<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 22, 1996
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
WESTERN WIRELESS CORPORATION
(Exact name of registrant as specified in its charter)
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WASHINGTON 4812 91-1638901
(State or other jurisdiction of (Primary standard industrial (I.R.S. employer
incorporation or organization) classification code number) identification number)
</TABLE>
------------------------
2001 NW SAMMAMISH ROAD
ISSAQUAH, WASHINGTON 98027
(206) 313-5200
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)
------------------------
ALAN R. BENDER, ESQ.
SENIOR VICE PRESIDENT, GENERAL COUNSEL
WESTERN WIRELESS CORPORATION
2001 NW SAMMAMISH ROAD
ISSAQUAH, WASHINGTON 98027
(206) 313-5200
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
------------------------
Copies to:
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G. SCOTT GREENBURG, ESQ. ALISON S. RESSLER, ESQ.
GARY J. KOCHER, ESQ. SULLIVAN & CROMWELL
PRESTON GATES & ELLIS 444 SOUTH FLOWER STREET, SUITE 1200
5000 COLUMBIA CENTER LOS ANGELES, CALIFORNIA 90071
701 FIFTH AVENUE (213) 955-8000
SEATTLE, WASHINGTON 98104-7078
(206) 623-7580
</TABLE>
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. /X/
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
CALCULATION OF REGISTRATION FEE
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PROPOSED MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF AGGREGATE OFFERING REGISTRATION
SECURITIES TO BE REGISTERED PRICE(1) FEE(2)
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Senior Subordinated Notes Due 2006........................... $200,000,000 $68,965
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</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(o). Includes $150,000,000 maximum aggregate offering
amount previously registered under the registrant's Registration Statement
on Form S-1 (Registration No. 333-2688).
(2) A filing fee in the amount of $51,724 was previously paid in connection with
Registration No. 333-2688.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
This Registration Statement contains a combined prospectus in accordance
with Rule 429 under the Securities Act of 1933 which relates to the registrant's
Registration Statement on Form S-1 (Registration No. 333-2688).
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<PAGE> 2
WESTERN WIRELESS CORPORATION
---------------------------
CROSS REFERENCE SHEET PURSUANT TO ITEM 501(b) OF REGULATION S-K
<TABLE>
<CAPTION>
REGISTRATION STATEMENT ITEM AND HEADING PROSPECTUS CAPTION OR LOCATION
- --------------------------------------------------- ---------------------------------------------
<C> <S> <C>
1. Forepart of the Registration Statement and
Outside Front Cover Page of Prospectus....... Outside Front Cover Page of Registration
Statement; Outside Front Cover Page of
Prospectus
2. Inside Front and Outside Back Cover Pages of
Prospectus................................... Inside Front and Outside Back Cover Pages of
Prospectus
3. Summary Information, Risk Factors and Ratio
of Earnings to Fixed Charges................. Prospectus Summary; Risk Factors; The
Company; Selected Consolidated Financial Data
4. Use of Proceeds.............................. Use of Proceeds
5. Determination of Offering Price.............. Not Applicable
6. Dilution..................................... Not Applicable
7. Selling Security Holders..................... Not Applicable
8. Plan of Distribution......................... Outside Front Cover Page of Prospectus;
Underwriting
9. Description of Securities to be Registered... Description of Senior Subordinated Notes
10. Interests of Named Experts and Counsel....... Validity of Senior Subordinated Notes
11. Information with Respect to the Registrant... Outside Front Cover Page of Prospectus;
Prospectus Summary; The Company;
Capitalization; Selected Consolidated
Financial Data; Management's Discussion and
Analysis of Financial Condition and Results
of Operations; Business; Management;
Principal Shareholders; Certain Transactions;
Description of Capital Stock; Consolidated
Financial Statements
12. Disclosure of Commission Position on
Indemnification for Securities Act
Liabilities.................................. Not Applicable
</TABLE>
<PAGE> 3
EXPLANATORY NOTE
The Prospectus relating to the Senior Subordinated Notes being registered
hereby to be used in connection with a public offering (the "Public Offering
Prospectus") is set forth following this page. The Prospectus to be used in
connection with certain market-making transactions in the Senior Subordinated
Notes (the "Market-Making Prospectus") will consist of alternate pages set forth
following the Public Offering Prospectus and the balance of the pages included
in the Public Offering Prospectus. The U.S. Prospectus and the Market-Making
Prospectus are identical except that they contain different front, inside front
and back cover pages and different descriptions of the plan of distribution
(contained under the caption "Underwriting" in the Public Offering Prospectus
and under the caption "Plan of Distribution" in the Market-Making Prospectus).
Alternate pages for the Market-Making Prospectus are separately designated.
<PAGE> 4
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.
SUBJECT TO COMPLETION, DATED MAY 22, 1996
$200,000,000
LOGO
WESTERN WIRELESS CORPORATION
% SENIOR SUBORDINATED NOTES DUE 2006
---------------------
THE SENIOR SUBORDINATED NOTES WILL BE SENIOR UNSECURED OBLIGATIONS OF THE
COMPANY AND WILL BE SUBORDINATED IN RIGHT OF PAYMENT TO THE PRIOR PAYMENT IN
FULL OF ALL SENIOR INDEBTEDNESS AND SENIOR IN RIGHT OF PAYMENT TO ANY CURRENT OR
FUTURE SUBORDINATED INDEBTEDNESS OF THE COMPANY. IN ADDITION, ALL EXISTING AND
FUTURE INDEBTEDNESS AND OTHER LIABILITIES OF THE COMPANY'S SUBSIDIARIES WILL BE
EFFECTIVELY SENIOR IN RIGHT OF PAYMENT TO THE SENIOR SUBORDINATED NOTES. THE
COMPANY HAS NOT ISSUED, AND DOES NOT HAVE ANY FIRM ARRANGEMENT TO ISSUE, ANY
SIGNIFICANT INDEBTEDNESS TO WHICH THE SENIOR SUBORDINATED NOTES WOULD BE SENIOR.
AT MARCH 31, 1996, SENIOR INDEBTEDNESS AGGREGATED APPROXIMATELY $435.8 MILLION.
Interest on the Senior Subordinated Notes is payable on and of
each year, commencing , 1996. Prior to , 2001, the Senior
Subordinated Notes are redeemable at the option of the Company in whole or, from
time to time, in part at a price equal to the sum of (i) the principal amount
plus accrued interest to the redemption date and (ii) the Make-Whole Amount; and
on or after , 2001 at the redemption prices set forth herein. In
addition, on or before , 1998, the Company may, at its option, apply
Qualified Capital Stock Proceeds and Affiliate and Related Person Proceeds to
redeem up to $66.0 million in aggregate principal amount of Senior Subordinated
Notes together with accrued interest. The Senior Subordinated Notes will be
represented by one or more global notes registered in the name of the nominee of
the Depository Trust Company ("DTC"). Beneficial interests in the global notes
will be shown on, and transfers thereof will be effected only through, records
maintained by DTC and its participants. Except as described herein, Senior
Subordinated Notes in definitive form will not be issued. The Senior
Subordinated Notes will be issued only in denominations of $1,000 and any
integral multiples thereof. The Senior Subordinated Notes will trade in DTC's
Same-Day Funds Settlement System until maturity, and secondary market trading
activity for the Senior Subordinated Notes will therefore settle in immediately
available funds. All payments of principal and interest will be made by the
Company in immediately available funds. See "Description of Senior Subordinated
Notes."
The Company and certain Selling Shareholders are offering 8,800,000 shares
of Class A Common Stock in a concurrent United States offering and 2,200,000
shares of Class A Common Stock in a concurrent international offering (together,
the "Offerings"). The closing of this Debt Offering is conditioned on the
closing of the Offerings.
SEE "RISK FACTORS" BEGINNING ON PAGE 14 HEREOF FOR CERTAIN CONSIDERATIONS
RELEVANT TO AN INVESTMENT IN THE SENIOR SUBORDINATED NOTES.
---------------------
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.
---------------------
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INITIAL PUBLIC
OFFERING UNDERWRITING PROCEEDS TO
PRICE(1) DISCOUNT(2) COMPANY(1)(3)
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<S> <C> <C> <C>
Per Senior Subordinated Note........................ % % %
Total............................................... $ $ $
</TABLE>
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(1) Plus accrued interest, if any, from , 1996.
(2) The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933. See
"Underwriting."
(3) Before deducting estimated expenses of $625,000 payable by the Company.
---------------------
The Senior Subordinated Notes offered hereby are offered severally by the
Underwriters, as specified herein, subject to receipt and acceptance by them and
subject to their right to reject any order in whole or in part. It is expected
that the Senior Subordinated Notes will be ready for delivery in book-entry form
only through the facilities of DTC in New York, New York, on or about
, 1996, against payment therefor in immediately available funds.
GOLDMAN, SACHS & CO.
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
MERRILL LYNCH & CO.
SALOMON BROTHERS INC
TORONTO DOMINION SECURITIES (USA) INC.
---------------------
The date of this Prospectus is , 1996.
<PAGE> 5
(WESTERN WIRELESS LOGO)
Western Wireless(R) is a registered service mark of the Company. CELLULAR
ONE(R) is a registered service mark of Cellular One Group. See
"Business -- Intellectual Property."
------------------------
The Company intends to furnish to the registered holders of the Senior
Subordinated Notes annual reports containing audited financial statements and an
opinion thereon expressed by independent public accountants and unaudited
quarterly reports for the first three quarters of each fiscal year containing
unaudited summary financial information.
------------------------
IN CONNECTION WITH THE DEBT OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR
EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE SENIOR
SUBORDINATED NOTES OFFERED HEREBY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE
PREVAIL IN THE OPEN MARKET. SUCH TRANSACTIONS MAY BE EFFECTED IN THE OPEN MARKET
OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
2
<PAGE> 6
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by, and should be read
in conjunction with, the more detailed information and the consolidated
financial statements and the notes thereto appearing elsewhere in this
Prospectus. Unless the context otherwise requires, the term "Company" or
"Western Wireless" when used in this Prospectus refers to Western Wireless
Corporation, a Washington corporation which is the successor to a Delaware
corporation pursuant to a reincorporation merger that will be effected prior to
the consummation of the Debt Offering and the Offerings, and its subsidiaries
and predecessors. All share and per share data in this Prospectus assume no
exercise of the Underwriters' over-allotment options in the Offerings and the
reclassification prior to the Offerings and the Debt Offering of each share of
the Company's outstanding common stock, par value $0.001 per share, into 3.1
shares of the Company's Class B Common Stock, no par value (the "Class B Common
Stock"), which together with the Company's Class A Common Stock, no par value
(the "Class A Common Stock"), is referred to herein as the "Common Stock." In
addition, all references to the Class B Common Stock prior to the date of the
reclassification refer to the common stock, par value $0.001 per share, of
Western Wireless Corporation. Unless the context otherwise requires, when used
herein with respect to a licensed area, "persons" and "population" are
interchangeable and refer to the aggregate number of persons located in such
licensed area, and "pops" refers to the number of such persons in a licensed
area multiplied by a company's ownership interest in the license for such
licensed area. Persons, population and pops data are estimated for 1996 based
upon 1995 estimates by Equifax Marketing Decision Systems, Inc. ("Equifax")
adjusted by the Company by applying Equifax's growth factors from 1990 to 1995
to the 1990 U.S. Census Bureau population figures, unless otherwise specified.
THE COMPANY
Western Wireless provides wireless communications services in the western
United States. The Company owns or has the right to acquire an aggregate of 80
cellular and PCS licenses for a geographic area covering approximately 25.5
million pops and 41% of the continental United States. The Company owns and
operates cellular communications systems in 57 Rural Service Areas ("RSAs"),
including one RSA which it has the right to acquire, and 16 Metropolitan
Statistical Areas ("MSAs") with an aggregate population of approximately 6.0
million persons. In its cellular markets, the Company uses the CELLULAR ONE
brand name and currently serves over 240,000 subscribers.
Through the Federal Communications Commission ("FCC") auction concluded in
1995, the Company acquired broadband personal communications services ("PCS")
licenses for six Major Trading Areas ("MTAs") with an aggregate population of
approximately 15.1 million persons -- Honolulu, Salt Lake City, Portland, Des
Moines/Quad Cities, El Paso/Albuquerque and Oklahoma City -- for an aggregate
purchase price of $144 million. In January 1996, the Company agreed to acquire a
broadband PCS license for the Denver MTA from GTE Mobilnet Incorporated ("GTE")
for a purchase price of $66 million. The Company's seven PCS licenses cover
markets with an aggregate population of approximately 19.5 million persons,
including approximately 4.4 million persons covered by the Denver MTA. In all of
its PCS markets, the Company intends to use its proprietary VoiceStream(SM)
brand name. In February 1996, the Company's PCS system in the Honolulu MTA
became the first auction-awarded PCS system to commence commercial operations in
the United States. See "Business -- Introduction," "-- Markets and Systems" and
"-- PCS Operations."
Western Wireless Corporation was formed in July 1994 as the result of a
business combination (the "Business Combination") among various companies,
including MARKETS Cellular Limited Partnership d/b/a Pacific Northwest Cellular,
a Delaware limited partnership ("MCLP"), and General Cellular Corporation, a
Delaware corporation ("GCC"). GCC commenced operations in 1989 and MCLP was
formed in 1992. As a result of the Business Combination and a series of
3
<PAGE> 7
related transactions, Western Wireless Corporation became the owner of all of
the issued and outstanding shares of common stock of GCC and the owner of all of
the assets of MCLP. The Business Combination constituted an acquisition of MCLP
by GCC for accounting purposes. As a result, all financial data relating to the
Company herein with respect to periods after the date of the Business
Combination reflect the combined operations of GCC and MCLP and all such data
with respect to prior periods reflect only the operations of GCC, which, for
accounting purposes, is considered Western Wireless Corporation's predecessor.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Business."
STRATEGY
The Company believes that its combination of cellular and PCS licenses
creates a unique opportunity in the wireless communications industry. The
Company has focused on the acquisition and operation of cellular communications
systems in RSAs and small MSAs in the western United States, which the Company
believes it has acquired at attractive prices. The Company's recent acquisition
of PCS licenses enables it to significantly expand both its customer base and
geographic coverage and to offer enhanced wireless communications services. The
Company's initial focus with its PCS licenses is to commence operations in the
more densely populated areas within its MTAs. The Company believes that cellular
is the optimum technology for rural, less densely populated areas and that PCS
is the optimum technology for more densely populated urban areas where analog
cellular systems are more expensive to deploy and face potential capacity
constraints. The Company and, prior to the Business Combination, MCLP entered
markets at a relatively low cost, having purchased cellular licenses for an
average of $45.68 per pop and PCS licenses for an average of $10.81 per pop.
The Company's operating strategy is to (i) achieve a critical
time-to-market advantage by rapidly constructing and commencing operations of
PCS systems in urban areas within its PCS markets; (ii) continue to expand its
operations through increased subscriber growth and usage; (iii) utilize its
centralized management and back office functions to support the combined needs
of its cellular and PCS subscribers, thereby further improving operating
efficiencies and generating greater economies of scale; and (iv) selectively
acquire cellular and PCS properties primarily in contiguous markets. The Company
is implementing its strategy by aggressively building its PCS systems, offering
a wide range of products and services at competitive prices, continually
upgrading the quality of its network, establishing strong brand recognition,
creating a strong sales and marketing program tailored to local markets and
providing a superior level of customer service.
The Company believes the wireless communications industry will continue to
grow due to enhanced service offerings, the emergence of PCS systems, increased
awareness of the productivity, convenience and security benefits associated with
wireless communications services and anticipated declines in service prices. The
Company believes it is well positioned to take advantage of these growth
opportunities as a result of its existing operations and systems infrastructure,
its wide geographic coverage and the experience and expertise of its management
team. See "Business -- Strategy," "-- Cellular Operations," "-- PCS Operations,"
"-- Products and Services" and "-- System Equipment, Development and Expansion."
CELLULAR OPERATIONS
The Company owns and operates high quality cellular systems in 15 western
states and generally owns 100% of each of its cellular licenses. The Company
focuses on RSAs and small MSAs because it perceives such markets, which are less
densely populated, to be less susceptible to competition and to have greater
capacity for future growth than most major markets. Cellular service was
generally introduced later in RSAs and small MSAs than in major markets. As a
result, cellular penetration is currently lower and subscriber growth rates are
significantly higher than in major markets. Although two cellular operators
exist in all markets, the Company's competitor in many of its markets tends to
be smaller and less well capitalized than the large market operators.
4
<PAGE> 8
The Company's cellular markets exhibit positive characteristics for
wireless communications, including a high percentage of business customers with
substantial needs for wireless communications, such as those employed in
agriculture, mining, oil and gas, and populations accustomed to long travel
times. Additionally, the Company's service areas cover over 20,000 highway miles
and the popular destination areas of Yellowstone National Park, Glacier National
Park and Mount Rushmore National Monument, providing attractive sources of
roaming revenues.
In its rural markets, the Company believes that its cellular systems, which
can cover large geographic areas with relatively few cell sites, provide the
optimum cost efficient wireless service technology. In contrast, PCS technology
requires more closely located cell sites to broadcast over extended geographic
areas. Accordingly, PCS service will be less efficient and more expensive to
deploy in rural markets than cellular service, making it likely that PCS
competitors will delay or avoid entry into such markets.
The Company has experienced rapid growth of its cellular operations during
the last three years. The number of the Company's cellular subscribers grew to
239,200 at March 31, 1996 from 13,700 at January 1, 1993. Service (subscriber
and roamer) revenues grew to $135.1 million in 1995 from $18.4 million in 1993
and operating income (loss) from cellular operations before interest, taxes and
depreciation and amortization increased to $28.9 million in 1995 from $0.5
million in 1993. In addition, during the three year period ended December 31,
1995, the monthly subscriber revenue per subscriber in the industry declined
while the Company's monthly subscriber revenue per subscriber increased to
$57.25 for 1995 from $49.72 for 1993. The Company believes these results reflect
the strong demand for wireless services in its markets, the success of its
marketing strategy and its management capabilities. See "Risk
Factors -- Seasonality," "Selected Consolidated Financial Data" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
The Company offers its subscribers high quality cellular service, as well
as custom calling services such as call forwarding, call waiting, conference
calling, voice message storage and retrieval and no-answer transfer. The Company
also acts as a retail distributor of wireless handsets. The Company sells its
products and services primarily through its direct sales force and 108 retail
locations, as well as through a network of independent agents and national
retailers. In addition, the Company recently began providing replacement
wireless services for rural customers in sparsely populated areas where the cost
of providing wired telephone services is relatively high. The Company markets
its cellular services under the CELLULAR ONE brand name, allowing it to enjoy
the strength of a nationally recognized service mark in its cellular markets.
The Company has roaming arrangements with virtually every cellular carrier
in North America and has entered into agreements or letters of intent with a
number of PCS carriers which, when the technology is available, will enable PCS
subscribers of these carriers to roam on the Company's cellular systems. The
Company is also a member of North American Cellular Network ("NACN"), a wireless
network linking cellular operations throughout the United States, Canada, Puerto
Rico and the Virgin Islands. NACN participation allows the Company to offer
convenient access to the Company's subscribers when roaming throughout the
United States and Canada. See "Business -- Strategy," "-- Cellular Operations"
and "-- Products and Services - Cellular."
PCS OPERATIONS
The Company has completed initial construction and commenced commercial
operations of its PCS system in the Honolulu MTA and is in the initial
construction phase of its PCS systems in the Portland, Salt Lake City and El
Paso/Albuquerque MTAs. Design and engineering have been initiated in the
Company's remaining PCS markets. When completed, the Company's PCS systems will
cover a substantial geographic area in the western United States complementary
to the Company's cellular operations. The Company expects to extend its PCS
systems based on economic factors, customer demand and FCC licensing
requirements. The Company believes its
5
<PAGE> 9
PCS service offerings will be broader than those currently offered by cellular
systems in the Company's PCS markets. PCS service offerings will initially
include all of the services typically provided by cellular systems, as well as
paging, caller identification, text messaging, smart cards, over-the-air
activation and over-the-air subscriber profile management. To date, the Company
has not derived significant revenues from its PCS operations.
The following table sets forth certain information regarding the MTAs in
which the Company intends to operate PCS systems:
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MTA POPULATION SYSTEM STATUS
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Honolulu....................................... 1,215,729 commercial service
Portland....................................... 3,460,182 construction
Salt Lake City................................. 2,999,636 construction
El Paso/Albuquerque............................ 2,387,710 construction
Denver......................................... 4,411,211 design and engineering
Des Moines/Quad Cities......................... 3,067,795 design and engineering
Oklahoma City.................................. 1,945,271 design and engineering
</TABLE>
The Company believes that being the first to offer PCS services in a market
will be a key competitive advantage. The Company's goal is to achieve
significant market penetration by aggressively marketing competitively priced
PCS services under its proprietary VoiceStream brand name, offering enhanced
services not currently provided by analog or digital cellular operators and
providing superior customer service. In addition, the Company believes it can
become a low-cost provider of PCS services by taking advantage of the existing
business infrastructure established for its cellular operations, including
centralized management, marketing, billing and customer service functions, and
by focusing on efficient customer acquisition and retention.
The Company uses the internationally-proven Global System for Mobile
Communications ("GSM") as the network standard for its PCS systems. GSM is the
leading digital wireless standard worldwide, with approximately 120 systems
operating in 92 countries serving over 13 million subscribers. In the United
States, GSM has been chosen by six other companies as the network standard in
their 18 MTAs which, together with the Company's seven MTAs, cover markets
containing approximately 149.2 million persons, representing approximately 55.7%
of the U.S. population. The Company has entered into roaming agreements or
letters of intent with all of the companies in the United States that have
chosen to deploy the GSM standard in their PCS markets, which will provide for
roaming by the Company's PCS subscribers into these carriers' PCS markets, and
vice versa, when such systems are operational. As of March 31, 1996, the Company
also had reciprocal roaming agreements or letters of intent with 28
international carriers who have chosen to deploy the GSM standard. The Company
anticipates entering into similar agreements with other domestic and
international carriers who deploy the GSM standard. The Company will seek to
enter into reciprocal roaming agreements with cellular carriers in markets where
the GSM standard will not be initially deployed to enable the Company's PCS
subscribers to roam in such markets when dual-mode handsets are available. See
"Risk Factors -- Risks Relating to GSM Technical Standard," "-- Absence of PCS
Operating History in the United States; Handset Availability,"
"Business -- Markets and Systems," " -- PCS Operations" and "-- Products and
Services - PCS."
6
<PAGE> 10
FINANCING PLAN
The Company believes that access to capital and financial flexibility are
necessary to successfully implement its strategy. The Company currently
anticipates that it will require approximately $500 million to finance the
build-out of its PCS systems through the end of 1998. The Company will require
additional funds to finance the continued growth of its cellular operations,
provide for working capital, service debt and finance potential acquisitions.
Such additional financing requirements will be dependent upon a variety of
factors including the rate of growth of the Company's cellular operations.
Historically, the Company has relied on a combination of private equity
financings and borrowings. Since January 1, 1993, the Company has raised over
$185.8 million of equity through issuances of capital stock. From inception
until the Business Combination, MCLP had raised $79.0 million of partner
capital. See "Certain Transactions." The Company has a credit facility (the
"Credit Facility") with a consortium of lenders providing for $750 million of
revolving credit and a $200 million term loan. A subsidiary of the Company also
has a $200 million credit facility (the "NORTEL Facility" and, together with the
Credit Facility, the "Senior Secured Facilities") with Northern Telecom Inc.
("NORTEL"). As of March 31, 1996, $435.8 million was outstanding under the
Senior Secured Facilities. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Liquidity and Capital
Resources" and "Description of Indebtedness."
The Company is offering $200 million principal amount of Senior
Subordinated Notes in this offering (the "Debt Offering") and is concurrently
offering 7,211,840 shares of Class A Common Stock in the United States (together
with the 1,588,160 shares of Class A Common Stock offered by the Selling
Shareholders, the "U.S. Offering") and 1,802,960 shares of Class A Common Stock
outside the United States (together with the 397,040 shares of Class A Common
Stock offered by the Selling Shareholders, the "International Offering" and,
together with the U.S. Offering, the "Offerings") for estimated aggregate net
proceeds to the Company of $380.5 million ($415.5 million if the Underwriters'
over-allotment options in the Offerings are exercised in full). The Company
believes these proceeds, in combination with the Senior Secured Facilities, will
be sufficient to fund operating losses, capital expenditures and working capital
necessary for the build-out of its PCS systems and the continued growth of its
cellular operations through December 31, 1998. To the extent that the build-out
of the PCS systems is faster than expected, the costs are greater than
anticipated or the Company takes advantage of additional acquisition
opportunities, including those that may arise through current or future FCC
auctions, the Company may require additional funding to implement its business
strategy. See "Risk Factors -- High Leverage; Debt Service; Restrictive
Covenants," "-- PCS Build-out and Capital Expenditures," "Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources" and "Use of Proceeds."
7
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THE DEBT OFFERING
<TABLE>
<S> <C>
Securities Offered............ $200 million principal amount of % Senior Subordinated
Notes Due 2006 (the "Senior Subordinated Notes").
Principal of, premium, if any, and interest on the Senior
Subordinated Notes will be payable in immediately available
funds.
Maturity Date................. The Senior Subordinated Notes will mature on
, 2006.
Interest Payment Dates........ and of each year, commencing ,
1996.
Ranking....................... The Senior Subordinated Notes will be senior unsecured
obligations of the Company and will be subordinated in right
of payment to the prior payment in full of all Senior
Indebtedness and senior in right of payment to any current
or future subordinated Indebtedness of the Company. In
addition, all existing and future Indebtedness and other
liabilities of the Company's Subsidiaries will be
effectively senior in right of payment to the Senior
Subordinated Notes. At March 31, 1996, Senior Indebtedness
aggregated approximately $435.8 million. At March 31, 1996,
the total outstanding Indebtedness of the Company's
Subsidiaries not eliminated in the Company's consolidated
financial statements was approximately $36.5 million. See
"Risk Factors -- Holding Company Structure; Subordination"
and "Description of Senior Subordinated Notes
-- Subordination."
Optional Redemption........... Prior to , 2001, the Senior Subordinated
Notes may be redeemed at the option of the Company in whole
or, from time to time, in part at a redemption price equal
to the sum of (i) the principal amount of the Senior
Subordinated Notes to be redeemed plus accrued interest to
but excluding the redemption date and (ii) the Make-Whole
Amount. After , 2001, the Senior Subordinated
Notes may be redeemed as a whole or, from time to time, in
part at the option of the Company at the following
redemption prices (expressed as percentages of principal
amount), in each case together with accrued interest to but
excluding the date fixed for redemption, if redeemed during
the 12-month period beginning of each of the years
indicated: 2001 at %, 2002 at %, 2003 at %
and 2004 and thereafter at 100%. In addition, on or before
, 1998, the Company may, at its option, apply
Qualified Capital Stock Proceeds and Affiliate and Related
Person Proceeds to redeem up to $66.0 million in aggregate
principal amount of Senior Subordinated Notes together with
accrued interest. See "Description of Senior Subordinated
Notes -- Optional Redemption." In addition, the Company may
be required to offer to repurchase the Senior Subordinated
Notes upon the occurrence of a Change of Control or upon
certain Asset Dispositions. See "Description of Senior
Subordinated Notes -- Change of Control" and
"-- Covenants - Limitation on Certain Asset Dispositions."
The Credit Facility prohibits the repayment of all or any
portion of the principal amount of the Senior Subordinated
Notes prior to the repayment of all indebtedness under the
Credit Facility. See "Description of Indebtedness -- Credit
Facility."
</TABLE>
8
<PAGE> 12
<TABLE>
<S> <C>
Sinking Fund.................. The Senior Subordinated Notes will not be entitled to any
sinking fund.
Change of Control............. Upon a Change of Control, each Holder of Senior Subordinated
Notes will have the right to have the Company repurchase all
or a portion of such Holder's Senior Subordinated Notes at a
purchase price in cash equal to 101% of the aggregate
principal amount of the Senior Subordinated Notes plus
accrued interest to but excluding the Purchase Date. The
Company will not be able to so repurchase Senior
Subordinated Notes without obtaining written consents from
or repaying the lenders under the Credit Facility.
Certain Covenants............. The Indenture contains limitations on, among other things,
(a) the Incurrence of additional Indebtedness, (b) the
issuance of Preferred Stock by Restricted Subsidiaries, (c)
the making of Restricted Payments, (d) the Incurrence of
certain Liens, (e) certain Asset Dispositions, (f) dividend
and other payment restrictions affecting Restricted
Subsidiaries, (g) the sale or issuance of a Wholly Owned
Restricted Subsidiary's Capital Stock, (h) transactions with
Affiliates and (i) certain consolidations, mergers and
transfers of assets. See "Description of Senior Subordinated
Notes -- Covenants."
Use of Proceeds............... Estimated net proceeds to the Company from the Debt Offering
and the Offerings of approximately $193.1 million and $187.4
million, respectively, will be used to finance a portion of
the Company's PCS build-out, to fund the purchase of the
Denver MTA license, to fund expansion of existing cellular
operations and for general corporate purposes; and, pending
such uses, for working capital and to repay revolving credit
indebtedness under the Credit Facility. See "Use of
Proceeds."
</TABLE>
For definitions of certain capitalized terms used herein, see "Description
of Senior Subordinated Notes."
RISK FACTORS
Certain factors should be considered in connection with an investment in
the Senior Subordinated Notes. See "Risk Factors."
9
<PAGE> 13
SUMMARY CONSOLIDATED FINANCIAL DATA
The following tables set forth certain summary consolidated financial data
for the Company for each of the three years in the period ended December 31,
1995, which was derived from the Company's consolidated financial statements and
notes thereto that have been audited by Arthur Andersen LLP. The table also sets
forth certain unaudited summary consolidated financial data as of March 31, 1996
and for the three months ended March 31, 1996 and 1995. The Company has
experienced rapid growth in its revenues and assets during the periods set forth
below, which rate of growth will not necessarily continue over the next few
years. In addition, the Company has made and expects to make substantial capital
expenditures in connection with its wireless communications systems.
Accordingly, the operating results set forth below will not necessarily be
indicative of future performance.
The summary consolidated financial and operating data set forth below
should be read in conjunction with "Use of Proceeds," "Selected Consolidated
Financial Data," "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the Company's consolidated financial statements
and notes thereto and other financial and operating information included
elsewhere in this Prospectus. All financial data relating to the Company herein
with respect to periods after the date of the Business Combination reflect the
combined operations of GCC and MCLP and all such data with respect to prior
periods reflect only the operations of GCC, which, for accounting purposes, is
considered Western Wireless Corporation's predecessor. Accordingly, the
financial data of the Company for the periods subsequent to the Business
Combination are not comparable to financial data for prior periods. See Note 12
to the Company's consolidated financial statements for pro forma information
presenting the results of operations of the Company as if the Business
Combination occurred on January 1, 1993, and see the consolidated financial
statements of MCLP included herein for financial information of MCLP prior to
the Business Combination.
10
<PAGE> 14
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH
31, YEAR ENDED DECEMBER 31,
------------------------- ---------------------------------------
1996 1995 1995 1994 1993
----------- ----------- ----------- ----------- -----------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENTS OF OPERATIONS DATA:
Total revenues.................................. $ 46,035 $ 26,084 $ 146,555 $ 63,108 $ 20,734
----------- ----------- ----------- ----------- -----------
Operating expenses:
Cost of service............................... 8,815 5,786 27,686 13,303 4,310
Cost of equipment sales....................... 6,354 3,870 20,705 11,446 3,533
General and administrative.................... 12,270 6,254 31,253 15,226 6,253
Sales and marketing........................... 13,491 7,164 41,390 18,553 6,101
Depreciation and amortization................. 15,610 10,776 49,456 25,670 5,399
Provision for restructuring costs............. 2,478
----------- ----------- ----------- ----------- -----------
Total operating expenses.................... 56,540 33,850 170,490 86,676 25,596
----------- ----------- ----------- ----------- -----------
Operating loss.................................. (10,505) (7,766) (23,935) (23,568) (4,862)
Interest and financing expense.................. (8,134) (5,027) (25,428) (10,659) (2,242)
Other, net(1)................................... 65 330 (6,591) 8,267 10,433
----------- ----------- ----------- ----------- -----------
Net income (loss)............................. $ (18,574) $ (12,463) $ (55,954) $ (25,960) $ 3,329
=========== =========== =========== =========== ===========
Net income (loss) per share before extraordinary
item.......................................... $ (0.31) $ (0.24) $ (0.87) $ (0.59) $ 0.10
Net income (loss) per share(2).................. $ (0.31) $ (0.24) $ (0.99) $ (0.59) $ 0.10
=========== =========== =========== =========== ===========
Weighted average common shares and common
equivalent shares outstanding................. 59,486,512 52,363,838 56,469,990 43,949,101 32,253,303
=========== =========== =========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
MARCH 31, 1996
---------------------------
ACTUAL AS ADJUSTED(3)
-------- --------------
<S> <C> <C>
CONSOLIDATED BALANCE SHEETS DATA:
Working capital (deficiency)......................................................... $(27,006) $145,821
Property and equipment, net.......................................................... 231,488 231,488
Licensing costs and other intangible assets, net..................................... 455,371 467,946
Total assets......................................................................... 737,446 922,848
Long-term debt....................................................................... 438,480 436,480
Common stock and paid-in capital..................................................... 334,675 522,077
Total shareholders' equity........................................................... 230,263 417,665
</TABLE>
- ---------------
(1) Includes an extraordinary loss on early extinguishment of debt of $6.6
million for the year ended December 31, 1995.
(2) The Company has never paid dividends on its Common Stock and does not
anticipate paying any dividends in the foreseeable future. The Company's
Senior Secured Facilities and the Indenture contain certain restrictions on
the Company's ability to declare and pay dividends on the Common Stock.
(3) Adjusted to reflect (i) the sale of 9,014,800 shares of Class A Common Stock
offered by the Company in the Offerings at an assumed initial public
offering price of $22.50 per share and (ii) the sale of $200 million
principal amount of the Senior Subordinated Notes in the Debt Offering, and
the application of the estimated net proceeds therefrom for working capital
and to repay revolving credit indebtedness. See "Use of Proceeds."
11
<PAGE> 15
SUMMARY OPERATING DATA
The following table sets forth summary operating data of the Company for
its cellular operations.
<TABLE>
<CAPTION>
DECEMBER 31,
MARCH 31, ----------------------------------------
1996 1995 1994 1993
--------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Cellular pops(1)...................... 6,030,208 5,764,152 5,240,702 2,190,104
Cellular subscribers.................. 239,200 209,500 112,800 30,000
Penetration level(2).................. 4.0% 3.6% 2.2% 1.4%
Average monthly cellular service
revenue per subscriber(3)........... $ 63.04 $ 73.36 $ 77.79 $ 82.34
Average monthly cellular subscriber
revenue per subscriber(4)........... $ 51.87 $ 57.25 $ 54.35 $ 49.72
Cellular EBITDA (thousands)(5)........ $ 11,449 $ 28,929 $ 2,102 $ 537
Cellular capital expenditures
(thousands)......................... $ 18,500 $ 62,573 $ 47,423 $ 25,113
Cellular cash flows provided by
(used in):
Operating activities............. $ 6,670 $ 3,370 $ (988) $ (255)
Investing activities............. $ (55,789) $ (140,332) $ (70,190) $ (32,535)
Financing activities............. $ 46,503 $ 137,724 $ 70,777 $ 36,212
</TABLE>
- ---------------
(1) Based upon 1995 estimates by Equifax. For 1994 and 1993, the Company has
evenly applied Equifax's growth factors from 1990 to 1995 to the 1990 U.S.
Census Bureau population figures. See "Business -- Markets and Systems."
(2) Determined by dividing the aggregate number of cellular subscribers by
cellular pops.
(3) Cellular service revenues include subscriber, roamer and, beginning in 1996,
other revenues; average monthly service revenue per subscriber is determined
for each of the periods by dividing cellular service revenues by the average
monthly cellular subscribers, and dividing the result by the number of
months in the period. Average monthly subscribers for the period is computed
by adding the average of monthly subscribers, which is computed by adding
beginning and ending monthly subscribers and dividing by two, and dividing
the result by the number of months in the period.
(4) Determined for each of the periods by dividing cellular subscriber revenues
by the average monthly cellular subscribers for the period, and dividing the
result by the number of months in the period.
(5) EBITDA represents operating income (loss) from operations before interest,
taxes and depreciation and amortization. EBITDA is a measure commonly used
in the industry but is not prepared in accordance with United States
generally accepted accounting principles ("GAAP") and should not be
considered as a measurement of net cash flows from operating activities.
Cellular EBITDA represents EBITDA from cellular operations. In 1994, the
Company recorded a provision for restructuring costs of $2.5 million. EBITDA
before such provision for restructuring costs would have been $4.6 million
in 1994.
12
<PAGE> 16
The following table sets forth summary consolidated operating and financial
data of the Company.
<TABLE>
<CAPTION>
DECEMBER 31,
MARCH 31, ----------------------------------
1996 1995 1994 1993
--------- -------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
EBITDA(1).................................... $ 5,105 $ 25,521 $ 2,102 $ 537
Ratio of earnings to
fixed charges(2)........................... * * * 2.22
Capital expenditures......................... $ 38,587 $ 79,464 $ 47,423 $ 25,113
Cash interest expense........................ 7,900 21,700 10,900 200
Cash and cash equivalents.................... 6,204 8,572 7,787 8,188
Total debt................................... 438,480 362,487 211,528 60,788
</TABLE>
- ---------------
* Not meaningful
(1) EBITDA represents operating income (loss) from operations before interest,
taxes and depreciation and amortization. EBITDA is a measure commonly used
in the industry but is not prepared in accordance with GAAP and should not
be considered as a measurement of net cash flows from operating activities.
In 1994, the Company recorded a provision for restructuring costs of $2.5
million. EBITDA before such provision for restructuring costs would have
been $4.6 million in 1994.
(2) The ratio of earnings to fixed charges is determined by dividing the sum of
earnings (loss) before extraordinary items, interest and financing expense,
amortization of deferred financing costs and the portion of rents
representative of the interest factor by fixed charges. Fixed charges
consist of the sum of interest and financing expense, amortization of
deferred financing costs, capitalized interest and the portion of rents
representative of the interest factor. The ratio of earnings to fixed
charges is not meaningful for periods that result in a deficit. For the
periods indicated above, earnings were inadequate to cover fixed charges and
the deficiencies of earnings to fixed charges were $18.6 million, $49.7
million and $26.0 million for the three months ended March 31, 1996 and the
years ended December 31, 1995 and 1994, respectively. See "Risk
Factors -- High Leverage; Debt Service; Restrictive Covenants."
13
<PAGE> 17
RISK FACTORS
In addition to the other information in this Prospectus, the following
should be considered carefully in evaluating the Company and its business before
investing in the Senior Subordinated Notes.
HIGH LEVERAGE; DEBT SERVICE; RESTRICTIVE COVENANTS
The Company is, and will continue to be, highly leveraged and subject to
significant financial restrictions and limitations. As of March 31, 1996, on an
as adjusted basis after giving effect to the Debt Offering and the Offerings and
the application of the net proceeds therefrom for working capital and to
initially reduce revolving credit indebtedness under the Credit Facility, the
Company's total indebtedness would have been $436.5 million or approximately
51.1% of its total capitalization. Indebtedness under the Credit Facility and
the NORTEL Facility matures on March 31, 2005 and December 31, 2003,
respectively, and bears interest at variable rates. Substantially all the assets
of the Company are pledged as security for such indebtedness. See "Use of
Proceeds," "Capitalization," "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Liquidity and Capital Resources" and
"Description of Indebtedness."
For the three months ended March 31, 1996 and the year ended December 31,
1995, the Company had negative ratios of earnings to fixed charges and earnings
coverage deficiencies of approximately $18.6 million and $49.7 million,
respectively. There can be no assurance that the Company will generate
sufficient cash flow from operating activities to meet its debt service and
working capital requirements. In such event, the Company may need to seek
additional financing. There can be no assurance that any such financing or
refinancing could be obtained on terms that are acceptable to the Company. In
the absence of such financing or refinancing, the Company could be materially
limited in its ability to build out its existing cellular and PCS systems or be
forced to dispose of assets in order to make up for any shortfall in the
payments due on its indebtedness under circumstances that might not be favorable
to the realization of the highest price for such assets. Given that a
substantial portion of the Company's assets consists of intangible assets,
principally licenses granted by the FCC, the value of which will depend upon a
variety of factors (including the success of the Company's PCS and cellular
businesses and the wireless communications industry in general), there can be no
assurance that the Company's assets could be sold quickly enough, or for
sufficient amounts, to enable the Company to meet its obligations.
The Company intends to continue pursuing opportunities to acquire
additional wireless communications systems that complement its existing systems.
The Company believes that borrowings available under the Senior Secured
Facilities and the proceeds from the Offerings and the Debt Offering will be
sufficient to fund operating losses, capital expenditures and working capital
necessary for the build-out of its PCS systems and the continued growth of its
cellular operations through December 31, 1998. At March 31, 1996, the amounts
available for borrowings under the Credit Facility and the NORTEL Facility were
$48.2 million and $43.0 million, respectively. To the extent that the build-out
of the PCS systems is faster than expected, the costs are greater than
anticipated or the Company takes advantage of acquisition opportunities,
including those that may arise through current or future FCC auctions, the
Company may require additional funding to implement its business strategy. There
can be no assurance that the Company will be able to obtain such financing on
acceptable terms and in adequate amounts to accomplish its objectives.
