registered Holder and
pursuant to your instructions. The Letter of Transmittal is furnished to you
for your information only and cannot be used by you to exchange the Old Notes
held by us for your account. The Exchange Offer provides a procedure for
holders to tender by means of guaranteed delivery.
We request information as to whether you wish us to exchange any or all
of the Old Notes held by us for your account upon the terms and subject to the
conditions of the Exchange Offer.
Your attention is directed to the following:
1. The New Notes will be exchanged for the Old Notes at the
rate of one-for-one. The New Notes will accrue interest (as do the
Old Notes) at a rate equal to 12 1/4% per annum from their date of
issuance. Holders of Old Notes that are accepted for exchange will
not receive accrued but unpaid interest thereon on the date of
issuance of the New Notes. Such interest will be paid with the first
interest payment on the New Notes. Interest on the Old Notes accepted
for exchange will cease to accrue on the day prior to the issuance of
the New Notes. The form and terms of the New Notes are the same in all
material respects as the form and terms of the Old Notes (which they
replace) except that the New Notes have been registered under the
Securities Act of 1933, as amended (the "Securities Act").
2. Based on the interpretation by the staff of the
Securities and Exchange Commission (the "SEC"), New Notes issued
pursuant to the Exchange Offer in exchange for Old Notes may be
offered for resale, resold and otherwise transferred by holders
thereof (other than any such holder which is an "affiliate" of the
Company within the meaning of Rule 405 under the Securities Act or a
"broker" or "dealer" registered under the Securities Exchange Act of
1934, as amended (the "Exchange Act")) without compliance with the
registration and prospectus delivery provisions of the Securities Act
provided that such New Notes are acquired in the ordinary course of
such holders' business and such holders have no arrangement with any
person to participate in the distribution of such New Notes.
<PAGE>
3. The Exchange Offer is not conditioned on any minimum number
of Old Notes being tendered.
4. Notwithstanding any other term of the Exchange Offer, the
Company will not be required to accept for exchange, or exchange New
Notes for, any Old Notes not theretofore accepted for exchange, and may
terminate or amend the Exchange Offer as provided herein before the
acceptance of such Old Notes, if any of the conditions described in the
Prospectus under "The Exchange Offer - Conditions of the Exchange Offer"
exist.
5. Tendered Old Notes may be withdrawn at any time prior to
5:00 p.m., New York City time, on _______________, 1998, if such Old
Notes have not previously been accepted for exchange pursuant to the
Exchange Offer.
6. Any transfer taxes applicable to the exchange of the Old
Notes pursuant to the Exchange Offer will be paid by the Company, except
as otherwise provided in Instruction 4 of the Letter of Transmittal.
If you wish to have us tender any or all of your Old Notes, please so
instruct us by completing, detaching and returning to us the instruction form
attached hereto. An envelope to return your instructions is enclosed. If you
authorize a tender of your Old Notes, the entire principal amount of Old Notes
held for your account will be tendered unless otherwise specified on the
instruction form. Your instructions should be forwarded to us in ample time to
permit us to submit a tender on your behalf by the Expiration Date.
The Exchange Offer is not being made to, nor will tenders be accepted
from or on behalf of, holders of the Old Notes in any jurisdiction in which the
making of the Exchange Offer or acceptance thereof would not be in compliance
with the laws of such jurisdiction or would otherwise not be in compliance with
any provision of any applicable securities law.
-2-
<PAGE>
DOBSON WIRELINE COMPANY
OFFER TO EXCHANGE
ITS
12 1/4% SENIOR NOTES DUE 2008
IN EXCHANGE FOR
12 1/4% SENIOR NOTES DUE 2008
INSTRUCTION TO REGISTERED HOLDER FROM BENEFICIAL OWNER
The undersigned acknowledge(s) receipt of your letter and the enclosed
Prospectus and the related Letter of Transmittal, in connection with the
Exchange Offer by the Company to exchange New Notes for Old Notes.
This will instruct you to tender the principal amount of Old Notes
indicated below held by you for the account of the undersigned, upon the terms
and subject to the conditions set forth in the Prospectus and the related Letter
of Transmittal.