The Senior Secured Facilities and the Indenture contain, and any additional
financing agreements may contain, certain restrictive covenants. The Senior
Secured Facilities and the Indenture require the Company to comply with certain
financial and operational performance covenants, and, while the Company expects
to remain in compliance with such covenants, there can be no assurance to that
effect. The restrictions contained in the Senior Secured Facilities and the
Indenture affect, and in some cases will significantly limit or prohibit, among
other things, the ability of the Company to incur indebtedness, make prepayments
of certain indebtedness, pay dividends,
14
<PAGE> 18
make investments, create liens, sell assets and engage in mergers and
consolidations. In addition to such covenants, the Credit Facility requires the
Company to maintain certain financial ratios. The financial ratio covenants in
the Credit Facility include, among others, a limitation on the incurrence of
indebtedness based on the ratio of the Company's indebtedness to operating cash
flow (as defined in the Credit Facility) and a requirement that the Company's
ratio of operating cash flow to cash interest expense be not less than specified
levels. The NORTEL Facility contains, among others, covenants of Western PCS II
Corporation, a subsidiary of the Company and the borrower thereunder, relating
to minimum gross revenues and the ratio of cash coverage (as defined in the
NORTEL Facility) to operating cash flow (as defined in the NORTEL Facility). The
Indenture contains a limitation, among others, on the incurrence of indebtedness
based on the ratio of the Company's indebtedness to EBITDA. See "Description of
Indebtedness" and "Description of Senior Subordinated Notes" for a more detailed
description of the restrictive covenants and other terms of the Senior Secured
Facilities and the Indenture. An event of default under the Senior Secured
Facilities or the Indenture would allow the lenders thereunder to accelerate the
maturity of the indebtedness thereunder. In such event, it is likely that all of
the Company's indebtedness, which at March 31, 1996 amounted to $438.5 million,
would become immediately due and payable. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources," "Description of Senior Subordinated Notes" and "Description
of Indebtedness."
LIMITED OPERATING HISTORY; PAST AND FUTURE OPERATING LOSSES AND NEGATIVE CASH
FLOW
Western Wireless Corporation was formed in July 1994 as a result of the
Business Combination among various companies, including MCLP and GCC. The
Business Combination constituted an acquisition of MCLP by GCC for accounting
purposes. As a result, all financial data relating to the Company herein with
respect to periods after the date of the Business Combination reflect the
combined operations of GCC and MCLP and all such data with respect to prior
periods reflect only the operations of GCC, which, for accounting purposes, is
considered Western Wireless Corporation's predecessor. GCC commenced operations
in 1989, and MCLP was formed in 1992. As a result of an inability to service
then-existing debt requirements, GCC filed a voluntary petition for bankruptcy
under Chapter 11 of the United States Bankruptcy Code in October 1991 and,
pursuant to a prepackaged plan, emerged from bankruptcy in March 1992. Certain
individuals who currently serve as executive officers of the Company were, at
the time of such filing, executive officers of GCC. As a result of the Business
Combination and a series of related transactions, the Company became the owner
of all of the issued and outstanding shares of common stock of GCC and all of
the assets of MCLP. See "Business -- Introduction," "Management," "Principal
Shareholders" and "Certain Transactions."
The Company sustained operating losses of approximately $10.5 million
(including $6.8 million of losses attributable to the Company's PCS operations),
$23.9 million (including $3.7 million of losses attributable to the Company's
PCS operations), $23.6 million and $4.9 million in the three months ended March
31, 1996 and the years ended December 31, 1995, 1994 and 1993, respectively. At
March 31, 1996, the Company had an accumulated deficit of $102.7 million. The
Company expects to incur significant operating losses and to generate negative
cash flow from operating activities during the next several years, while it
develops and constructs its PCS systems and builds a PCS subscriber base. There
can be no assurance that the Company will achieve or sustain profitability or
positive cash flow from operating activities in the future or that it will
generate sufficient cash flow to service its debt requirements. See "-- High
Leverage; Debt Service; Restrictive Covenants" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources."
COMPETITION
Competition for subscribers among wireless licensees is based principally
upon the services and enhancements offered, the technical quality of the system,
customer service, system coverage,
15
<PAGE> 19
capacity and price. In the future, the Company expects to face increased
competition from entities providing similar services using other communications
technologies and services. While some of these technologies and services are
currently operational, others are being developed or may be developed in the
future. As the Company enters the PCS business in new markets, its principal
competitors initially will be providers of cellular service. The Company will
face additional competition in these markets as other providers of PCS services
enter the markets. Under current FCC rules, there may be up to six PCS licenses
granted in each geographic area in addition to the two existing cellular
licenses. Also, the FCC has licensed Specialized Mobile Radio ("SMR") dispatch
system operators to construct digital mobile communications systems on existing
SMR frequencies, referred to as Enhanced Specialized Mobile Radio ("ESMR"), in
many cities throughout the United States, including some of the markets in which
the Company operates. ESMR systems, including those operated by Nextel
Communications, Inc., could be competitive with the Company's cellular and PCS
systems. The Company has one cellular competitor in each of its cellular
markets, including CommNet Cellular, Inc. ("CommNet"), Lincoln
Telecommunications Company, Kansas Cellular, Southwestern Bell Mobile Systems
("Southwestern Bell") and U S WEST Cellular ("U S WEST"), and there will be up
to six PCS licensees in each of its markets. The Company's principal competitors
in its PCS business are PCS PrimeCo L.P. ("PrimeCo"), Sprint Spectrum L.P.
("Sprint Spectrum") and AT&T Wireless Services ("AT&T Wireless"), as well as the
two existing cellular providers in its PCS markets. These cellular competitors
include AT&T Wireless, U S WEST and United States Cellular Corporation ("U.S.
Cellular"). The Company also competes with paging, dispatch and conventional
mobile telephone companies, resellers and landline telephone service providers.
All of such competition may be intense. Given the rapid advances in the
wireless communications industry, there can be no assurance that new
technologies will not evolve that will compete with the Company's products and
services. In addition, a number of the Company's competitors have substantially
greater financial, technical, marketing, sales, manufacturing and distribution
resources than those of the Company and have significantly greater experience
than the Company in testing new or improved communications products and services
and obtaining regulatory approvals. Some competitors are expected to market
other services, such as landline telephone and cable services, with their
wireless communications service offerings. Several of the Company's competitors
are operating, or planning to operate, through joint ventures and affiliation
arrangements, wireless communications systems that encompass most of the
continental United States. See "-- Absence of PCS Operating History in the
United States; Handset Availability," "-- Risks Relating to GSM Technical
Standard" and "Business -- Competition."
RISKS RELATING TO GSM TECHNICAL STANDARD
When the FCC first licensed cellular systems in the United States, it
specified the technical standards of analog cellular system operation to ensure
nationwide compatibility between all analog cellular carriers. In contrast, the
FCC has not mandated the technology standard for digital cellular or PCS
operations, leaving each licensee free to select among several competing
technologies that have sufficient technological differences to preclude their
interoperability. The Company has chosen the GSM technical standard in its PCS
markets and believes that GSM offers the Company significant advantages over the
other competing technologies. There are, however, certain risks with respect to
the deployment of GSM.
As of the date hereof, six other PCS licensees (Pacific Telesis Mobile
Services Corp., American Portable Telecom, Inc. ("APT"), BellSouth Personal
Communications, Inc., InterCel, Inc., Omnipoint Corporation and American
Personal Communications, Inc. ("APC")) have announced that they intend to deploy
GSM-based PCS systems. These six companies and the Company together cover 25
MTAs awarded in the A and B Block auctions containing approximately 149.2
million persons, representing approximately 55.7% of the U.S. population. PCS
licensees in several markets adjacent to the Company's PCS markets, including
California, Minnesota, Missouri and
16
<PAGE> 20
Nevada, have announced that they intend to use the GSM standard. In order for
the Company's PCS subscribers to roam in other markets, and vice versa, at least
one PCS licensee in the other market must utilize the GSM standard, or the
subscribers must use dual-mode handsets that would permit the subscriber to use
the cellular system in the other market. Dual-mode handsets which would permit
such usage are not currently available. See "-- Absence of PCS Operating History
in the United States; Handset Availability."
The Company's principal PCS competitors have committed to standards other
than GSM and, as a result, without PCS handsets that can access both GSM and
competing systems, there is a risk that customers of the Company's PCS services
may not be able to conveniently use PCS services while roaming in certain
geographic areas outside the Company's PCS markets. PrimeCo and Sprint Spectrum
have publicly announced that they intend to deploy PCS systems based on a Code
Division Multiple Access ("CDMA") standard. AT&T Wireless and Southwestern Bell
have selected the Time Division Multiple Access ("TDMA") standard. It is
anticipated that together, CDMA-based PCS providers, including competitors in
several of the Company's markets, own licenses covering approximately 87% of the
U.S. population (based on 1990 U.S. Census Bureau figures used by the FCC for
auction purposes) and AT&T Wireless and Southwestern Bell, with their TDMA
standard, own PCS licenses which contain approximately 45% of the U.S.
population (based on 1990 U.S. Census Bureau figures used by the FCC for auction
purposes). Licensees in the FCC's recently completed C Block auction and in
future auctions of PCS licenses may or may not select GSM technology; certain
purchasers of licenses in the C Block auction have announced their intention not
to utilize the GSM standard in such markets. Accordingly, certain major
metropolitan areas will not be served by GSM-based PCS systems. The Company's
ability to establish a PCS subscriber base and to compete successfully in the
PCS business with those operators offering greater roaming capabilities may be
adversely affected by the fact that the Company's PCS subscribers will only be
able to roam into regions served by GSM-based PCS systems until dual-mode
handsets permitting them to use the existing cellular system become available.
See "Business -- PCS Operations."
ABSENCE OF PCS OPERATING HISTORY IN THE UNITED STATES; HANDSET AVAILABILITY
PCS systems have no significant operating history in the United States and
there can be no assurance that these businesses will become profitable. In
addition, the extent of potential demand for PCS in the Company's markets cannot
be estimated with any degree of certainty. The inability of the Company to
establish PCS services or to obtain appropriate equipment for the PCS business
could have a material adverse effect on the Company.
Handsets used for GSM-based PCS systems cannot currently be used with
cellular systems, and vice versa. While the Company believes that dual-mode
handsets that allow a user to access both GSM networks and analog cellular
networks will be commercially available in sufficient quantities by 1997, there
can be no assurance that such handsets can be successfully manufactured or that
the Company can obtain such handsets at competitive prices. Such dual-mode
handsets are not yet commercially available and are expected to be larger and
more expensive than single-mode handsets. The lack of interoperability or the
comparatively higher cost of such handsets may impede the Company's ability to
retain current cellular subscribers or attract potential new wireless
communications subscribers. See "Business -- PCS Operations" and "-- System
Equipment, Development and Expansion - PCS."
INTELLECTUAL PROPERTY AND BRANDING
The Company currently uses the registered service mark CELLULAR ONE to
market its cellular services. The Company's use of this service mark is governed
by five-year contracts between the Company and Cellular One Group, the owner of
the service mark. Each of these agreements may be renewed at the Company's
option for three additional five-year terms. Under these agreements, the Company
has agreed to meet operating and service quality standards for its cellular
service areas. If these agreements were not renewed upon expiration or if the
Company were to fail to meet the
17
<PAGE> 21
applicable operating or service quality standards, and therefore were no longer
permitted to use the CELLULAR ONE service mark, the Company's ability to attract
new subscribers and retain existing subscribers could be materially impaired.
AT&T Wireless, which had been the single largest user of the CELLULAR ONE brand
name, has reduced its use of the brand as a primary service mark. In addition,
if for some reason beyond the Company's control the name CELLULAR ONE were to
suffer diminished marketing appeal, the Company's ability both to attract new
subscribers and retain existing subscribers could be materially impaired. In
such circumstances or otherwise, the Company may explore development or
acquisition of a new service mark.
The Company has an application pending to obtain federal trademark
registration for the name "VoiceStream" which the Company is using in the
Honolulu MTA and intends to use in its remaining MTAs. There can be no assurance
that such registration will be granted or, if granted, that it will provide any
meaningful benefit to the Company. Competitors of the Company possess, and
others may develop over time, branding with significantly greater name
recognition than that of the Company. A failure by the Company to maintain
existing rights to its current cellular branding, to successfully develop value
in its "VoiceStream" mark or to develop suitable alternatives thereto would have
a material adverse effect on the Company's ability to market its products and
services and could require the Company to invest significant additional funds to
develop such alternatives. See "Business -- Intellectual Property."
HOLDING COMPANY STRUCTURE; SUBORDINATION
Substantially all of the Company's assets and operations are held by or
conducted through subsidiaries and, to that extent, the Company is effectively a
holding company. The Company relies on dividends, loan repayments and other
intercompany cash flows from its subsidiaries to generate the funds necessary to
meet its debt service obligations, including the payment of principal, premium,
if any, and interest on the Senior Subordinated Notes. The payment of dividends
and the repayment of loans and advances by the Company to its subsidiaries are
subject to statutory, contractual and other restrictions, are dependent upon the
earnings of such subsidiaries and are subject to various business
considerations. In addition, the Senior Subordinated Notes are effectively
subordinated to all existing and future indebtedness and other liabilities of
the Company's subsidiaries. As of March 31, 1996, the total outstanding
indebtedness of the Company's subsidiaries not eliminated in the Company's
consolidated financial statements was approximately $36.5 million. Moreover,
claims of creditors of the Company's subsidiaries, including tax authorities and
trade creditors, will generally have a priority claim to the assets of such
subsidiaries over the claims of the Company and the holders of indebtedness of
the Company, including holders of the Senior Subordinated Notes. See
"Description of Senior Subordinated Notes."
PCS BUILD-OUT AND CAPITAL EXPENDITURES
The Company is currently in the engineering, design and construction phase
of the initial build-out of its PCS systems. The Company's PCS licenses are
subject to a requirement that the Company construct network facilities that
offer coverage to at least one-third of the population in the relevant MTA by
June 2000, five years from the grant of the license (the "Five-Year Build-out
Requirement"), and to at least two-thirds of the population by June 2005, 10
years from the grant of the license (the "10-Year Build-out Requirement"). In
the Honolulu MTA, the Company currently has sufficient coverage to satisfy the
10-Year Build-out Requirement. The Company anticipates that its build-out in all
of its MTA markets, if completed as currently planned by the end of 1998, will
satisfy the 10-Year Build-out Requirement. Should the Company fail to meet these
coverage requirements, it may be subject to forfeiture of the license or the
imposition of fines by the FCC. See "Business -- Governmental Regulation." The
PCS build-out in each MTA is subject to successful completion of the network
design, site and facility acquisitions, the purchase and installation of the
network equipment, network testing and satisfactory accommodation of microwave
users currently
18
<PAGE> 22
using the spectrum. Delays in any of these areas could have a material adverse
effect on the Company's ability to complete the build-out in a timely manner.
The successful build-out of the Company's PCS systems will depend to a
significant degree upon the Company's ability to lease or acquire appropriate
sites for the location of its base station equipment. The Company has begun the
site selection and acquisition process. The site selection process will require
the continued successful negotiation of use agreements for or acquisitions of
numerous additional sites, and may require the Company to obtain zoning
variances or other governmental or local regulatory approvals, which are beyond
the Company's control. Delays in the site selection process, as well as
construction delays and other factors, could adversely affect the timing of the
commencement of commercial service in the Company's PCS systems. See
"-- Relocation of Fixed Microwave Licensees" and "Business -- Governmental
Regulation."
The Company believes that borrowings available under the Senior Secured
Facilities and the proceeds from the Debt Offering and the Offerings will be
sufficient to fund operating losses, capital expenditures and working capital
necessary for build-out of its PCS systems and the continued growth of its
cellular operations through December 31, 1998. The build-out of the Company's
PCS systems is currently in its early stages and the capital cost of completing
the project in any particular MTA and overall could vary materially from such
estimates. If adequate funds are not available from its existing capital
resources, the Company may be required to curtail its service operations or to
obtain additional funds on terms less favorable than those contained in the
Company's current arrangements.
In addition, the implementation of the PCS build-out plan is subject to the
availability from suppliers of the infrastructure equipment and subscriber
equipment the Company plans to use. Accordingly, there are risks associated with
the completion of development, timely manufacture and successful implementation
of newly developed wireless equipment in the build-out of the Company's PCS
systems. The Company has entered into agreements for the supply of
infrastructure equipment with NORTEL and Nokia Telecommunications Inc. In
addition, the Company has entered into an agreement with Nokia Mobile Phones,
Inc. (together with its affiliate, Nokia Telecommunications Inc., "Nokia"),
pursuant to which the Company has committed to purchase PCS and dual-mode
handsets totaling approximately $43.7 million through October 1, 1999. See
"-- Absence of PCS Operating History in the United States; Handset
Availability," "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Liquidity and Capital Resources" and
"Business -- Products and Services."
The cost to the Company of PCS handsets initially will be higher than its
cost of cellular handsets. In order to compete effectively with sellers of
analog cellular handsets, the Company may have to subsidize the sale of its PCS
handsets to a greater extent than cellular handsets. There can be no assurance
it will be able to sell such handsets on commercially favorable terms. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources."
RELOCATION OF FIXED MICROWAVE LICENSEES
For a period of up to five years after the grant of a PCS license (subject
to extension), a PCS licensee will be required to share spectrum with existing
licensees that operate certain fixed microwave systems, which exist within each
of the Company's MTAs. To secure a sufficient amount of unencumbered spectrum to
operate its PCS systems efficiently, the Company may need to negotiate
agreements to relocate many of these existing licensees. In such places where
relocation is necessary to permit operation of the Company's PCS systems, any
delay in the relocation of such licensees may adversely affect the Company's
ability to commence timely commercial operation of its PCS systems. In an effort
to balance the competing interests of existing microwave users and newly
authorized PCS licensees, the FCC has adopted a transition plan to relocate such
microwave operators to other spectrum blocks. This transition plan allows most
microwave users to operate in
19
<PAGE> 23
the PCS spectrum for a two-year voluntary negotiation period and an additional
one-year mandatory negotiation period. For public safety entities dedicating a
majority of their system communications for police, fire or emergency medical
services operations, the voluntary negotiation period is three years, with a
two-year mandatory negotiation period. Parties unable to reach agreement within
these time periods may refer the matter to the FCC for resolution, but the
existing microwave user is permitted to continue its operations until final FCC
resolution of the matter. There can be no assurance that the Company will be
successful in reaching timely agreements with the existing microwave licensees
or that any such agreements will be on terms favorable to the Company. Further,
depending on the terms of such agreements, the Company's ability to operate its
PCS systems profitably may be adversely affected. The Company estimates that to
complete its construction schedule through December 31, 1997 it may be required
to relocate approximately 105 microwave links. Through May 1, 1996, the Company
has relocated or reached agreement to relocate 67 microwave links. See
"Business -- Governmental Regulation."
GOVERNMENTAL REGULATION
The licensing, construction, operation, acquisition and sale of cellular
and PCS systems, as well as the number of cellular and other wireless licensees
permitted in each market, are regulated by the FCC. Changes in the regulation of
such activities, such as a decision by the FCC to issue new licenses or permit
more than two licenses in each market for cellular communications services,
could have a material adverse effect on the Company's operations. In addition,
all cellular licenses in the United States, including the Company's licenses,
were granted for an initial 10-year term and are subject to renewal. Licenses
may be revoked by the FCC at any time for cause. One of the Company's cellular
licenses expires on October 1, 1996 and four others expire on October 1, 1997.
While the Company believes that each of its cellular licenses will be renewed
based upon FCC rules establishing a presumption in favor of licensees that have
provided "substantial" service during their past license term and have
substantially complied with their regulatory obligations during the initial
license period, there can be no assurance that all of the Company's cellular
licenses will be renewed.
All PCS licenses will be granted for a 10-year period, at the end of which
period the licensee must apply for renewal. Licenses may be revoked by the FCC
at any time for cause. All 30 MHz broadband PCS licenses, including those of the
Company, are subject to the Five-Year Build-out Requirement and the 10-Year
Build-out Requirement. While the Company believes that each of its PCS licenses
will be renewed based upon FCC rules establishing a presumption in favor of
licensees that have provided "substantial" service during the past license term
and have substantially complied with their regulatory obligations during the
initial license period, there can be no assurance that all of the Company's PCS
licenses will be so renewed. See "-- PCS Build-out and Capital Expenditures."
The Company also must obtain a number of approvals, licenses and permits in
the operation of its business, including licenses from the Federal Aviation
Administration (the "FAA") in connection with cellular and PCS towers.
Additionally, the wireless communications industry is subject to certain state
and local governmental regulation. Operating costs are also affected by other
governmental actions that are beyond the Company's control. There is no
assurance that the various federal, state and local agencies responsible for
granting such licenses, approvals and permits will do so or that, once granted,
will not revoke or fail to renew them. The absence of such licenses, approvals
and permits would adversely affect existing operations and could delay
commencement of or prohibit certain business operations proposed by the Company.
See "Business -- Governmental Regulation."
The wireless communications industry also is subject to continually
evolving regulation. There are a number of issues on which regulation has been
or in the future may be suggested, including the effect of wireless
communications equipment on medical equipment and devices, electromagnetic
interference and cancer, as well as interference between types of wireless
systems. As new
20
<PAGE> 24
regulations are promulgated on these subjects or other subjects, the Company may
be required to modify its business plans or operations in order to comply with
any such regulations. There can be no assurance that the Company will be able to
do so in a cost effective manner, if at all. See "-- Radio Frequency Emission
Concerns; Medical Device Interference" and "Business -- Governmental
Regulation."
RADIO FREQUENCY EMISSION CONCERNS; MEDICAL DEVICE INTERFERENCE
Media reports have suggested that certain radio frequency ("RF") emissions
from wireless handsets may be linked to various health concerns, including
cancer, and may interfere with various electronic medical devices, including
hearing aids and pacemakers. Concerns over RF emissions may have the effect of
discouraging the use of wireless handsets, which could have an adverse effect
upon the Company's business. The FCC has a rulemaking proceeding pending to
update the guidelines and methods it uses for evaluating RF emissions from radio
equipment, including wireless handsets. While the proposal would impose more
restrictive standards on RF emissions from lower power devices such as wireless
handsets, it is believed that all wireless handsets currently marketed by the
Company and in use by the Company's subscribers already comply with the new
proposed standards.
Certain interest groups have requested that the FCC investigate claims that
the GSM technology poses health concerns and causes interference with hearing
aids and other medical devices. The Center for the Study of Electromagnetic
Compatibility at the University of Oklahoma, which was founded in 1994 with
funds from the wireless industry, is studying this issue and recently released
its findings with respect to the first phase of its study. Such phase of the
study, which was designed to examine extreme conditions, found that digital
technologies cause interference with hearing aids in certain instances. In
addition, the Personal Communications Industry Association ("PCIA") announced in
July 1995 that it was undertaking an industry-wide study to gather information
on possible PCS interference with medical devices for all PCS standards. There
can be no assurance that the findings of such studies will not have an adverse
effect on the Company's business (including its use of GSM technology) or that
such findings will not lead to governmental regulations that will have an
adverse effect on the Company's business. See "Business -- Governmental
Regulation."
FINALITY OF PCS AUCTIONS
Through the FCC auction concluded in 1995, the Company acquired broadband
PCS licenses for the following MTAs: Honolulu, Salt Lake City, Portland, Des
Moines/Quad Cities, El Paso/Albuquerque and Oklahoma City. In January 1996, the
Company entered into an agreement to purchase a broadband PCS license for the
Denver MTA. Although all of the MTA PCS licenses, including those of the
Company, have been awarded by the FCC and the holders of the licenses are
permitted to construct their PCS systems and commence operations, the licenses
have not been issued by a grant that is "final" (i.e., not subject to
administrative reconsideration or administrative or judicial review) because of
certain actions before the FCC challenging the validity of the auction. These
actions fall into two categories: (i) those stemming from the November 9, 1995
decision of the United States Court of Appeals for the Sixth Circuit in
Cincinnati Bell Telephone Co. v. FCC, 69 F.3d 752 (which held that the FCC's
cellular eligibility restriction and twenty percent bright line cellular
attribution standard were arbitrary and remanded the rules to the FCC for
further proceedings), and (ii) those claiming that the delay in the C Block
auction gave the A and B Block PCS licensees an unfair headstart over subsequent
licensees. The Cincinnati Bell decision raises a possibility that all of the PCS
auctions could be invalidated, including the A and B Blocks. As to the actions
claiming unfair headstart, the FCC recently affirmed the grants of the A and B
Block licenses. The time for filing an appeal or petition for reconsideration of
the FCC's affirmance of the grants ended on May 1, 1996, and no appeals or
petitions for reconsideration have been filed in the appropriate court or with
the FCC. As a result of the challenges, although it currently appears unlikely,
the Company could lose its PCS licenses or have adverse conditions imposed on
them, and in such event the loss resulting from any adverse conditions or, in
the case of license revocation, from its costs and expenses in bidding for and
obtaining the licenses and in beginning the site acquisition and build-out for
its PCS systems could have a material adverse effect on the Company. See
"Business -- Governmental Regulation." In addition, all licenses which were the
subject of the
21
<PAGE> 25
recently completed C Block auction are subject to completion of acquisition
requirements and FCC grant. See "The Company -- Recent Developments" and
"Business -- Governmental Regulation."
DEPENDENCE UPON KEY PERSONNEL
The Company will be dependent to a large degree on the services of Mr.
Stanton, as Chairman of the Board and Chief Executive Officer, and other current
members of management. The Company and Mr. Stanton have entered into an
employment agreement which provides that Mr. Stanton's employment may be
terminated at any time by the Company, specifies base compensation of $180,000
per year with a targeted annual bonus of 100% of the base compensation, as
determined by the Board of Directors. The Board of Directors may, in its
discretion, increase Mr. Stanton's compensation, either permanently or for a
limited period, if the Board of Directors shall deem it advisable in order to
fairly compensate Mr. Stanton for the value of his services. Severance is
payable under the agreement in the event Mr. Stanton's employment with the
Company is involuntarily terminated for other than Cause (as defined in the
agreement) in an amount equal to any accrued targeted bonus through the date of
termination, 12 months base salary and 12 months annual targeted bonus. The
Company will also make specified insurance benefit payments on behalf of Mr.
Stanton and his dependents for 12 months following involuntary termination. In
addition, in such event unvested stock options become vested in accordance with
a schedule provided in the agreement; however, Mr. Stanton currently holds no
stock options. In the event of a voluntary termination or a termination for
Cause, no severance is payable by the Company. In addition, the agreement
provides that during the term of the agreement and for one year following the
termination of Mr. Stanton's employment for any reason, Mr. Stanton may not
engage in a business which is substantially the same as or similar to the
business of the Company; provided, that such prohibition shall not preclude Mr.
Stanton's investment in other companies engaged in the wireless communications
business or his ability to serve as a director of other companies in the
wireless communications business, in each case subject to his fiduciary
obligations as a director of the Company.
Loss of the services of Mr. Stanton or other members of management could
have a material adverse effect on the business of the Company and qualified
replacements may be difficult or impossible to find or retain. An event of
default under the Credit Facility would occur if Mr. Stanton (or a suitable
replacement) ceases, for any reason, to be the Chairman of the Company's Board
of Directors. See "Description of Indebtedness" and "Management -- Employment
Agreements."
SEASONALITY
The Company, and the wireless communications industry in general, have
historically experienced significant subscriber growth during the fourth
calendar quarter. Accordingly, during such quarter the Company experiences
greater losses on equipment sales and increases in sales and marketing expenses.
The Company has historically experienced highest usage and revenue per
subscriber during the summer months. The Company expects these trends to
continue. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Seasonality."
NO PRIOR MARKET FOR SENIOR SUBORDINATED NOTES
There has been no public market for the Senior Subordinated Notes prior to
this Debt Offering. The Underwriters have advised the Company that each of them
presently intends to make a market in the Senior Subordinated Notes, although
none of them is obligated to do so, and each of them may discontinue any
market-making activities with respect to the Senior Subordinated Notes at any
time without notice. There can be no assurance that an active public market for
the Senior Subordinated Notes will develop or be maintained. If an active
trading market for the Senior Subordinated Notes does not develop, the market
price and liquidity of the Senior Subordinated Notes may be adversely affected.
The liquidity of, and trading markets for, the Senior Subordinated Notes may
also be adversely affected by declines in the market for high yield securities
generally and by the financial performance of the Company.
22
<PAGE> 26
THE COMPANY
Western Wireless provides wireless communications services in the western
United States. The Company owns or has the right to acquire 80 cellular and PCS
licenses for a geographic area covering approximately 25.5 million pops and 41%
of the geography in the continental United States. The Company owns and operates
cellular communications systems in 57 RSAs, including one RSA which it has the
right to acquire, and 16 MSAs with an aggregate population of approximately 6.0
million persons. In its cellular markets, the Company uses the CELLULAR ONE
brand name and currently serves over 240,000 subscribers.
Through the FCC auction concluded in 1995, the Company acquired broadband
PCS licenses for six MTAs with an aggregate population of over 15.1 million
persons -- Honolulu, Salt Lake City, Portland, Des Moines/Quad Cities, El
Paso/Albuquerque and Oklahoma City -- for an aggregate purchase price of $144
million. In January 1996, the Company agreed to acquire a broadband PCS license
for the Denver MTA from GTE for a purchase price of $66 million. The Company's
seven PCS licenses cover markets with an aggregate population of approximately
19.5 million persons, including approximately 4.4 million persons covered by the
Denver MTA. In all of its PCS markets the Company intends to use its proprietary
VoiceStream brandname. In February 1996, the Company's PCS system in the
Honolulu MTA became the first auction-awarded PCS system to commence commercial
operations in the United States.
The wireless communications industry is in a period of tremendous growth in
the United States. Since its introduction in 1983, commercial cellular telephone
service has grown dramatically and now dominates the wireless communications
market. The Company has experienced rapid growth of its cellular operations,
having increased its cellular subscriber base to 239,200 at March 31, 1996 from
13,700 at January 1, 1993. Service revenues grew to $135.1 million in 1995 from
$18.4 million in 1993. The Company believes the wireless communications market
will continue to grow due to enhanced service offerings, the emergence of PCS
systems, increased awareness of the productivity, convenience and security
benefits associated with wireless communications services and anticipated
declines in pricing for its services. The Company believes it is well positioned
to take advantage of these growth opportunities as a result of its existing
operations and systems infrastructure, wide geographic coverage area and the
experience and expertise of its management team. See "Business" and
"Management."
The Company is a Washington corporation which is the successor to a
Delaware corporation incorporated in January 1994. The Company's principal
executive offices are located at 2001 N.W. Sammamish Road, Issaquah, Washington
98027, and its telephone number is (206) 313-5200.
RECENT DEVELOPMENTS
On May 6, 1996, the FCC completed its C Block auction of licenses to
provide broadband PCS services in 493 Basic Trading Areas ("BTAs"). The Company
holds a 49.9% limited partnership interest in Cook Inlet Western Wireless PV/SS
PCS, L.P. ("Cook Inlet PCS") which was the high bidder for licenses for the
following BTAs: Tulsa, Oklahoma; Spokane, Washington; Yakima, Washington;
Wichita Falls, Texas; Wenatchee, Washington; Sherman-Denison, Texas; Walla
Walla, Washington/Pendleton, Oregon; Muskogee, Oklahoma; Worthington, Minnesota;
Aberdeen, Washington; Port Angeles, Washington; Coffeyville, Kansas and
Bartlesville, Oklahoma. The foregoing BTAs contain aggregate pops of
approximately 2.9 million (based on 1990 U.S. Census Bureau population figures)
and the licenses will be acquired by Cook Inlet PCS (subject to FCC grant) for
an aggregate cost of $67.7 million, or an average cost per pop of $23.65. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources" and "Business -- PCS Operations."
23
<PAGE> 27
USE OF PROCEEDS
The net proceeds to the Company from the Debt Offering are estimated to be
approximately $193.1 million, after deducting estimated underwriting discount
and offering expenses payable by the Company. Assuming an initial public
offering price of $22.50 per share, the net proceeds to the Company from the
sale of the shares of Class A Common Stock in the Offerings are estimated to be
approximately $187.4 million ($222.4 million if the Underwriters' over-allotment
options in the Offerings are exercised in full), after deducting estimated
underwriting discounts and offering expenses payable by the Company. The Company
intends to use the proceeds from the Offerings and the Debt Offering as follows:
(i) to finance a portion of the build-out of the Company's PCS business in its
PCS markets in the amount of approximately $202.7 million during the remainder
of 1996; (ii) to pay for the purchase of the Denver MTA license from GTE in the
amount of $66.0 million (or $33.0 million if the Company exercises its right to
pay $33.0 million of the purchase price by delivery of a promissory note having
a maturity date 18 months from the closing date); (iii) to fund expansion of the
Company's existing cellular operations in the amount of approximately $51.5
million during the remainder of 1996; and (iv) the remainder for general
corporate purposes, including possible future acquisitions and working capital.
Prior to their use, $202.0 million of the net proceeds from the Offerings and
the Debt Offering will be used to repay revolving credit indebtedness under the
Credit Facility. As of March 31, 1996, approximately $402.0 million was
outstanding under the Credit Facility with a weighted average interest rate
(including commitment fees) of 7.8% and a weighted average maturity of 6.3
years. Net proceeds from the Offering and the Debt Offering will be invested in
short-term, investment grade, interest-bearing securities pending such uses. See
"Description of Indebtedness."
24
<PAGE> 28
CAPITALIZATION
The following table sets forth the capitalization of the Company at March
31, 1996, and as adjusted to give effect to the sale by the Company and the
Selling Shareholders of the shares of Class A Common Stock in the Offerings
(assuming an initial public offering price of $22.50 per share, after deducting
underwriting discounts and offering expenses payable by the Company), the sale
of the Senior Subordinated Notes in the Debt Offering and the application of the
net proceeds therefrom for working capital and to repay revolving credit
indebtedness. See "Use of Proceeds."
<TABLE>
<CAPTION>
MARCH 31, 1996
-------------------------
ACTUAL AS ADJUSTED
--------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Cash and cash equivalents.......................................... $ 6,204 $ 179,031
========= =========
Long-term debt:
Credit Facility:
Revolver...................................................... $ 402,000
Term.......................................................... $ 200,000
NORTEL Facility.................................................. 33,800 33,800
Senior Subordinated Notes........................................ 200,000
Other............................................................ 2,680 2,680
--------- ---------
Total long-term debt.......................................... 438,480 436,480
--------- ---------
Shareholders' equity(1):
Preferred Stock, no par value, 50,000,000 shares authorized; no
shares issued and outstanding.................................
Common Stock, no par value, 300,000,000 shares authorized
Class A, no shares issued and outstanding and 11,000,000 as
adjusted and Class B, 58,731,111 shares issued and
outstanding and 56,745,911 as adjusted....................... 334,675 522,077
Deferred compensation............................................ (1,714) (1,257)
Deficit.......................................................... (102,698) (103,155)
--------- ---------
Total shareholders' equity.................................... 230,263 417,665
--------- ---------
Total capitalization............................................... $ 668,743 $ 854,145
========= =========
</TABLE>
- ---------------
(1) Does not include (i) 3,664,878 shares of Class B Common Stock issuable upon
exercise of outstanding options, (ii) 2,186,360 shares of Class A Common
Stock reserved for issuance pursuant to future option grants under the
Company's stock option plan, (iii) up to 327,882 shares of Class B Common
Stock issuable upon exercise of exchange rights exercisable no sooner than
2001 issued to the Company's partners in Cook Inlet PCS or (iv) 8,860 shares
of Class A Common Stock (based on the fair market value of the stock of
Western Wireless International Corporation on the date hereof) issuable
under the Horwitz Agreement (as defined in "Certain Transactions"). Class B
Common Stock actually outstanding at March 31, 1996 consists of shares of
common stock, par value $0.001 per share, which will be reclassified into
shares of Class B Common Stock, no par value, prior to the Offerings and the
Debt Offering. See "Certain Transactions" and "Description of Capital
Stock."
25
<PAGE> 29
SELECTED CONSOLIDATED FINANCIAL DATA
The following table sets forth certain selected consolidated financial and
operating data for the Company as of and for each of the three years in the
period ended December 31, 1995, which was derived from the Company's
consolidated financial statements and notes thereto that have been audited by
Arthur Andersen LLP, independent public accountants. The table also sets forth
certain unaudited selected consolidated financial and operating data for the
Company as of March 31, 1996 and for the three months ended March 31, 1996 and
1995, as of and for the nine months ended December 31, 1992, as of and for the
three months ended March 31, 1992 and as of and for the year ended December 31,
1991. The information as of March 31, 1996 and for the three months ended March
31, 1996 and 1995 is unaudited but in the opinion of the Company reflects all
adjustments necessary for the fair presentation of the Company's financial
position and results of operations for such periods, and may not be indicative
of the results of operations for a full year. MCLP, a predecessor of the
Company, was not formed until October 1992. In March 1992, GCC reorganized under
Chapter 11 of the U.S. Bankruptcy Code and, as part of the reorganization, GCC
adopted fresh-start reporting in conformity with procedures specified by the
American Institute of Certified Public Accountants Statement of Position 90-7.
Accordingly, the financial data of the Company prepared as of March 31, 1992 and
for subsequent periods are stated on a basis different from, and are not
comparable to, financial data for prior dates and periods. All financial data
relating to the Company herein with respect to periods after the date of the
Business Combination reflect the combined operations of GCC and MCLP and all
such data with respect to prior periods reflect only the operations of GCC,
which, for accounting purposes, is considered Western Wireless Corporation's
predecessor. Accordingly, the financial data of the Company for periods
subsequent to the Business Combination are not comparable to financial data for
prior periods. All the data should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the Company's consolidated financial statements and notes thereto. See Note 12
to the Company's consolidated financial statements for pro forma information
presenting the results of operations of the Company as if the Business
Combination occurred on January 1, 1993, and see the consolidated financial
statements of MCLP included herein for financial information of MCLP prior to
the Business Combination.
<TABLE>
<CAPTION>
THREE MONTHS NINE THREE
ENDED MONTHS MONTHS YEAR
MARCH 31, YEAR ENDED DECEMBER 31, ENDED ENDED ENDED
----------------------- ---------------------------------- DECEMBER 31, MARCH 31, DECEMBER 31,
1996 1995 1995 1994 1993 1992 1992 1991
--------- --------- -------- -------- -------- ------------ --------- ------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENTS OF
OPERATIONS DATA:
Revenues:
Subscriber revenues..... $ 35,337 $ 18,967 $105,430 $ 38,838 $ 11,105 $ 4,861 $ 1,072 $ 3,392
Roamer revenues......... 6,757 4,802 29,660 16,746 7,285 4,468 881 2,760
Equipment sales and
other revenue......... 3,941 2,315 11,465 7,524 2,344 1,208 262 883
-------- -------- -------- -------- -------- ------- ------- --------
Total revenues........ 46,035 26,084 146,555 63,108 20,734 10,537 2,215 7,035
-------- -------- -------- -------- -------- ------- ------- --------
Operating expenses:
Cost of service......... 8,815 5,786 27,686 13,303 4,310 2,730 655 2,840
Cost of equipment
sales................. 6,354 3,870 20,705 11,446 3,533 1,818 400 1,113
General and
administrative........ 12,270 6,254 31,253 15,226 6,253 5,048 1,156 5,226
Sales and marketing..... 13,491 7,164 41,390 18,553 6,101 3,074 812 2,948
Depreciation and
amortization.......... 15,610 10,776 49,456 25,670 5,399 3,746 2,787 12,276
Provision for
restructuring costs... 2,478 3,137
-------- -------- -------- -------- -------- ------- ------- --------
Total operating
expenses............ 56,540 33,850 170,490 86,676 25,596 16,416 5,810 27,540
-------- -------- -------- -------- -------- ------- ------- --------
Operating loss............ (10,505) (7,766) (23,935) (23,568) (4,862) (5,879) (3,595) (20,505)
-------- -------- -------- -------- -------- ------- ------- --------
Other income (expense):
Interest and financing
expense............... (8,134) (5,027) (25,428) (10,659) (2,242) (1,666) (169) (8,273)
Gain (loss) on
dispositions, net..... (573) 6,202 10,102 1,876 4,024 (14,404)
Other, net.............. 65 330 627 2,065 331 130 (189) (1,116)
-------- -------- -------- -------- -------- ------- ------- --------
Income (loss) before
extraordinary items..... (18,574) (12,463) (49,309) (25,960) 3,329 (5,539) 71 (44,298)
Extraordinary items....... (6,645) 63,569
-------- -------- -------- -------- -------- ------- ------- --------
Net income (loss)..... $(18,574) $(12,463) $(55,954) $(25,960) $ 3,329 $ (5,539) $63,640 $(44,298)
======== ======== ======== ======== ======== ======= ======= ========
</TABLE>
26
<PAGE> 30
<TABLE>
<CAPTION>
THREE MONTHS NINE THREE
ENDED MONTHS MONTHS YEAR
MARCH 31, YEAR ENDED DECEMBER 31, ENDED ENDED ENDED
------------------------- ---------------------------------------- DECEMBER 31, MARCH 31, DECEMBER 31,
1996 1995 1995 1994 1993 1992 1992 1991
---------- ---------- ---------- ---------- ---------- ------------ --------- ------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Share data:
Income (loss)
per share
before
extraordinary
item.......... $ (0.31) $ (0.24) $ (0.87) $ (0.59) $ 0.10 $ (0.22) * *
Per share effect
of
extraordinary
item.......... (0.12) * *
---------- ---------- ---------- ---------- ---------- ---------- ------- --------
Net income
(loss) per
share....... $ (0.31) $ (0.24) $ (0.99) $ (0.59) $ 0.10 $ (0.22) * *
========== ========== ========== ========== ========== ========== ======= ========
Weighted average
common shares
and common
equivalent
shares
outstanding... 59,486,512 52,363,838 56,469,990 43,949,101 32,253,303 25,665,437 * *
========== ========== ========== ========== ========== ========== ======= ========
</TABLE>
- ---------------
* Not meaningful
<TABLE>
<CAPTION>
DECEMBER 31,
MARCH 31, --------------------------------------------------- MARCH 31, DECEMBER 31,
1996 1995 1994 1993 1992 1992 1991
---------- ---------- ---------- ---------- ------------ ---------- ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE
SHEETS DATA:
Current assets..................... $ 41,697 $ 37,508 $ 36,769 $ 14,686 $ 8,098 $ 4,685 $ 2,469
Property and equipment, net........ 231,488 193,692 120,648 48,591 27,528 20,984 23,076
Licensing costs and other
intangible assets, net........... 455,371 417,971 211,309 86,270 43,873 41,941 11,945
Other assets....................... 8,890 9,857 1,468 6,219 5,522 2,083 8,133
---------- ---------- ---------- ---------- ---------- ---------- ----------
Total assets................... $ 737,446 $ 659,028 $ 370,194 $ 155,766 $ 85,021 $ 69,693 $ 45,623
========== ========== ========== ========== ========== ========== ==========
Current liabilities................ $ 68,703 $ 55,936 $ 39,214 $ 16,447 $ 5,806 $ 5,373 $ 19,580
Long-term debt, net of current
portion.......................... 438,480 362,487 200,587 53,430 14,893 20,086 85,460
Minority interests in equity of
consolidated subsidiary.......... 3,376
Shareholders' equity
(deficiency)..................... 230,263 240,605 127,017 85,889 64,322 44,234 (59,417)
---------- ---------- ---------- ---------- ---------- --------- ----------
Total liabilities and
shareholders' equity......... $ 737,446 $ 659,028 $ 370,194 $ 155,766 $ 85,021 $ 69,693 $ 45,623
========== ========== ========== ========== ========== ========= ==========
OTHER DATA:
Cellular pops(1)................... 6,030,208 5,764,152 5,240,702 2,190,104 1,749,999 1,579,051 1,712,519
Ending cellular subscribers........ 239,200 209,500 112,800 30,000 13,700 8,300 7,700
EBITDA(2).......................... $ 5,105 $ 25,521 $ 2,102 $ 537 $ (2,133) $ (808) $ (8,229)
Ratio of earnings to fixed
charges(3)....................... * * * 2.22 * 1.33 *
CASH FLOWS PROVIDED BY (USED IN):
Operating activities............. $ (219) $ (745) $ (988) $ (255) $ (1,490) $ (2,376) $ (11,284)
Investing activities............. $ (78,949) $ (293,579) $ (70,190) $ (32,535) $ (13,159) $ 12,953 $ (7,412)
Financing activities............. $ 76,800 $ 295,109 $ 70,777 $ 36,212 $ 16,552 $ (8,131) $ 18,397
</TABLE>
- ---------------
* Not meaningful
(1) Based upon 1995 estimates by Equifax for 1995. For periods between 1990 and
1995, the Company has evenly applied Equifax's growth factors from 1990 to
1995 to the 1990 U.S. Census Bureau population figures. See
"Business -- Markets and Systems."
(2) EBITDA represents operating income (loss) from operations before interest,
taxes and depreciation and amortization. EBITDA is a measure commonly used
in the industry but is not prepared in accordance with GAAP and should not
be considered as a measurement of net cash flows from operating activities.
In 1994 and 1991, the Company recorded provisions for restructuring costs of
$2.5 million and $3.1 million, respectively. EBITDA before such provisions
for restructuring costs would have been $4.6 million and $5.1 million in
1994 and 1991, respectively.
(3) The ratio of earnings to fixed charges is determined by dividing the sum of
earnings (loss) before extraordinary items, interest and financing expense,
amortization of deferred financing costs and the portion of rents
representative of the interest factor by fixed charges. Fixed charges
consist of the sum of interest and financing expense, amortization of
deferred financing costs, capitalized interest and the portion of rents
representative of the interest factor. The ratio of earnings to fixed
charges is not meaningful for periods that result in a deficit. For the
periods indicated above, earnings were inadequate to cover fixed charges and
the deficiency of earnings to fixed charges was $18.6 million for the three
months ended March 31, 1996 and $49.7 million and $26.0 million for the
years ended December 31, 1995 and 1994, respectively, and $5.5 million for
the nine months ended December 31, 1992 and $44.3 million for the year ended
December 31, 1991. See "Risk Factors -- High Leverage; Debt Service;
Restrictive Covenants."
27
<PAGE> 31
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with
the Company's consolidated financial statements and notes thereto and other
financial information included elsewhere in this Prospectus.
OVERVIEW
The Company provides wireless communications services in the western United
States through the ownership and operation of cellular communications systems in
73 RSAs and MSAs, including one RSA which the Company has the right to acquire.
The Company has acquired PCS licenses in six MTAs. In January 1996, the Company
agreed to acquire a PCS license for the Denver MTA. In February 1996, the
Company's PCS system in the Honolulu MTA became the first auction-awarded PCS
system to commence commercial operations in the United States.
Western Wireless Corporation was formed in July 1994 as the result of the
Business Combination among various companies, including MCLP and GCC. GCC
commenced operations in 1989 and MCLP was formed in 1992. As a result of the
Business Combination and a series of related transactions, Western Wireless
Corporation became the owner of all of the issued and outstanding shares of
common stock of GCC and the owner of all of the assets of MCLP. The Business
Combination constituted an acquisition of MCLP by GCC for accounting purposes.
As a result, all financial data relating to the Company herein with respect to
periods after the date of the Business Combination reflects the combined
operations of GCC and MCLP and all such data with respect to prior periods
reflects only the operations of GCC, which, for accounting purposes, is
considered Western Wireless Corporation's predecessor. Accordingly, the
financial data of the Company for periods subsequent to the Business Combination
are not comparable to financial data for prior periods. See Note 12 to the
Company's consolidated financial statements for pro forma information presenting
the results of operations of the Company as if the Business Combination occurred
on January 1, 1993, and see the consolidated financial statements of MCLP
included herein for financial information of MCLP prior to the Business
Combination.
The Company has operated the cellular systems in its markets, on average,
for approximately three years and has experienced rapid growth during such
periods. The Company's cellular subscribers and penetration were 239,200 and
4.0%, respectively, at March 31, 1996 compared to 13,700 and 0.8%, respectively,
at January 1, 1993. The Company intends to continue to increase its total number
of subscribers in its cellular markets, but expects the rate of growth in
subscriber penetration to slow.
The Company's revenues primarily consist of subscriber revenues (including
access charges and usage charges), roamer revenues (fees charged for providing
services to subscribers of other cellular communications systems when such
subscribers, or "roamers," place or receive a phone call within one of the
Company's service areas) and equipment sales. The majority of the Company's
revenues are derived from subscriber revenues. The Company had no revenues from
its paging or PCS systems prior to February 1, 1996 and February 29, 1996,
respectively. Revenues from paging systems, which are included in other revenue,
are expected to account for less than 3% of the Company's total revenues in
1996. The Company expects to continue to sell cellular and PCS handsets below
cost and regards these losses as a cost of building its subscriber base.
Average monthly subscriber revenue per subscriber from its cellular
operations increased to $57.25 in 1995 compared to $49.72 in 1993. The Company
believes its generally favorable average monthly subscriber revenue per
subscriber reflects its efforts to expand its geographic coverage and focus
subscribers on higher-end rate plans, and reflects the positive characteristics
for wireless communications in RSAs and small MSAs. The Company expects that the
average monthly subscriber revenue per subscriber from its cellular operations
may decline due to a number of
28
<PAGE> 32
factors, including the addition of new subscribers which may have lower usage
rates, potential price decreases and increased competition.
Cost of service consists of the cost of providing wireless service to
subscribers, primarily including costs to access local exchange and long
distance carrier facilities and maintain the Company's wireless network. General
and administrative expenses include the costs associated with billing a
subscriber and the administrative cost associated with maintaining subscribers,
including customer service, accounting and other centralized functions. General
and administrative expenses also include provisions for unbillable fraudulent
roaming charges and subscriber bad debt. Sales and marketing costs include costs
associated with acquiring a subscriber, including direct and indirect sales
commissions, salaries, all costs of sales offices and retail locations,
advertising and promotional expenses. Depreciation and amortization includes
primarily depreciation expense associated with the Company's property and
equipment in service and amortization associated with its wireless licenses for
operational markets. The Company amortizes licensing costs associated with PCS
systems once they become operational.
Certain headquarter costs, including customer service, accounting and other
centralized functions, are incurred on behalf of all of the Company's
operations. These costs are allocated to those operations in a manner which
reflects management's judgment as to the nature of the activity causing those
costs to be incurred.
Cellular EBITDA was $28.9 million in 1995 compared to $0.5 million in 1993.
However, the Company expects a decline in consolidated EBITDA as it develops,
constructs and operates its PCS systems and seeks aggressively to build its PCS
subscriber base. To the extent that the time to complete the PCS build-out is
faster or the costs are greater than expected, operating losses will increase
and consolidated EBITDA may be negative for some periods. The Company has
experienced rapid growth in its revenues and assets during the periods set forth
below, which rates of growth will not necessarily continue over the next few
years. The Company has made and expects to make substantial capital expenditures
in connection with the expansion of its wireless communications systems. The
Company's results of operations for the periods described herein will not be
indicative of future performance.
EBITDA represents operating income (loss) from operations before interest,
taxes and depreciation and amortization. EBITDA is a measure commonly used in
the industry but is not prepared in accordance with GAAP and should not be
considered as a measurement of net cash flows from operating activities.
Cellular EBITDA represents EBITDA from the Company's cellular operations.
In the comparisons that follow, the Company has separately set forth
certain information relating to cellular operations (including paging) and PCS
operations. The Company believes that this is appropriate because its cellular
systems have been operating for a number of years while its PCS systems had not
commenced commercial operations until 1996, although the Company incurred
start-up costs beginning in the third quarter of 1995 in connection with such
operations.
QUARTER ENDED MARCH 31, 1996 COMPARED TO QUARTER ENDED MARCH 31, 1995
The Company had 239,200 cellular subscribers at March 31, 1996, an increase
of 29,700 or 14.2% from December 31, 1995. At March 31, 1995, the Company had
128,200 cellular subscribers, an increase of 15,400 or 13.7% from December 31,
1994. For the three months ended March 31, 1996 and March 31, 1995, the net
number of cellular subscribers added through cellular system acquisitions were
approximately 5,400 and 0, respectively. Excluding such acquired cellular
subscribers, the percentage of such net cellular subscriber additions through
independent agents and retailers increased to 34% for the three months ended
March 31, 1996 from 27% for the three months ended March 31, 1995 as a result of
the Company's efforts to further expand distribution channels. The Company had
2,200 PCS subscribers at March 31, 1996 as a result of initiating commercial
service in its Honolulu MTA on February 29, 1996.
29
<PAGE> 33
REVENUES
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
-----------------------------
1996 1995
----------------- --------
CELLULAR PCS CELLULAR
-------- ----- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Subscriber revenues.......................................... $35,188 $149 $18,967
Roamer revenues.............................................. 6,757 4,802
Equipment sales.............................................. 2,695 420 2,315
Other revenues(1)............................................ 826
-------- ----- --------
Total revenues............................................. $45,466 $569 $26,084
======== ===== ========
</TABLE>
- ---------------
(1) Primarily revenues from paging services.
Cellular subscriber revenues increased to $35.2 million for the three
months ended March 31, 1996 from $19.0 million for the three months ended March
31, 1995. This $16.2 million or 85.3% increase is primarily due to the increased
number of cellular subscribers in the 1996 period. Average monthly cellular
subscriber revenue per subscriber was $51.87 for the three months ended March
31, 1996 compared to $52.80 for the three months ended March 31, 1995. This 1.8%
decrease is a result of a decrease in minutes of use primarily due to unusually
severe weather in the month of January.
PCS subscriber revenues for the three months ended March 31, 1996 were $0.1
million. Due to the single month of operation, no average PCS revenue statistics
are reflected herein.
Roamer revenues were $6.8 million for the three months ended March 31, 1996
compared to $4.8 million for the three months ended March 31, 1995, an increase
of $2.0 million or 41.7%. Growth in the Company's roamer revenues generally
reflects increases in the Company's geographical coverage and market penetration
levels in adjacent markets and the cellular industry as a whole. Roamer revenues
as a percentage of total cellular revenues declined to 14.9% for the three
months ended March 31, 1996 from 18.4% for the three months ended March 31, 1995
as a result of the 85.3% growth in subscriber revenues, which exceeded the 41.7%
increase in roamer revenues. Although the Company expects total roamer revenues
to continue to increase as the Company and the cellular industry grow, it
expects its roamer revenues as a percentage of total revenues to continue to
decline as its subscriber base grows and it reduces roaming rates.
Cellular equipment sales, which consist primarily of handset sales,
increased to $2.7 million for the three months ended March 31, 1996 from $2.3
million for the three months ended March 31, 1995. This $0.4 million or 17.4%
increase is primarily due to the increase in net subscriber additions partially
offset by a decrease in the average handset sales price. PCS equipment sales
were $0.4 million as a result of the commencement of commercial operations in
the Honolulu MTA in February 1996. The Company anticipates continued growth in
equipment sales as a result of increases in net cellular and PCS subscriber
additions and the commencement of commercial operations in its remaining MTAs.
Other revenues, which consist primarily of paging revenues, were $0.8
million for the three months ended March 31, 1996, following the acquisition of
paging operations in February 1996.
30
<PAGE> 34
OPERATING EXPENSES
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
----------------------------------
1996 1995
---------------------- -------
CELLULAR(1) PCS CELLULAR
----------- ------ -------
(IN THOUSANDS)
<S> <C> <C> <C>
Cost of service........................................... $ 8,407 $ 408 $ 5,786
Cost of equipment sales................................... 5,437 917 3,870
General and administrative................................ 9,169 3,101 6,254
Sales and marketing....................................... 11,004 2,487 7,164
Depreciation and amortization............................. 15,160 450 10,776
----------- ------ -------
Total operating expenses................................ $49,177 $7,363 $33,850
========= ====== ========
</TABLE>
- ---------------
(1) Includes expenses attributable to paging services.
PCS operating expenses of $7.4 million for the three months ended March 31,
1996 relate primarily to start-up costs in all of the Company's MTAs and to a
lesser extent to the one month of operations in the Honolulu MTA. Therefore, the
operating expenses for PCS are not representative of future operations.
The comparisons below only relate to the Company's cellular operations
(which include paging operations after February 1, 1996).
Cost of service increased to $8.4 million for the three months ended March
31, 1996 from $5.8 million for the three months ended March 31, 1995. This
increase is primarily attributable to the increased number of subscribers which
resulted in increased costs to access local exchange and long distance carrier
facilities and maintain the Company's expanding wireless network. While cost of
service increased $2.6 million or 44.8%, it decreased as a percentage of service
revenues to 19.6% for the three months ended March 31, 1996 from 24.4% for the
three months ended March 31, 1995, which is primarily due to efficiencies gained
from the growing subscriber base. Service revenues includes subscriber, roamer
and other revenues.
General and administrative costs increased to $9.2 million for the three
months ended March 31, 1996 from $6.3 million for the three months ended March
31, 1995, an increase of $2.9 million or 46.0%, which is primarily attributable
to the increase in the costs associated with supporting the increased subscriber
base. However, these costs continue to decline as a percentage of service
revenues to 21.5% for the three months ended March 31, 1996 from 26.5% for the
three months ended March 31, 1995, primarily due to improved efficiency and as a
result of continuing economies of scale arising from the Business Combination.
Sales and marketing costs increased to $11.0 million for the three months
ended March 31, 1996 from $7.2 million for the three months ended March 31, 1995
primarily due to net subscriber additions. Sales and marketing costs per net
subscriber added decreased to $455 for the three months ended March 31, 1996
from $503 for the three months ended March 31, 1995 primarily attributable to
improved efficiencies. Including the losses on equipment sales, the costs per
net subscriber added decreased to $566 for the three months ended March 31, 1996
from $615 for the three months ended March 31, 1995.
Depreciation expense increased to $9.2 million for the three months ended
March 31, 1996 from $6.5 million for the three months ended March 31, 1995. This
$2.7 million or 41.5% increase is attributable to the expansion of the Company's
cellular systems. Amortization expense increased to $6.0 million for the three
months ended March 31, 1996 from $4.3 million for the three months ended March
31, 1995. This $1.7 million or 39.5% increase is primarily attributable to an
increase in gross
31
<PAGE> 35
cellular licensing costs and other intangible assets to $341.4 million at March
31, 1996 from $240.1 million at March 31, 1995.
OPERATING LOSS
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
-----------------------------------
1996 1995
------------------------ -------
CELLULAR(1) PCS CELLULAR
----------- -------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Operating loss........................................... $(3,711) $(6,794) $(7,766)
</TABLE>
- ---------------
(1) Includes paging operations.
Total operating loss increased to $10.5 million for the three months ended
March 31, 1996 from $7.8 million for the three months ended March 31, 1995 as a
result of the $6.8 million operating loss attributable to PCS operations offset
by the reduced cellular operating loss. Cellular operating loss improved to $3.7
million for the three months ended March 31, 1996 from $7.8 million for the
three months ended March 31, 1995 due to increased revenues, which exceeded
increases in operating expenses.
OTHER INCOME (EXPENSE)
Interest and financing expense increased to $8.1 million for the three
months ended March 31, 1996 from $5.0 million for the three months ended March
31, 1995. The $3.1 million or 62.0% increase is primarily attributable to an
increase in borrowings, which increased to $438.5 million at March 31, 1996 from
$260.9 million at March 31, 1995, to fund the Company's expansion and capital
expenditures, partially offset by a decrease in the weighted average interest
rate to 8.1% for the three months ended March 31, 1996 from 9.1% for the three
months ended March 31, 1995.
EBITDA
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
----------------------------------
1996 1995
------------------------ ------
CELLULAR(1) PCS CELLULAR
----------- -------- ------
(IN THOUSANDS)
<S> <C> <C> <C>
EBITDA.................................................... $11,449 $(6,344) $3,010
</TABLE>
- ---------------
(1) Includes paging operations.
EBITDA improved to $5.1 million for the three months ended March 31, 1996
from $3.0 million for the three months ended March 31, 1995 as a result of
increased cellular EBITDA offset by the $(6.3) million EBITDA attributable to
PCS operations. Cellular EBITDA increased 280% to $11.4 million for the three
months ended March 31, 1996 from $3.0 million for the three months ended March
31, 1995, primarily as a result of increased revenues due to the increased
subscriber base and the related cost efficiencies. As a result, cellular
operating margin (cellular EBITDA as a percentage of cellular service revenues)
increased to 26.6% for the three months ended March 31, 1996 from 12.6% for the
three months ended March 31, 1995. EBITDA is a measure commonly used in the
industry but is not prepared in accordance with GAAP and should not be
considered as a measurement of net cash flows from operating activities.
YEAR ENDED DECEMBER 31, 1995 COMPARED TO YEAR ENDED DECEMBER 31, 1994
The Company had 209,500 cellular subscribers at December 31, 1995, an
increase of 96,700 or 85.7% during 1995. At December 31, 1994, the Company had
112,800 cellular subscribers, an increase of 82,800 or 276% during 1994. In 1995
and 1994, the net number of subscribers added through system acquisitions was
approximately 3,300 and 37,500 (including 29,000 through the acquisition of
MCLP), respectively. Excluding such acquired subscribers, the percentage of such
32
<PAGE> 36
net subscriber additions through independent agents and retailers was 35% in
1995, which reflects the Company's efforts to further expand distribution
channels.
REVENUES
All revenues below are from cellular operations. The Company commenced
paging operations and PCS commercial operations in February 1996 and therefore
had no PCS or paging revenues in prior years.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------
1995 1994
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Subscriber revenues............................................. $105,430 $ 38,838
Roamer revenues................................................. 29,660 16,746
Equipment sales................................................. 11,465 7,524
-------- --------
Total revenues................................................ $146,555 $ 63,108
========= ========
</TABLE>
Subscriber revenues increased to $105.4 million in 1995 from $38.8 million
in 1994. This $66.6 million or 172% increase is due primarily to the 85.7%
growth in the number of subscribers (including as a result of the Business
Combination). Average monthly cellular subscriber revenue per subscriber was
$57.25 in 1995, compared to $54.35 in 1994. This $2.90 or 5.3% increase is a
result of the Company's efforts to expand its geographical coverage and focus
subscribers on higher-end rate plans, and reflects the positive characteristics
for wireless communications services in RSAs and small MSAs.
Roamer revenues were $29.7 million in 1995 compared to $16.7 million in
1994, an increase of $13.0 million or 77.8%. Growth in the Company's roamer
revenues generally reflects increases in the Company's geographical coverage
(including as a result of the Business Combination) and market penetration
levels in adjacent markets and the cellular industry as a whole. Roamer revenues
as a percentage of total revenues declined to 20.3% in 1995 from 26.5% in 1994,
as a result of the 172% increase in subscriber revenues which exceeded the 77.8%
increase in roamer revenues.
Equipment sales, which consist primarily of handset sales, increased to
$11.5 million in 1995 from $7.5 million in 1994. This $4.0 million or 53.3%
increase is primarily due to the increase in net subscriber additions (including
as a result of the Business Combination), partially offset by a decrease in the
average handset sales price. The Company anticipates continued growth in
equipment sales as a result of increases in net cellular subscriber additions
and the commencement of commercial operations of its PCS systems.
OPERATING EXPENSES
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------
1995 1994
------------------- --------
CELLULAR PCS CELLULAR
-------- ------ --------
(IN THOUSANDS)
<S> <C> <C> <C>
Cost of service............................................ $ 27,686 $ 13,303
Cost of equipment sales.................................... 20,705 11,446
General and administrative................................. 28,184 $3,069 15,226
Sales and marketing........................................ 41,051 339 18,553
Depreciation and amortization.............................. 49,187 269 25,670
Provision for restructuring costs.......................... 2,478
-------- ------ --------
Total operating expenses................................. $166,813 $3,677 $ 86,676
======== ====== ========
</TABLE>
Operating expenses in 1995 include $3.7 million of costs relating to the
start-up of PCS commercial operations.
33
<PAGE> 37
The comparisons below refer only to the Company's cellular operations.
Cost of service increased to $27.7 million in 1995 from $13.3 million in
1994, primarily as a result of the 85.7% increase in the number of subscribers
(including as a result of the Business Combination), which resulted in increased
costs to access local exchange and long distance carrier facilities and to
maintain the Company's wireless network. While this represents a $14.4 million
or 108% increase for the year, it represents a decrease as a percentage of
service revenues to 20.5% in 1995 from 23.9% in 1994, which is primarily due to
efficiencies gained from the growing subscriber base.
General and administrative costs increased to $28.2 million in 1995 from
$15.2 million in 1994, an increase of $13.0 million or 85.5%, which is primarily
attributable to the increase in the costs associated with supporting the
increased subscriber base (including as a result of the Business Combination).
However, these costs continued to decline as a percentage of service revenues to
20.9% in 1995 from 27.3% in 1994, primarily attributable to improved efficiency.
While the Company has not incurred material fraud or bad debt expenses to date
and continues to develop and invest in measures to minimize such expenses, there
can be no assurance that such expenses will not increase in the future in the
aggregate or as a percentage of total revenues.
Sales and marketing costs increased to $41.1 million in 1995 from $18.6
million in 1994 primarily due to net subscriber additions (including as a result
of the Business Combination), an increase in the Company's use of indirect sales
channels and an increase in churn (subscriber base attrition). For these
reasons, sales and marketing costs per net subscriber added increased to $446 in
1995 from $411 in 1994. Including the losses on equipment sales, the costs per
net subscriber added increased to $546 in 1995 from $497 in 1994.
Depreciation expense was $30.1 million in 1995 compared to $17.0 million in
1994. This $13.1 million or 77.1% increase is attributable to the expansion of
the Company's cellular systems (including as a result of the Business
Combination). Amortization expense increased to $19.1 million in 1995 from $8.7
million in 1994. This $10.4 million or 120% increase is attributable to an
increase in gross cellular licensing costs and other intangible assets to $300.5
million at December 31, 1995 from $223.0 million at December 31, 1994.
Provision for restructuring costs of $2.5 million in 1994 consists of costs
relating to the Business Combination, which primarily relates to the elimination
of duplicative headquarters and other facilities.
OPERATING LOSS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------
1995 1994
-------------------- ------------
CELLULAR PCS CELLULAR
-------- ------- ------------
(IN THOUSANDS)
<S> <C> <C> <C>
Operating loss......................................... $(20,258) $(3,677) $(23,568)
</TABLE>
Total operating loss increased to $23.9 million in 1995 from $23.6 million
in 1994 as a result of the $3.7 million operating loss attributable to PCS
operations offset by the improved cellular operating loss. Cellular operating
loss decreased to $20.3 million in 1995 from $23.6 million in 1994. Cellular
operating loss in 1994 included a one-time provision for restructuring costs of
$2.5 million.
OTHER INCOME (EXPENSE); EXTRAORDINARY LOSS; NET OPERATING LOSS
CARRYFORWARDS
Interest and financing expense increased to $25.4 million in 1995 from
$10.7 million in 1994. The $14.7 million or 137% increase is primarily
attributable to an increase in borrowings to $362.5 million at December 31, 1995
from $211.5 million at December 31, 1994, to fund the Company's expansion and
capital expenditures. The weighted average interest rate was 9.2% in 1995 and
1994.
34
<PAGE> 38
The $6.2 million gain in 1994 on dispositions represents gains associated
with the exchange or sale of certain cellular systems. Such gains are
nonrecurring.
Extraordinary loss on early extinguishment of debt of $6.6 million in 1995
represents the charge for the unamortized portion of financing costs incurred in
connection with the refinancing of the Company's then outstanding credit
facility.
The Company had available at December 31, 1995 net operating loss
carryforwards ("NOLs") of approximately $94 million which will expire in the
years 2002 through 2010. The Company may be limited in its ability to use these
carryforwards in any one year due to ownership changes that preceded the
Business Combination. Approximately $17 million of such NOLs are subject to such
limitations, which under current rules will result in an annual limit of $2.8
million. Any amount of NOLs subject to such limitation that the Company is not
able to use in any one year may be used in subsequent years prior to the
expiration thereof. There is currently no limitation on the remaining $77
million. Therefore, in the opinion of management, all NOLs will be utilized
prior to their expiration. See Note 10 of notes to the Company's consolidated
financial statements.
EBITDA
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------
1995 1994
-------------------- --------
CELLULAR PCS CELLULAR
-------- ------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
EBITDA....................................................... $ 28,929 $(3,408) $ 2,102
</TABLE>
EBITDA improved to $25.5 million for the year ended December 31, 1995 from
$2.1 million for the year end December 31, 1994, as a result of increased
cellular EBITDA offset by the negative $3.4 million EBITDA attributable to PCS
operations. Cellular EBITDA increased to $28.9 million in 1995 from $2.1 million
in 1994, primarily as a result of the increased subscriber base and the related
cost efficiencies (including as a result of the Business Combination). As a
result, cellular operating margin (cellular EBITDA as a percentage of cellular
service revenues) increased to 21.4% in 1995 from 3.8% in 1994. EBITDA is a
measure commonly used in the industry but is not prepared in accordance with
GAAP and should not be considered as a measurement of net cash flows from
operating activities. In 1994, the Company recorded a provision for
restructuring costs of $2.5 million. EBITDA before provision for restructuring
costs would have been $4.6 million in 1994.
YEAR ENDED DECEMBER 31, 1994 COMPARED TO YEAR ENDED DECEMBER 31, 1993
The Company had 112,800 cellular subscribers at December 31, 1994 an
increase of 82,800 or 276% during 1994. At December 31, 1993, the Company had
30,000 subscribers, an increase of 16,300 or 119% during 1993. In 1994 and 1993,
the number of net subscribers added through system acquisitions was
approximately 37,500 (including 29,000 through the acquisition of MCLP) and
2,600, respectively.
REVENUES
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------
1994 1993
---------- ----------
<S> <C> <C>
Subscriber revenues............................................. $ 38,838 $ 11,105
Roamer revenues................................................. 16,746 7,285
Equipment sales................................................. 7,524 2,344
------- -------
Total revenues........................................ $ 63,108 $ 20,734
======= =======
</TABLE>
Subscriber revenues increased to $38.8 million in 1994 from $11.1 million
in 1993. This $27.7 million or 250% increase is primarily due to the 276% growth
in the number of subscribers (including as a result of the Business
Combination). Average monthly cellular subscriber revenue per
35
<PAGE> 39
subscriber was $54.35 in 1994, compared to $49.72 in 1993. This $4.63 or 9.3%
increase is a result of the Company's efforts to expand its geographical
coverage and focus subscribers on higher-end rate plans, and reflects the
positive characteristics for wireless communications services in RSAs and MSAs.
Roamer revenues were $16.7 million in 1994 compared to $7.3 million in
1993, an increase of $9.4 million or 129%. Growth in the Company's roamer
revenues generally reflects increases in the Company's geographical coverage
(including as a result of the Business Combination) and market penetration
levels in adjacent markets and the cellular industry as a whole. Roamer revenues
as a percentage of total revenues declined to 26.5% in 1994 from 35.3% in 1993
as a result of the 250% increase in subscriber revenues, which exceeded the 129%
increase in roamer revenues.
Equipment sales revenues increased to $7.5 million in 1994 from $2.3
million in 1993. This $5.2 million or 226% increase is primarily due to the
increase in net subscriber additions (including as a result of the Business
Combination).
OPERATING EXPENSES
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------
1994 1993
------- -------
<S> <C> <C>
Cost of service.................................................. $13,303 $ 4,310
Cost of equipment sales.......................................... 11,446 3,533
General and administrative....................................... 15,226 6,253
Sales and marketing.............................................. 18,553 6,101
Depreciation and amortization.................................... 25,670 5,399
Provision for restructuring costs................................ 2,478
------- -------
Total operating expenses............................... $86,676 $25,596
======= =======
</TABLE>
Cost of service increased to $13.3 million in 1994 from $4.3 million in
1993 primarily as a result of the 276% increase in the number of subscribers
(including as a result of the Business Combination), which resulted in increased
costs to access local exchange and long distance carrier facilities and to
maintain the Company's wireless network. This represents a $9.0 million or 209%
increase for the year, and 23.9% and 23.4% of service revenues for 1994 and
1993, respectively.
General and administrative costs increased to $15.2 million in 1994 from
$6.3 million in 1993, an increase of $8.9 million or 141%, which is primarily
attributable to the increase in the costs associated with supporting the
increased subscriber base (including as a result of the Business Combination).
However, these costs declined as a percentage of service revenues to 27.3% in
1994 from 34.2% in 1993, primarily attributable to improved efficiency.
Sales and marketing costs increased to $18.6 million in 1994 from $6.1
million in 1993 primarily due to net subscriber additions (including as a result
of the Business Combination). Sales and marketing costs per net subscriber added
were $411 in 1994 and $445 in 1993. Including the losses on equipment sales, the
costs per net subscriber added were $497 in 1994 and $533 in 1993. The decrease
in costs per net subscriber added from 1993 to 1994 is a result of the
efficiencies gained during 1994 from the ability to spread certain fixed costs
associated with the Company's retail stores and advertising over a larger number
of net subscriber additions.
Depreciation expense increased to $17.0 million in 1994 from $4.1 million
in 1993. This $12.9 million or 315% increase is attributable to the expansion of
the Company's cellular systems (including as a result of the Business
Combination). Amortization expense increased to $8.7 million in 1994 from $1.3
million in 1993. This $7.4 million or 569% increase is attributable to an
increase in gross cellular licensing costs and other intangible assets
(including as a result of the Business Combination) to $223.0 million at
December 31, 1994 from $88.2 million at December 31, 1993.
36
<PAGE> 40
Provision for restructuring costs of $2.5 million in 1994 consists of costs
relating to the Business Combination, which primarily relates to the elimination
of duplicative headquarters and other facilities.
OPERATING LOSS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------
1994 1993
-------- -------
<S> <C> <C>
Operating loss.................................................. $(23,568) $(4,862)
</TABLE>
Operating loss increased to $23.6 million in 1994 from $4.9 million in
1993. Operating loss in 1994 included a one-time provision for restructuring
costs of $2.5 million.
OTHER INCOME (EXPENSE)
Interest and financing expense increased to $10.7 million in 1994 from $2.2
million in 1993. This $8.5 million or 386% increase is primarily attributable to
an increase in borrowings to $211.5 million at December 31, 1994 from $60.8
million at December 31, 1993 to fund the Company's expansion and capital
expenditures, partially offset by a decrease in the weighted average interest
rate to 9.2% in 1994 from 9.4% in 1993.
The $6.2 million gain in 1994 on dispositions represents gains associated
with the exchange or sale of certain cellular systems. The $10.1 million gain in
1993 is attributable to the sale of certain cellular systems and minority
interests. Such gains are nonrecurring.
EBITDA
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER
31,
---------------------
1994 1993
------ ----
<S> <C> <C>
EBITDA............................................................... $2,102 $537
</TABLE>
EBITDA increased to $2.1 million in 1994 from $0.5 million in 1993,
primarily as a result of increased subscriber base and the related cost
efficiencies. EBITDA is a measure commonly used in the industry but is not
prepared in accordance with GAAP and should not be considered as a measurement
of net cash flows from operating activities. In 1994, the Company recorded a
provision for restructuring costs of $2.5 million. EBITDA before such provision
for restructuring costs would have been $4.6 million in 1994.
LIQUIDITY AND CAPITAL RESOURCES
The Company currently anticipates that it will require approximately $500
million to finance the build-out of its PCS systems through the end of 1998, and
will require additional funds to finance the continued growth of its cellular
operations, provide for working capital, service debt and finance potential
acquisitions. Such additional financing requirements will be dependent upon a
variety of factors including the rate of growth of the Company's cellular
operations. Historically, the Company has relied on a combination of private
equity financings and borrowings. Since January 1, 1993, the Company raised over
$185.8 million of equity through issuances of capital stock. From January 1,
1993, until the Business Combination, MCLP had raised $79.0 million of partner
capital. Following the Offerings and the Debt Offering, the Company does not
currently intend to rely on private equity financings or shareholder loans as
sources of capital.
The Company's long-term borrowings during 1994 and 1995 were primarily made
under a prior credit facility, bore variable rates of interest which ranged from
7.7% to 9.1% and would have matured on June 30, 2002. The amount of outstanding
long-term debt increased to $438.5 million at March 31, 1996 from $53.4 million
at December 31, 1993. At March 31, 1996, $402.0 million and $33.8 million were
outstanding under the Credit Facility and NORTEL Facility, respectively, and the
amounts available for borrowing under the Credit Facility and the NORTEL
Facility were $48.2
37
<PAGE> 41
million and $43.0 million, respectively. Indebtedness under the Credit Facility
and the NORTEL Facility matures on March 31, 2005 and December 31, 2003,
respectively, and bears interest at variable rates. Substantially all the assets
of the Company are pledged as security for such indebtedness. See "Description
of Indebtedness."
The Company uses various financial instruments as part of its overall
strategy to manage the Company's exposure to market risks associated with
interest rate fluctuations. The Company has only limited involvement with these
financial instruments, and does not use them for trading purposes. Interest rate
swaps allow the Company to raise long-term borrowings at variable rates and swap
them into fixed rates for shorter durations. This enables the Company to
separate interest rate management from debt funding decisions. Interest rate cap
agreements are used to reduce the potential impact of increases in interest
rates on borrowings based upon variable interest rates. These transactions do
not subject the Company to risk of loss because gains and losses on these
contracts are offset against losses and gains on the underlying liabilities. No
collateral is held in relation to the Company's financial instruments.
At March 31, 1996, the Company had entered into interest rate caps and
swaps with a total notional amount of $390 million, of which $185 million is of
a short-term duration. The remaining $205 million had initial terms of three
years or more and effectively converted $205 million of variable rate debt to
fixed rate. Such caps and swaps expire between August 1997 and March 1999. The
amount of net unrealized loss attributable to changing interest rates at March
31, 1996 was immaterial.
The NORTEL Facility finances the purchase of PCS switching and transmission
system equipment pursuant to a PCS Project and Supply Agreement that commits the
Company to purchase $200 million in equipment prior to June 30, 2000. Also as
part of its capital expenditure plan and in order to ensure adequate supply of
certain inventory requirements, the Company has entered into two agreements with
Nokia under which the Company has committed to purchase (i) a minimum number of
PCS and dual-mode handsets totaling approximately $43.7 million through October
1, 1999 and (ii) a minimum of $50 million of wireless communications equipment
and services for the Company's PCS systems prior to December 31, 1998.
The Company believes the proceeds from the Offerings and the Debt Offering,
together with availability under the Credit Facility and the NORTEL Facility,
will be sufficient to fund operating losses, capital expenditures and working
capital necessary for the build-out of its PCS systems and the continued growth
of its cellular operations through December 31, 1998. In the event the Debt
Offering is not consummated, the Company would use its existing Senior Secured
Facilities, which includes the Credit Facility and the NORTEL Facility, to fund
such expenditures. To the extent that the build-out of the PCS systems is faster
than expected, the costs are greater than anticipated or the Company takes
advantage of acquisition opportunities, including those that may arise through
current or future FCC auctions, the Company may require additional funding to
implement its business strategy. See "Risk Factors -- High Leverage; Debt
Service; Restrictive Covenants" and "Description of Indebtedness."
Net cash used in operating activities was $0.2 million for the three months
ended March 31, 1996. Adjustments to the $18.6 million net loss for such period
to reconcile to net cash used in operating activities consisted primarily of
$15.6 million of depreciation and amortization. Other adjustments included
changes in operating assets and liabilities, net of effects from consolidating
acquired interests, consisting primarily of a decrease of $1.7 million in
accounts receivable primarily as a result of increased collections, an increase
of $4.2 million in inventories primarily as a result of the purchase of PCS
handsets for sale in the Honolulu MTA, an increase of $3.2 million in prepaid
expenses and other current assets primarily as a result of prepaid costs for the
Honolulu MTA and an increase of $8.2 million in accounts payable primarily as a
result of purchases of PCS handsets and other PCS-related expenses. Net cash
used in operating activities was $0.7 million in 1995. Adjustments to the $56.0
million net loss for 1995 to reconcile to net cash used in operating activities
38
<PAGE> 42
consisted primarily of $49.5 million of depreciation and amortization and $6.6
million with respect to the extraordinary loss on early extinguishment of debt.
Other adjustments included changes in operating assets and liabilities, net of
effects from consolidating acquired interests, consisting primarily of an
increase of $5.7 million in accounts receivable primarily as a result of the
increase in the subscriber base, and a $6.4 million increase in accrued
liabilities primarily as a result of accrued payroll and interest. Net cash used
in operating activities was $1.0 million and $0.3 million in 1994 and 1993,
respectively.
Net cash used in investing activities was $78.9 million for the three
months ended March 31, 1996. Investing activities for such period consisted
primarily of cellular capital expenditures, which used cash of $18.5 million,
PCS capital expenditures, which used cash of $20.1 million, and the acquisition
of wireless properties, which used cash of $36.0 million. Net cash used in
investing activities was $293.6 million in 1995, consisting primarily of
cellular capital expenditures, which used cash of $62.6 million, PCS capital
expenditures, which used cash of $16.9 million, the purchase of PCS wireless
licenses, which used cash of $137.8 million, and the acquisition of wireless
properties, which used cash of $60.7 million. Net cash used in investing
activities was $70.2 million and $32.5 million in 1994 and 1993, respectively.
Net cash provided by financing activities was $76.8 million for the three
months ended March 31, 1996. Financing activities for such period consisted
primarily of additions to long-term debt, which provided cash of $75.8 million.
Net cash provided by financing activities was $295.1 million in 1995, consisting
primarily of proceeds from issuance of Common Stock, which provided cash of
$143.1 million, and additions to long-term debt, net of $277.0 million in
repayments and fees, which provided cash of $148.2 million. Net cash provided by
financing activities was $70.8 million and $36.2 million in 1994 and 1993,
respectively.