The undersigned represents that (i) the New Notes acquired pursuant to
the Exchange Offer are being obtained in the ordinary course of its business,
(ii) it is not participating, does not intend to participate, and has no
arrangement or understanding with any person to participate, in the distribution
of such New Notes, and (iii) it is not an "affiliate," as defined under Rule 405
of the Securities Act, of the Company or, if it is an affiliate, that it will
comply with the registration and prospectus delivery requirements of the
Securities Act to the extent applicable.
If the undersigned is a "broker" or "dealer" registered under the
Exchange Act that acquired Old Notes for its own account pursuant to its market-
making or other trading activities (other than Old Notes acquired directly from
the Company), the undersigned understands and acknowledges that it may be deemed
to be an "underwriter" within the meaning of the Securities Act and, therefore,
must deliver a prospectus relating to the New Notes meeting the requirements of
the Securities Act in connection with any resales by it of New Notes acquired
for its own account in the Exchange Offer. Notwithstanding the foregoing, the
undersigned does not thereby admit that it is an "underwriter" within the
meaning of the Securities Act.
You are hereby instructed to tender all Old Notes held for the account of
the undersigned unless otherwise indicated below:
/ / Do not tender any Old Notes
/ / Tender Old Notes in the principal amount of $_______________
SIGNATURE:
_______________________________________
Name of Beneficial Owner (please print)
By
-------------------------------------
Signature
---------------------------------------
Address
---------------------------------------
Zip Code
---------------------------------------
Area Code and Telephone Number
Dated: , 1998
<PAGE>
GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION
NUMBER ON SUBSTITUTE FORM W-9
GUIDELINES FOR DETERMINING THE PROPER IDENTIFICATION NUMBER TO GIVE THE
PAYER.--Social Security numbers have nine digits separated by two hyphens:
i.e., 000-00-0000. Employer identification numbers have nine digits separated
by only one hyphen: i.e., 00-0000000. The table below will help determine the
number to give the payer.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
Give the Give the EMPLOYER
For this type of account: SOCIAL SECURITY For this type of account: IDENTIFICATION
number of -- number of--
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1. An individual's account The individual 9. A valid trust, estate, The legal entity (Do not
or pension trust furnish the identifying number
of the personal representative
or trustee unless the legal
entity itself is not
designated in the account
title.)(5)
2. Two or more individuals The actual owner of the 10. Corporate account The corporation
(joint account) account or, if (combined
funds, any one of the
individuals(1)
3. Husband and wife (joint The actual owner of the 11. Religious, charitable, or The organization
account) account or, if joint funds, educational organization
either person(1) account
4. Custodian account of a The minor(2) 12. Partnership account held in The partnership
minor (Uniform Gift to the name of the business
Minors Act)
5. Adult and minor (joint The adult or, if the minor 13. Association, club or other The organization
account) is the only contributor, tax-exempt organization
the minor(1)
6. Account in the name of The ward, minor, or incompetent 14. A broker or registered The broker or nominee
guardian or committee person(3) nominee
for a designated ward,
minor, or incompetent
person
7. a. The usual revocable The grantor-trustee(1) 15. Account with the Department The public entity
savings trust account of Agriculture in the
(grantor is also name of a public entity (such
trustee) as a State or local government,
school district, or prison) that
b. So-called trust The xxxx owner(1) receives agricultural program
account that is payments
not a legal or
valid trust under
State law
8. Sole proprietorship The owner(4)
accounts
</TABLE>
- ------------------------------------------------------------------------------
(1) List first and circle the name of the person whose number you furnish.
(2) Circle the minor's name and furnish the minor's social security number.
(3) Circle the ward's, minor's or incompetent person's name and furnish such
person's social security number.
(4) Show the name of the owner.
(5) List first and circle the name of the legal trust, estate or pension
trust.
Note: If no name is circled when there is more than one name, the
number will be considered to be that of the first name listed.
<PAGE>
GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION
NUMBER ON SUBSTITUTE FORM W-9
PAGE 2
OBTAINING A NUMBER
If you don't have a taxpayer identification number or you don't know your
number, obtain Form SS-5, Application for A Social Security Number Card, or
Form SS-4, Application for Employer Identification Number, at the local
office of the Social Security Administration or the Internal Revenue Service
and apply for a number.