The Company anticipates that it will expend approximately $51.5 million
during the remainder of 1996 for cellular system and capacity expansion, new
market build-out and centralized infrastructure improvements. In addition, the
development, construction and operation of the Company's PCS systems will
require substantial capital expenditures over the next several years, which the
Company expects will result in significant operating losses in both its PCS and
consolidated operations. The Company currently anticipates that the funds
required to complete the build-out of its seven PCS MTAs prior to December 31,
1998 will total approximately $500 million. The build-out costs include
microwave relocation, site acquisition, transmission and switching equipment.
The build-outs are designed to cover approximately 80% of the population within
the Company's seven PCS MTAs, which satisfies the 10-Year Build-out Requirement.
The Company may be required to make expenditures sooner than anticipated or in
greater amounts than expected based on a number of variables, including
increased subscriber growth, increased losses resulting from equipment sales and
increased construction costs associated with expanding coverage areas. In
addition, delays in network design, site and facility acquisitions, construction
or the purchase and installation of network equipment and other factors may
increase the total cost of such expenditures. See "Risk Factors -- PCS Build-out
and Capital Expenditures."
In January 1996, the Company agreed to acquire from GTE a broadband PCS
license for the Denver MTA for $66 million. The Company has the right, by notice
given at any time prior to the closing date, to pay $33 million of such purchase
price by delivery of a promissory note having a final maturity 18 months from
the closing date and bearing an interest rate based on six month London
InterBank Offered Rate plus 1.5%. In addition, the Company holds a 49.9% limited
partnership interest in Cook Inlet PCS, an entity which was the high bidder for
licenses for 13 BTAs in the FCC C Block auction. As a result of the high bids of
Cook Inlet PCS in the C Block auction, the Company is obligated to fund up to
approximately $4.0 million of the license acquisition costs of Cook Inlet PCS.
Cook Inlet PCS is subject to the Five Year Build-Out Requirement and will
therefore require significant additional amounts to complete the build-out of
its PCS systems. The potential sources of such additional amounts include vendor
loans, loans or capital contributions by the partners of Cook Inlet PCS or other
third party financing. There are no current agreements or plans
39
<PAGE> 43
with respect thereto. See "The Company -- Recent Developments." In the ordinary
course of its business, the Company continuously reviews potential acquisition
opportunities and has entered into various joint development agreements with
respect to international interests.
Any such prospective acquisition would be financed with proceeds from the
Offerings, the Debt Offering, borrowings under the Senior Secured Facilities or
additional financings.
SEASONALITY
The Company, and the wireless communications industry in general, have
historically experienced significant subscriber growth during the fourth
calendar quarter. Accordingly, during such quarter the Company experiences
greater losses on equipment sales and increases in sales and marketing expenses.
The Company has historically experienced highest usage and revenue per
subscriber during the summer months. The Company expects these trends to
continue.
40
<PAGE> 44
BUSINESS
INTRODUCTION
Western Wireless provides wireless communications services in the western
United States. The Company owns or has the right to acquire an aggregate of 80
cellular and PCS licenses for a geographic area covering approximately 25.5
million pops and 41% of the continental United States. The Company owns and
operates cellular communications systems in 57 RSAs, including one RSA which it
has the right to acquire, and 16 MSAs with an aggregate population of
approximately 6.0 million persons. In its cellular markets, the Company uses the
CELLULAR ONE brand name and currently serves over 240,000 subscribers.
Through the FCC auction concluded in 1995, the Company acquired broadband
PCS licenses for six MTAs with an aggregate population of approximately 15.1
million persons -- Honolulu, Salt Lake City, Portland, Des Moines/Quad Cities,
El Paso/Albuquerque and Oklahoma City -- for an aggregate purchase price of $144
million. In January 1996, the Company agreed to acquire a broadband PCS license
for the Denver MTA from GTE for a purchase price of $66 million. The Company's
seven PCS licenses cover markets with an aggregate population of approximately
19.5 million persons, including approximately 4.4 million persons covered by the
Denver MTA. In all of its PCS markets, the Company intends to use its
proprietary VoiceStream brand name. In February 1996, the Company's PCS system
in the Honolulu MTA became the first auction-awarded PCS system to commence
commercial operations in the United States.
In addition, the Company is engaged in activities complementary to its
principal wireless communications business. In 1995, the Company began pursuing
licenses for wireless services in markets outside the United States. The Company
has joined partnerships which have made wireless license applications in foreign
countries. The Company is a partner in a partnership that has an interest in a
joint venture which has obtained the GSM cellular license in Latvia. In
addition, since their acquisition in February 1996, the Company has operated
paging systems in eight states and currently serves approximately 24,000
customers. The Company has reached reciprocal development or reseller agreements
for paging services with AT&T Wireless, AirTouch Paging, Paging Network Inc.
("PageNet"), MobileMedia Corporation ("MobileMedia") and others.
Western Wireless Corporation was formed in July 1994 as the result of the
Business Combination among various companies, including MCLP and GCC. GCC
commenced operations in 1989 and MCLP was formed in 1992. As a result of the
Business Combination and a series of related transactions, Western Wireless
Corporation became the owner of all of the issued and outstanding shares of
common stock of GCC and the owner of all of the assets of MCLP. The Business
Combination constituted an acquisition of MCLP by GCC for accounting purposes.
As a result, all financial data relating to the Company herein with respect to
periods after the date of the Business Combination reflect the combined
operations of GCC and MCLP and all such data with respect to prior periods
reflect only the operations of GCC, which, for accounting purposes, is
considered Western Wireless Corporation's predecessor. Since the Business
Combination, Western Wireless Corporation has successfully integrated the
management and operations of GCC and MCLP and raised significant equity capital
to acquire PCS licenses in additional territories in the western United States
and thereby extend its coverage area for the provision of wireless
communications services.
THE WIRELESS COMMUNICATIONS INDUSTRY
OVERVIEW
Wireless communications systems use a variety of radio frequencies to
transmit voice and data. Broadly defined, the wireless communications industry
includes one-way radio applications, such as paging or beeper services, and
two-way radio applications, such as cellular telephone, PCS and ESMR networks.
Historically, each application has been licensed and operates in a distinct
radio frequency block.
41
<PAGE> 45
Since its introduction in 1983, cellular service has grown dramatically and
now dominates the wireless communications market. As of December 31, 1995, there
were over 33.8 million cellular subscribers in the United States. The following
chart illustrates the growth in United States cellular subscribers.
U.S. CELLULAR SUBSCRIBERS
<TABLE>
<S> <C> <C> <C> <C>
1984 .5
1985 1
1986 1.5
1987 2
1988 2.5
1989 4.5
1990 6
1991 7.5
1992 12.5
1993 17
1994 25
1995 33.8
</TABLE>
Source: Cellular Telecommunications Industry Association ("CTIA")
The following table sets forth certain domestic cellular industry
statistics derived from the Data Survey Results published semi-annually by CTIA:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------
1991 1992 1993 1994 1995
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
CELLULAR INDUSTRY STATISTICS
Total Service Revenues
(in billions).......................... $ 5.8 $ 7.8 $10.9 $14.2 $19.0
Ending Cellular Subscribers
(in millions).......................... 7.6 11.0 16.0 24.1 33.8
Subscriber Growth........................ 43.0% 46.0% 45.1% 50.8% 40.0%
Average Monthly Service Revenue per
Subscriber............................. $74.10 $70.13 $67.13 $59.08 $54.90
Average Monthly Subscriber Revenue per
Subscriber............................. $64.96 $61.40 $58.74 $51.48 $47.59
Ending Penetration....................... 3.0% 4.4% 6.2% 9.4% 13.0%
</TABLE>
These statistics represent results for the industry as a whole. Average
Monthly Service Revenue per Subscriber reflects per subscriber revenue including
roaming revenue, and Average Monthly Subscriber Revenue per Subscriber reflects
per subscriber revenue excluding roaming revenue. In general, rural markets,
where the Company concentrates its cellular operations, were licensed later by
the FCC than urban markets and, consequently, have a shorter operating history.
The Company has operated the cellular systems in its markets, on average, for
approximately three years. As a result, while the Company's cellular subscriber
base is growing more rapidly than the industry average, the Company's level of
penetration is lower than the overall industry average.
In the wireless communications industry, there are two principal services
licensed by the FCC for transmitting voice and data signals, "cellular services"
and "personal communications services." Cellular service is the predominant form
of wireless voice communications service currently available. The FCC has made
available for cellular service a portion of the radio spectrum from 830-
42
<PAGE> 46
870 MHz. Cellular service is capable of providing high quality, high capacity
service to and from mobile, portable and stationary telephones. Cellular
handsets are affordable and easy to use and offer important benefits to both
business and residential consumers. Fully equipped, multi-cell cellular systems
are capable of handling thousands of calls at any given time and thus are
capable of providing service to hundreds of thousands of subscribers in a given
market. See "-- Products and Services."
Cellular systems are primarily analog based systems, although digital
technology has been introduced in certain markets. Analog technology currently
has several limitations, including lack of privacy and limited capacity. Digital
systems convert voice or data signals into a stream of digits that is compressed
before transmission, enabling a single radio channel to carry multiple
simultaneous signal transmissions. This enhanced capacity, along with
improvements in digital signaling, allows digital-based wireless technologies to
offer new and enhanced services, such as greater call privacy, and robust data
transmission features, such as "mobile office" applications (including
facsimile, electronic mail and wireless connections to computer/data networks,
including the Internet). See "-- Operation of Wireless Communications Systems."
PCS is a term commonly used in the United States to describe a portion of
radio spectrum (1850-1990 MHz), the first portion of which (the "A" and "B"
Blocks) was auctioned by the FCC in late 1994 and 1995. This portion of radio
spectrum is to be used by PCS licensees to provide wireless communications
services. PCS will initially compete directly with existing cellular telephone,
paging and specialized mobile radio services. PCS will also include features
which are not generally offered by cellular providers, such as data
transmissions to and from portable computers, advanced paging services and
facsimile services. The Company believes that PCS providers will be the first
direct wireless competitors to cellular providers and the first to offer mass
market all-digital mobile networks. In addition, PCS providers may be the first
to offer mass market wireless local loop applications, in competition with wired
local communications services. See "-- Governmental Regulation" for a discussion
of the FCC auction process and allocation of wireless licenses.
OPERATION OF WIRELESS COMMUNICATIONS SYSTEMS
Wireless communications system service areas, whether cellular or PCS, are
divided into multiple cells. Due to the frequencies in which they operate,
cellular cells generally have a wider transmission radius than PCS cells. In
both cellular and PCS systems, each cell contains a transmitter, a receiver and
signaling equipment (the "Cell Site"). The Cell Site is connected by microwave
or landline telephone lines to a switch that uses computers to control the
operation of the cellular communications system for the entire service area. The
system controls the transfer of calls from cell to cell as a subscriber's
handset travels, coordinates calls to and from handsets, allocates calls among
the cells within the system and connects calls to the local landline telephone
system or to a long distance telephone carrier. Wireless communications
providers establish interconnection agreements with local exchange carriers and
interexchange carriers, thereby integrating their system with the existing
landline communications system.
Because the signal strength of a transmission between a handset and a Cell
Site declines as the handset moves away from the Cell Site, the switching office
and the Cell Site monitor the signal strength of calls in progress. When the
signal strength of a call declines to a predetermined level, the switching
office may "hand off" the call to another Cell Site where the signal strength is
stronger. If a handset leaves the service area of a cellular or PCS system, the
call is disconnected unless there is a technical connection with the adjacent
system.
Analog cellular handsets are functionally compatible with cellular systems
in all markets within the United States. As a result, analog cellular handsets
may be used wherever a subscriber is located, as long as a cellular system is
operational in the area. Cellular system operators normally agree to provide
service to subscribers from other cellular systems who are temporarily located
in or traveling through their service areas. Agreements among system operators
provide that the carrier
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<PAGE> 47
that normally provides services to the roaming subscriber pays the serving
carrier at rates prescribed by the serving carrier.
While PCS and cellular systems utilize similar technologies and hardware,
they operate on different frequencies and may use different technical and
network standards. As a result, as discussed further below, it initially will
not be possible for users of one type of system to "roam" on a different type of
system outside of their service area, or to hand off calls from one type of
system to another. This is also true for PCS subscribers seeking to roam in a
PCS service area served by operators using different technical standards.
PCS systems are expected to operate under one of three principal digital
signal transmission technologies, or standards, that have been proposed by
various operators and vendors for use in PCS systems: GSM, CDMA or TDMA. GSM and
TDMA are both "time division-based" standards but are incompatible with each
other and with CDMA. Accordingly, a subscriber of a system that utilizes GSM
technology will be unable to use a GSM handset when traveling in an area not
served by GSM-based PCS operators, unless the subscriber carries a dual-mode
handset that permits the subscriber to use the analog cellular system in that
area. Such dual-mode handsets are not yet commercially available and may be
larger and more expensive than single-mode handsets.
Each of the three principal PCS signaling standards has been adopted by at
least two MTA licensees and offers certain advantages and disadvantages. GSM is
the leading digital wireless technology in the world, with approximately 120
systems operating in 92 countries serving over 13 million subscribers. GSM-based
systems also offer features and services not currently offered by cellular
systems or immediately contemplated by other PCS digital standards, including
the only truly private call transmission. An additional benefit associated with
GSM technology is its use of an open system architecture that will allow
operators to purchase network equipment from a variety of vendors that share
standard interfaces for operation. This open architecture provides significant
flexibility by the operator in vendor cost leveraging, and provisioning of
features, products and services.
The CDMA standard is expected to be the most widely adopted PCS technology
in the United States. Proponents of CDMA claim that CDMA-based systems will
require fewer Cell Sites and offer greater capacity, call quality and hand-off
advantages. CDMA-based PCS systems are expected initially to offer the same
features and services offered by CDMA-based cellular systems. CDMA will
initially use a closed system architecture that will limit PCS operators'
choices of equipment vendors.
The TDMA-based PCS standard is an "up-banded" version of the time
division-based digital cellular standard currently in limited use by cellular
operators in the United States. The TDMA-based PCS standard will initially use a
closed system architecture that will also limit PCS operators' choices of
equipment vendors.
44
<PAGE> 48
MARKETS AND SYSTEMS
The Company holds or has the rights to acquire FCC licenses to provide
wireless communications services in 80 separate markets. Within such markets,
the Company's PCS pops total approximately 19.5 million and the Company's
cellular pops total approximately 6.0 million. The Company's PCS and cellular
markets are summarized in the following table:
<TABLE>
<CAPTION>
OWNERSHIP THE COMPANY'S
PCS MARKETS(1) POPULATION(2) PERCENTAGE POPS(2)
- ----------------------------------------------------------------- ------------- ---------- -------------
<S> <C> <C> <C>
Portland......................................................... 3,460,182 100 3,460,182
Salt Lake City................................................... 2,999,636 100 2,999,636
El Paso/Albuquerque.............................................. 2,387,710 100 2,387,710
Honolulu......................................................... 1,215,729 100 1,215,729
Des Moines/Quad Cities(3)........................................ 3,067,795 100 3,067,795
Oklahoma City.................................................... 1,945,271 100 1,945,271
Denver(4)........................................................ 4,411,211 100 4,411,211
---------- ----------
PCS TOTAL.................................................... 19,487,534 19,487,534
========== ==========
</TABLE>
<TABLE>
<CAPTION>
OWNERSHIP THE COMPANY'S
CELLULAR MARKETS(5) POPULATION(2) PERCENTAGE POPS(2)
- ----------------------------------------------------------------- ------------- ---------- -------------
<S> <C> <C> <C>
California
Mono (CA-6)...................................................... 29,414 100 29,414
------------- -------------
California Total............................................. 29,414 29,414
------------- -------------
Colorado
Pueblo........................................................... 126,699 100 126,699
Elbert (CO-5).................................................... 27,412 100 27,412
Saguache (CO-7).................................................. 45,783 100 45,783
Kiowa (CO-8)..................................................... 44,195 100 44,195
Costilla (CO-9).................................................. 27,322 100 27,322
------------- -------------
Colorado Total............................................... 271,411 271,411
------------- -------------
Idaho
Idaho (ID-2)..................................................... 71,146 100 71,146
------------- -------------
Idaho Total.................................................. 71,146 71,146
------------- -------------
Iowa
Sioux City....................................................... 118,475 100 118,475
Monona (IA-8).................................................... 53,834 100 53,834
------------- -------------
Iowa Total................................................... 172,309 172,309
------------- -------------
Kansas
Jewell (KS-3)(6)................................................. 50,801 100 50,801
Marshall (KS-4).................................................. 143,546 100 143,546
Ellsworth (KS-8)................................................. 128,226 100 128,226
Morris (KS-9).................................................... 56,851 100 56,851
Franklin (KS-10)................................................. 106,245 100 106,245
Reno (KS-14)..................................................... 170,241 100 170,241
------------- -------------
Kansas Total................................................. 655,910 655,910
------------- -------------
Minnesota
Kittson (MN-1)................................................... 49,803 100 49,803
Lake of the Woods (MN-2-A1)...................................... 25,465 100 25,465
------------- -------------
Minnesota Total.............................................. 75,268 75,268
------------- -------------
Missouri
Bates (MO-9)..................................................... 74,562 100 74,562
------------- -------------
Missouri Total............................................... 74,562 74,562
------------- -------------
</TABLE>
45
<PAGE> 49
<TABLE>
<CAPTION>
OWNERSHIP THE COMPANY'S
CELLULAR MARKETS(5) POPULATION(2) PERCENTAGE POPS(2)
- ----------------------------------------------------------------- ------------- ---------- -------------
<S> <C> <C> <C>
Montana
Billings......................................................... 129,956 96 125,031
Great Falls...................................................... 81,964 100 81,964
Lincoln (MT-1)................................................... 147,957 100 147,957
Toole (MT-2)..................................................... 38,721 100 38,721
Daniels (MT-4)................................................... 39,463 100 39,463
Mineral (MT-5)................................................... 191,414 100 191,414
Deer Lodge (MT-6)................................................ 64,805 100 64,805
Fergus (MT-7).................................................... 28,746 100 28,746
Beaverhead (MT-8)................................................ 93,272 100 93,272
Carbon (MT-9).................................................... 33,758 100 33,758
Prairie (MT-10).................................................. 20,098 100 20,098
------------- -------------
Montana Total................................................ 870,154 865,229
------------- -------------
Nebraska
Lincoln.......................................................... 230,041 100 230,041
Cherry (NE-2).................................................... 30,507 100 30,507
Knox (NE-3)...................................................... 113,417 100 113,417
Grant (NE-4)..................................................... 35,202 100 35,202
Keith (NE-6)..................................................... 107,775 100 107,775
Hall (NE-7)...................................................... 89,955 100 89,955
Chase (NE-8)..................................................... 56,156 100 56,156
Adams (NE-9)..................................................... 79,860 100 79,860
Cass (NE-10)..................................................... 84,216 100 84,216
------------- -------------
Nebraska Total............................................... 827,129 827,129
------------- -------------
Nevada
Humboldt (NV-1).................................................. 44,192 100 44,192
Lander (NV-2).................................................... 56,427 100 56,427
Mineral (NV-4)................................................... 29,596 100 29,596
White Pine (NV-5)................................................ 14,682 100 14,682
------------- -------------
Nevada Total................................................. 144,897 144,897
------------- -------------
New Mexico
Lincoln (NM-6)................................................... 238,401 100 238,401
------------- -------------
New Mexico Total............................................. 238,401 238,401
------------- -------------
North Dakota
Bismarck......................................................... 88,606 99 87,968
Fargo............................................................ 164,624 100 164,624
Grand Forks...................................................... 104,665 100 104,665
Divide (ND-1).................................................... 101,607 100 101,607
Bottineau (ND-2)................................................. 58,295 100 58,295
McKenzie (ND-4).................................................. 62,449 100 62,449
Kidder (ND-5).................................................... 48,112 100 48,112
------------- -------------
North Dakota Total........................................... 628,358 627,720
------------- -------------
South Dakota
Rapid City....................................................... 115,071 100 115,071
Sioux Falls...................................................... 137,655 98 135,232
Harding (SD-1)................................................... 35,904 100 35,904
Corson (SD-2).................................................... 22,089 100 22,089
McPherson (SD-3)................................................. 52,595 100 52,595
Marshall (SD-4).................................................. 65,623 100 65,623
Custer (SD-5).................................................... 24,590 100 24,590
Haakon (SD-6).................................................... 38,432 100 38,432
Sully (SD-7)..................................................... 66,118 100 66,118
Kingsbury (SD-8)................................................. 72,547 100 72,547
Harrison (SD-9).................................................. 92,266 100 92,266
------------- -------------
South Dakota Total........................................... 722,890 720,467
------------- -------------
</TABLE>
46
<PAGE> 50
<TABLE>
<CAPTION>
OWNERSHIP THE COMPANY'S
CELLULAR MARKETS(5) POPULATION(2) PERCENTAGE POPS(2)
- ----------------------------------------------------------------- ------------- ---------- -------------
<S> <C> <C> <C>
Texas
Abilene.......................................................... 153,207 100 153,207
Lubbock.......................................................... 231,851 100 231,851
Midland.......................................................... 121,145 92 111,078
Odessa........................................................... 130,339 93 121,033
San Angelo....................................................... 106,078 100 106,078
Parmer (TX-3).................................................... 148,641 100 148,641
Gaines (TX-8).................................................... 139,672 100 139,672
Hudspeth (TX-12)................................................. 25,316 100 25,316
Reeves (TX-13)................................................... 31,761 100 31,761
Loving (TX-14)................................................... 48,959 100 48,959
------------- -------------
Texas Total.................................................. 1,136,969 1,117,596
------------- -------------
Wyoming
Casper........................................................... 63,120 100 63,120
Sheridan (WY-2).................................................. 75,629 100 75,629
------------- -------------
Wyoming Total................................................ 138,749 138,749
------------- -------------
CELLULAR TOTAL............................................... 6,057,567 6,030,208
============== ===============
PCS AND CELLULAR TOTAL....................................... 25,545,101 25,517,742
============== ===============
</TABLE>
- ---------------
(1) The FCC has not granted "final" PCS licenses. See "Risk Factors -- Finality
of PCS Auctions" and "The Company -- Recent Developments."
(2) Estimated 1996 populations based on 1995 estimates by Equifax adjusted by
the Company by a growth factor based upon Equifax's growth factors from 1990
to 1995.
(3) "Quad Cities" refers to the cities of Moline and Rock Island, Illinois, and
Bettendorf and Davenport, Iowa.
(4) An acquisition agreement has been executed and initial FCC approval has been
obtained, but closing is subject to FCC approval by final order.
(5) Excludes six markets containing a population of 562,598 in which the Company
operates under an Interim Operating Authority ("IOA") and includes one
market in which the Company operates under an IOA where the Company has
entered into an agreement to acquire the license, subject to FCC approval.
See "-- Products and Services."
(6) Currently operating under IOA. Acquisition agreement has been executed, but
closing is subject to FCC approval.
STRATEGY
The Company believes that its combination of cellular and PCS licenses
creates a unique opportunity in the wireless communications industry. The
Company has focused on the acquisition and operation of cellular communications
systems in RSAs and small MSAs in the western United States, which the Company
believes it has acquired at attractive prices. The Company's recent acquisition
of PCS licenses enables it to significantly expand both its customer base and
geographic coverage and to offer enhanced wireless communications services. The
Company's initial focus with its PCS licenses is to commence operations in the
more densely populated areas within its MTAs. The Company believes that cellular
is the optimum technology for rural, less densely populated areas and that PCS
is the optimum technology for more densely populated urban areas where analog
cellular systems are more expensive to deploy and face potential capacity
constraints. The Company and, prior to the Business Combination, MCLP has
entered markets at a relatively low cost, having purchased cellular licenses for
an average of $45.68 per pop and PCS licenses for an average of $10.81 per pop.
The Company's operating strategy is to (i) achieve a critical
time-to-market advantage by rapidly constructing and commencing operations of
PCS systems in urban areas within its PCS markets; (ii) continue to expand its
operations through increased subscriber growth and usage; (iii) utilize its
centralized management and back office functions to support the combined needs
of its cellular and PCS subscribers, thereby further improving operating
efficiencies and generating greater economies of scale; and (iv) selectively
acquire cellular and PCS properties primarily in contiguous markets. The Company
is implementing its strategy by aggressively building its PCS systems, offering
a wide range of products and services at competitive prices, continually
upgrading
47
<PAGE> 51
the quality of its network, establishing strong brand recognition, creating a
strong sales and marketing program tailored to local markets and providing a
superior level of customer service.
The Company believes the wireless communications industry will continue to
grow due to enhanced service offerings, the emergence of PCS systems, increased
awareness of the productivity, convenience and security benefits associated with
wireless communications services and anticipated declines in pricing for its
services. The Company believes it is well positioned to take advantage of these
growth opportunities as a result of its existing operations and systems
infrastructure, its wide geographic coverage and the experience and expertise of
its management team.
CELLULAR OPERATIONS
The Company operates rapidly growing high quality cellular systems in 73
RSAs and small MSAs, and generally owns 100% of each of its cellular licenses.
The Company has focused on operating and expanding its cellular business in RSAs
and small MSAs in the States of Texas, Montana, Nebraska, South Dakota, Kansas,
North Dakota, Colorado, New Mexico, Iowa, Wyoming, Nevada, Minnesota, Missouri,
Idaho and California. In these rural and small urban markets, the Company
believes that its cellular systems, which cover large open geographic areas with
relatively few Cell Sites, incorporate the optimum cost efficient technology.
The Company believes, based on its observations and experience, that there
are several inherent attributes of RSAs and small MSAs that make these markets
attractive:
- Less Developed Markets -- Since the rural and small urban markets were
developed later than major markets, cellular penetration is presently
lower and subscriber growth rates are significantly higher than in the
more established markets.
- Subscriber Base -- The small urban and rural market population base
contains a high percentage of business customers with substantial needs
for wireless communications, such as those employed in agriculture,
mining, oil and gas, and populations accustomed to long travel times.
Additionally, the Company's service areas cover over 20,000 highway miles
and the popular destination areas of Yellowstone National Park, Glacier
National Park and Mount Rushmore National Monument, providing attractive
sources of roaming revenues.
- Attractive Physical Characteristics -- The Company's cellular systems
have the ability to cover on average a much larger geographic area per
Cell Site than is possible in urban markets. Although the initial per pop
capital expenditures are higher in rural markets, the incremental cost of
expanding capacity is lower. By carefully managing its Cell Site
placement, the Company has been able to achieve coverage of over 93% of
the population in its licensed cellular markets.
- Less Intense Competitive Environment -- Although two cellular operators
exist in all markets, the Company's competitor in many of its markets
tends to be smaller and less well capitalized than the large market
operators.
- Less Vulnerable to PCS Competition -- In the future, the Company believes
that PCS will present less competition in small urban and rural markets
than in large urban markets. The MTA licenses, which include multiple
MSAs and the surrounding geographic areas, require the licensees to build
one-third coverage of the population of the MTA within five years of the
initial license grant and two-thirds within ten years. It is likely that
licensees will initially construct in the more densely populated urban
areas, providing service to the surrounding population later, if at all.
In addition, in rural markets, PCS requires more closely located Cell
Sites to broadcast over extended geographic areas and will be less
efficient and more expensive to deploy than cellular service, making it
likely that PCS competitors will delay or avoid entry into such markets.
48
<PAGE> 52
The Company has experienced rapid growth in subscribers and revenues in its
cellular markets. In addition, monthly subscriber revenue per subscriber in 1995
averaged $57.25 versus a CTIA average of $47.59, reflecting the attractiveness
of the Company's markets and the success of its marketing strategy.
The Company's cellular strategy is to expand its subscriber base through
increased market penetration with an emphasis on retail sales, continue to
introduce competitive wireless service as new technologies and products enter
its cellular markets, continue to provide superior customer service and product
features tailored to its customers' needs at competitive prices and reduce costs
through improved efficiency. See "-- Products and Services" and "-- Marketing,
Sales and Customer Service."
PCS OPERATIONS
The Company has completed initial construction and commenced commercial
operations of its PCS system in the Honolulu MTA and is in the initial
construction phase of its PCS systems in the Portland, Salt Lake City and El
Paso/Albuquerque MTAs. Design and engineering have been initiated in the
Company's remaining PCS markets. The Company presently intends to have commenced
commercial operations in each of its MTAs by the end of the first quarter of
1997. When completed, the Company's PCS systems will cover a substantial
geographic area in the western United States complementary to the Company's
cellular operations. After the initial build-out, the Company expects to extend
its PCS systems based on economic factors, customer demand and FCC licensing
requirements. The Company believes its PCS service offerings will be broader
than those currently offered by cellular systems in the Company's PCS markets.
PCS service offerings will initially include all of the services typically
provided by cellular systems, as well as paging, caller identification, text
messaging, smart cards, voice mail, over-the-air activation and over-the-air
subscriber profile management.
The Company believes that being the first to offer PCS services in a market
will be a key competitive advantage. The Company's goal is to achieve
significant market penetration by aggressively marketing competitively priced
PCS services under its proprietary VoiceStream brand name, offering enhanced
services not currently provided by analog or digital cellular operators and
providing superior customer service. In addition, the Company believes it can
become a low-cost provider of PCS services by taking advantage of the existing
business infrastructure established for its cellular operations, including
centralized management, marketing, billing and customer service functions, and
by focusing on efficient customer acquisition and retention. See " -- Products
and Services."
The Company believes that PCS technology is better suited to urban areas
than rural areas and may have cost advantages relative to cellular technology in
urban areas. PCS Cell Sites operate at a higher frequency and lower power than
cellular Cell Sites and, therefore, typically have a smaller coverage area.
Unlike in rural areas, wireless systems in urban areas require substantial
frequency "reuse" to provide high capacity. The coverage advantage that cellular
frequencies and analog technology enjoy in rural areas is not present in urban
areas because analog cellular technology does not provide efficient frequency
reuse. As a result, the higher frequency, lower power, digital PCS systems are
therefore likely to provide greater capacity in urban areas. In addition,
individual PCS Cell Sites are less expensive than cellular Cell Sites.
The Company has selected GSM as the digital standard for its PCS system
because the Company believes it has significant advantages over the other
competing digital standards, including five years of proven operability in
Europe and Asia, enhanced features not presently available with other standards
and an open system architecture that will allow the Company to choose from a
variety of equipment options and providers. GSM is the leading digital wireless
standard in the world, with approximately 120 systems serving over 13 million
customers in 92 countries. The Company believes that deployment of GSM
facilitates the Company's first-to-market
49
<PAGE> 53
efforts, thereby achieving a key element of its strategy. The GSM digital
standard also has been chosen by six other PCS licensees to date. Together,
these PCS licensees and Western Wireless cover PCS markets containing
approximately 149.2 million persons, representing 55.7% of the population in the
United States.
The Company has entered into roaming agreements or letters of intent with
all of the companies which have chosen to deploy the GSM standard in their PCS
markets in the United States that will provide for roaming by the Company's PCS
subscribers into these carriers' PCS markets, and vice versa, when such systems
are operational. The Company also has reciprocal roaming agreements or letters
of intent with 28 international carriers who have chosen to deploy the GSM
standard. The Company anticipates entering into similar agreements with other
domestic and international carriers who deploy the GSM standard and with other
cellular carriers. See "Risk Factors -- Risks Relating to GSM Technical
Standard" and "Business -- System Equipment, Development and Expansion -- PCS."
The FCC has divided the United States and its possessions and territories
into PCS markets made up of 51 MTAs and 493 "Basic Trading Areas" or "BTAs."
There are two MTA Blocks ("A" and "B") which consist of 30 MHz of spectrum and
four BTA Blocks, one of which consists of 30 MHz of spectrum ("C") and three of
which consist of 10 MHz of spectrum ("D", "E" and "F"). Each MTA consists of at
least two BTAs. The FCC has already completed the auction of the A and B Block
licenses. The PCS license auction process also includes auctions for issuance of
broadband BTA licenses, the first of which was for the C Block licenses (the "C
Block auction"). In the C Block auction, 30 MHz licenses for the 493 BTAs were
sold. Such C Block licenses were reserved for "entrepreneurs." Generally, an
"entrepreneur" is an applicant that has gross revenues of less than $125 million
in each of the last two years and total assets of less than $500 million at the
time the initial application to participate in the auction was filed. Each
eligible applicant may pay 90% of the purchase price of each license that it
purchases in installments over ten years. The FCC has also established bidding
credits and more favorable installment payment plans for applicants qualifying
as "small businesses." Generally, a small business is an entity that has average
annual gross revenues that are not more than $40 million for the preceding three
years. In addition, there are specific preferences affecting C Block awards
given to indian tribes or Alaska Regional or Village Corporations organized
pursuant to the Alaska Native Claims Settlement Act, or entities controlled by
such tribes or corporations.
The Company has acquired a 49.9% limited partnership interest in Cook Inlet
PCS, an entity controlled by Cook Inlet Region, Inc., an Alaska Native Regional
Corporation. Cook Inlet PCS participated in the C Block auction and also
qualifies for the additional benefits available to a small business.
Participation in Cook Inlet PCS will allow the Company to participate as a
minority owner of, and technical services provider to, the PCS businesses
established by Cook Inlet PCS using licenses purchased by Cook Inlet PCS in such
auction. The Company's obligation is to fund approximately 5% (up to
approximately $4.0 million) of the total price of any licenses purchased by Cook
Inlet PCS and to provide technical services to Cook Inlet PCS with respect to
constructing and operating its wireless communications businesses. See "The
Company -- Recent Developments," "-- Governmental Regulation - Licensing of PCS
Systems" and "Certain Transactions."
PRODUCTS AND SERVICES
The Company provides a variety of wireless products and services designed
to match a range of needs for business and personal use.
CELLULAR
The Company offers its subscribers high quality cellular communications, as
well as several custom calling services, such as call forwarding, call waiting,
conference calling, voice message storage and retrieval and no-answer transfer.
In addition, all subscribers can access local govern-
50
<PAGE> 54
ment emergency services from their cellular handsets (with no air time charge)
by dialing 911. Customers also may subscribe to a voice messaging system, which
allows callers to record messages for subscribers who are not available to take
calls or who have left the service area. The subscriber can later retrieve the
messages from any telephone, including a cellular handset. The Company will
continue to evaluate new products and services that may be complementary to its
wireless operations. The Company has designed several pricing options to meet
the varied needs of its customer base. Most options consist of a fixed monthly
charge (with varying allotments of included minutes, in some cases), plus
additional variable charges per minute of use. A high volume caller might find
an option with a higher monthly access charge and low per-minute charges to be
most advantageous. Lower volume users might choose a different package,
featuring a lower access fee and higher per-minute charges. In addition, in most
cases the Company separately charges for its custom calling features.
The Company provides extended regional and national service to cellular
subscribers in its markets, thereby allowing them to make and receive calls
while in other cellular service areas without dialing special access codes,
through its membership in NACN and other regional networking arrangements. This
service distinguishes the Company's service and call delivery features from
those of some of its competitors. NACN is the largest wireless telephone network
system in the world, linking non-wireline cellular operators throughout the
United States, Canada, Puerto Rico and the Virgin Islands. See "-- Governmental
Regulation." NACN connects key areas across North America so that customers can
use their cellular handsets to place and receive calls in these areas as easily
as they do in their home areas. Through NACN, customers receive calls
automatically as they roam in more than 2,200 cities. By dialing subscribers'
cellular numbers, the caller can reach subscribers without knowing their
location or having to dial additional roaming access numbers. In addition,
special services such as call forwarding and call waiting automatically follow
the subscribers as they travel. The Company also has special roaming
arrangements with certain cellular carriers in areas adjacent to the Company's
markets that provide the Company's customers attractive rates when roaming in
these surrounding areas.
In addition to service in its cellular markets, the Company offers cellular
service under Interim Operating Authorities ("IOAs") from the FCC in six markets
containing 562,598 persons which are contiguous to the Company's existing
markets. The holder of an IOA is designated to provide service to a market in
which the FCC has not granted a cellular license due to pending litigation. The
Company currently is seeking to acquire the cellular licenses in three markets
in which it offers cellular services under an IOA. While it is unclear how long
the Company will be able to provide such service under its IOAs, the Company has
been able to provide such service at a low cost and believes that its existing
cellular customers benefit from the additional market coverage.
The Company provides replacement wireless services for rural customers in
sparsely populated areas where the cost of providing wired telephone services is
relatively high. In addition, fixed cellular service can be particularly useful
for providing temporary service to locations that cannot rapidly be wired for
service through the landline areas. Fixed cellular applications are also
currently being used to replace existing landline facilities for remote
monitoring of various alarm devices.
PCS
The Company is currently operating a PCS system in the Honolulu MTA and
will offer PCS services in its six other MTAs using the GSM standard. The
Company currently offers in the Honolulu MTA, and will offer in each of its
other MTAs from the inception of commercial operations, several distinct
services and features, including:
- Enhanced Features -- The Company's PCS systems initially will offer
caller identification, call hold, voice mail, numeric paging, as well as
custom calling features such as call waiting, conference calling and call
forwarding.
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<PAGE> 55
- Messaging and Wireless Data Transmission -- Digital networks will offer
voice and data communications, including text messaging, through a single
handset. The Company believes that, as data transmission services
develop, a number of uses for such services will emerge, including short
message or alphanumeric paging service, mobile office applications (e.g.,
facsimile, electronic mail and connecting notebook computers with
computer/data networks), access to stock quote services, transmission of
text, connections of wireless point-of-sale terminals to host computers,
monitoring of alarm systems, automation of meter reading and monitoring
of status and inventory levels of vending machines.
- Call Security and Privacy -- Sophisticated encryption algorithms provide
increased call security, encouraging users to make private, business and
personal calls with significantly lower risk of eavesdropping than on
analog-based systems.
- Smart Card -- "Smart" cards, programmed with the user's billing
information and a specified service package, will allow subscribers to
obtain PCS connectivity automatically, simply by inserting their smart
cards into compatible PCS handsets. With roaming agreements between the
local providers and the Company in place, smart cards could also enable
subscribers to roam wherever GSM is deployed by using their smart cards
with handsets compatible with the system.
- Over-the-Air Activation and Over-the Air Subscriber Profile
Management -- The Company will be able to transmit changes in the
subscriber's feature package, including mobile number assignment and
personal directory numbers, directly to the subscriber's handset. This
eliminates the need to manually program the handset and simplifies the
activation process for both the sales agent and the subscriber.
- Extended Battery Performance -- Digital handsets are capable of entering
into a "sleep" mode when not in use, which will significantly extend the
handset's battery performance. In addition, because the Company's PCS
systems will utilize tightly spaced, low power transmitters, less power
will be required to transmit calls, thereby further extending battery
performance.
The Company currently offers a number of rate plans in Honolulu which vary
the level of the monthly fixed fee for a certain amount of usage and the cost of
incremental usage. The Company's PCS offerings will likely include additional
features beyond those offered by cellular competitors that the Company believes,
when combined with its rate plans, should create significant customer appeal for
its PCS systems.
The Company believes that its subscribers will be able to roam in
substantial portions of the United States, either on other GSM-based PCS systems
operated by current licensees or licensees that acquire PCS licenses in FCC
auctions or by using dual-mode handsets that, when available, also can be used
on existing cellular systems. The Company believes that dual-mode handsets will
be commercially available in sufficient quantities in 1997 and has entered into
an agreement with Nokia to acquire dual-mode handsets. The Company's ability to
establish a PCS subscriber base and to compete successfully in the PCS business
with those operators offering greater roaming capabilities may be adversely
affected by the fact that the Company's PCS subscribers will only be able to
roam into regions served by GSM-based PCS systems until dual-mode handsets
permitting them to use the existing cellular system become available. See "Risk
Factors -- Risks Relating to GSM Technical Standard" and "-- Absence of PCS
Operating History in the United States; Handset Availability."
OTHER PRODUCTS AND SERVICES
Paging. Since the acquisition of its paging business in February 1996, the
Company has provided paging services in Washington, Oregon, Idaho, Montana,
Nebraska, South Dakota, North Dakota and Wyoming, and currently serves
approximately 24,000 customers. The Company
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markets paging services as a package with its voice services. Revenues from
paging are expected to account for less than 3% of the Company's total revenues
in 1996. The Company has construction permits from the FCC to expand its paging
services in states in which the Company currently operates and has applications
pending before the FCC to expand its paging services into Nevada. The Company
has reached reciprocal development or reseller agreements for paging services
with AT&T Wireless, AirTouch Paging, PageNet, MobileMedia and others. See
"Certain Transactions."
International. In 1995, the Company began pursuing licenses for wireless
services in markets outside the United States. The Company has joined
partnerships which have made wireless license applications. The Company is a
partner in a partnership that has an interest in a joint venture which has
obtained the GSM cellular license in Latvia. Generally, the Company intends to
work with experienced international operators and local companies and
individuals and own a minority interest in the venture. The Company currently
has joint development agreements or letters of intent with an affiliate of
Metromedia International Group Inc. in Eastern Europe, Matrix Telecommunications
Limited in Indonesia and Sun Hung Kai Properties Ltd. and ABC Communications,
Ltd. in Taiwan. The Company may commit capital and other resources to such
ventures from time to time as it deems appropriate and as permitted by the
Senior Secured Facilities. See "Description of Indebtedness."
MARKETING, SALES AND CUSTOMER SERVICE
The Company's sales and marketing strategy is to generate continued net
subscriber growth and increased subscriber revenues. In addition, the Company
targets a customer base which it believes is likely to generate higher monthly
service revenues, while attempting to achieve a low cost of adding new
subscribers. The Company markets its services under nationally recognized and
proprietary brand names, and sells its products and services through a
combination of direct and indirect distribution channels with a well-trained
Company sales force.
MARKETING
The Company markets its cellular products and services in all markets
principally under the name CELLULAR ONE. CELLULAR ONE, the first national brand
name in the cellular industry, is currently utilized by a national coalition of
507 cellular licensees in the 50 states with a combined estimated population of
over 183 million. The national advertising campaign conducted by the Cellular
One Group enhances the Company's advertising exposure at a fraction of the cost
of what could be achieved by the Company alone. The Company also obtains
substantial marketing benefits from the name recognition associated with this
widely used service mark, both with existing subscribers traveling outside the
Company's service areas and with potential new subscribers moving into the
Company's markets. If the name CELLULAR ONE were to suffer diminished marketing
appeal, the Company, in such circumstances or otherwise, may explore development
or acquisition of a new service mark. AT&T Wireless, which has been the single
largest user of the CELLULAR ONE brand name, has reduced its use of the brand
name as a primary service mark. See "Risk Factors -- Intellectual Property and
Branding."
The Company markets its PCS products and services under its proprietary
VoiceStream brand name. The Company commenced offering its PCS products and
services in Honolulu with newspaper, radio and television advertisements. The
Company's objective is to develop brand recognition of VoiceStream through
substantial advertising and direct marketing in each of its PCS markets.
In marketing its PCS services, the Company intends to emphasize the
enhanced features, privacy and competitive pricing of such services. Initially,
the Company intends to concentrate its PCS marketing efforts primarily on large
communications-intensive corporate and trade accounts, which would benefit from
integrated mobile voice, messaging and wireless data transmission
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capabilities, and subscribers with substantial needs for wireless communications
who would benefit from enhanced features and services.
SALES
The Company sells its products and services through a combination of direct
and indirect channels. The Company operates 110 local sales offices (which also
serve as retail sales locations) and utilizes a direct sales force of over 700
persons based out of these offices, who are trained to educate new customers on
the features of its products. The Company's training programs provide its sales
employees with an in-depth understanding of the Company's system, products and
services so that they, in turn, can provide extensive information to prospective
customers. Sales commissions generally are linked both to subscriber revenue and
subscriber retention, as well as activation levels.
The Company believes that its local sales offices provide the physical
presence in local markets necessary to position the Company as a quality local
service provider, and give the Company greater control over both its costs and
the sales process. The Company also utilizes indirect sales through an extensive
network of national and local merchant and specialty retailers, including Wal-
Mart, Best Buy and Radio Shack. The Company uses both product discounts and
commissions as a means of compensating its independent sales agents. The Company
intends to continue to use a combination of direct and indirect sales channels,
with the mix depending on the demographics of each particular market.
In addition, the Company acts as a retail distributor of handsets and
maintains inventories of handsets. Although subscribers generally are
responsible for purchasing or otherwise obtaining their own handsets, the
Company offers discounts on the price of handsets to its subscribers. The
Company operates 110 local sales offices in the U.S., including 95 under the
CELLULAR ONE brand name, 13 under the Phones-To-Go brand name and two under the
VoiceStream brand name. The Company negotiates volume discounts for the purchase
of handsets. To respond to competition and in accordance with general industry
practice, the Company has historically sold handsets below cost. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
CUSTOMER SERVICE
Excellent customer service is an essential element of the Company's
operating philosophy. The Company is committed to attracting and retaining
subscribers by providing consistently superior customer service. At its
headquarters in Issaquah, Washington, the Company maintains a highly
sophisticated monitoring and control system, a staff of customer service
personnel and a well-trained technical staff to handle both routine and complex
questions as they arise, 24 hours a day, 365 days a year.
The Company implements credit check procedures at the time of sale and
continuously monitors customer churn. The Company believes that it helps manage
its churn rate through an outreach program implemented through its sales force
and customer service personnel. This program not only enhances subscriber
loyalty, but also increases add-on sales and customer referrals. The outreach
program allows the sales staff to check customer satisfaction, as well as to
offer additional calling features, such as voice mail, call waiting and call
forwarding.
To ensure superior service, the Company engages a third-party marketing
research firm to perform customer satisfaction surveys.
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SYSTEM EQUIPMENT, DEVELOPMENT AND EXPANSION
CELLULAR
The Company selects equipment that it believes provides reliable and high
quality performance characteristics. The Company generally employs Cell Site and
switching equipment manufactured by Lucent Technologies Inc. ("Lucent"),
currently an affiliate of AT&T, and NORTEL. The system design incorporates the
use of carefully selected sites to maximize the system coverage in rural areas.
Because it operates clusters of contiguous markets, the Company has designed
systems using higher-power sites. This type of system design requires fewer Cell
Sites and therefore lower capital expenditures, maintenance costs and operating
expenses. In many of its MSAs, the Company employs lower power, lower elevation
sites. In a few densely populated areas, the Company sectorizes and
directionalizes its Cell Sites to provide additional capacity. Most Lucent and
NORTEL Cell Sites operated by the Company have been built to accommodate digital
equipment.
The Company develops or builds out its cellular service areas by adding
channels to existing Cell Sites and by building new Cell Sites for the purpose
of increasing capacity and improving coverage in direct response to actual or
projected subscriber demand. Projections involve a traffic analysis of usage by
existing subscribers and an estimation of the number of additional subscribers
in each such area. The Company has historically met such demand through a
combination of augmenting channel capacity in existing Cell Sites and building
new Cell Sites. The Company's cellular systems cover over 93% of the population
in its markets and its systems are not currently capacity constrained. Cell Site
expansion to increase geographic coverage is expected to enable the Company to
continue to add subscribers, enhance use of its systems by existing subscribers,
increase roamer traffic due to the larger geographic area covered by the
cellular network and further enhance the overall efficiency of the network. The
Company believes that such increased cellular coverage will have a positive
impact on market penetration and subscriber usage.
The Company employs a large staff of technicians who are experienced and
trained in operating cellular systems and who will be trained to handle the PCS
systems. Currently, technicians are responsible for installing system equipment
and performing preventative maintenance and repairs. Standards for preventative
maintenance are determined and reviewed centrally by the engineering operations
staff. All Company systems are designed with built-in redundancy on critical
parts, thereby reducing the risk of service interruptions. Back-up battery
systems, and in some cases generators, exist at all Cell Sites and switching
locations. In addition, sites have fire, power and intrusion alarm systems which
have call-out systems and are monitored centrally. Through the use of
sophisticated monitoring equipment, technicians at the Company's service center
are able to remotely monitor the technical performance of all of the Company's
service areas.
PCS
The Company has selected the GSM standard for use in its PCS markets, and
has entered into supply agreements with NORTEL and Nokia to provide system
equipment and PCS and dual-mode handsets. See "Risk Factors -- Risks Relating to
GSM Technical Standard" and "-- Products and Services." The Company's system
design incorporates the use of lower power, lower elevation sites in densely
populated areas.
In order for the Company's subscribers to roam into other PCS markets (and
vice versa), at least one PCS licensee in the other market must utilize the same
digital standard. As of the date hereof, six other PCS licensees have announced
that they intend to deploy GSM-based PCS systems, and one such licensee, APC,
has been operating a GSM system in the Washington/ Baltimore MTA since November
1995. Together, these PCS licensees and the Company hold licenses for 25 MTAs,
which cover markets containing approximately 149.2 million persons, representing
approximately 55.7% of the U.S. population. PCS operators in several markets
adjacent to the Company's PCS markets, including California, Minnesota, Nevada
and Missouri,
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have announced publicly that they intend to use the GSM standard. PrimeCo and
Sprint Spectrum have publicly announced that they intend to deploy PCS systems
based on a CDMA standard. AT&T Wireless and Southwestern Bell have selected a
TDMA standard. It is anticipated that together, CDMA-based PCS providers,
including competitors in several of the Company's markets, will own licenses
covering approximately 87% of the U.S. population (based on 1990 U.S. Census
Bureau figures used by the FCC for auction purposes) and AT&T Wireless and
Southwestern Bell, with their TDMA standard, own PCS licenses which cover
approximately 45% of the U.S. population (based on 1990 U.S. Census Bureau
figures used by the FCC for auction purposes). In order for the Company's PCS
subscribers to roam in other markets, and vice versa, at least one PCS licensee
in the other market must utilize the GSM standard, or the subscribers must use
dual-mode handsets that would permit the subscriber to use the cellular system
in the other market. See "Risk Factors -- Risks Relating to GSM Technical
Standard."
The successful implementation of the PCS systems will be dependent, to a
significant degree, upon the Company's ability to lease or acquire sites for the
location of its base station equipment. The site selection process will require
the negotiation of lease or acquisition agreements for hundreds of sites for the
entire PCS systems, and will likely require the Company to obtain zoning
variances or other governmental approvals or permits. The Company has leased or
plans to lease over 600 sites in its seven MTAs. A complete engineering analysis
as to the usability of all of these sites has not been conducted. The Company
expects that the site acquisition process will continue throughout the build-out
of the PCS systems. See "Risk Factors -- PCS Build-out and Capital
Expenditures." In addition to site selection, the implementation of the
Company's PCS systems will involve construction, base station and equipment
installation and systems testing and may require that the Company relocate
existing licensees operating fixed microwave systems. See "Risk
Factors -- Relocation of Fixed Microwave Licensees."
The Company believes that its PCS systems will not experience any spectrum
capacity constraints in the foreseeable future and that it will not be necessary
to expand the system's capacity until after the build-out has been completed.
System capacity can be expanded by installing additional transmitters at the
existing sites and by adding additional base stations. Additional capacity
typically will be added in increments that parallel demand and at substantially
less than the proportionate cost of the initial system. The Company believes the
cost of this additional capacity will be highly competitive with the cellular
industry's cost of adding capacity for additional subscribers.
COMPETITION
The competition in the wireless communications industry is intense.
Competition for subscribers among wireless licensees is based principally upon
the services and features offered, the technical quality of the wireless system,
customer service, system coverage, capacity and price. Such competition may
increase to the extent that licenses are transferred from smaller, stand-alone
operators to large, better capitalized and more experienced wireless
communications operators who may be able to offer subscribers certain network
advantages similar to those offered by the Company.
The Company has one cellular competitor in each of its cellular markets
including CommNet, Lincoln Telecommunications Company, Kansas Cellular,
Southwestern Bell and U S WEST, and there will be up to six PCS licensees in
each of its markets. The Company's principal competitors in its PCS business are
PrimeCo, Sprint Spectrum and AT&T Wireless, as well as the two existing cellular
providers in its PCS markets. The Company also competes with paging, dispatch
and conventional mobile telephone companies, resellers and landline telephone
service providers. Potential users of cellular systems may, however, find their
communications needs satisfied by other current and developing technologies.
One- or two-way paging or beeper services that feature voice messaging and data
display as well as tone only service may be adequate for potential subscribers
who do not need to speak to the caller. In the future, cellular service may also
compete
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more directly with traditional landline telephone service providers. See "Risk
Factors -- Competition."
The Company's PCS business will directly compete in each market with up to
five other PCS providers, including Sprint Spectrum, AT&T Wireless and PrimeCo.
The Company will also compete with existing cellular service providers in its
PCS markets, many of which have been operational for a number of years and have
significantly greater financial and technical resources than those available to
the Company and who may upgrade their systems to provide comparable services in
competition with the Company's PCS systems. These cellular competitors include
AT&T Wireless, U S WEST and U.S. Cellular.
The FCC requires all cellular system operators to provide service to
"resellers." A reseller provides cellular service to customers but does not hold
an FCC cellular license or own cellular facilities. Instead, the reseller buys
blocks of cellular telephone numbers and capacity from a licensed carrier and
resells service through its own distribution network to the public. Thus, a
reseller is both a customer of a cellular licensee's services and also a
competitor of that licensee. Several small resellers currently operate in
competition with the Company's systems.
The cost to the Company of PCS handsets initially will be higher than its
cost of cellular handsets. In order to compete effectively with sellers of
analog cellular handsets, the Company may have to subsidize the sale of its PCS
handsets to a greater extent than cellular handsets.
In the future, in its cellular and PCS markets the Company expects to face
increased competition from entities providing other communications technologies
and services. While some of these technologies and services are currently
operational, others are being developed or may be developed in the future. See
"Risk Factors -- Competition."
The FCC has licensed SMR dispatch system operators to construct digital
mobile communications systems on existing SMR frequencies, referred to as ESMR,
in many areas throughout the United States, including most of the areas in which
the Company operates. When constructed, ESMR systems could be competitive with
the Company's wireless service. As a result of advances in digital technology,
ESMR operators have begun to design and deploy digital mobile networks that
increase the frequency capacity of ESMR systems to a level that may be
competitive with that of wireless systems. A limited number of ESMR operators
have recently begun offering short messaging, data services and interconnected
voice telephony services on a limited basis. Several ESMR licensees have
recently announced their intention to merge into one company and plan to build
and operate digital mobile networks in most major United States markets.
The FCC has also allocated radio channels to a satellite system in which
transmissions from mobile units to satellites may augment or replace
transmissions to cellular or PCS cell sites. Several companies have announced
plans to design, construct, deploy and operate satellite-based
telecommunications systems worldwide. American Mobile Satellite Corporation has
designed a geosynchronous earth orbit satellite system for communications
services. That satellite has recently begun providing voice services. Several
low earth orbit ("LEO") satellite systems have been proposed that would use
multiple satellites to provide worldwide coverage. The first LEO system is
proposed for service in 1998. In addition, others have applied to the FCC for
licenses to operate satellite communications and video transmission systems in
the 28 GHz Ka band. The Company does not currently view such systems as direct
competitors.
Continuing technological advances in communications and FCC policies that
encourage the development of new spectrum-based technologies may result in new
technologies that compete with cellular and PCS systems. In addition, the
Omnibus Budget Reconciliation Act of 1993 requires, among other things, the
allocation to commercial use of a portion of 200 MHz of the spectrum currently
reserved for government use. It is possible that some portion of the spectrum
that is reallocated will be used to create new land-mobile services or to expand
existing land-mobile services.
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GOVERNMENTAL REGULATION
The FCC regulates the licensing, construction, operation, acquisition and
sale of cellular and PCS systems in the United States pursuant to the
Communications Act of 1934, as amended from time to time, and the rules,
regulations and policies promulgated by the FCC thereunder (the "Communications
Act").
LICENSING OF CELLULAR COMMUNICATIONS SYSTEMS
A cellular communications system operates under a protected geographic
service area license granted by the FCC for a particular market on one of two
frequency blocks allocated for cellular service. One license for each market was
initially awarded to a company or group that was affiliated with a local
landline telephone carrier in such market and is called the wireline or "B" band
license and the other license is called the non-wireline or "A" band license.
Following notice of completion of construction, a cellular operator obtains
initial operating authority. Cellular authorizations are issued generally for a
10-year term beginning on the date of the grant of the initial construction
permit. Under FCC rules, the authorized service area of a cellular provider in
each of its markets is referred to as the Cellular Geographic Service Area or
CGSA. A cellular licensee has the exclusive right to serve the entire area that
falls within the licensee's MSA or RSA for a period of five years after grant of
the licensee's construction permit. At the end of the five-year period, however,
the licensee's exclusive CGSA rights become limited to the area actually served
by the licensee as of that time, as determined pursuant to a formula adopted by
the FCC. After the five-year period any entity may apply to serve portions of
the MSA or RSA not being served by the licensee. The five-year exclusivity
period has expired for most licensees and parties have filed unserved area
applications, including some in the Company's markets.
Near the conclusion of the 10-year license term, licensees must file
applications for renewal of licenses to obtain authority to renew their license.
The FCC has adopted specific standards to apply to cellular renewals, under
which standard the FCC will award a renewal expectancy to a cellular licensee
that (i) has provided substantial service during its past license term and (ii)
has substantially complied with applicable FCC rules and policies and the
Communications Act. Violations of the Communications Act or the FCC's rules
could result in license revocations, forfeitures or fines.
Cellular radio service providers also must satisfy a variety of FCC
requirements relating to technical and reporting matters. One such requirement
is the coordination of proposed frequency usage with adjacent cellular users,
permittees and licensees in order to avoid electrical interference between
adjacent systems. In addition, the height and power of base station transmitting
facilities and the type of signals they emit must fall within specified
parameters. The FCC has also provided guidelines respecting cellular service
resale practices and the terms under which certain ancillary services may be
provided through cellular facilities.
Cellular and PCS systems are subject to certain FAA regulations respecting
the location, lighting and construction of transmitter towers and antennae and
may be subject to regulation under the National Environmental Policy Act and the
environmental regulations of the FCC. State or local zoning and land use
regulations also apply to the Company's activities. The Company uses common
carrier point to point microwave facilities to connect Cell Sites and to link
them to the main switching office. These facilities are separately licensed by
the FCC and are subject to regulation as to technical parameters and service.
The Communications Act preempts state and local regulation of the entry of,
or the rates charged by, any provider of commercial mobile radio service
("CMRS") or any private mobile radio service ("PMRS"), which includes cellular
(and PCS) service. Notwithstanding such preemption, a state may petition the FCC
for authority to regulate the rates for any CMRS, and California, Hawaii and
Wyoming, where the Company provides service, have done so. However, the State of
Wyoming
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withdrew its petition on its own motion, and the FCC denied the California and
Hawaii petitions, as well as a California petition for reconsideration.
TRANSFERS AND ASSIGNMENTS OF CELLULAR LICENSES
The Communications Act and FCC rules require the FCC's prior approval of
the assignment or transfer of control of a construction permit or license for a
cellular system. Subject to FCC approval, a license or permit may be transferred
from a nonwireline entity to a wireline entity, or vice versa. Non-controlling
interests in an entity that holds a cellular license or cellular system
generally may be bought or sold without prior FCC approval. Any acquisition or
sale by the Company of cellular interests may also require the prior approval of
the Federal Trade Commission and the Department of Justice, if over a certain
size, as well as any state or local regulatory authorities having competent
jurisdiction.
In addition, the FCC's rules prohibit the alienation of any ownership
interest in an RSA application, or an entity holding such an application, prior
to the grant of a construction permit. For unserved cellular areas, no change of
control may take place until after the FCC has granted both a construction
permit and a license and the licensee has provided service to the public for at
least one year. These restrictions affect the ability of prospective purchasers,
including the Company, to enter into agreements for RSA and unserved area
acquisitions prior to the lapse of the applicable transfer restriction periods.
The restriction on sale of interests in RSA and unserved area applications and
on agreements for such sales should not have a greater effect on the Company
than on any other prospective buyer.
LICENSING OF PCS SYSTEMS
In order to increase competition in wireless communications, promote
improved quality and service and make available the widest possible range of
wireless services, federal legislation was enacted directing the FCC to allocate
radio frequency spectrum for PCS by competitive bidding. A PCS system operates
under a protected geographic service area license granted by the FCC for a
particular market on one of six frequency blocks allocated for broadband PCS
service. The FCC has divided the United States and its possessions and
territories into PCS markets made up of 493 BTAs and 51 MTAs. Each MTA consists
of at least two BTAs. As many as six licensees will compete in each PCS service
area. The FCC has allocated 120 MHz of radio spectrum in the 2 GHz band for
licensed broadband PCS services. The FCC divided the 120 MHz of spectrum into
six individual blocks, each of which is allocated to serve either MTAs or BTAs.
The spectrum allocation includes two 30 MHz blocks (A and B Blocks) licensed for
each of the 51 MTAs, one 30 MHz block (C Block) licensed for each of the 493
BTAs, and three 10 MHz blocks (D, E and F Blocks) licensed for each of the 493
BTAs. A PCS license will be awarded for each MTA or BTA in every block, for a
total of more than 2,000 licenses.
Under the FCC's rules, there are three separate spectrum aggregation limits
affecting broadband PCS licensees. Under the first rule, a broadband PCS
licensee may own combinations of PCS licenses (e.g., one MTA (30 MHz) and one
BTA (10 MHz)) with total aggregate spectrum coverage of up to 40 MHz in a single
geographic area. The second rule provides that no cellular licensee will be
allowed to own more than one 10 MHz PCS license (i.e., ownership of a 30 MHz PCS
license is prohibited) covering territory, ten percent or more of the population
of which is within the CGSAs represented by that entity's cellular licenses.
This cellular/PCS cross-ownership restriction is currently the subject of
further rulemaking proceedings following a successful court challenge described
below. Finally, no entity may hold licenses for more than 45 MHz of PCS,
cellular and SMR services regulated as CMRS where there is significant overlap
in any geographic area (significant overlap will occur when at least ten percent
of the population of the PCS licensed service area is within the CGSA(s) and/or
SMR service area(s)).
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The Company owns cellular licenses serving markets that are wholly or
partially within the Denver MTA, which upon acquisition of the Denver MTA will
result in the Company exceeding the FCC's current cellular/PCS and 45 MHz CMRS
cross-ownership restrictions described above. The Company has a period of time
after acquisition of the Denver MTA in which to comply with these ownership
restrictions. In the event that these restrictions are imposed, the Company will
be obligated to divest sufficient portions of its PCS markets or its cellular
holdings to come into compliance with the rules. The Company does not believe
such restrictions or any actions the Company is required to take to comply
therewith will have a material adverse effect on the Company.
When mutually exclusive applications (i.e., two or more applications
competing for the same service in the same geographic area) are filed for the
same MTA or BTA, those licenses will be awarded pursuant to auctions. The FCC
has adopted comprehensive rules that outline the bidding process, describe the
bidding application and payment process, establish penalties for certain bid
withdrawals, default or disqualification, establish regulatory safeguards,
reserve two of the six frequency blocks (the C and F Blocks) for "entrepreneurs"
and small businesses and in the case of one of the blocks (the F Block) provide
certain preferences for women and minority-owned and small businesses.
The FCC has already completed the auction of the A and B Block licenses,
and the winning bidders' licenses were granted on June 23, 1995. Although all of
the MTA PCS licenses, including those of the Company, have been awarded by the
FCC, and the licensees are permitted to construct and operate their PCS systems,
the licenses have not been issued by a grant that is "final" because of pending
actions before the FCC challenging the validity of the A and B Block auctions.
These actions fall into two categories: (i) those stemming from the November 9,
1995 decision of the United States Court of Appeals for the Sixth Circuit in
Cincinnati Bell Telephone Company, Inc. v. FCC, 69 F.3d 752, which held that the
FCC's cellular eligibility restriction and the twenty percent bright line
cellular attribution standard were arbitrary and remanded the rules to the FCC
for further proceedings, and (ii) those claiming that the delay in the C Block
broadband PCS auction gave the A and B Block PCS licensees an unfair headstart
over subsequent licensees. The Cincinnati Bell decision raises a possibility
that all of the auctions could be invalidated, including the A and B Blocks. As
to the actions claiming unfair headstart, the FCC recently affirmed the grants
of the A and B Block licenses. The time for filing an appeal or petition for
reconsideration of the FCC's affirmance of the grants ended on May 1, 1996, and
no appeals or petitions for reconsideration have been filed in the appropriate
court or with the FCC. As a result of the challenges, although it currently
appears unlikely, the Company could lose its PCS licenses or have adverse
conditions imposed on them, and in such event the loss resulting from any
adverse conditions or, in the case of license revocation, from its costs and
expenses in bidding for and obtaining the licenses and in beginning the site
acquisition and build-out for its PCS systems could have a material adverse
effect on the Company. See "Risk Factors -- Facility of PCS Auctions."
The auction of C Block licenses commenced on December 18, 1995 and was
completed on May 6, 1996. As described above, on November 9, 1995, the U.S.
Court of Appeals for the Sixth Circuit held that the FCC had not adequately
justified certain FCC rules relating to the eligibility of cellular licensees
and investors to hold, or invest in the holders of, PCS licenses. The court
remanded the rules to the FCC for further consideration consistent with the
court's opinion. On March 20, 1996, the FCC released a Notice of Proposed Rule
Making to reexamine the cellular eligibility rules and certain other PCS rules.
The Company cannot predict the outcome of such reconsideration or its impact on
the C Block auction or the PCS licensing and regulatory scheme generally.
All PCS licenses will be granted for a 10-year period, at the end of which
they must be renewed. The FCC has adopted specific standards to apply to PCS
renewals, under which the FCC will award a renewal expectancy to a PCS licensee
that (i) has provided substantial service during its past license term and (ii)
has substantially complied with applicable FCC rules and policies and the
Communications Act. All 30 MHz broadband PCS licensees, including the Company,
must construct
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facilities that offer coverage to one-third of the population of their service
area within five years of their initial license grants and to two-thirds of the
population within ten years. Licensees that fail to meet the coverage
requirements may be subject to forfeiture of the license. FCC rules restrict the
voluntary assignments or transfers of control of C and F Block licenses. No
assignments or transfers affecting control are permitted during the first three
years of the license term. During the fourth and fifth years, any proposed
assignee or transferee must meet the eligibility criteria for participation in
the entrepreneur block auction at the time the application for assignment or
transfer of control is filed, or the proposed assignee or transferee must hold
other licenses for C and F Blocks and, at the time of receipt of such licenses,
have met the same eligibility criteria. Any transfers or assignments during the
entire 10 year initial license term are subject to unjust enrichment penalties,
i.e., forfeiture of any bidding credits and acceleration of any installment
payment plans should the assignee or transferee not qualify for the same
benefits. The FCC has a Notice of Proposed Rule Making pending in which it is
soliciting comment on the lifting of restrictions on transfer and assignment,
but only as to F Block licenses. In the case of the C and F Blocks, the FCC will
conduct random audits to ensure that licensees are in compliance with the FCC's
eligibility rules. Violations of the Communications Act or the FCC's rules could
result in license revocations, forfeitures or fines.
For a period of up to five years after the grant of a PCS license (subject
to extension), a PCS licensee will be required to share spectrum with existing
licensees that operate certain fixed microwave systems within its license area.
To secure a sufficient amount of unencumbered spectrum to operate its PCS
systems efficiently and with adequate population coverage, the Company will need
to relocate many of these incumbent licensees. In an effort to balance the
competing interests of existing microwave users and newly authorized PCS
licensees, the FCC has adopted a transition plan to relocate such microwave
operators to other spectrum blocks. This transition plan allows most microwave
users to operate in the PCS spectrum for a two-year voluntary negotiation period
and an additional one-year mandatory negotiation period. For public safety
entities dedicating a majority of their system communications for police, fire
or emergency medical services operations, the voluntary negotiation period is
three years, with an additional two year mandatory negotiation period. Parties
unable to reach agreement within these time periods may refer the matter to the
FCC for resolution, but the incumbent microwave user is permitted to continue
its operations until final FCC resolution of the matter. The Company has already
reached agreements with some of the microwave incumbents affecting the Company's
PCS systems; however, there can be no assurance that the Company will be
successful in reaching timely agreements with the remaining existing microwave
licensees needed to construct and operate its PCS systems or that any such
agreements will be on terms favorable to the Company. See "Risk
Factors -- Relocation of Fixed Microwave Licensees" and "-- Finality of PCS
Auctions."
TRANSFERS AND ASSIGNMENTS OF PCS LICENSES
The Communications Act and FCC rules require the FCC's prior approval of
the assignment or transfer of control of a license for a PCS system. In
addition, the FCC has established transfer disclosure requirements that require
licensees who transfer control of or assign a PCS license within the first three
years of their license term to file associated contracts for sale, option
agreements, management agreements or other documents disclosing the total
consideration that the licensee would receive in return for the transfer or
assignment of its license. Non-controlling interests in an entity that holds a
PCS license or PCS system generally may be bought or sold without FCC approval.
Any acquisition or sale by the Company of PCS interests may also require the
prior approval of the Federal Trade Commission and the Department of Justice if
over a certain size, as well as state or local regulatory authorities having
competent jurisdiction.
FOREIGN OWNERSHIP
Under existing law, no more than 20% of an FCC licensee's capital stock may
be owned, directly or indirectly, or voted by non-U.S. citizens or their
representatives, by a foreign government or its representatives or by a foreign
corporation. Because the Company itself does not hold any FCC
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<PAGE> 65
license but instead controls other companies which themselves hold the licenses
(which is the current and intended structure), up to 25% of the Company's
capital stock may be owned or voted by non-U.S. citizens or their
representatives, by a foreign government or its representatives or by a foreign
corporation. Alien ownership above the 25% level may be allowed should the FCC
find such higher levels not inconsistent with the public interest. If foreign
ownership of the Company were to exceed the 25% level, the FCC could revoke the
Company's FCC licenses, although the Company could seek a declaratory ruling
from the FCC allowing the foreign ownership or take other actions to reduce the
Company's foreign ownership percentage in order to avoid the loss of its
licenses. The Company has no knowledge of any present foreign ownership in
violation of these restrictions.
TELECOMMUNICATIONS ACT OF 1996
On February 8, 1996, the Telecommunications Act of 1996 (the
"Telecommunications Act") was signed into law, substantially revising the
regulation of communications. The goal of the Telecommunications Act is to
enhance competition and remove barriers to market entry, while deregulating the
communications industry to the greatest extent possible. To this end, local and
long-distance communications providers will, for the first time, be able to
compete in the other's market, and telephone and cable companies will likewise
be able to compete. To facilitate the entry of new carriers into existing
markets, the Telecommunications Act imposes certain interconnection and equal
access requirements on incumbent carriers. Additionally, all communications
carriers providing interstate communications services must contribute to the
federal universal service support mechanisms that the FCC will establish. The
Company cannot predict the outcome of the FCC's rulemaking proceedings to
promulgate regulations to implement the new law or the effect of the new
regulations on cellular service or PCS, and there can be no assurance that such
regulations will not adversely affect the Company's business or financial
condition.
At present, cellular providers, other than the regional Bell operating
companies, have the option of using only one designated long distance carrier.
The Telecommunications Act codifies the policy that CMRS providers will not be
required to provide equal access to long distance carriers. The FCC, however,
may require CMRS carriers to offer unblocked access (i.e., implemented by the
subscriber's use of a carrier identification code or other mechanisms at the
time of placing a call) to the long distance provider of a subscriber's choice.
The FCC has recently terminated its inquiry into the imposition of equal access
requirements on CMRS providers.
INTELLECTUAL PROPERTY
CELLULAR ONE is a service mark registered with the United States Patent and
Trademark Office. The service mark is owned by Cellular One Group, a Delaware
general partnership comprised of Cellular One Marketing, Inc., a subsidiary of
Southwestern Bell Mobile Systems, together with Cellular One Development, Inc.,
a subsidiary of AT&T and Vanguard Cellular Systems, Inc. The Company uses the
CELLULAR ONE service mark to identify and promote its cellular telephone service
pursuant to licensing agreements with Cellular One Group. In 1995, the Company
paid approximately $115,000 and $100,000, respectively, in licensing and
advertising fees under these agreements. The licensing agreements require the
Company to provide high-quality cellular telephone service to its customers, and
to maintain a certain minimum overall customer satisfaction rating in surveys
commissioned by Cellular One Group. The licensing agreements that the Company
has entered into are for original five-year terms expiring on various dates.
Assuming compliance by the Company with the provisions of the agreements, each
of these agreements may be renewed at the Company's option for three additional
five-year terms.
Western Wireless is a service mark owned by the Company registered with the
United States Patent and Trademark Office. The Company has applications pending
to obtain federal trademark protection of the mark "VoiceStream," and various
derivatives thereof. "Telewaves(R)," a service mark owned by one of the
Company's subsidiaries, is registered with the United States Patent and
Trademark Office and is the service mark under which the Company provides its
paging services.
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<PAGE> 66
EMPLOYEES AND LABOR RELATIONS
The Company considers its labor relations to be good and, to the Company's
knowledge, none of its employees is covered by a collective bargaining
agreement. As of March 31, 1996, the Company employed a total of 1,372 people in
the following areas:
<TABLE>
<CAPTION>
NUMBER OF
CATEGORY EMPLOYEES
------------------------------------------------------------------------- ---------
<S> <C>
Sales and marketing...................................................... 791
Engineering.............................................................. 203
General and administration, including customer service................... 378
</TABLE>
PROPERTIES
In addition to the direct and attributable interests in cellular, PCS and
paging licenses and other similar assets discussed in this Prospectus, the
Company leases its principal executive offices (consisting of approximately
61,000 square feet) located in Issaquah, Washington. The Company and its
subsidiaries and affiliates lease and own locations for inventory storage,
microwave, cell site and switching equipment and sales and administrative
offices.
LEGAL PROCEEDINGS
There are no material, pending legal proceedings to which the Company or
any of its subsidiaries or affiliates is a party or of which any of their
property is subject which, if adversely decided, would have a material adverse
effect on the Company. For discussion of certain legal proceedings relating to
FCC license grants, see "Risk Factors -- Governmental Regulation,"
"-- Finality of PCS Auctions" and "-- Governmental Regulation."
ORGANIZATION
The Company conducts its operations through a number of direct and indirect
subsidiaries and affiliates. The Company holds its FCC licenses and conducts all
operations through wholly-owned subsidiaries. Five of the Company's MSAs have
minority ownership interests held by non-affiliated third parties. The total
ownership of such minority interest holders in such subsidiaries and affiliates
ranges from less than one percent to approximately eight percent. An indirect
wholly-owned subsidiary of the Company is the 49.9% limited partner of Cook
Inlet PCS. See "Risk Factors -- Holding Company Structure; Subordination,"
"-- Governmental Regulation," "The Company -- Recent Developments" and "Certain
Transactions."
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<PAGE> 67
MANAGEMENT
DIRECTORS, EXECUTIVE OFFICERS AND KEY PERSONNEL
The names, ages and positions of the executive officers and directors of
the Company are listed below along with their business experience during the
past five years. The business address of all officers of the Company is 2001 NW
Sammamish Road, Issaquah, Washington 98027. All of these individuals are
citizens of the United States. The Company's Board of Directors currently
consists of six directors and one board seat that is vacant. Directors are
elected at the annual meeting of shareholders to serve until they resign or are
removed, or are otherwise disqualified to serve, or until their successors are
elected and qualified. Executive officers of the Company are appointed at the
Board's first meeting after each annual meeting of shareholders. No family
relationships exist among any of the directors or executive officers of the
Company, except for Mr. Stanton and Ms. Gillespie, who are married to each
other. See "-- Board of Directors."
<TABLE>
<CAPTION>
NAME AGE POSITION
- --------------------------------------------------- --- -------------------------------
<S> <C> <C>
John W. Stanton.................................... 40 Chairman, Director and Chief
Executive Officer
Donald Guthrie..................................... 40 Vice Chairman
Robert R. Stapleton................................ 38 President
Mikal J. Thomsen................................... 40 Chief Operating Officer
Theresa E. Gillespie............................... 43 Chief Financial Officer
Alan R. Bender..................................... 41 Secretary, Senior Vice
President and General Counsel
Cregg B. Baumbaugh................................. 39 Senior Vice President --
Corporate Development
Timothy R. Wong.................................... 40 Vice President -- Engineering
Bradley J. Horwitz................................. 40 Vice President -- International
Nastashia Stoneman Press........................... 35 Principal Accounting Officer
David A. Bayer..................................... 56 Director
John L. Bunce, Jr.................................. 37 Director
Mitchell R. Cohen.................................. 32 Director
Jonathan M. Nelson................................. 39 Director
Terence M. O'Toole................................. 37 Director
</TABLE>
John W. Stanton has been a director, Chairman of the Board and Chief
Executive Officer of the Company since its formation in July 1994. Mr. Stanton
has been Chief Executive Officer of GCC since March 1992, and was Chairman of
the Board of GCC from March 1992 to December 1995. Mr. Stanton has served as
Chairman of the Board and Chief Executive Officer of PN Cellular, Inc. ("PN
Cellular"), the former General Partner of MCLP since its formation in October
1992. Mr. Stanton served as a director of McCaw Cellular Communications, Inc.
("McCaw") from 1986 to 1994, and as a director of LIN Broadcasting Corporation
("LIN Broadcasting") from 1990 to 1994, during which time it was a publicly
traded company. From 1983 to 1991, Mr. Stanton served in various capacities with
McCaw, serving as Vice-Chairman of the Board of McCaw from 1988 to September
1991 and as Chief Operating Officer of McCaw from 1985 to 1988. Mr. Stanton is
also a member of the Board of Directors of each of Interpoint, Inc. and SmarTone
(Hong Kong). In addition, Mr. Stanton is a trustee of Whitman College, a private
college. Mr. Stanton is currently a director of the CTIA. Mr. Stanton is married
to Ms. Gillespie.
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<PAGE> 68
Donald Guthrie has been Vice Chairman of the Company since November 1995.
From 1986 to October 1995, he served as Senior Vice President and Treasurer of
McCaw and, from 1990 to October 1995, he served as Senior Vice
President -- Finance of LIN Broadcasting.
Robert R. Stapleton has been President of the Company since its formation
in July 1994, and President of GCC since November 1992. From August 1989 to
November 1992, he served in various positions with GCC, including Chief
Operating Officer and Vice President of Operations. From 1984 to 1989, Mr.
Stapleton was employed by mobile communications subsidiaries of Pacific Telesis,
Inc., which now are affiliated with AirTouch Communications.
Mikal J. Thomsen has been Chief Operating Officer of the Company since its
formation in July 1994. Mr. Thomsen was a director and Chief Operating Officer
of MCLP and its predecessor from its inception in 1991 until the Company's
formation in July 1994. From 1983 to 1991, Mr. Thomsen held various positions at
McCaw, serving as General Manager of its International Division from 1990 to
1991 and as General Manager of its West Florida Region from 1987 to 1990.
Theresa E. Gillespie has been Chief Financial Officer of the Company since
its formation in July 1994. Ms. Gillespie was Chief Financial Officer of MCLP
and its predecessor since its inception in 1991 until the Company's formation in
July 1994. Ms. Gillespie has been Chief Financial Officer of certain entities
controlled by Mr. Stanton and Ms. Gillespie since 1988. From 1986 to 1987, Ms.
Gillespie was Senior Vice President and Controller of McCaw. From 1975 to 1986
she was employed by a national public accounting firm. Ms. Gillespie is married
to Mr. Stanton.
Alan R. Bender has been Secretary, Senior Vice President and General
Counsel of the Company since its formation in July 1994. Mr. Bender joined GCC
in April 1990, as Senior Counsel, and was named Secretary in June 1990, General
Counsel in August 1990 and Vice President in March 1992. From 1988 to 1990, Mr.
Bender was Vice President and Senior Counsel of Equitec Financial Group, Inc., a
subsidiary of PacifiCorp Inc.
Cregg B. Baumbaugh has been Senior Vice President -- Corporate Development
of the Company since its formation in July 1994. From November 1989 through the
present, he has served in various positions with GCC, including Vice
President -- Business Development. From 1986 to 1989, Mr. Baumbaugh was employed
by The First Boston Corporation.
Timothy R. Wong has been Vice President -- Engineering of the Company since
January 1996. From 1990 to 1995, Mr. Wong held various positions at U S WEST
Cellular, serving as Executive Director -- Engineering and Operations from 1994
to 1995, Director of Wireless Systems Engineering in 1993, Manager of
International Wireless Engineering in 1992, and Manager -- Systems Design from
1990 to 1991.
Bradley J. Horwitz has been Vice President -- International of the Company
and President of Western Wireless International Corporation, a subsidiary of the
Company, since November 1995. From 1983 to 1995, Mr. Horwitz held various
positions at McCaw, serving as Vice President -- International Operations from
1992 to 1995, Director -- Business Development from 1990 to 1992 and Director of
Paging Operations from 1986 to 1990.
Nastashia Stoneman Press has been Principal Accounting Officer since
December 1995. Ms. Press was Controller of the Company from its formation in
July 1994 to December 1995, and Controller of MCLP from April 1992 to the
Company's formation in July 1994. From 1989 to 1992, Ms. Press was Controller of
Institutional Communications Company. From 1983 to 1989, she held various
accounting and finance positions at MCI Communications Corporation.
David A. Bayer has been a director of the Company since its formation in
July 1994. Mr. Bayer was a director of GCC from February 1993 to December 1995.
Since November 1991, Mr. Bayer has been the President and owner of dbX
Corporation. Mr. Bayer currently is a director of MobileMedia Corporation
("MobileMedia").
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<PAGE> 69
John L. Bunce, Jr. has been a director of the Company since its formation
in July 1994. Mr. Bunce was a director of GCC from March 1992 to December 1995.
Mr. Bunce is a general partner of Hellman & Friedman, a private investment firm,
having joined Hellman & Friedman as an associate in 1988. Mr. Bunce currently is
a director of MobileMedia.
Mitchell R. Cohen has been a director of the Company since its formation in
July 1994. Mr. Cohen was a director of GCC from March 1992 to December 1995. Mr.
Cohen is a general partner of Hellman & Friedman, having joined Hellman &
Friedman as an associate in July 1989. From 1986 to 1989, Mr. Cohen was employed
by Shearson Lehman Hutton, Inc. Mr. Cohen currently is a director of MobileMedia
and Matrix Telecommunications Limited.
Jonathan M. Nelson has been a director of the Company since its formation
in July 1994. Mr. Nelson is a managing general partner of Providence Ventures,
L.P., the general partner of the general partner of Providence Media Partners
L.P. ("Providence"), a private equity fund. Since 1986, Mr. Nelson has been a
managing director of Narragansett Capital, Inc., a private management company
for three separate equity investment funds. Mr. Nelson is currently a director
of Wellman, Inc., Brooks Fiber Properties Inc. and CellNet Data Systems.