PAYEES EXEMPT FROM BACKUP WITHHOLDING
Payees specifically exempted from backup withholding on ALL payments include
the following:
- - A corporation.
- - A financial institution.
- - An organization exempt from tax under section 501(a), or an individual
retirement plan.
- - The United States or any agency or instrumentality thereof.
- - A State, the District of Columbia, a possession of the United States, or
any subdivision or instrumentality thereof.
- - A foreign government, a political subdivision of a foreign government, or
any agency or instrumentality thereof.
- - An international organization or any agency or instrumentality thereof.
- - A dealer in securities or commodities required to register in the U.S. or a
possession of the U.S.
- - A real estate investment trust.
- - A common trust fund operated by a bank under section 584(a).
- - An exempt charitable remainder trust, or a non-exempt trust described in
section 4947(a)(1).
- - An entity registered at all times under the Investment Company Act of 1940.
- - A foreign central bank of issue.
Payments of dividends and patronage dividends not generally subject to
backup withholding include the following:
- - Payments to nonresident aliens subject to withholding under section 1441.
- - Payments to partnerships not engaged in a trade or business in the U.S.
and which have at least one nonresident partner.
- - Payments of patronage dividends where the amount reviewed is not paid in
money.
- - Payments made by certain foreign organizations.
- - Payments made to a nominee.
Payments of interest not generally subject to backup withholding include the
following:
- - Payments of interest on obligations issued by individuals. Note: You may be
subject to backup withholding if this intrest is $600 or more and is paid in
the course of the payer's trade or business and you have not provided your
correct taxpayer identification number to the payer.
- - Payments of tax-emempt interest (including exempt-interest dividends under
section 852).
- - Payments described in section 6049(b)(5) to non-resident aliens.
- - Payments on tax-free covenant bonds under section 1451.
- - Payments made by certain foreign organizations.
- - Payments made to a nominee.
Exempt payees described above must still complete the Substitute Form W-9
enclosed herewith to avoid possible erroneous backup withholding. FILE THIS
FORM WITH THE PAYER. FURNISH YOUR TAXPAYER IDENTIFICATION NUMBER. WRITE
EXEMPT ON THE FACE OF THE FORM, AND RETURN IT TO THE PAYER. IF THE PAYMENTS
ARE INTEREST, DIVIDENDS, OR PATRONAGE DIVIDENDS, ALSO SIGN AND DATE THE FORM.
Certain payments, other than interest, dividends and patronage dividends,
that are not subject to information reporting are also not subject to backup
withholding. For details, see the regulations under sections 6041, 6041A(a),
6042, 6044, 6045, 6049, 6050A and 6050N.
PRIVACY ACT NOTICE--Section 6109 requires most recipients of dividend,
interest, or other payments to give taxpayer identification numbers to
payers who must report the payments to IRS. IRS uses the numbers for
identification purposes and to help verify the accuracy of the recipient's
tax return. Payers must be given the numbers whether or not recipients are
required to file tax returns. Payers must generally withhold 31% of taxable
interest, dividend, and certain other payments to a payee who does not
furnish a taxpayer identification number to a payer. Certain penalties may
also apply.
PENALTIES
(1) PENALTY FOR FAILURE TO FURNISH TAXPAYER IDENTIFICATION NUMBER.--If you
fail to furnish your taxpayer identification number to a payer, you are
subject to a penalty of $50 for each such failure which is due to reasonable
cause and not to willful neglect.
(2) CIVIL PENALTY FOR FALSE INFORMATION WITH RESPECT TO WITHHOLDING.--If you
make a false statement with no reasonable basis which results in no
imposition of backup withholding, you are subject to a penalty of $500.
(3) CRIMINAL PENALTY FOR FALSIFYING INFORMATION.--Falsifying certifications
or affirmations may subject you to criminal penalties including fines and/or
imprisonment.
FOR ADDITIONAL INFORMATION CONTACT YOUR TAX CONSULTANT OR THE INTERNAL
REVENUE SERVICE.
-2-