Terence M. O'Toole has been a director of the Company since its formation
in July 1994. Mr. O'Toole joined Goldman, Sachs & Co. ("Goldman Sachs") in 1983
and became a Vice President in April 1988 and a general partner in November
1992. He is currently a director of Insilco Corporation, a diversified
industrial holding company.
GCC filed a voluntary petition for bankruptcy under Chapter 11 of the
United States Bankruptcy Code in October 1991 and, pursuant to a pre-packaged
plan, emerged from bankruptcy in March 1992 under the controlling ownership of
the Hellman & Friedman Entities. Mr. Stapleton and Mr. Bender at the time of the
filing of the voluntary petition were executive officers of GCC, continue to be
executive officers of GCC and now concurrently serve as executive officers of
the Company.
BOARD OF DIRECTORS
Each member of the Board of Directors has been elected pursuant to a
stockholders agreement among certain of the Company's principal shareholders
entered into in connection with the Business Combination (the "Stockholders
Agreement"). Under the terms of the Stockholders Agreement, the current Board of
Directors consists of the Company's Chief Executive Officer (John W. Stanton),
three designees of Hellman & Friedman (John L. Bunce, Jr., Mitchell R. Cohen and
David A. Bayer), one designee of Goldman Sachs (Terence M. O'Toole), one
designee of Providence (Jonathan M. Nelson) and one designee selected by
Providence and Mr. Stanton (which position is currently vacant). The provisions
of the Stockholders Agreement, other than provisions providing for registration
rights, will terminate on the closing of the Offerings. Certain of such
shareholders will be parties to a new Shareholders Agreement relating to the
election of directors. See "Certain Transactions."
The Executive Committee is currently comprised of Messrs. Stanton, Bunce
and O'Toole, and the Compensation Committee is currently comprised of Messrs.
Cohen, Nelson and Bayer. The Audit Committee is currently comprised of Messrs.
Cohen, Nelson and Bayer and is responsible for recommending to the Board of
Directors the engagement of the independent public accountants of the Company
and reviewing with the independent public accountants the scope and results of
the audits, the internal accounting controls of the Company, audit practices and
the professional services furnished by the independent public accountants.
The Washington Business Corporation Act (the "Washington Business Act")
provides that a company may indemnify its directors and officers as to certain
liabilities. The Company's Articles of Incorporation and Bylaws provide for the
indemnification of its directors and officers to the fullest extent permitted by
law, and the Company intends to enter into separate indemnification agreements
with each of its directors and officers to effectuate these provisions, and to
purchase director's and officer's liability insurance. The effect of such
provisions is to indemnify the directors and officers of the Company against all
costs, expenses and liabilities incurred by them in
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<PAGE> 70
connection with any action, suit or proceeding in which they are involved by
reason of their affiliation with the Company, to the fullest extent permitted by
law.
EXECUTIVE COMPENSATION
The following table sets forth the compensation paid in 1995 to the
Company's Chief Executive Officer and the Company's five other most highly
compensated executive officers (the "Named Executive Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
------------
AWARDS
------------
ANNUAL COMPENSATION SECURITIES
----------------------- UNDERLYING ALL OTHER
BONUS OPTIONS/SARS COMPENSATION(1)
NAME AND PRINCIPAL POSITION SALARY ($) ($) (#) ($)
- ------------------------------------ ---------- -------- ------------ ---------------
<S> <C> <C> <C> <C>
John W. Stanton..................... $120,000 $180,000 0 $ 4,500
Chairman & Chief Executive Officer
Robert R. Stapleton................. 139,461 100,000 139,500 4,500
President
Mikal J. Thomsen.................... 134,375 65,000 124,000 4,500
Chief Operating Officer
Theresa E. Gillespie................ 119,167 80,000 100,750 4,500
Chief Financial Officer
Alan R. Bender...................... 124,000 72,000 77,500 4,500
Secretary, Senior Vice President
and General Counsel
Cregg B. Baumbaugh.................. 124,000 72,000 77,500 4,500
Senior Vice President -- Corporate
Development
</TABLE>
- ---------------
(1) Company paid matching contributions to the Company's 401(k) Profit Sharing
Plan and Trust.
The following table sets forth information concerning individual grants of
stock options made during the fiscal year ended December 31, 1995 to the Named
Executive Officers.
OPTION/SAR GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL
REALIZABLE
VALUE AT
INDIVIDUAL GRANTS ASSUMED
------------------------------------------------------------ ANNUAL RATES
NUMBER OF PERCENT OF TOTAL OF STOCK PRICE
SECURITIES OF OPTIONS/SARS APPRECIATION FOR
UNDERLYING GRANTED TO EXERCISE OR OPTION TERM(2)
OPTIONS/SARS EMPLOYEES IN BASE PRICE EXPIRATION ---------------------
NAME GRANTED(#)(1) FISCAL YEAR ($/SHARE) DATE(1) 5% 10%
- ------------------------ ------------- ---------------- ------------ ---------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
John W. Stanton......... 0 0% $ 0 0 $ 0 $ 0
Robert R. Stapleton..... 139,500 10 11.29 7/29/05 992,250 2,504,250
Mikal J. Thomsen........ 124,000 9 11.29 7/29/05 882,000 2,226,000
Theresa E. Gillespie.... 100,750 7 11.29 7/29/05 716,625 1,808,625
Alan R. Bender.......... 77,500 5 11.29 7/29/05 551,250 1,391,250
Cregg B. Baumbaugh...... 77,500 5 11.29 7/29/05 551,250 1,391,250
</TABLE>
- ---------------
(1) These options have terms of ten years from the date of grant, July 29, 1995,
and become exercisable as to 25% of the shares on the first anniversary and
an additional 25% every year thereafter until such options are fully
exercisable, provided that such officer remains continuously employed by the
Company.
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<PAGE> 71
(2) Amounts reported in these columns represent amounts that may be realized
upon exercise of the options immediately prior to expiration of their terms
assuming the specified compounded rates of appreciation on the base price
(5% and 10%) of the Common Stock over the terms of the options. The 5% and
10% numbers are calculated based on rules required by the Securities and
Exchange Commission and do not reflect the Company's estimate of future
stock price growth. Actual gains, if any, on stock option exercises are
dependent on the timing of such exercises and the future performance of the
Common Stock. There can be no assurance that the rates of appreciation
assumed in these columns can be achieved or that the amounts reflected will
be received by the individuals.
OPTION EXERCISES AND HOLDINGS
The following table sets forth information with respect to each of the
Named Executive Officers concerning the exercise of stock options and
unexercised stock options held at December 31, 1995.
AGGREGATED OPTION/SAR EXERCISES IN THE LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION/SAR VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
NUMBER OF OPTIONS/SARs AT IN-THE-MONEY OPTIONS/SARs
SHARES FISCAL YEAR-END (#) AT FISCAL YEAR-END($)
ACQUIRED ON VALUE --------------------------- ---------------------------
NAME EXERCISE(#) REALIZED($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ----------------------- ----------- ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
John W. Stanton........ 0 0 0 0 $ 0 $ 0
Robert R. Stapleton.... 0 0 470,168 211,833 8,938,825 2,491,321
Mikal J. Thomsen....... 0 0 36,168 196,333 463,782 2,317,553
Theresa E. Gillespie... 0 0 28,933 158,618 371,008 1,871,436
Alan R. Bender......... 0 0 182,900 120,900 3,420,277 1,425,293
Cregg B. Baumbaugh..... 0 0 181,868 118,833 3,407,051 1,398,788
</TABLE>
EMPLOYMENT AGREEMENTS
The Company has entered into employment agreements with each of Messrs.
Stanton, Stapleton, Thomsen, Bender and Baumbaugh and Ms. Gillespie, pursuant to
which such persons serve as executive officers of the Company. Each agreement
provides that such person's employment by the Company may be terminated by the
Company at any time, with or without cause (as such term is defined in the
agreements). The agreements provide for initial annual base compensation of
$180,000, $150,000, $140,000, $130,000, $130,000 and $130,000, respectively, and
provide each executive officer an opportunity to earn an annual bonus, as
determined by the Board of Directors of the Company, targeted at 100%, 70%, 60%,
60%, 60% and 60%, respectively, of such person's base compensation. Each such
agreement provides that, in the event of an involuntary termination (as defined
therein) for other than cause (1) such executive officer will be entitled to
receive a severance payment in an amount equal to any accrued but unpaid
existing annual targeted incentive bonus through the date of termination, 12
months of such executive's then base compensation, and an amount equal to 12
months of such executive's existing annual targeted incentive bonus, (2) the
Company will, at its expense, make all specified insurance payment benefits on
behalf of such executive officer and his or her dependents for 12 months
following such involuntary termination and (3) with respect to any stock options
previously granted to each executive officer which remain unvested at the time
of involuntary termination, there shall be immediate vesting of that portion of
each such grant of any unvested stock options equal to the product of the total
number of such unvested options under such grant multiplied by a fraction, the
numerator of which is the sum of the number of days from the date on which the
last vesting of options under such grant occurred to and including the date of
termination plus 365, and the denominator of which is the number of days
remaining from the date on which the last vesting of
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<PAGE> 72
options under such grant occurred to and including the date on which the final
vesting under such grant would have occurred absent the termination. Mr.
Stapleton's agreement provides for an immediate vesting of all options upon his
involuntary termination for other than cause. Among other things, an executive
officer's death or permanent disability will be deemed an involuntary
termination for other than cause. In addition, each agreement provides for full
vesting of all stock options granted upon a change of control (as such term is
defined in the stock option agreements with the executive officer) of the
Company.
Each such employment agreement further provides that the Company has
entered or will enter into an indemnification agreement with such executive
officer pursuant to which the Company will agree to indemnify the executive
officer against certain liabilities arising by reason of the executive officer's
affiliation with the Company. Pursuant to the terms of each employment
agreement, each executive officer agrees that during such executive officer's
employment with the Company and for one year following the termination of such
executive officer's employment with the Company for any reason, such executive
officer will not engage in a business which is substantially the same as or
similar to the business of the Company and which competes within the applicable
commercial mobile radio services markets serviced by the Company. Mr. Stanton's
agreement provides that such prohibition shall not preclude Mr. Stanton's
investment in other companies engaged in the wireless communications business or
his ability to serve as a director of other companies engaged in the wireless
communications business, in each case subject to his fiduciary duties as a
director of the Company. See "Risk Factors -- Dependence Upon Key Personnel."
All key employees of the Company have executed a non-compete agreement
containing provisions substantially similar to those set forth in the employment
agreements described above.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee of the Company's Board was formed in July 1994.
None of the members was at any time during the fiscal year ended December 31,
1995, or at any other time, an officer or employee of the Company. No member of
the Compensation Committee of the Company serves as a member of the board of
directors or compensation committee of any entity that has one or more executive
officers serving as a member of the Company's Board of Directors or Compensation
Committee.
COMPENSATION OF DIRECTORS
Directors of the Company currently receive no compensation for serving on
the Board. Directors are not reimbursed for their out-of-pocket expenses
incurred in connection with attendance at meetings of, and other activities
relating to serving on, the Board of Directors and any committees thereof. The
Board of Directors may consider alternative compensation arrangements for the
directors from time to time.
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<PAGE> 73
PRINCIPAL SHAREHOLDERS
The following table sets forth certain information regarding beneficial
ownership of the Company's Common Stock as of March 31, 1996, and as adjusted to
reflect the sale of the Class A Common Stock offered in the Offerings, by (i)
each person who is known by the Company to own beneficially 5% or more of the
Common Stock; (ii) each director of the Company; (iii) each Named Executive
Officer of the Company; and (iv) all directors and officers as a group. Unless
otherwise indicated, all persons listed have sole voting power and investment
power with respect to such shares, subject to community property laws, where
applicable, and the information contained in the notes to the table. Prior to
the Offerings, there were no shares of Class A Common Stock outstanding and thus
information relating to the number and percentage of shares beneficially owned
prior to the Offerings is based on shares of Class B Common Stock only.
Information relating to percentage beneficially owned following the Offerings is
based on shares of Class A Common Stock and Class B Common Stock.
<TABLE>
<CAPTION>
PERCENTAGE
BENEFICIALLY OWNED
SHARES --------------------------------
BENEFICIALLY PRIOR TO THE FOLLOWING THE
NAME AND ADDRESS OWNED(1) OFFERINGS OFFERINGS(2)
- -------------------------------------------------- ------------ ------------ ---------------
<S> <C> <C> <C>
Hellman & Friedman(3)(6).......................... 25,163,997 42.9% 37.2%
One Maritime Plaza, 12th Floor
San Francisco, CA 94111
The Goldman Sachs Group, L.P. and related
investors(4)(6)................................. 12,099,029 20.6 17.9
85 Broad Street, 19th Floor
New York, New York 10004
John W. Stanton and
Theresa E. Gillespie(5)(6)(7)................... 6,236,423 10.6 9.2
2001 NW Sammamish Road
Issaquah, Washington 98027
Providence Media Partners L.P.(6)................. 3,886,591 6.6 5.7
c/o Providence Ventures, Inc.
900 Fleet Center
50 Kennedy Plaza
Providence, RI 02903
Robert A. Stapleton(7)............................ 480,355 * *
Mikal J. Thomsen(7)(8)............................ 411,141 * *
Alan R. Bender(7)................................. 206,417 * *
Cregg B. Baumbaugh(7)............................. 200,158 * *
David A. Bayer(9)................................. 818,159 1.4 1.2
John L. Bunce, Jr.(10)............................ 25,163,997 42.9 37.2
Mitchell R. Cohen(10)............................. 25,163,997 42.9 37.2
Terence M. O'Toole(11)............................ 12,099,029 20.6 17.9
Jonathan M. Nelson(12)............................ 3,886,591 6.6 5.7
All directors and executive officers as a group
(13 persons)(7)................................. 49,641,575 83.2 72.3
</TABLE>
- ---------------
* Less than 1% of the outstanding shares of Common Stock.
(1) Computed in accordance with Rule 13d-3(d)(1) of the Exchange Act.
(2) Assumes no exercise of the Underwriters' over-allotment options in the
Offerings.
(3) Consists of shares held by Hellman & Friedman Capital Partners II, L.P.
("HFCP"), H&F Orchard Partners, L.P. ("HFOP") and H&F International
Partners, L.P. ("HFIP"), which are in turn beneficially owned by their
respective general partners and Warren Hellman, individually and as a
trustee of The Hellman Family Revocable Trust dated December 17, 1984 (the
70
<PAGE> 74
"Hellman Trust" and with HFCP, HFOP and HFIP, the "Hellman Entities"), and
Tully M. Friedman, individually and as the trustee of The Tully M. Friedman
Revocable Trust UAD January 3, 1980 (the "Friedman Trust" and with Hellman
Entities, the "Hellman & Friedman Entities"). HFCP owns of record
22,727,539 shares of Class B Common Stock, HFOP owns of record 2,033,024
shares of Common Stock and HFIP owns of record 403,434 shares of Class B
Common Stock. HFCP, HFOP and HFIP are California limited partnerships, the
sole general partners of which are entities indirectly controlled by the
Hellman Trust and the Friedman Trust. The principal business of each of
such partnerships is to make strategic investments in a variety of special
situations, including restructurings, recapitalizations and buyouts.
Hellman is a trustee of the Hellman Trust and Friedman is a trustee of the
Friedman Trust. Each of Hellman and Friedman is a citizen of the United
States. Hellman and Friedman, individually and as trustees of the
respective trusts, share voting and investment power with respect to the
shares of Class B Common Stock held by the Hellman & Friedman Entities.
(4) Consists of (i) 11,096,078 shares of Class B Common Stock held of record by
GS Capital Partners, L.P. ("GS Capital"), (ii) 580,813 shares of Class B
Common Stock held of record by Stone Street Fund 1992, L.P. ("Stone
Street"), (iii) 337,163 shares of Class B Common Stock held of record by
Bridge Street Fund 1992, L.P. ("Bridge Street") and (iv) 84,975 shares of
Class B Common stock held of record by The Goldman Sachs Group, L.P. ("GS
Group"). Each of GS Capital, Stone Street and Bridge Street is an
investment limited partnership, the general partner, the managing general
partner or the managing partner of which is an affiliate of GS Group. GS
Group disclaims beneficial ownership of shares held by such investment
partnerships to the extent partnership interests in such partnerships are
held by persons other than GS Group and its affiliates.
(5) Consists of (i) 1,686,069 shares of Class B Common Stock held of record by
PN Cellular, which is 78% owned and controlled by Mr. Stanton and Ms.
Gillespie, (ii) 1,274,520 shares of Class B Common Stock held of record by
Stanton Communications Corporation ("SCC"), which is substantially owned
and controlled by Mr. Stanton and Ms. Gillespie, (iii) 3,087,464 shares of
Class B Common Stock held by Mr. Stanton and Ms. Gillespie, as joint
tenants, and (iv) 159,437 shares of Class B Common Stock held of record by
The Stanton Family Trust. Mr. Stanton and Ms. Gillespie are married and
share voting and investment power with respect to the shares jointly owned
by them, as well as the shares held of record of PN Cellular, SCC and The
Stanton Family Trust.
(6) Parties or affiliates of parties to the Shareholders Agreement, which
provides that the parties thereto will vote their shares of Common Stock in
favor of the election as directors of the Company, the Chief Executive
Officer of the Company, one person designated by Stanton and Providence,
one person designated by Goldman Sachs, two persons designated by the
Hellman & Friedman Entities and one person selected by a majority of such
designated persons, subject to the ownership requirements set forth
therein. See "Certain Transactions."
(7) Includes aggregate exercisable options to purchase Class B Common Stock;
does not include unexercisable options. May include stock jointly or
separately owned with or by spouse.
(8) Mr. Thomsen jointly holds voting and investment power with respect to all
of such shares with Lynn C. Thomsen, his wife, except for shares issued or
issuable upon the exercise of stock options. Includes 172,484 shares of
Class B Common Stock beneficially owned by Mr. Thomsen through his
ownership of approximately 10.2% of PN Cellular. Mr. Thomsen does not have
voting control over such shares.
(9) All of such shares are owned by Bayer Investment Group. The David A. Bayer
Trust, of which Mr. Bayer is the trustee, is the managing general partner
of Bayer Investment Group. As a result, Mr. Bayer could be deemed to own
beneficially 100% of the shares of Class B Common Stock held by Bayer
Investment Group.
(10) Mr. Bunce and Mr. Cohen may each be deemed to be the owner of the
25,163,997 shares of Class B Common Stock owned by the Hellman & Friedman
Entities as they are general
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<PAGE> 75
partners of Hellman & Friedman. Each of Mr. Bunce and Mr. Cohen disclaim
beneficial ownership of shares held by the Hellman & Friedman Entities to
the extent interests in such entities are held by persons other than such
individual.
(11) Mr. O'Toole may be deemed to be the owner of the 12,099,029 shares of Class
B Common Stock owned by affiliates of Goldman Sachs, an investment banking
firm of which he is a general partner. Mr. O'Toole disclaims beneficial
ownership of shares held by affiliates of Goldman Sachs to the extent
interests in such entities are held by persons other than Mr. O'Toole.
(12) Mr. Nelson may be deemed to be the owner of the 3,886,591 shares of Class B
Common Stock owned by Providence, as he is a managing general partner of
Providence Ventures, L.P., the general partner of the general partner of
Providence. Mr. Nelson disclaims beneficial ownership of shares held by
Providence to the extent interests in Providence are held by persons other
than Mr. Nelson.
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<PAGE> 76
CERTAIN TRANSACTIONS
In November 1993, the Hellman & Friedman Entities, Mr. Bayer, Mr. Stanton
and Ms. Gillespie each exercised rights to purchase shares of common stock of
GCC (the "GCC Stock"), which subsequently were exchanged for Class B Common
Stock. See "Principal Shareholders."
In 1993, prior to the Business Combination, GCC and MCLP exchanged certain
cellular systems owned by each of them.
Western Wireless Corporation was formed in July 1994 as part of the
Business Combination involving GCC, MCLP, Mr. Stanton and Ms. Gillespie and PN
Cellular. Immediately prior to the Business Combination, MCLP owned directly and
indirectly 2.5% of the outstanding shares of GCC Stock and a subsidiary of GCC
owned a 9.7% limited partnership interest in MCLP and 10% of the general partner
of MCLP. Pursuant to the Business Combination, Western Wireless Corporation
acquired approximately 95% of the outstanding shares of GCC Stock from certain
GCC stockholders in exchange for Class B Common Stock (the "GCC Exchange"). Of
the 45,042,681 shares of Class B Common Stock issued in the Business
Combination, 51.9% were issued to GCC stockholders, 46.2% were issued to the
partners of MCLP and 1.9% were issued in connection with interest acquired from
Mr. Stanton and Ms. Gillespie and their affiliates. Simultaneously with the GCC
Exchange, Western Wireless Corporation acquired all of the general and limited
partnership interests of MCLP in exchange for Class B Common Stock. As part of
the Business Combination, Western Wireless Corporation also acquired the
remaining ownership interests in a corporation controlled by Mr. Stanton and Ms.
Gillespie in which MCLP had a minority interest and in other partnerships
controlled by MCLP, Mr. Stanton and Ms. Gillespie in exchange for Class B Common
Stock. As a result of the Business Combination and a series of related
transactions, Western Wireless Corporation holds indirectly all of the assets
formerly held by MCLP, and GCC is a wholly-owned subsidiary of Western Wireless
Corporation.
In connection with the Business Combination, certain holders of GCC Stock
and certain holders of limited partnership interests in MCLP entered into the
Stockholders Agreement. The parties to the Stockholders Agreement beneficially
own approximately 92% of the Company's outstanding Common Stock prior to the
Offerings. The provisions of the Stockholders Agreement, other than the
provisions relating to registration rights, will terminate at the closing of the
Offerings. See "Management -- Board of Directors."
Concurrently with the execution of the Stockholders Agreement, the Hellman
& Friedman Entities, Mr. Stanton, Ms. Gillespie, PN Cellular, The Stanton Family
Trust and SCC (collectively, the "Stanton Entities"), GS Capital, Stone Street,
Bridge Street and GS Group (collectively, the "Goldman Sachs Entities") and
certain other shareholders entered into a Voting Agreement, which was to be
effective only upon the consummation of an initial public offering. The Voting
Agreement, which was superseded by the Shareholders Agreement, provided
generally that each of the Hellman & Friedman Entities, the Stanton Entities and
the Goldman Sachs Entities would vote their shares of Common Stock for one
member of the Board of Directors designated by each of the others so long as
each of the others beneficially owns at least 7 1/2% of the outstanding shares
of Common Stock of the Company. In connection with the Offerings, the Hellman &
Friedman Entities, the Stanton Entities, the Goldman Sachs Entities and
Providence will enter into the Shareholders Agreement, which will be effective
only upon consummation of the U.S. Offering, will supersede the Voting Agreement
and, with respect to election of directors of the Company, will provide that
each of the Hellman & Friedman Entities, the Stanton Entities, the Goldman Sachs
Entities and Providence shall vote their shares of Common Stock to elect a Board
of Directors which will include (but not necessarily be limited to) the
following six members: (i) the Chief Executive Officer of the Company, (ii) so
long as the Hellman & Friedman Entities beneficially own at least (A) 15% of the
total voting power (as defined in the Shareholders Agreement) of the Company,
two persons designated by the Hellman & Friedman Entities or (B) 7 1/2% of the
total voting power of the Company, one person designated by the Hellman &
Friedman Entities, (iii) so long as the Goldman
73
<PAGE> 77
Sachs Entities beneficially own at least 7 1/2% of the total voting power of the
Company, one person designated by Goldman Sachs, (iv) so long as the Stanton
Entities and Providence collectively beneficially own at least 7 1/2% of the
total voting power of the Company, one person designated by majority vote of the
Stanton Entities and Providence (such designee being in addition to Mr. Stanton
if he is then serving on the Board of Directors by reason of being the Chief
Executive Officer of the Company); the Stanton Entities will agree that so long
as Mr. Stanton is serving as Chief Executive Officer and Providence owns at
least 75% of the shares of Common Stock it beneficially owns at the date of
execution of the Shareholders Agreement, the Stanton Entities shall vote their
shares of Common Stock for one member of the Board of Directors designated by
Providence; and (v) one member of the Board of Directors of the Company selected
by a majority of the persons selected as described above. The Shareholders
Agreement will further provide that so long as the Hellman & Friedman Entities
hold shares of Common Stock having voting power (as defined in the Shareholders
Agreement) in excess of 49.9% of the total voting power, then for so long as the
Hellman & Friedman Entities shall hold shares of Common Stock having voting
power in excess of the aforesaid percentage, it shall abstain from voting that
number of shares of Common Stock which gives it more votes than the aforesaid
percentage. Such agreement will have a term of 10 years. The Goldman Sachs
Entities are also limited in their voting power pursuant to provisions of the
Company's Articles of Incorporation. See "Description of Capital
Stock -- Certain Articles of Incorporation, Bylaws and Statutory Provisions
Affecting Shareholders - Regulated Shareholders."
In the second quarter of 1995, in order to finance the acquisition of
broadband MTA PCS licenses through auctions conducted by the FCC, a number of
the Company's current shareholders and their affiliates purchased shares of
non-voting, convertible Series A Preferred Stock (the "PCS Preferred Stock") of
Western PCS Corporation, a wholly-owned subsidiary of the Company ("Western
PCS"), all the outstanding common stock of which was held by the Company, for a
total purchase price of $149,499,980. The PCS Preferred Stock was exchangeable
into shares of Class B Common Stock. The purchasers of the PCS Preferred Stock
were the Hellman & Friedman Entities, Goldman Sachs Entities, Mr. Stanton and
Ms. Gillespie, Providence, Bayer Investment Group and Toronto Dominion
Investments, Inc. To secure their purchase commitments prior to the purchase,
the subscribers agreed to pledge shares of the Company's stock or provide loans
to the Company. Loans aggregating approximately $13,850,000 were made to the
Company by subscribers. At the time of the purchase, the pledged shares were
released and the loans (including accrued interest in the amount of $226,000)
converted to equity in partial satisfaction of the purchase price. On June 26,
1995, the Company caused the exchange of the PCS Preferred Stock into Class B
Common Stock, leaving Western PCS as a wholly-owned subsidiary of the Company
and resulting in the issuance of 13,241,443 shares of Class B Common Stock to
the purchasers in exchange for the PCS Preferred Stock.
In July 1995, in connection with a private offering by the Company to all
GCC stockholders who were accredited investors to exchange their GCC Stock for
Class B Common Stock, Mr. Stapleton, Mr. Bender and Mr. Baumbaugh exchanged 30,
73 and 56 shares of GCC Stock for 9,300, 22,630 and 17,360 shares of Class B
Common Stock, respectively.
In November 1995, a wholly-owned subsidiary of the Company and Cook Inlet
PV/SS PCS Partners, L.P. (the "General Partner") formed a limited partnership,
Cook Inlet PCS, to participate in PCS C Block auction. Providence is a limited
partner of the General Partner of Cook Inlet PCS. The General Partner is not
otherwise affiliated with the Company. In connection with the formation of Cook
Inlet PCS, the Company granted to each partner of the General Partner the right,
during a specified period, to exchange its partnership interest in the General
Partner for shares of Class B Common Stock, the number of shares to be based on
the partners' capital contributions to the General Partner. Providence has the
right to exchange its partnership interest in the General Partner for up to
122,140 shares of Class B Common Stock.
In December 1995, GS Capital Partners Media Holding I, L.P., an affiliate
of Goldman Sachs, terminated and distributed the 3,842,531 shares of Class B
Common Stock registered in its name to
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<PAGE> 78
its partners, GS Capital and GS Capital Partners Media Holding I, Inc., both of
which are affiliates of Goldman Sachs. Following such distribution, GS Capital
Partners Media Holding I, Inc. merged with and into the Company and the shares
of Class B Common Stock owned by GS Capital Partners Media Holding I, Inc. were
canceled and a like number of shares of Class B Common Stock were issued to GS
Capital. GS Capital reimbursed the Company for all of the out-of-pocket expenses
incurred by it in connection with this transaction.
In February 1996, the Company acquired, through mergers intended to be
tax-free reorganizations, Palouse Paging, Inc. ("Palouse") and Sawtooth Paging,
Inc. ("Sawtooth"), paging system operators that provide services in some markets
in which the Company operates its cellular systems. Prior to the acquisitions,
Mr. Stanton and Ms. Gillespie had a significant ownership interest in each of
Palouse and Sawtooth. The acquisitions, each of which was approved by the
Company's Board of Directors in September 1995, contemplated a per share value
of the Common Stock of $11.29 for purposes of the exchange. The value of each of
Palouse and Sawtooth was determined by the disinterested directors of the
Company's Board of Directors. Mr. Stanton and Ms. Gillespie together had
independent legal representation in connection with the acquisitions and Mr.
Stanton did not participate in either the Board of Directors' decision as to
whether to complete the transaction or its determination of the value to be
assigned to the interests acquired. Prior to the acquisition of Palouse, Mr.
Stanton and Ms. Gillespie jointly owned approximately 99% of the issued and
outstanding shares of common stock of Palouse. In consideration for the
acquisition, the shares of stock of Palouse were exchanged for 515,561 shares of
Class B Common Stock. In connection with the acquisition, Palouse repaid Mr.
Stanton and Ms. Gillespie loans in the amount of $355,000. Prior to the
acquisition of Sawtooth, Mr. Stanton and Ms. Gillespie, the Company and another
individual, who now is an employee of the Company, owned approximately 47%, 47%
and 6%, respectively, of the issued and outstanding shares of common stock of
Sawtooth. In consideration for the acquisition of Sawtooth, the issued and
outstanding shares of common stock of Sawtooth owned by Mr. Stanton and Ms.
Gillespie and the other individual shareholder were exchanged for 79,748 shares
of Class B Common Stock. In connection with the acquisition, Sawtooth repaid Mr.
Stanton and Ms. Gillespie loans in the amount of $288,000.
Pursuant to an agreement reached in September 1995, Donald Guthrie, the
Company's Vice Chairman, purchased 88,567 shares of Class B Common Stock in
February 1996 for $999,950, which represents a per share price of $11.29 and he
was granted options to purchase 85,250 shares of Class B Common Stock at an
exercise price of $1.13 per share.
The Company and Western Wireless International Corporation
("International") have entered into an agreement (the "Horwitz Agreement") with
Bradley J. Horwitz, a Vice President of the Company and President of
International, pursuant to which Horwitz acquired 10% of the outstanding capital
stock of International for $100,000. The Company owns the balance of the
outstanding capital stock of International. Under the terms of the Horwitz
Agreement, under certain circumstances (including, among others, a change of
control of the Company and a sale of substantially all of the assets of
International) or after December 31, 1996, the Company shall have the right,
and/or Mr. Horwitz shall have the right to cause the Company, to exchange shares
of Class A Common Stock for all the shares of International capital stock owned
by Mr. Horwitz. The number of shares of Class A Common Stock to be delivered to
Mr. Horwitz is calculated in accordance with formulas (which formulas differ
depending upon the circumstances causing the exchange and which number depends
upon, among other things, the fair market value of the shares of International
stock at the time of the exchange) and would equal 8,860 shares of Class A
Common Stock based on the value of International stock on the date hereof. In
addition, if the Company proposes to sell its shares of International capital
stock, under certain circumstances as described in the Horwitz Agreement, the
Company can require Mr. Horwitz to sell, or must obtain for Mr. Horwitz the
right to sell, his shares of International capital stock at the same per share
price and on the same terms as the proposed sale by the Company.
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<PAGE> 79
An affiliate of Goldman Sachs is a member of the syndicate of lenders
pursuant to the Credit Facility and has committed to lend to the Company up to
the aggregate principal amount of $36.5 million.
Under Schedule E to the By-Laws of the National Association of Securities
Dealers, Inc. (the "NASD"), the Company may be deemed to be an affiliate of
Goldman Sachs. The Offerings and the Debt Offering are being conducted in
accordance with Schedule E, which provides that, among other things, when an
NASD member participates in the underwriting of an affiliate's debt or equity
securities, the initial public offering price can be no higher, or the yield to
maturity can be no lower, as applicable, than that recommended by a "qualified
independent underwriter" meeting certain standards. In accordance with this
requirement, Donaldson, Lufkin & Jenrette Securities Corporation has served in
such role and will recommend a price and a minimum yield to maturity in
compliance with the requirements of Schedule E. Donaldson, Lufkin & Jenrette
Securities Corporation will receive compensation from the Company in the
aggregate amount of $10,000 for serving in such roles. In connection with the
Debt Offering, Donaldson, Lufkin & Jenrette Securities Corporation in its role
as qualified independent underwriter has performed due diligence investigations
and reviewed and participated in the preparation of this Prospectus and the
Registration Statement of which this Prospectus is a part. See "Underwriting."
The Company believes that the foregoing transactions were on terms as fair
to the Company as those which would have been available in arm's-length
negotiations. The Senior Secured Facilities, the Washington Business Act (as
hereinafter defined) and the Indenture contain provisions which limit the terms
on which the Company may enter into transactions with its affiliates.
DESCRIPTION OF SENIOR SUBORDINATED NOTES
The Senior Subordinated Notes will be issued under an Indenture, to be
dated as of , 1996 (the "Indenture"), by and between the Company and
Harris Trust Company of California, as Trustee (the "Trustee"). The following
summary of the material terms and provisions of the Senior Subordinated Notes
does not purport to be complete and is subject to and qualified in its entirety
by reference to the Indenture, a copy of which is filed as an exhibit to the
Registration Statement of which this Prospectus is a part. Definitions relating
to certain capitalized terms are set forth under "-- Certain Definitions" and
throughout this description. Capitalized terms that are used but not otherwise
defined herein have the meanings assigned to them in the Indenture and such
definitions are incorporated herein by reference. As used in this section, the
"Company" refers to Western Wireless Corporation, unless the context otherwise
requires.
GENERAL
The Senior Subordinated Notes will be unsecured obligations of the Company
and will be limited in aggregate principal amount to $200,000,000. The Senior
Subordinated Notes will be senior subordinated obligations of the Company,
subordinated in right of payment to Senior Indebtedness of the Company,
including amounts outstanding under the Credit Facility, and senior in right of
payment to any current or future subordinated indebtedness of the Company.
MATURITY, INTEREST AND PRINCIPAL
The Senior Subordinated Notes will mature on , 2006. Interest
on the Senior Subordinated Notes will accrue at a rate of % per annum and
will be payable semiannually on each and , commencing on
, 1996, to the Holders of record on the immediately preceding
and . Interest will be computed on the basis of a 360-day
year of twelve 30-day months. The Senior Subordinated Notes will be payable both
as to principal and interest at the office or agency of the Company maintained
for such purpose within the City and State of New York. Until otherwise
designated by the Company, the Company's office or agency in New York will be
the office of the Trustee maintained for such purpose.
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<PAGE> 80
All moneys paid by the Company to a paying agent for the payment of
principal of (and premium, if any) and any interest on any Senior Subordinated
Notes which remain unclaimed for two years after such principal (or premium, if
any) or interest has become due and payable may be repaid to the Company and
thereafter the Holder of such Senior Subordinated Notes may look only to the
Company for payment thereof.
FORM, EXCHANGE AND TRANSFER
The Senior Subordinated Notes will be issued only in fully registered form,
without coupons, in denominations of $1,000 and any integral multiples thereof.
At the option of the Holder, subject to the terms of the Indenture and the
limitations applicable to Global Securities, Senior Subordinated Notes will be
exchangeable for other Senior Subordinated Notes of any authorized denomination
and of a like tenor and aggregate principal amount. See
"-- Global Securities."
Subject to the terms of the Indenture and the limitations applicable to
Global Securities, Senior Subordinated Notes may be presented for exchange as
provided above or for registration of transfer (duly endorsed or with the form
of transfer endorsed thereon duly executed) at the office of the Security
Registrar or at the office of any transfer agent designated by the Company for
such purpose. No service charge will be made for any registration of transfer or
exchange of Senior Subordinated Notes, but the Company may require payment of a
sum sufficient to cover any tax or other governmental charge imposed in
connection therewith. Such transfer or exchange will be effected upon the
Security Registrar or such transfer agent, as the case may be, being satisfied
with the documents of title and identity of the person making the request. The
Company has appointed the Trustee as Security Registrar. The Company may at any
time designate additional transfer agents or rescind the designation of any
transfer agent or approve a change in the office through which any transfer
agent acts, except that the Company will be required to maintain a transfer
agent in each place of payment for the Senior Subordinated Notes.
If the Senior Subordinated Notes are to be redeemed in part, the Company
will not be required to (i) issue, register the transfer of or exchange any
Senior Subordinated Note during a period beginning at the opening of business 15
days before the day of mailing of notice of redemption of any such Senior
Subordinated Note that may be selected for redemption and ending at the close of
business on the day of such mailing or (ii) register the transfer of or exchange
any Senior Subordinated Note so selected for redemption, in whole or in part,
except the unredeemed portion of any such Senior Subordinated Note being
redeemed in part.
SUBORDINATION
The payment of the principal of and premium, if any, and interest on the
Senior Subordinated Notes will, to the extent set forth in the Indenture, be
subordinated in right of payment to the prior payment in full of all Senior
Indebtedness. Upon any payment or distribution of assets to creditors upon any
liquidation, dissolution, winding up, reorganization, assignment for the benefit
or creditors, marshalling of assets or any bankruptcy, insolvency or similar
proceedings of the Company, the holders of all Senior Indebtedness will be
entitled to receive payment in full of all amounts due or to become due thereon
before the Holders of the Senior Subordinated Notes will be entitled to receive
any Senior Subordinated Notes Payment.
In the event that any Senior Payment Default shall have occurred and be
continuing, then no Senior Subordinated Notes Payment shall be made unless and
until such Senior Payment Default shall have been cured or waived.
In the event that any Senior Nonmonetary Default shall have occurred and be
continuing, then, upon the receipt by the Company and the Trustee of written
notice of such Senior Nonmonetary Default from a Person designated as an
administrative agent for the Designated Senior Indebted-
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<PAGE> 81
ness or, if there is no outstanding Designated Senior Indebtedness, any holder
of Senior Indebtedness, no Senior Subordinated Notes Payment shall be made
during the period (the "Payment Blockage Period") commencing on the date of such
receipt of such written notice and ending on the earlier of (i) the date on
which such Senior Nonmonetary Default shall have been cured or waived or shall
have ceased to exist and any acceleration of Senior Indebtedness shall have been
rescinded or annulled or the Senior Indebtedness to which such Senior
Nonmonetary Default relates shall have been discharged or (ii) the 179th day
after the date of such receipt of such written notice. No more than one Payment
Blockage Period may be commenced with respect to the Senior Subordinated Notes
during any 360-day period and there shall be a period of at least 181
consecutive days in each 360-day period in which no Payment Blockage Period is
in effect. For all purposes of this paragraph, no Senior Nonmonetary Default
that was known to the holders of Senior Indebtedness to exist or be continuing
on the date of commencement of any Payment Blockage Period shall be, or be made,
the basis for the commencement of a subsequent Payment Blockage Period by an
administrative agent for the Designated Senior Indebtedness unless such Senior
Nonmonetary Default shall have been cured for a period of not less than 90
consecutive days.
By reason of such subordination, in the event of insolvency, creditors of
the Company who are not holders of Senior Indebtedness or of the Senior
Subordinated Notes may recover less, ratably, than holders of Senior
Indebtedness and may recover more, ratably, than the Holders of the Senior
Subordinated Notes.
At March 31, 1996, Senior Indebtedness aggregated approximately $435.8
million. The Company expects from time to time to Incur additional Indebtedness
constituting Senior Indebtedness. See "Capitalization." The Indenture will not
prohibit or limit the Incurrence of additional Senior Indebtedness. In addition,
all existing and future indebtedness and other liabilities of the Company's
Subsidiaries will be effectively senior in right of payment to the Senior
Subordinated Notes. At March 31, 1996, the total outstanding Indebtedness of the
Company's Subsidiaries not eliminated in the Company's consolidated financial
statements was approximately $36.5 million.
OPTIONAL REDEMPTION
Prior to , 2001, the Senior Subordinated Notes may be redeemed
at any time at the option of the Company, in whole or from time to time in part,
at a redemption price equal to the sum of (i) the principal amount of the Senior
Subordinated Notes to be redeemed together with accrued interest thereon to but
excluding the date fixed for redemption and (ii) the Make-Whole Amount, if any,
with respect to the Senior Subordinated Notes or portion thereof being redeemed.
After , 2001, the Senior Subordinated Notes may be redeemed at
any time at the option of the Company, in whole or from time to time in part, at
the following redemption prices (expressed as percentages of principal amount),
in each case together with accrued interest to but excluding the date fixed for
redemption, if redeemed during the 12-month period beginning of each of the
years indicated below:
<TABLE>
<CAPTION>
REDEMPTION
YEAR PRICE
------------------------------------------------- ----------
<S> <C>
2001............................................. %
2002............................................. %
2003............................................. %
2004 and thereafter.............................. 100.00%.
</TABLE>
Notwithstanding the previous two paragraphs, on or before ,
1998, the Company may at its option, apply Qualified Capital Stock Proceeds and
Affiliate and Related Person Proceeds to redeem up to $66 million in aggregate
principal amount of Senior Subordinated Notes at % (expressed as a
percentage of principal amount) together with accrued interest to but excluding
the date fixed for redemption.
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Notice of any optional redemption of any Senior Subordinated Notes (or
portion thereof) will be given to Holders at their addresses appearing in the
Security Register, not less than 30 nor more than 60 days prior to the date
fixed for redemption. The notice of redemption shall state the redemption date,
the redemption price, if less than all the outstanding Senior Subordinated Notes
are to be redeemed, principal amounts of the particular Senior Subordinated
Notes to be redeemed, that on the redemption date the redemption price will
become due and payable upon each Senior Subordinated Note to be redeemed and the
place or places where such Senior Subordinated Notes are to be surrendered for
payment of the redemption price.
No sinking fund is provided for the Senior Subordinated Notes.
CHANGE OF CONTROL
Upon the occurrence of a Change of Control, each Holder of a Senior
Subordinated Note shall have the right to have such Senior Subordinated Note
repurchased by the Company on the terms and conditions set forth in the
Indenture. The Company shall, within 30 days following the date of the
consummation of a transaction resulting in a Change of Control, mail an Offer to
Purchase all outstanding Senior Subordinated Notes at a purchase price equal to
101% of their aggregate principal amount plus accrued interest to but excluding
the Purchase Date. The Credit Facility precludes the Company from making such an
Offer to Purchase, and the Company will be required to obtain written consents
or waivers from the lenders under the Credit Facility or repay Indebtedness
under the Credit Facility in order to be able to make the Offer to Purchase.
"Change of Control" means (i) directly or indirectly a sale, transfer or
other conveyance of all or substantially all the assets of the Company, on a
consolidated basis, to any "person" or "group" (as such terms are used for
purposes of Sections 13(d) and 14(d) of the Exchange Act, whether or not
applicable), excluding transfers or conveyances to or among the Company's Wholly
Owned Restricted Subsidiaries, as an entirety or substantially as an entirety in
one transaction or series of related transactions, in each case with the effect
that any Person or group of Persons that, as of the date of the Indenture, are
not Initial Investors or Affiliates of the Initial Investors own more than 50%
of the total Voting Power entitled to vote in the election of directors,
managers or trustees of the transferee entity immediately after such
transaction, (ii) any "person" or "group" (as such terms are used for purposes
of Sections 13(d) and 14(d) of the Exchange Act, whether or not applicable),
other than the Initial Investors (or any Person or group of Persons that, at the
date of the Indenture, are Affiliates of the Initial Investors), is or becomes
the "beneficial owner" (as that term is used in Rules 13d-3 and 13d-5 under the
Exchange Act, whether or not applicable, except that a Person shall be deemed to
have "beneficial ownership" of all shares that any such Person has the right to
acquire, whether such right is exercisable immediately or only after the passage
of time), directly or indirectly, of more than 50% of the total Voting Power of
the Company or (iii) during any period of 24 consecutive months, individuals who
at the beginning of such period constituted the Board of Directors of the
Company (together with any new directors whose election by such Board or whose
nomination for election by the stockholders of the Company was approved by a
vote of a majority of the directors then still in office who were either
directors at the beginning of such period or whose election or nomination for
election was previously so approved), cease for any reason to constitute a
majority of the Board of Directors of the Company then in office.
The Company will comply with any tender offer rules under the Exchange Act
which may then be applicable, including Rule 14e-l thereunder, in connection
with any Offer to Purchase.
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COVENANTS
LIMITATION ON CONSOLIDATED INDEBTEDNESS
The Indenture will prohibit the Company and any of its Restricted
Subsidiaries from Incurring any Indebtedness unless the Company's Indebtedness
to EBITDA Ratio at the end of the fiscal quarter immediately preceding the
Incurrence of such Indebtedness, after giving pro forma effect thereto, is less
than:
<TABLE>
<CAPTION>
FOR THE PERIOD RATIO
---------------------------------------------- -------------
<S> <C>
Prior to December 31, 1999.................... 9 to 1; and
Thereafter.................................... 7 to 1
</TABLE>
Notwithstanding the foregoing, the Company and its Restricted Subsidiaries
may Incur the following Indebtedness without regard to the foregoing
limitations:
(i) Indebtedness evidenced by the Senior Subordinated Notes or
otherwise arising under the Indenture;
(ii) Indebtedness of the Company or any Restricted Subsidiary, as the
case may be, that is outstanding or committed at the date of the Indenture
under the Credit Facility (including any letters of credit issued
thereunder) and the NORTEL Facility and any renewal, extension, refinancing
or refunding thereof in an amount which, together with any amount remaining
outstanding or committed under the Credit Facility and the NORTEL Facility,
does not exceed $950 million outstanding; provided that this clause (ii)
shall not prohibit the Company from incurring additional Indebtedness under
the Credit Facility or the NORTEL Facility otherwise permitted pursuant to
this covenant;
(iii) Indebtedness of the Company or any Restricted Subsidiary that is
outstanding or committed prior to , 1999 for the acquisition,
construction or improvement by the Company or any Restricted Subsidiary of
assets in the Wireless Communications Business; provided that the amount of
such Indebtedness at any time outstanding does not exceed 100% of the Fair
Market Value of such assets;
(iv) Indebtedness of the Company or any Wholly Owned Restricted
Subsidiary of the Company owing to the Company or any Wholly Owned
Restricted Subsidiary of the Company;
(v) Indebtedness of the Company or any Restricted Subsidiary to renew,
extend, refinance or refund any Indebtedness of the Company or any
Restricted Subsidiary outstanding or committed on the date of renewal,
extension, refinancing or refunding other than Indebtedness Incurred
pursuant to clause (ii) or (iv); provided, however, that such Indebtedness
does not exceed the principal amount of outstanding or committed
Indebtedness so renewed, extended, refinanced or refunded plus financing
fees and other expenses associated therewith; provided, further, that (a)
such renewing, extending, refinancing or refunding Indebtedness shall have
no mandatory repayments or redemptions prior to the Indebtedness being
renewed, extended, refinanced or refunded and (b) in the case of any
refinancing or refunding of Indebtedness pari passu to the Senior
Subordinated Notes, the refinancing or refunding Indebtedness is made pari
passu or subordinated to the Senior Subordinated Notes and, in the case of
any refinancing or refunding of Indebtedness subordinated to the Senior
Subordinated Notes, the refinancing or refunding Indebtedness is made
subordinate to the Senior Subordinated Notes to substantially the same
extent as the Indebtedness refinanced or refunded;
(vi) Indebtedness Incurred by the Company or any Restricted Subsidiary
under Interest Hedge Agreements to hedge permitted Indebtedness; and
(vii) Indebtedness of the Company or any Restricted Subsidiary that is
outstanding or committed prior to , 1999, other than
Indebtedness permitted pursuant to clauses (i) through (vi) above, that
does not exceed $50 million at any time outstanding or committed.
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LIMITATION ON PREFERRED STOCK OF RESTRICTED SUBSIDIARIES
The Indenture will prohibit the Company from allowing any Restricted
Subsidiary of the Company to create or issue any Preferred Stock except:
(i) Preferred Stock outstanding on the date of the Indenture;
(ii) Preferred Stock issued to and held by the Company or any Wholly
Owned Restricted Subsidiary of the Company;
(iii) Preferred Stock issued by any Person prior to that Person's
having become a direct or indirect Restricted Subsidiary of the Company;
(iv) Preferred Stock issued by a Restricted Subsidiary the proceeds of
which are used to refinance outstanding Preferred Stock of a Restricted
Subsidiary, provided that (a) the liquidation value of the refinancing
Preferred Stock does not exceed the liquidation value so refinanced plus
financing fees and other expenses associated with such refinancing and (b)
such refinancing Preferred Stock has no mandatory redemptions prior to the
Preferred Stock being refinanced; and
(v) Preferred Stock issued by a Restricted Subsidiary with a
cumulative liquidation preference in an amount which could have been
Incurred at the time of such issuance as Indebtedness under the provision
of the Indenture described under "-- Limitation on Consolidated
Indebtedness."
LIMITATION ON CERTAIN ASSET DISPOSITIONS
The Indenture will prohibit the Company or any Restricted Subsidiary from
making any Asset Disposition in one or more related transactions that result in
aggregate net proceeds in excess of $10 million unless (i) the consideration
received at the time of such Asset Disposition is at least equal to the Fair
Market Value of the assets as determined by the Board of Directors of the
Company (which determination will be evidenced by a Board Resolution), (ii) (A)
at least 85% of the consideration received consists of cash or readily
marketable cash equivalents or the assumption of Indebtedness of the Company or
any Restricted Subsidiary or (B) so long as no Event of Default or event which
with notice or lapse of time would become an Event of Default has occurred and
is continuing, the consideration paid to the Company or such Restricted
Subsidiary is substantially comparable in type to the assets being sold as
determined by the Board of Directors of the Company (which determination will be
evidenced by a Board Resolution) and (iii) all the Net Available Proceeds shall
be applied (a) first, to the payment of Senior Indebtedness then outstanding;
(b) second, to make an Offer to Purchase any outstanding Senior Subordinated
Notes at par value plus accrued interest; and (c) third, to the repayment of
other Indebtedness of the Company or a Restricted Subsidiary. The Company will
not be able to make an Offer pursuant to clause (ii)(b) without obtaining
written consents from or repaying the lenders under the Credit Facility.
Notwithstanding clause (iii) of the preceding paragraph, the Indenture will
not require the Company to repay Senior Indebtedness then outstanding, to make
an Offer to Purchase any outstanding Senior Subordinated Notes at par value or
to repay any other Indebtedness with the proceeds of any Asset Disposition to
the extent that the Net Available Proceeds from any Asset Disposition are
invested within 365 days of such Asset Disposition in assets or an entity in the
Wireless Communications Business or the Company or a Restricted Subsidiary shall
have entered into a binding agreement to invest in such assets or entity and
such investment shall have been consummated within eighteen months of such Asset
Disposition.
For purposes of the foregoing, "Net Available Proceeds" means the aggregate
amount of cash (including any other consideration that is converted into cash)
received by the Company or a Restricted Subsidiary in respect of such an Asset
Disposition, less the sum of (i) all fees,
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commissions and other expenses Incurred in connection with such Asset
Disposition, including the amount of income taxes required to be paid by the
Company or a Restricted Subsidiary in connection therewith and (ii) the
aggregate amount of cash so received which is used to retire any existing
Indebtedness of the Company or a Restricted Subsidiary which is required to be
repaid in connection therewith.
LIMITATION ON RESTRICTED PAYMENTS
The Indenture will prohibit the Company or any Restricted Subsidiary from
making any Restricted Payment unless after giving effect thereto (a) no Event of
Default or event which with notice or lapse of time or both would become an
Event of Default has occurred and is continuing; (b) the Company would be
permitted to Incur an additional $1.00 of Indebtedness pursuant to the provision
of the Indenture described in the first paragraph under "--Limitation on
Consolidated Indebtedness"; and (c) the total of all Restricted Payments made on
or after the date of the Indenture does not exceed the sum of (i) Cumulative
EBITDA less 1.6 times Cumulative Interest Expense and (ii) 100% of the aggregate
Affiliate and Related Person Proceeds and Qualified Capital Stock Proceeds of
the Company after the date of the Indenture.
The foregoing provision shall not be violated by reason of (i) the payment
of any dividend within 60 days after declaration thereof if at the declaration
date such payment would have complied with the foregoing provision, (ii) any
refinancing of any Indebtedness otherwise permitted under the provision of the
Indenture described under clause (ii) or (v) of "--Limitation on Consolidated
Indebtedness," (iii) Permitted Joint Venture Investments, (iv) the payment of
scheduled dividends on, or the redemption of, Preferred Stock permitted to be
created or issued pursuant to the provision of the Indenture described under
"-- Limitation on Preferred Stock of Restricted Subsidiaries" or (v) Restricted
Payments, in addition to Restricted Payments permitted pursuant to clauses (i)
through (iv) above, not in excess of $25 million in the aggregate after the date
of the Indenture.
LIMITATIONS CONCERNING DISTRIBUTIONS AND TRANSFERS BY RESTRICTED
SUBSIDIARIES
The Indenture will provide that the Company shall not, and shall not permit
any Restricted Subsidiary to, create or otherwise cause or suffer to exist or
become effective any consensual restriction or prohibition on the ability of any
Restricted Subsidiary to (i) pay dividends on, or make other distributions in
respect of, its capital stock, or any other ownership interest or participation
in, or measured by, its profits, to the Company or any Restricted Subsidiary or
pay any Indebtedness or other obligation owed to the Company or any Restricted
Subsidiary, (ii) make any loans or advances to the Company or any Restricted
Subsidiary or (iii) transfer any of its property or assets to the Company or any
Restricted Subsidiary. Notwithstanding the foregoing, the Company may, and may
permit any Restricted Subsidiary to, suffer to exist any such restriction or
prohibition (i) pursuant to any agreement in effect on the date of the
Indenture, (ii) pursuant to an agreement entered into after the date of the
Indenture relating to any Indebtedness the Incurrence of which is permitted
under the Indenture, provided, however, that the provisions contained in such
agreement relating to such encumbrance or restriction are no more restrictive in
any material respect than those contained in the NORTEL Facility, (iii) pursuant
to an agreement relating to any Indebtedness of such Restricted Subsidiary which
was outstanding or committed prior to the date on which such Restricted
Subsidiary was acquired by the Company other than in anticipation of becoming a
Restricted Subsidiary or (iv) pursuant to an agreement effecting a renewal,
extension, refinancing or refunding of any agreement described in clauses (i)
through (iii) above, provided, however, that the provisions contained in such
renewal, extension, refinancing or refunding agreement relating to such
encumbrance or restriction are no more restrictive in any material respect than
the provisions contained in the agreement the subject thereof.
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LIMITATION ON ISSUANCES AND SALES OF CAPITAL STOCK OF WHOLLY OWNED
RESTRICTED SUBSIDIARIES
Subject to the requirements of the provision of the Indenture described
under "-- Consolidation, Merger, Conveyance, Transfer or Lease," the Indenture
will provide that the Company will not, and will not permit any Wholly Owned
Restricted Subsidiary to, transfer, convey, sell, lease or otherwise dispose of
any Capital Stock of such Wholly Owned Restricted Subsidiary or any other Wholly
Owned Restricted Subsidiary to any Person other than the Company or a Wholly
Owned Restricted Subsidiary; and shall not permit any Wholly Owned Restricted
Subsidiary to issue shares of its Capital Stock or securities convertible into,
or warrants, rights or options, to subscribe for or purchase shares of, its
Capital Stock to any Person other than the Company or a Wholly Owned Restricted
Subsidiary. Notwithstanding the foregoing, the Company may, and may allow any
Wholly Owned Restricted Subsidiary to, transfer, convey, sell, lease or dispose
of the Capital Stock of such Wholly Owned Restricted Subsidiary or of any other
Wholly Owned Restricted Subsidiary or allow any Wholly Owned Restricted
Subsidiary to issue Capital Stock or securities convertible into, or warrants,
rights or options, to subscribe for or purchase shares of, its Capital Stock to
any Person provided that all the Capital Stock of such Wholly Owned Restricted
Subsidiary is sold or otherwise disposed of and provided that such sale or
disposition is effected in accordance with the terms of the provision of the
Indenture described under "--Limitation on Certain Asset Dispositions."
LIMITATIONS ON TRANSACTIONS WITH AFFILIATES AND RELATED PERSONS
The Indenture will provide that the Company will not, and will not permit
any Restricted Subsidiary of the Company to, enter into any transaction
involving aggregate consideration in excess of $1 million, including, without
limitation, any purchase, sale, lease or exchange of property or the rendering
of any service, with or to any Affiliate or Related Person, unless a majority of
the disinterested members of the Board of Directors of the Company determines
(which determination will be evidenced by a Board Resolution) that (i) such
transaction is in the best interests of the Company or such Restricted
Subsidiary and (ii) such transaction is on terms that are no less favorable to
the Company or a Restricted Subsidiary than those which might be obtained in
arm's length transactions with a third party at the time.
LIMITATION ON LIENS
The Indenture will provide that the Company may not, and may not permit any
Restricted Subsidiary of the Company to, Incur or suffer to exist any Lien on or
with respect to any property or assets now owned or hereafter acquired to secure
any Indebtedness that is pari passu or subordinated to the Senior Subordinated
Notes without making, or causing such Restricted Subsidiary to make, effective
provision for securing the Senior Subordinated Notes (i) equally and ratably
with such Indebtedness as to such property for so long as such Indebtedness will
be so secured or (ii) in the event such Indebtedness is Indebtedness of the
Company which is subordinate in right of payment to the Senior Subordinated
Notes, prior to such Indebtedness as to such property for so long as such
Indebtedness will be so secured.
The foregoing restrictions shall not apply to: (i) Liens existing in
respect of any Indebtedness that exists on the date of the Indenture; (ii) Liens
in favor of the Company or Liens in favor of a Wholly Owned Restricted
Subsidiary of the Company on the assets or Capital Stock of another Wholly Owned
Restricted Subsidiary of the Company; (iii) Liens to secure Indebtedness
outstanding or committed for the purpose of financing all or any part of the
purchase price or the cost of construction or improvement of the equipment or
other property subject to such Liens; provided, however, that (a) the principal
amount of any Indebtedness secured by such a Lien does not exceed 100% of such
purchase price or cost, (b) such Lien does not extend to or cover any other
property other than such item of property or any improvements on such item and
(c) the Incurrence of such Indebtedness is otherwise permitted by the Indenture;
(iv) Liens on property existing immediately prior to the time of acquisition
thereof (and not Incurred in anticipation of the financing of such acquisition);
or (v) Liens to secure Indebtedness to extend, renew, refinance or refund (or
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<PAGE> 87
successive extensions, renewals, refinancings or refundings), in whole or in
part, Indebtedness secured by any Lien referred to in the foregoing clauses (i),
(iii) and (iv) so long as such Lien does not extend to any other property and
the principal amount of Indebtedness so secured is not increased except as
otherwise permitted under the provision of the Indenture described under clause
(ii) or (v) of "--Limitation on Consolidated Indebtedness."
LIMITATION ON CERTAIN DEBT
The Indenture will provide that the Company will not Incur any Indebtedness
that is subordinate in right of payment to any other Indebtedness of the Company
unless the Indebtedness so Incurred is either pari passu or subordinate in right
of payment to the Senior Subordinated Notes.
CONSOLIDATION, MERGER, CONVEYANCE, TRANSFER OR LEASE
The Indenture will provide that the Company will not consolidate with or
merge into any Person or permit any other Person to consolidate with or merge
into the Company, or transfer, sell, convey or lease or otherwise dispose of all
or substantially all of its assets to, any Person unless (i)(a) the Company is
the surviving entity or (b) if the Company is not the surviving entity then the
successor or transferee assumes all the obligations of the Company under the
Senior Subordinated Notes and the Indenture, (ii) the Consolidated Net Worth of
the successor or transferee immediately after the transaction is not less than
100% of the Company's Consolidated Net Worth immediately prior to the
transaction, (iii) immediately after giving effect to such transaction, the
Company would be permitted to Incur at least $1.00 of additional Indebtedness
pursuant to the provision of the Indenture described in the first paragraph
under "--Limitation on Consolidated Indebtedness," (iv) after giving effect to
such transaction no Event of Default or event which with notice or lapse of time
would become an Event of Default has occurred and (v) an Officers' Certificate
and an Opinion of Counsel covering such conditions shall be delivered to the
Trustee.
EVENTS OF DEFAULT AND REMEDIES
The following are Events of Default under the Indenture: (i) failure to pay
the principal of or premium, if any, on the Senior Subordinated Notes at
Maturity; (ii) failure to pay any interest on the Senior Subordinated Notes when
it becomes due and payable continued for 30 days; (iii) failure, on the
applicable Purchase Date, to purchase Senior Subordinated Notes required to be
purchased by the Company pursuant to an Offer to Purchase as to which an Offer
has been mailed to Holders; (iv) failure to perform or comply with the
provisions of the Indenture described under "--Mergers, Consolidations and
Certain Sales of Assets"; (v) failure to perform any other covenant or agreement
of the Company under the Indenture continued for 30 days after written notice to
the Company by the Trustee or Holders of at least 25% in aggregate principal
amount of outstanding Senior Subordinated Notes; (vi) default by the Company or
any Restricted Subsidiary under the terms of any instrument evidencing or
securing Indebtedness having an outstanding principal amount in excess of $5
million in the aggregate, which default results in the acceleration of the
payment of such Indebtedness or constitutes the failure to pay the principal of
such Indebtedness at maturity; (vii) the rendering of a final judgment or
judgments against the Company or a Restricted Subsidiary in an amount in excess
of $5 million which remains undischarged or unstayed for a period of 60 days
after the date on which the right of appeal has expired; and (viii) certain
events of bankruptcy, insolvency or reorganization affecting the Company or a
Restricted Subsidiary.
If an Event of Default, other than an event described under (viii) above,
shall occur and be continuing, either the Trustee or the Holders of at least 25%
in aggregate principal amount of the Senior Subordinated Notes by notice as
provided in the Indenture, may declare the principal amount of the Senior
Subordinated Notes to be due and payable immediately; provided, however, that
after such acceleration, but before a judgment or decree based on acceleration,
the Holders of a majority in aggregate principal amount of outstanding Senior
Subordinated Notes may, under certain circumstances, rescind and annul such
acceleration if all Events of Default, other than the non-
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<PAGE> 88
payment of accelerated principal of the Senior Subordinated Notes, have been
cured or waived as provided in the Indenture. If an Event of Default described
under (viii) above shall occur, the Senior Subordinated Notes will become
immediately due and payable without any declaration or other act on the part of
the Trustee or any Holder.
No Holder of any Senior Subordinated Note will have any right to institute
any proceeding with respect to the Indenture or for any remedy thereunder,
unless such Holder shall have previously given to the Trustee written notice of
an Event of Default and unless the Holders of at least 25% in aggregate
principal amount of the outstanding Senior Subordinated Notes shall have made
written request to the Trustee and the Trustee shall not have received from the
Holders of a majority in aggregate principal amount of the outstanding Senior
Subordinated Notes a direction inconsistent with such request and shall have
failed to institute such proceeding within 60 days. However, such limitations do
not apply to a suit instituted by a Holder of a Senior Subordinated Note for
enforcement of payment of the principal of and premium, if any, or interest on
such Senior Subordinated Note on or after the respective due dates expressed in
such Senior Subordinated Note. The Holders of a majority in aggregate principal
amount of the Senior Subordinated Notes outstanding may waive any existing
Default except a Default in the payment of interest or principal (including
premium) on the Senior Subordinated Notes.
CERTAIN DEFINITIONS
"Affiliate" of any Person means any other Person directly or indirectly
controlling or controlled by or under direct or indirect common control with
such Person. For the purposes of this definition, "control" when used with
respect to any Person means the power to direct the management and policies of
such Person, directly or indirectly, whether through the ownership of voting
securities, by contract or otherwise; and the terms "controlling" and
"controlled" have meanings correlative to the foregoing.
"Affiliate and Related Person Proceeds" means any cash payment received by
the Company or any Restricted Subsidiary from any Affiliate or Related Person
from any transaction permitted under the provisions of the Indenture described
under "--Limitations on Transactions with Affiliates and Related Persons."
"Asset Disposition" by any Person means any transfer, conveyance, sale,
lease or other disposition by such Person or any of its Restricted Subsidiaries
(including a consolidation or merger or other sale of any such Restricted
Subsidiary with, into or to another Person in a transaction in which such
Restricted Subsidiary ceases to be a Restricted Subsidiary, but excluding a
disposition by a Subsidiary of such Person to such Person or a Wholly Owned
Restricted Subsidiary of such Person or by such Person to a Wholly Owned
Restricted Subsidiary of such Person) of (i) shares of Capital Stock (other than
directors' qualifying shares) or other ownership interests of a Subsidiary of
such Person, (ii) substantially all of the assets of such Person or any of its
Subsidiaries representing a division or line of business or (iii) other assets
or rights of such Person or any of its Subsidiaries having a Fair Market Value
greater than $100,000.
"Board Resolution" means a copy of a resolution certified by the Secretary
or an Assistant Secretary of the Company to have been duly adopted by the Board
of Directors, to be in full force and effect on the date of such certification
and delivered to the Trustee.
"Business Day" means each Monday, Tuesday, Wednesday, Thursday and Friday
which is not a day on which banking institutions in New York City, the State of
Washington or the State of California are authorized or obligated by law or
executive order to close.
"Capital Lease Obligation" means that portion of any obligation of a Person
as lessee under a lease which is required to be capitalized on the balance sheet
of such lessee in accordance with generally accepted accounting principles.
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<PAGE> 89
"Capital Stock" of any Person means any and all shares, interests,
participations or other equivalents (however designated) of corporate stock of
such Person.
"Consolidated Income Tax Expense" of any Person means for any period the
provision for income taxes of such Person and its Consolidated Restricted
Subsidiaries for such period.
"Consolidated Indebtedness" of any Person means at any date the
Indebtedness of such Person and its Consolidated Restricted Subsidiaries at such
date.
"Consolidated Interest Expense" of any Person means for any period the
interest expense included in an income statement (taking into account the effect
of any Interest Hedge Agreements but without deduction of interest income) of
such Person and its Consolidated Restricted Subsidiaries for such period,
including without limitation or duplication (or, to the extent not so included,
with the addition of), (i) the portion of any rental obligation in respect of
any Capital Lease Obligation allocable to interest expense in accordance with
generally accepted accounting principles; (ii) the amortization of Indebtedness
discounts; (iii) any payments or fees with respect to letters of credit, bankers
acceptances or similar facilities; (iv) fees with respect to Interest Hedge
Agreements; (v) the portion of any rental obligations in respect of any Sale and
Leaseback Transaction allocable to interest expense (determined as if such were
treated as a Capital Lease Obligation); and (vi) Preferred Stock dividends
declared and payable in cash.
"Consolidated Net Income" of any Person means for any period the net income
(or loss) of such Person for such period determined on a consolidated basis in
accordance with generally accepted accounting principles; provided that there
shall be excluded therefrom (to the extent included and without duplication) (i)
the net income (or loss) of any Person acquired by such Person or a Restricted
Subsidiary of such Person after the date of the Indenture in a pooling-of-
interests transaction for any period prior to the date of such transaction, (ii)
the net income (or loss) of any Person that is not a Consolidated Restricted
Subsidiary of such Person except to the extent of the amount of dividends or
other distributions actually paid to such Person by such other Person during
such period, (iii) gains or losses from sales of assets other than sales of
assets acquired and held for resale in the ordinary course of business and (iv)
all extraordinary gains and extraordinary losses.
"Consolidated Net Worth" of any Person means the consolidated shareholders'
equity of such Person, determined on a consolidated basis in accordance with
generally accepted accounting principles; provided that, with respect to the
Company, adjustments following the date of the Indenture to the accounting books
and records of the Company in accordance with Accounting Principles Board
Opinions Nos. 16 and 17 (or successor opinions thereto) or otherwise resulting
from the acquisition of control of the Company by another Person and its
Subsidiaries shall not be given effect to.
"Consolidated Restricted Subsidiary" of any Person means all other Persons
that would be accounted for as consolidated Persons in such Person's financial
statements in accordance with generally accepted accounting principles other
than Unrestricted Subsidiaries.
"Credit Facility" means the Loan Agreement, dated as of May 6, 1996, among
the Company, The Toronto-Dominion Bank, Barclays Bank, PLC, and Morgan Guaranty
Trust Company of New York, as Managing Agents, and the other financial
institutions named therein, as such agreement may be amended, supplemented,
restated or otherwise modified from time to time.
"Cumulative EBITDA" means EBITDA of the Company and its Consolidated
Restricted Subsidiaries for the period beginning on the first day of the fiscal
quarter immediately following the date of the Indenture, through and including
the end of the last fiscal quarter preceding the date of any proposed Restricted
Payment.
"Cumulative Interest Expense" means the total amount of Consolidated
Interest Expense of the Company and its Consolidated Restricted Subsidiaries for
the period beginning on the first day of
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the fiscal quarter immediately following the date of the Indenture, through and
including the end of the last fiscal quarter preceding the date of any proposed
Restricted Payment.
"Depositary" means a clearing agency registered under the Exchange Act that
is designated to act as Depositary for the Senior Subordinated Notes until a
successor Depositary shall have become such pursuant to the applicable
provisions of the Indenture, and thereafter "Depositary" shall mean such
successor Depositary. The Depositary initially is The Depository Trust Company.
"Designated Senior Indebtedness" means the Indebtedness under the Credit
Facility.
"EBITDA" of any Person means for any period the Consolidated Net Income for
such period increased by the sum of (i) Consolidated Interest Expense of such
Person for such period, plus (ii) Consolidated Income Tax Expense of such Person
for such period, plus (iii) the consolidated depreciation and amortization
expense included in the income statement of such Person and its Consolidated
Restricted Subsidiaries for such period, plus (iv) all other non-cash charges
and expenses that were deducted in determining Consolidated Net Income for such
period, minus (v) all non-cash revenues and gains to the extent included in
Consolidated Net Income for such period.
"Fair Market Value" means, with respect to any assets or Person, the price
which could be negotiated in an arm's-length free market transaction, for cash,
between a willing seller and a willing buyer, neither of whom is under undue
pressure or compulsion to complete the transaction. Fair Market Value will be
determined (i) if such Person or assets has a Fair Market Value of less than $5
million, by any officer of the Company and evidenced by an Officers'
Certificate, dated within 30 days of the relevant transaction, or (ii) if such
Person or assets has a Fair Market Value in excess of $5 million or more, by a
majority of the Board of Directors of the Company and evidenced by a Board
Resolution, dated within 30 days of the relevant transaction.
"Holder" means a Person in whose name a Senior Subordinated Note is
registered in the Security Register.
"Incur" means, with respect to any Indebtedness or other obligation of any
Person, to create, issue, incur (by conversion, exchange or otherwise), assume,
guarantee or otherwise become liable in respect of such Indebtedness or other
obligation or the recording, as required pursuant to generally accepted
accounting principles or otherwise, of any such Indebtedness or other obligation
on the balance sheet of such Person (and "Incurrence", "Incurred", "Incurrable"
and "Incurring" shall have meanings correlative to the foregoing); provided,
however, that a change in generally accepted accounting principles that results
in an obligation of such Person that exists at such time becoming Indebtedness
shall not be deemed an Incurrence of such Indebtedness.
"Indebtedness" means (without duplication), with respect to any Person,
whether recourse is to all or a portion of the assets of such Person and whether
or not contingent, (i) every obligation of such Person for money borrowed, (ii)
every obligation of such Person evidenced by bonds, debentures, notes or similar
instruments, including obligations Incurred in connection with the acquisition
of property, assets or businesses, (iii) every reimbursement obligation of such
Person with respect to letters of credit, bankers' acceptances or similar
facilities issued for the account of such Person, (iv) every obligation of such
Person issued or assumed as the deferred purchase price of property or services
(but excluding trade accounts payable or accrued liabilities arising in the
ordinary course of business), (v) every Capital Lease Obligation of such Person,
(vi) the maximum fixed redemption or repurchase price of Redeemable Stock of
such Person at the time of determination, (vii) every obligation to pay rent or
other payment amounts of such Person with respect to any Sale and Leaseback
Transaction to which such Person is a party, (viii) every obligation of the type
referred to in clauses (i) through (vii) of another Person and all dividends of
another Person the payment of which, in either case, such Person has guaranteed
or is responsible or liable, directly or indirectly, as obligor, guarantor or
otherwise and (ix) the liquidation value of Preferred Stock issued pursuant to
the provision of the Indenture described in clause (v) of
"-- Limitation on Preferred Stock of Restricted Subsidiaries."
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"Indebtedness to EBITDA Ratio" of any Person means at any date the ratio of
Consolidated Indebtedness outstanding on such date to EBITDA for the four full
fiscal quarters immediately preceding such date; provided, however, that, in the
event such person or any of its Restricted Subsidiaries has acquired a Person
during or after such period in a pooling-of-interests transaction, such
computation shall be made on a pro forma basis as if the transaction had taken
place on the first day of such period.
"Initial Investors" means the Stanton Entities, the Hellman & Friedman
Entities, the Goldman Sachs Entities and Providence.
"Interest Hedge Agreements" means any interest rate swap, cap, collar,
floor, caption or swaption agreements, or any similar arrangements designed to
hedge the risk of variable interest rate volatility or to reduce interest costs,
arising at any time between the Company or any Restricted Subsidiary, on the one
hand, and any Person (other than an Affiliate of the Company or any Restricted
Subsidiary), on the other hand, as such agreement or arrangement may be
modified, supplemented and in effect from time to time.
"Lien" means, with respect to any property or assets, any mortgage or deed
of trust, pledge, hypothecation, assignment, deposit arrangement, security
interest, lien, charge, easement (other than an easement not materially
impairing usefulness or marketability), encumbrance, preference, priority or
other security agreement or preferential arrangement of any kind or nature
whatsoever on or with respect to such property or assets (including, without
limitation, any conditional sale or other title retention agreement having
substantially the same economic effect as any of the foregoing).
"Make-Whole Amount" on any date in respect of any Senior Subordinated Note
means the excess, if any, of (i) the aggregate present value as of such date of
each dollar of principal being redeemed or paid and the amount of interest
(exclusive of interest accrued to such date) that would have been payable in
respect of each such dollar if such redemption or payment had not been made,
determined by discounting, on a semi-annual basis, such principal and interest
at the Reinvestment Rate (determined on the third Business Day preceding the
date on which notice of redemption or payment is made) from the respective dates
on which principal and interest would have been payable if such redemption or
payment had not been made, over (ii) the aggregate principal amount of such
Senior Subordinated Note being redeemed or paid.
"Maturity" means, when used with respect to any Senior Subordinated Note,
the date on which the principal of such Senior Subordinated Note becomes due and
payable, whether at the Stated Maturity or by declaration of acceleration, call
for redemption or otherwise.
"NORTEL Facility" means the Loan Agreement, dated June 30, 1995, between
Western PCS II Corporation and Northern Telecom Inc., as such agreement may be
amended, supplemented, restated or otherwise modified from time to time.
"Offer to Purchase" means a written offer (the "Offer") sent by the Company
to each Holder at his address appearing in the Security Register on the date of
the Offer offering to purchase up to the principal amount of Senior Subordinated
Notes specified in such Offer at the purchase price specified in such Offer.
Unless otherwise required by applicable law, the Offer shall specify an
expiration date (the "Expiration Date") of the Offer to Purchase which, subject
to any contrary requirements of applicable law, shall be not less than 30 days
nor more than 60 days after the date of such Offer to Purchase and a settlement
date (the "Purchase Date") for purchase of Senior Subordinated Notes within five
Business Days after the Expiration Date. The Offer shall also state the section
of the Indenture pursuant to which the Offer to Purchase is being made, the
Expiration Date and the Purchase Date, the aggregate principal amount of the
outstanding Senior Subordinated Notes offered to be purchased by the Company,
the purchase price to be paid by the Company and the place or places where
Senior Subordinated Notes are to be surrendered for tender pursuant to the Offer
to Purchase.
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"Officers' Certificate" means a certificate signed by two officers at least
one of whom shall be the principal executive officer, principal accounting
officer or principal financial officer of the Company and delivered to the
Trustee.
"Opinion of Counsel" means a written opinion of counsel, who may be counsel
for the Company, and who shall be reasonably acceptable to the Trustee and
delivered to the Trustee.
"Permitted Joint Venture" means, as applied to any Person, any corporation
or other entity (a) engaged in the acquisition, ownership, operation and
management of assets in the Wireless Communications Business, (b) over which
such Person is responsible (either directly or through a services agreement) for
day-to-day operations or otherwise has operational and managerial control, (c)
of which more than forty percent (40%) of the outstanding Capital Stock (other
than directors' qualifying shares) having ordinary Voting Power to elect its
board of directors, regardless of the existence at the time of a right of the
holders of any class or classes of securities of such corporation to exercise
such Voting Power by reason of the happening of any contingency, in the case of
a corporation, or more than forty percent (40%) of the outstanding ownership
interests, in the case of an entity other than a corporation, is at the time
owned directly or indirectly by such Person, or by one or more Subsidiaries of
such Person, or by such Person and by one or more Subsidiaries of such Person
and (d) with respect to which such Person has the right or option to acquire all
of the outstanding Capital Stock or ownership interests not owned by such
Person.
"Permitted Joint Venture Investment" means (i) any payment on account of
the purchase, redemption, retirement or acquisition of (A) any shares of Capital
Stock or other ownership interests of a Permitted Joint Venture or (B) any
option, warrant or other right to acquire shares of Capital Stock or ownership
interests of a Permitted Joint Venture or (ii) any loan, advance, lease, capital
contribution to, or investment in, or payment of a guarantee of any obligation
of a Permitted Joint Venture; provided that such loan, advance, lease, capital
contribution, investment or payment provides for a return that is senior in
right of payment to any return on the Capital Stock or ownership interests of
such Permitted Joint Venture; provided, further, that not less than 75% of the
aggregate Permitted Joint Venture Investments in any Permitted Joint Venture
shall be Permitted Joint Venture Investments described in clause (ii).
"Person" means any individual, corporation, partnership, joint venture,
trust, unincorporated organization or government or any agency or political
subdivision thereof.
"Qualified Capital Stock" means, with respect to any Person, any and all
shares of Capital Stock other than Redeemable Stock issued by such Person after
the date of the Indenture.
"Qualified Capital Stock Proceeds" means, with respect to any Person, (a)
in the case of any sale of Qualified Capital Stock, the aggregate net cash
proceeds received by such Person, after payment of expenses, commissions and the
like Incurred by such Person in connection therewith, and net of Indebtedness
that such Person Incurred, guaranteed or otherwise became liable for in
connection with the issuance or acquisition of such Capital Stock; and (b) in
the case of any exchange, exercise, conversion or surrender of any Preferred
Stock or Indebtedness of such Person or any Subsidiary issued for cash after the
date of the Indenture for or into shares of Qualified Capital Stock of such
Person, the liquidation value of the Preferred Stock or the net book value of
such Indebtedness as adjusted on the books of such Person to the date of such
exchange, exercise, conversion or surrender, plus any additional amount paid by
the securityholders to such Person upon such exchange, exercise, conversion or
surrender and less any and all payments made to the securityholders, and all
other expenses, commissions and the like Incurred by such Person or any
Subsidiary in connection therewith.
"Redeemable Stock" of any Person means any equity security of such Person
that by its terms or otherwise is required to be redeemed prior to the final
Stated Maturity of the Senior Subordinated Notes or is redeemable at the option
of the holder thereof at any time prior to the final Stated Maturity of the
Senior Subordinated Notes.
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"Reinvestment Rate" means the arithmetic mean of the yields under the
respective heading "Week Ending" published in the most recent Statistical
Release under the caption "Treasury Constant Maturities" for the maturity
(rounded to the nearest month) corresponding to the remaining life to maturity,
as of the payment date of the principal being redeemed or paid. If no maturity
exactly corresponds to such maturity, yields for the two published maturities
most closely corresponding to such maturity shall be calculated pursuant to the
immediately preceding sentence and the Reinvestment Rate shall be interpolated
or extrapolated from such yields on a straight-line basis, rounding in each of
the relevant periods to the nearest month. For the purpose of calculating the
Reinvestment Rate, the most recent Statistical Release published prior to the
date of determination of the Make-Whole Amount shall be used.
"Related Person" of any Person means any other Person owning (a) 5% or more
of the outstanding Common Stock of such Person or (b) 5% or more of the Voting
Power of such Person.
"Restricted Payment" means, with respect to any Person, (i) any declaration
or payment of a dividend or other distribution on any shares of such Person's
Capital Stock (other than dividends payable solely in shares of its Capital
Stock or options, warrants or other rights to acquire its Capital Stock), (ii)
any payment on account of the purchase, redemption, retirement or acquisition of
(A) any shares of Capital Stock of such Person or any Related Person (other than
a Restricted Subsidiary) of such Person or (B) any option, warrant or other
right to acquire shares of Capital Stock of such Person or any Related Person
(other than a Restricted Subsidiary) of such Person, in each case other than
pursuant to the cashless exercise of options, (iii) any loan, advance, capital
contribution to, or investment in, or payment of a guarantee of any obligation
of, or purchase, redemption or other acquisition of any shares of Capital Stock
or any Indebtedness of, any Affiliate or Related Person (other than a Restricted
Subsidiary) and (iv) any redemption, defeasance, repurchase or other acquisition
or retirement for value prior to any scheduled maturity, repayment or sinking
fund payment, of any Indebtedness of such Person which is subordinate in right
of payment to the Senior Subordinated Notes.
"Restricted Subsidiary" of any Person means any Subsidiary of such Person
other than an Unrestricted Subsidiary.
"Sale and Leaseback Transaction" of any Person means an arrangement with
any lender or investor or to which such lender or investor is a party providing
for the leasing by such Person of any property or asset of such Person which has
been or is being sold or transferred by such Person more than 270 days after the
acquisition thereof or the completion of construction or commencement of
operation thereof to such lender or investor or to any Person to whom funds have
been or are to be advanced by such lender or investor on the security of such
property or asset. The stated maturity of such arrangement shall be the date of
the last payment of rent or any other amount due under such arrangement prior to
the first date on which such arrangement may be terminated by the lessee without
payment of a penalty.
"Security Register" has the meaning set forth in the Indenture.
"Senior Indebtedness" means the principal of (and premium, if any) and
interest (including interest accruing on or after the filing of any petition in
bankruptcy or for reorganization relating to the Company whether or not a claim
for post-petition interest is allowed in such proceeding) on (i) Indebtedness of
the Company created pursuant to the Credit Facility and all other obligations
thereunder or under the notes, security documents, pledge agreements, Interest
Hedge Agreements or other agreements or instruments executed in connection
therewith, (ii) Indebtedness of the Company created pursuant to any vendor
financing Incurred for the acquisition, construction or improvement by the
Company or any Restricted Subsidiary of assets in the Wireless Communications
Business, (iii) all other Indebtedness of the Company referred to in the
definition of Indebtedness other than clauses (iv), (vi) and (ix) thereof (and
clause (viii) thereof to the extent applicable to Indebtedness Incurred under
clauses (iv) and (vi) thereof), whether Incurred on or prior to the date of the
Indenture or thereafter Incurred, other than the Senior Subordinated Notes,
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and (iv) amendments, renewals, extensions, modifications, refinancings and
refundings of any such Indebtedness; provided, however, the following shall not
constitute Senior Indebtedness: (A) any Indebtedness owed to a Person when such
Person is a Restricted Subsidiary of the Company, (B) any Indebtedness which by
the terms of the instrument creating or evidencing the same is not superior in
right of payment to the Senior Subordinated Notes, (C) any Indebtedness Incurred
in violation of the Indenture (but, as to any such Indebtedness, no such
violation shall be deemed to exist for purposes of this clause (c) if the
holder(s) of such Indebtedness or their representative and the Trustee shall
have received an Officers' Certificate of the Company to the effect that the
Incurrence of such Indebtedness does not (or in the case of revolving credit
Indebtedness, that the Incurrence of the entire commited amount thereof at the
date on which the initial borrowing thereunder is made would not) violate the
Indenture) or (D) any Indebtedness which is subordinated in right or payment in
respect to any other Indebtedness of the Company.
"Senior Nonmonetary Default" means the occurrence or existence and
continuance of any event of default, or of any event which, after notice or
lapse of time (or both), would become an event of default, under the terms of
any instrument pursuant to which any Senior Indebtedness is outstanding,
permitting (after notice or lapse of time or both) one or more holders of such
Senior Indebtedness (or a trustee or agent on behalf of the holders thereof) to
declare such Senior Indebtedness due and payable prior to the date on which it
would otherwise become due and payable, other than a Senior Payment Default.
"Senior Payment Default" means any default in the payment of principal of
(or premium, if any) or interest on any Senior Indebtedness when due, whether at
the stated maturity of any such payment or by declaration of acceleration, call
for redemption or otherwise.
"Senior Subordinated Notes Payment" means any payment or distribution of
any kind or character, whether in cash, property or securities, on account of
principal of (or premium, if any) or interest on or other obligations in respect
of the Senior Subordinated Notes or on account of any purchase or other
acquisition of Senior Subordinated Notes by the Company or any Subsidiary of the
Company.
"Stated Maturity," when used with respect to any Senior Subordinated Note
or any installment of interest thereon, means the date specified in such Senior
Subordinated Note as the date on which the principal of such Senior Subordinated
Note or such installment of interest is due and payable.
"Statistical Release" means the statistical release designated "H.15(519)"
or any successor publication which is published weekly by the Federal Reserve
System and which establishes yields on actively traded United States government
securities adjusted to constant maturities, or, if such statistical release is
not published at the time of any determination under the Indenture, then such
other reasonably comparable index which shall be designated by the Company.
"Subsidiary" means, as applied to any Person, (a) any corporation of which
more than fifty percent (50%) of the outstanding Capital Stock (other than
directors' qualifying shares) having ordinary Voting Power to elect its board of
directors, regardless of the existence at the time of a right of the holders of
any class or classes of securities of such corporation to exercise such Voting
Power by reason of the happening of any contingency, or any entity other than a
corporation of which more than fifty percent (50%) of the outstanding ownership
interests, is at the time owned directly or indirectly by such Person, or by one
or more Subsidiaries of such Person, or by such Person and one or more
Subsidiaries of such Person, or (b) any other entity which is directly or
indirectly controlled or capable of being controlled by such Person, or by one
or more Subsidiaries of such Person, or by such Person and one or more
Subsidiaries of such Person, including Permitted Joint Ventures.
"Unrestricted Subsidiary" of any Person means (i) any Subsidiary of such
Person that at the time of determination shall be designated an Unrestricted
Subsidiary by the Board of Directors of
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such Person in the manner provided below and (ii) any Subsidiary of an
Unrestricted Subsidiary. The Board of Directors of any Person may designate any
Restricted Subsidiary to be an Unrestricted Subsidiary unless such Subsidiary
owns any Common Stock or Preferred Stock of, or owns or holds any lien on any
property of, such Person or any Restricted Subsidiary; provided that either (A)
the Subsidiary to be so designated has total assets of $1,000 or less or (B) if
such Subsidiary has assets greater than $1,000, that the Fair Market Value of
the Subsidiary at the time of such designation would be permitted as an
investment under the provision of the Indenture described under "--Limitation on
Restricted Payments." The Board of Directors of any Person may designate any
Unrestricted Subsidiary to be a Restricted Subsidiary of such Person; provided
that immediately after giving effect to such designation (x) such Person would
be permitted to Incur $1.00 of additional Indebtedness pursuant to the provision
of the Indenture described in the first paragraph under "--Limitation on
Consolidated Indebtedness" and (y) no Event of Default or event which with
notice or lapse of time or both would become an Event of Default has occurred
and is continuing. Any such designation by the Board of Directors shall be
evidenced by a Board Resolution submitted to the Trustee.
"Voting Power" of any Person means the aggregate number of votes of all
classes of Capital Stock of such Person which ordinarily has voting power for
the election of directors of such Person.
"Wholly Owned Restricted Subsidiary" of any Person means a Restricted
Subsidiary of such Person all of the outstanding Capital Stock or other
ownership interests of which (other than directors' qualifying shares) shall at
the time be owned by such Person or by one or more Wholly Owned Restricted
Subsidiaries of such Person or by such Person and one or more Wholly Owned
Restricted Subsidiaries of such Person.
"Wireless Communications Business" means the provision of wireless
communications services and other related services.
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 a majority in aggregate
principal amount of the outstanding Senior Subordinated Notes; provided,
however, that no such modification or amendment may, without the consent of the
Holder of each Senior Subordinated Note affected thereby, (i) change the Stated
Maturity of the principal of, or any installment of interest on, any Senior
Subordinated Note, (ii) reduce the principal amount of or premium, if any, or
interest on any Senior Subordinated Note, (iii) change the place or currency of
payment of principal of, or premium or interest on any Senior Subordinated Note,
(iv) impair the right to institute suit for the enforcement of any payment on or
with respect to any Senior Subordinated Note, (v) reduce the percentage of
aggregate principal amount of Senior Subordinated Notes outstanding necessary to
amend the Indenture, (vi) reduce the percentage of aggregate principal amount of
Senior Subordinated Notes outstanding necessary for waiver of compliance with
certain provisions of the Indenture or for waiver of certain defaults, (vii)
modify such provisions with respect to modification and waiver, (viii) modify
the subordination provisions in a manner adverse to the Holders of the Senior
Subordinated Notes or (ix) following the mailing of an Offer to Purchase, modify
the provisions of the Indenture with respect to such Offer to Purchase in a
manner adverse to such Holder.
The Holders of a majority in aggregate principal amount of the outstanding
Senior Subordinated Notes may waive compliance by the Company with certain
restrictive provisions of the Indenture. The Holders of a majority in aggregate
principal amount of the outstanding Senior Subordinated Notes may waive any past
default under the Indenture, except a default in the payment of principal,
premium or interest and certain covenants and provisions of the Indenture which
cannot be amended without the consent of the Holder of each outstanding Senior
Subordinated Note affected.
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DEFEASANCE
The Indenture will provide that the Company, at its option, (i) will be
discharged from any and all obligations in respect of outstanding Senior
Subordinated Notes (except for certain obligations to register the transfer or
exchange of Senior Subordinated Notes, to replace mutilated, lost, destroyed or
stolen Senior Subordinated Notes and to maintain paying agents and hold moneys
for payment in trust), and the provisions of the Indenture described under
"--Subordination" shall cease to be effective, or (ii) need not comply with
certain restrictive covenants and that such omission shall not be deemed to be
an Event of Default under the Indenture and the Senior Subordinated Notes, and
the provisions of the Indenture described under "--Subordination" shall cease to
be effective, in either case (i) or (ii) upon irrevocable deposit with the
Trustee, in trust, of money and/or U.S. government obligations which will
provide money in an amount sufficient in the opinion of a nationally recognized
firm of independent public accountants to pay the principal of, and premium, if
any, and each installment of interest, if any, on the outstanding Senior
Subordinated Notes in accordance with the terms of the Indenture and the Senior
Subordinated Notes. Such trust may only be established if, among other things,
(1) with respect to clause (i), the Company shall have delivered to the Trustee
an Opinion of Counsel to the effect that the Company has received from, or there
has been published by, the Internal Revenue Service a ruling or there has been a
change in law, which provides that Holders of Senior Subordinated Notes will not
recognize gain or loss for federal income tax purposes as a result of such
deposit, defeasance and discharge and will be subject to federal income tax on
the same amount, in the same manner and at the same times as would have been the
case if such deposit, defeasance and discharge had not occurred; or, with
respect to clause (ii), the Company shall have delivered to the Trustee an
Opinion of Counsel to the effect that the Holders of the Senior Subordinated
Notes will not recognize gain or loss for federal income tax purposes as a
result or such deposit and defeasance and will be subject to federal income tax
on the same amount, in the same manner and at the same times as would have been
the case if such deposit, defeasance and discharge had not occurred; (2) no
Event of Default or event that, with the passing of time or the giving of
notice, or both, shall constitute an Event of Default shall have occurred and be
continuing on the date of such deposit; (3) no Event of Default described under
clause (viii) under "Events of Default" above or event that, with the passing of
time or the giving of notice, or both, shall constitute an Event of Default
under such clause (viii) shall have occurred and be continuing at any time
during the period ending on the 121st day following such date of deposit; (4)
such deposit shall not cause the trust so created to be subject to the
Investment Company Act or 1940 or shall be qualified under such act or exempt
from regulation thereunder; and (5) certain other customary conditions
precedent.
GLOBAL SECURITIES
Upon issuance, all Senior Subordinated Notes will be represented by one or
more global securities (the "Global Security"). The Global Security representing
the Senior Subordinated Notes will be deposited with, or on behalf of, the
Depositary and registered in the name of a nominee of the Depositary. Senior
Subordinated Notes will not be exchangeable for certificated notes; provided
that if the Depositary is at any time unwilling or unable to continue as
Depositary and a successor depositary is not appointed by the Company within 90
days, the Company will issue certificated notes in exchange for the Global
Security representing the Senior Subordinated Notes. In addition, the Company
may at any time and in its sole discretion determine not to have the Senior
Subordinated Notes represented by the Global Security and, in such event, will
issue certificated notes in exchange therefor.
Upon the issuance of the Global Security, the Depositary will credit, on
its book-entry registration and transfer system, the respective principal
amounts of the Senior Subordinated Notes represented by the Global Security to
the accounts of institutions that have accounts with the Depositary
("Participants"). The accounts to be credited shall be designated by the
Underwriters. Ownership of beneficial interests in the Global Security will be
limited to Participants or Persons that
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may hold interests through Participants. Ownership of beneficial interests in
the Global Security will be shown on, and the transfer of that ownership will be
effected only through, records maintained by the Depositary with respect to
Participants' interests or by the Participants or by Persons that hold through
Participants with respect to beneficial owners' interests. The laws of some
states require that certain purchasers of securities take physical delivery of
such securities in definitive form. Such ownership limits and such laws may
impair the ability to transfer beneficial interests in the Global Security.
Principal and interest payments on Senior Subordinated Notes registered in
the name of the Depositary or its nominee will be made to the Depositary or its
nominee, as the case may be, as the registered owner of the Global Security
representing the Senior Subordinated Notes. The Company expects that the
Depositary, upon receipt of any payment of principal or interest in respect of
the Global Security, will immediately credit Participants' accounts with
payments in amounts proportionate to their respective beneficial interests in
the principal amount of the Global Security as shown on the records of the
Depositary. The Company also expects that payments by Participants to owners of
beneficial interests in the Global Security 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 in bearer form or registered
in "street name," and will be the responsibility of such Participants. None of
the Company, the Trustee, any paying agent or any registrar for the Senior
Subordinated Notes will have any responsibility or liability for any aspect of
the records relating to or payments made on account of beneficial ownership
interests in the Global Security or for maintaining, supervising or reviewing
any records relating to such beneficial ownership interests.
The Depository Trust Company, New York, New York, ("DTC") will be the
initial Depositary with respect to the Senior Subordinated Notes. DTC has
advised the Company that it is a limited-purpose trust company organized under
the laws of the State of New York, 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
Securities Exchange Act of 1934. DTC was created to hold securities of its
Participants and to facilitate the clearance and settlement of securities
transactions among its Participants in such securities through electronic
book-entry changes in accounts of the Participants, thereby eliminating the need
for physical movement of securities certificates. DTC's Participants include
securities brokers and dealers (including the Underwriters), banks, trust
companies, clearing corporations and certain other organizations, some of whom
(and/or their representatives) own DTC. Access to DTC's book entry system is
also 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. Persons who are not Participants may beneficially
own securities held by DTC only through Participants.
LIMITATIONS ON RIGHTS OF BENEFICIAL OWNERS
As long as the Depositary, or its nominee, is the holder of the Global
Security, the Depositary or its nominee, as the case may be, will be considered
the sole owner or Holder of the Senior Subordinated Notes represented by the
Global Security for all purposes under the Indenture or the Global Security.
Except as set forth above, owners of beneficial interests in the Global Security
will not be entitled to have Senior Subordinated Notes represented by the Global
Security registered in their names, will not receive or be entitled to receive
physical delivery of Senior Subordinated Notes in definitive form and will not
be considered the owners or Holders thereof under the Indenture governing the
Senior Subordinated Notes or under the Global Security. Accordingly, each person
owning a beneficial interest in such Global Security must rely on the procedures
of the Depositary and, if such person is not a Participant, on the procedures of
the Participant through which such person directly or indirectly owns its
interest, to exercise any rights of a Holder under the Indenture or the Global
Security.
DTC has informed the Company that under existing DTC policies and industry
practices, if the Company requests any action of Holders, or if any owner of a
beneficial interest in such Global
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Security desires to give any notice or take any action that a Holder is entitled
to give or take under the Indenture or the Global Security, DTC would authorize
and cooperate with each Participant to whose account any portion of the Senior
Subordinated Notes represented by such Global Security is credited on DTC's
books and records to give such notice or take such action. Any person owning a
beneficial interest in such Global Security that is not a Participant must rely
on any contractual arrangements it has directly, or indirectly through its
immediate financial intermediary, with a Participant to give such notice or take
such action.
NOTICES
Notices to Holders of Senior Subordinated Notes will be given by mail to
the addresses of such Holders as they may appear in the Security Register.
TITLE
The Company, the Trustee and any agent of the Trustee may treat the Person
in whose name a Senior Subordinated Note as the absolute owner thereof (whether
or not such Senior Subordinated Note may be overdue) for the purpose of making
payment and for all other purposes.
GOVERNING LAW
The Indenture and the Senior Subordinated Notes will be governed by and
construed in accordance with the laws of the State of New York.
THE TRUSTEE
The Indenture provides that, subject to the duty of the Trustee during an
Event of Default to act with the required standard of care, the Trustee will be
under no obligation to exercise any of its rights or powers under the Indenture
at the request or direction of any of the Holders, unless such Holders shall
have offered to the Trustee reasonable security or indemnity. Subject to certain
provisions, including those requiring security or indemnification of the
Trustee, the Holders of a majority in principal amount of the Senior
Subordinated Notes will have the right to 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.
The Company will be required to furnish to the Trustee annually a statement
as to the performance by the Company of its obligations under the Indenture and
as to any default in such performance.
DESCRIPTION OF INDEBTEDNESS
Set forth below is a description of certain terms of the Company's Senior
Secured Facilities. See also "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Liquidity and Capital Resources."
CREDIT FACILITY
The Company has a $950 million Credit Facility with a consortium of
financial institutions. The following summary of the material terms and
provisions of the Credit Facility does not purport to be complete and is subject
to and qualified in its entirety by reference to the Credit Facility, a copy of
which is filed as an exhibit to the Registration Statement of which this
Prospectus is a part.
Pursuant to the Credit Facility, the lenders have agreed to make loans to
the Company (the "Loans"), on a revolving credit basis, in the aggregate
principal amount not to exceed $750 million outstanding at any time through
December 31, 1999 at which time the then outstanding principal amount of the
Loans converts to a five year term loan. The Company's ability to borrow funds
under
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the Credit Facility is subject to compliance with certain operating covenants
set forth therein. The principal amount thereof is required to be amortized in
the following percentages during the five year period commencing on January 1,
2000 and terminating on December 31, 2004: 7%, 13%, 20%, 30% and 30%. The Credit
Facility also includes a $200 million term loan. Such term loan is required to
be amortized in the following amounts during the five year period beginning
April 1, 2000 and terminating on March 31, 2005: $1,000,000, $1,000,000,
$1,000,000, $1,000,000 and $196,000,000. The term loan is subject to and
otherwise governed by the terms and conditions of the Credit Facility.
Revolving credit borrowings under the Credit Facility bear interest, at the
Company's option, at an annual rate of interest equal to either (i) the greater
of (x) the prime rate of The Toronto-Dominion Bank, New York Branch, or (y) the
Federal Funds rate plus 5/8%, (ii) a Eurodollar rate or (iii) a CD rate, in each
instance plus an applicable margin. Such applicable margin ranges from 0.50% to
1.50%, in the case of Loans based on the prime rate or Federal Funds rate, 1.50%
to 2.50%, in the case of Loans based on a Eurodollar rate, and 1.75% to 2.75% in
the case of Loans based on a CD rate, in each case based upon the leverage ratio
of the Company and certain of its subsidiaries. The term loan under the Credit
Facility bears interest at a Eurodollar rate plus 2.75%. The Company has entered
into five long-term interest rate swap and cap agreements with a total notional
amount of $205 million and one short-term interest rate swap with a notional
amount of $185 million. As of March 31, 1996, the weighted average interest rate
under these agreements was approximately 6.3%.
The Credit Facility contains affirmative covenants of the Company,
including, among others, maintenance of its licenses and properties, compliance
with laws, insurance, payment of taxes, payment of other indebtedness, the
entering into of interest rate hedging agreements and delivery of financial and
other information. The Credit Facility requires that the Company and certain of
its subsidiaries comply with certain financial tests and maintain certain
financial ratios. The financial ratio covenants in the Credit Facility include,
among others, a limitation on the incurrence of indebtedness based on the ratio
of the Company's indebtedness to operating cash flow (as defined in the Credit
Facility) and a requirement that the Company's ratio of operating cash flow to
cash interest expense be not less than specified levels. In addition, the
Company is required to make certain repayments of the Credit Facility from
certain asset sales and excess cash flow. The Credit Facility also contains
restrictive covenants which impose restrictions and/or limitations on the
operations and activities of the Company and certain of its subsidiaries,
including, among others, the incurrence of indebtedness, the creation or
incurrence of liens, the sale of assets, investments and acquisitions, mergers,
declaration or payment of dividends on or other payments or distributions to
shareholders or material transactions with an affiliate on terms less favorable
than those obtainable from a nonaffiliate.
The Credit Facility currently limits total investment by the Company in its
subsidiaries owning PCS licenses to $450 million from and after May 6, 1996,
plus the proceeds of the Offerings, other equity issuances by the Company after
May 6, 1996 and $14 million, provided, however, that the Credit Facility also
limits the total investment by the Company in its subsidiaries owning PCS
licenses to $100 million plus the proceeds of the Debt Offering, the Offerings,
other equity issuances by the Company after May 6, 1996 and $14 million until
the PCS licenses are final. See "Risk Factors -- Finality of PCS Auctions."
The Credit Facility provides for various events of default, including,
without limitation, interest and payment defaults, breach of the Company's
covenants, agreements, representations and warranties under the Credit Facility,
cross defaults to certain other indebtedness, judgments in excess of $1 million
which remain undischarged for a period of 30 days, certain events relating to
bankruptcy or insolvency, revocation of any material FCC license, the failure of
Mr. Stanton, Ms. Gillespie and certain related entities to own in the aggregate
3,100,000 (1,550,000 after
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December 31, 1996) shares of Common Stock, or Mr. Stanton ceasing, for any
reason, to be the Chairman of the Company's Board of Directors, unless a
successor acceptable to the requisite percentage of lenders pursuant to the
Credit Facility is appointed within 60 days of the date Mr. Stanton ceases to be
Chairman.
The repayment of the Loans is secured by, among other things, the grant of
a security interest in all of the assets of the Company excluding, among other
things, the capital stock and assets of Western PCS II Corporation, a
wholly-owned indirect subsidiary of the Company ("Western PCS II"), that are
pledged to NORTEL pursuant to the NORTEL Facility. Western PCS II currently
holds the Company's PCS licenses for the Honolulu, Salt Lake City and El
Paso/Albuquerque MTAs as well as certain related PCS assets. Western PCS II may
become the holder of the Company's license for the Denver MTA upon consummation
of the purchase thereof. See "Business -- Introduction," "-- Governmental
Regulation -- Licensing of PCS Systems" and "-- NORTEL Facility."
NORTEL FACILITY
In connection with the Project and Supply Agreement between Western PCS and
NORTEL, Western PCS II entered into a $200 million NORTEL Facility. The
following summary of the material terms and provisions of the NORTEL Facility
does not purport to be complete and is subject to and qualified in its entirety
by reference to the NORTEL Facility, a copy of which is filed as an exhibit to
the Registration Statement of which this Prospectus is a part.
Pursuant to the NORTEL Facility, NORTEL has agreed to make loans to Western
PCS II (the "NORTEL Loans"), on a revolving credit basis, in an aggregate
principal amount not to exceed $200 million outstanding at any time through June
30, 2000. On such date the then outstanding principal amount of the NORTEL Loans
convert to a three and one-half year term loan with the final payment due on
December 31, 2003. Western PCS II's ability to borrow funds under the NORTEL
Facility is subject to compliance with certain operating covenants set forth
therein. Borrowings under the NORTEL Facility also are limited based on formulas
related to the amount of purchases under the Project and Supply Agreement and
the amount of purchases of PCS equipment from NORTEL or other vendors for use in
Western PCS II's PCS systems. The NORTEL Facility currently limits borrowings to
$76.8 million until the PCS licenses are final. The Company expects to amend the
NORTEL Facility to remove such condition. See "Risk Factors -- Finality of PCS
Auctions."
Borrowings under the NORTEL Facility bear interest, at Western PCS II's
option, at an annual rate of interest equal to either (i) the greater of (x) the
prime rate of The Toronto-Dominion Bank, New York Branch, or (y) the Federal
Funds rate plus 5/8%, plus in either event 1.50%, or (ii) the LIBOR rate plus
2.50%.
The NORTEL Facility contains affirmative covenants of Western PCS II,
including, among others, maintenance of its licenses and properties, compliance
with laws, insurance, payment of taxes, payment of other indebtedness and
delivery of financial and other information. The NORTEL Facility requires that
Western PCS II comply with certain financial tests and maintain certain
financial ratios. The NORTEL Facility contains, among others, covenants of
Western PCS II relating to minimum gross revenues and the ratio of cash coverage
(as defined in the NORTEL Facility) to operating cash flow (as defined in the
NORTEL Facility). In addition, Western PCS II is required to make certain
repayments of the NORTEL Facility from certain asset sales and excess cash flow.
The NORTEL Facility also contains certain restrictive covenants which impose
restrictions and/or limitations on the operations and activities of Western PCS
II including, among other things, the incurrence of indebtedness, the creation
or incurrence of liens, the sale of assets, investments or acquisitions,
mergers, declaration or payment of dividends on or other payments or
distributions to its stockholder or material transactions with an affiliate on
terms less favorable than those obtainable from a non-affiliate.
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The NORTEL Facility provides for various events of default including,
without limitation, interest and payment defaults, breach of Western PCS II's
covenants, agreements, representations and warranties under the NORTEL Facility,
cross defaults to certain other indebtedness, including the Credit Facility,
judgments in excess of $1 million which remain undischarged for a period of 30
days, bankruptcy or similar proceedings, revocation of any material FCC license,
the termination of the Project and Supply Agreement prior to the satisfaction of
certain conditions and the failure of the Company to beneficially own and
control, directly or indirectly, a majority of Western PCS II's capital stock or
shares entitling the Company to elect a majority of Western PCS II's board of
directors.
The repayment of the NORTEL Loans is secured by, among other things, a
pledge of all of the outstanding capital stock and a grant of a security
interest in all of the assets of Western PCS II to NORTEL.
DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of the Company consists of 300,000,000 shares
of Class A Common Stock and Class B Common Stock, no par value, and 50,000,000
shares of preferred stock, no par value (the "Preferred Stock"). As of March 31,
1996, there were 58,731,111 shares of Class B Common Stock and no shares of
Class A Common Stock issued and outstanding and the Company had 148 holders of
record of its Class B Common Stock.
COMMON STOCK
The Company has two classes of authorized Common Stock, Class A Common
Stock, which is being offered in the Offerings, and Class B Common Stock. Other
than with respect to voting rights, the Class A and Class B have identical
rights. The Class A Common Stock has one vote per share and the Class B Common
Stock has ten votes per share. Shares of Class B Common Stock generally convert
automatically into shares of Class A Common Stock on a share-for-share basis
immediately upon any transfer of the Class B Common Stock other than a transfer
from an original holder of Class B Common Stock to certain affiliates of such
holder.
Holders of Common Stock have no cumulative voting rights and no preemptive,
subscription or sinking fund rights. Subject to preferences that may be
applicable to any then outstanding Preferred Stock, holders of Common Stock will
be entitled to receive ratably such dividends as may be declared by the Board of
Directors out of funds legally available therefor. See "Dividend Policy." In the
event of a liquidation, dissolution or winding up of the Company, holders of
Common Stock will be entitled to share ratably in all assets remaining after
payment of liabilities and the liquidation preference to any then outstanding
Preferred Stock.
The Company's Articles of Incorporation permit the redemption of the
Company's Common Stock from shareholders where necessary to protect the
Company's regulatory licenses. See "Business -- Governmental Regulation."
PREFERRED STOCK
Pursuant to its Articles of Incorporation, the Company is authorized to
issue 50,000,000 shares of Preferred Stock, which may be issued from time to
time in one or more classes or series or both upon authorization by the
Company's Board of Directors. The Board of Directors, without further approval
of the shareholders, is authorized to fix the dividend rights and terms,
conversion rights, voting rights, redemption rights and terms, liquidation
preferences and any other rights, preferences, privileges and restrictions
applicable to each class or series of Preferred Stock. The issuance of Preferred
Stock, while providing flexibility in connection with possible acquisitions and
other corporate purposes, could, among other things, adversely affect the voting
power of the holders of Common Stock and, under certain circumstances, make it
more difficult for a third party to gain
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control of the Company, discourage bids for the Company's Common Stock at a
premium or otherwise adversely affect the market price of the Class A Common
Stock.
The Company has no current plans to issue any Preferred Stock.
CERTAIN ARTICLES OF INCORPORATION, BYLAWS AND STATUTORY PROVISIONS AFFECTING
SHAREHOLDERS
SPECIAL MEETINGS OF SHAREHOLDERS; SHAREHOLDER ACTION BY WRITTEN CONSENT
The Company's Bylaws provide that any action required or permitted to be
taken by the Company's shareholders may be effected at a duly called annual or
special meeting of shareholders or by unanimous consent in writing.
Additionally, the Articles of Incorporation and Bylaws provide that special
meetings of the shareholders of the Company may be called only by a majority of
the Board of Directors or an authorized committee thereof.
ADVANCE NOTICE REQUIREMENTS FOR SHAREHOLDER PROPOSALS AND DIRECTOR
NOMINATIONS
The Company's Bylaws provide that shareholders seeking to bring business
before or to nominate directors at any meeting of shareholders must provide
timely notice thereof in writing. To be timely, a shareholder's notice must be
delivered to, or mailed and received at, the principal executive offices of the
Company not less than (i) with respect to an annual meeting, 120 calendar days
in advance of the one-year anniversary of the date that the Company's proxy
statement was released to shareholders in connection with the previous year's
annual meeting, except that if no annual meeting was held in the previous year
or if the date of the annual meeting has been changed by more than 30 calendar
days from the date contemplated at the time of the previous year's proxy
statement, such notice must be received by the Company a reasonable time before
the Company's proxy statement is to be released and (ii) with respect to a
special meeting of shareholders, a reasonable time before the Company's proxy
statement is to be released. The Bylaws also specify certain requirements for a
shareholder's notice to be in proper written form. These provisions may preclude
some shareholders from bringing matters before the shareholders or from making
nominations for directors.
DIRECTOR AND OFFICER INDEMNIFICATION
The Washington Business Act provides that a Washington corporation may
include provisions in its articles of incorporation relieving each of its
directors of monetary liability arising out of his or her conduct as a director
for breach of his or her fiduciary duty except liability for (i) acts or
omissions of a director that involve intentional misconduct or a knowing
violation of law, (ii) conduct in violation of Section 23B.08.310 of the
Washington Business Act (which section relates to unlawful distributions) or
(iii) any transaction from which a director personally received a benefit in
money, property or services to which the director was not legally entitled. The
Company's Articles of Incorporation include such provisions.
The Company's Articles of Incorporation and Bylaws provide that the Company
shall, to the fullest extent permitted by the Washington Business Act, as
amended from time to time, indemnify and advance expenses to each of its
currently acting and former directors and officers, and may so indemnify and
advance expenses to each of its current and former employees and agents. The
Company believes the foregoing provisions are necessary to attract and retain
qualified persons as directors and officers. Prior to the consummation of the
Offerings, the Company intends to enter into separate indemnification agreements
with each of its directors and executive officers in order to effectuate such
provisions, which agreements will supersede prior indemnification agreements
entered into by the Company with each of its directors and executive officers.
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REGULATED SHAREHOLDERS
The Articles of Incorporation contain provisions that would effectively
preclude each of Goldman Sachs and its affiliates and Merrill Lynch and its
affiliates from voting that number of shares of Common Stock which results in
either such shareholder or its affiliates having the right to vote more than
24.9% of the Company's total voting power.
PROVISIONS AFFECTING ACQUISITIONS AND BUSINESS COMBINATIONS
The Washington Business Act, Section 23B.19 of the Revised Code of
Washington, prohibits a "target corporation," with certain exceptions, from
engaging in certain "significant business transactions" (such as a merger or
sale of assets) with an "acquiring person" who acquires more than 10% of the
voting securities of the target corporation for a period of five years after
such acquisition, unless the transaction is approved by a majority of the
members of the target corporation's board of directors prior to the date of the
transaction or unless the aggregate amount of the cash and the market value of
non-cash consideration received by holders of outstanding shares of any class or
series of stock of the target corporation is equal to certain minimum amounts.
The Company's Articles of Incorporation provide that it will be subject to such
prohibitions and shall remain subject to such prohibitions even if they are ever
repealed. Such prohibitions do not apply to any shareholders who beneficially
own ten percent or more of the Company's outstanding voting securities prior to
the Offerings.
TRANSFER AGENT AND REGISTRAR
The Company's transfer agent and registrar for its Class A Common Stock is
Chemical Mellon Shareholder Services, New York, New York.
VALIDITY OF SENIOR SUBORDINATED NOTES
The validity of the Senior Subordinated Notes offered hereby will be passed
upon for the Company by Preston Gates & Ellis, Seattle, Washington. G. Scott
Greenburg, a partner of the firm, beneficially owns 8,857 shares of Class B
Common Stock. The validity of the Senior Subordinated Notes offered hereby will
be passed upon for the Underwriters by Sullivan & Cromwell, Los Angeles,
California. Sullivan & Cromwell has represented and continues to represent
Goldman Sachs in connection with its investment in the Company.
EXPERTS
The audited consolidated financial statements and schedule of Western
Wireless Corporation and the audited consolidated financial statements of MCLP
included in this Prospectus and elsewhere in the Registration Statement have
been audited by Arthur Andersen LLP, independent public accountants, as
indicated in their reports with respect thereto, and are included herein in
reliance upon the authority of said firm as experts in accounting and auditing
in giving said reports.
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ADDITIONAL INFORMATION
The Company has filed with the Commission, Washington, D.C., a Registration
Statement on Form S-1 under the Act, with respect to the Senior Subordinated
Notes offered hereby. This Prospectus does not contain all of the information
set forth in the Registration Statement, certain portions of which have been
omitted as permitted by the rules and regulations of the Commission. For further
information with respect to the Company and the Senior Subordinated Notes,
reference is made to the Registration Statement, including the exhibits and
schedules thereto. Statements contained in this Prospectus as to the contents of
any contract, agreement or any other document referred to herein are not
necessarily complete; with respect to each such contract, agreement or document
filed as an exhibit to the Registration Statement, reference is made to such
exhibit for a more complete description of the matters involved, and each such
statement shall be deemed qualified in its entirety by such reference. The
Registration Statement, including the exhibits and schedules thereto, may be
inspected without charge at the Commission's principal office at 450 Fifth
Street, N.W., Washington, D.C. 20549 and copies of it or any part thereof may be
obtained from such office, upon payment of the fees prescribed by the
Commission.
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INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
WESTERN WIRELESS CORPORATION CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Public Accountants............................................. F-2
Consolidated Balance Sheets as of March 31, 1996, and December 31, 1995 and 1994..... F-3
Consolidated Statements of Operations for the quarters ended March 31, 1996 and 1995
and the years ended December 31, 1995, 1994 and 1993............................... F-4
Consolidated Statements of Shareholders' Equity for the quarter ended March 31, 1996
and the years ended December 31, 1995, 1994 and 1993............................... F-5
Consolidated Statements of Cash Flows for the quarters ended March 31, 1996 and 1995
and the years ended December 31, 1995, 1994 and 1993............................... F-6
Notes to Consolidated Financial Statements........................................... F-7
Schedule II -- Valuation and Qualifying Accounts..................................... F-26
MARKETS CELLULAR LIMITED PARTNERSHIP CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Public Accountants............................................. F-27
Consolidated Balance Sheets as of June 30, 1994, and December 31, 1993 and 1992...... F-28
Consolidated Statements of Operations for the six months ended June 30, 1994 and
1993, the year ended December 31, 1993, and the period from October 6, 1992
(inception) to December 31, 1992................................................... F-29
Consolidated Statements of Partners' Capital for the six months ended June 30, 1994,
the year ended December 31, 1993, and the period from October 6, 1992 (inception)
to December 31, 1992............................................................... F-30
Consolidated Statements of Cash Flows for the six months ended June 30, 1994 and
1993, the year ended December 31, 1993, and the period from October 6, 1992
(inception) to December 31, 1992................................................... F-31
Notes to Consolidated Financial Statements........................................... F-32
</TABLE>
F-1
<PAGE> 106
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Shareholders of
Western Wireless Corporation:
We have audited the accompanying consolidated balance sheets of Western Wireless
Corporation and subsidiaries as of December 31, 1995 and 1994, and the related
consolidated statements of operations, shareholders' equity and cash flows for
each of the three years in the period ended December 31, 1995. These
consolidated financial statements and the schedule referred to below are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements and schedule based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Western Wireless
Corporation and subsidiaries as of December 31, 1995 and 1994, and the results
of their operations and their cash flows for each of the three years in the
period ended December 31, 1995, in conformity with generally accepted accounting
principles.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedule listed in the index of
financial statements is presented for purposes of complying with the Securities
and Exchange Commission rules and is not part of the basic financial statements.
This schedule has been subjected to the auditing procedures applied in the audit
of the basic financial statements and, in our opinion, fairly states in all
material respects the financial data required to be set forth therein in
relation to the basic financial statements taken as a whole.
/s/ ARTHUR ANDERSEN LLP
Seattle, Washington,
March 15, 1996
F-2
<PAGE> 107
WESTERN WIRELESS CORPORATION
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1995 1994
MARCH 31, --------- ---------
1996
-----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.............................. $ 6,204 $ 8,572 $ 7,787
Accounts receivable, net of allowance for doubtful
accounts of $2,405, $2,800 and $1,772,
respectively........................................ 16,908 18,074 11,635
Inventory.............................................. 9,803 5,361 4,978
Prepaid expenses and other current assets.............. 7,282 4,001 2,369
Deposit held by FCC.................................... 1,500 1,500 10,000
----------- --------- ---------
Total current assets........................... 41,697 37,508 36,769
Property and equipment, net of accumulated depreciation
of $62,802, $53,423 and $25,098, respectively.......... 231,488 193,692 120,648
Licensing costs and other intangible assets, net of
accumulated amortization of $34,836, $28,364 and
$11,701, respectively.................................. 455,371 417,971 211,309
Investments in unconsolidated affiliates................. 7,688 8,388 587
Other assets............................................. 1,202 1,469 881
----------- --------- ---------
$ 737,446 $ 659,028 $ 370,194
========== ========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable....................................... $ 16,522 $ 7,568 $ 7,840
Accrued liabilities.................................... 16,311 16,659 11,440
Construction accounts payable.......................... 31,530 28,408 5,102
Unearned revenue and customer deposits................. 4,340 3,301 3,891
Loans from shareholders................................ 10,000
Current portion of long-term debt...................... 941
----------- --------- ---------
Total current liabilities...................... 68,703 55,936 39,214
----------- --------- ---------
Long-term debt, net of current portion................... 438,480 362,487 200,587
----------- --------- ---------
Commitments and contingent liabilities (Notes 9 and 17)
Minority interests in equity of consolidated
subsidiary............................................. 3,376
---------
Shareholders' equity:
Common stock, $.001 par value, and paid-in capital;
300,000,000 shares authorized; 58,731,111
(unaudited), 58,047,235 and 42,983,360 issued and
outstanding, respectively........................... 334,675 324,729 155,187
Deferred compensation.................................. (1,714)
Deficit................................................ (102,698) (84,124) (28,170)
----------- --------- ---------
Total shareholders' equity..................... 230,263 240,605 127,017
----------- --------- ---------
$ 737,446 $ 659,028 $ 370,194
========== ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE> 108
WESTERN WIRELESS CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
QUARTER ENDED
MARCH 31, YEAR ENDED DECEMBER 31,
------------------------- --------------------------------------
1996 1995 1995 1994 1993
----------- ---------- ---------- ---------- ----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues:
Subscriber revenues............... $ 35,337 $ 18,967 $ 105,430 $ 38,838 $ 11,105
Roamer revenues................... 6,757 4,802 29,660 16,746 7,285
Equipment sales and
other revenue................... 3,941 2,315 11,465 7,524 2,344
----------- ----------- ----------- ---------- ----------
Total revenues............. 46,035 26,084 146,555 63,108 20,734
----------- ----------- ----------- ---------- ----------
Operating expenses:
Cost of service................... 8,815 5,786 27,686 13,303 4,310
Cost of equipment sales........... 6,354 3,870 20,705 11,446 3,533
General and administrative........ 12,270 6,254 31,253 15,226 6,253
Sales and marketing............... 13,491 7,164 41,390 18,553 6,101
Depreciation and amortization..... 15,610 10,776 49,456 25,670 5,399
Provision for restructuring
costs........................... 2,478
----------- ----------- ----------- ---------- ----------
Total operating expenses... 56,540 33,850 170,490 86,676 25,596
----------- ----------- ----------- ---------- ----------
Operating loss...................... (10,505) (7,766) (23,935) (23,568) (4,862)
----------- ----------- ----------- ---------- ----------
Other income (expense):
Interest and financing expense.... (8,134) (5,027) (25,428) (10,659) (2,242)
Gain (loss) on dispositions,
net............................. (573) 6,202 10,102
Other, net........................ 65 330 627 2,065 331
----------- ----------- ----------- ---------- ----------
Total other income
(expense)................ (8,069) (4,697) (25,374) (2,392) 8,191
----------- ----------- ----------- ---------- ----------
Income (loss) before extraordinary
item.............................. (18,574) (12,463) (49,309) (25,960) 3,329
Extraordinary loss on early
extinguishment of debt............ (6,645)
----------- ----------- ----------- ---------- ----------
Net income (loss).......... $ (18,574) $ (12,463) $ (55,954) $ (25,960) $ 3,329
=========== =========== =========== ========== ==========
Income (loss) per common share
before extraordinary item......... $ (0.31) $ (0.24) $ (0.87) $ (0.59) $ 0.10
Per common share effect of
extraordinary item................ (0.12)
----------- ----------- ----------- ---------- ----------
Net income (loss) per common share.. $ (0.31) $ (0.24) $ (0.99) $ (0.59) $ 0.10
=========== =========== =========== ========== ==========
Weighted average common shares and
common equivalent shares
outstanding....................... 59,486,512 52,363,838 56,469,990 43,949,101 32,253,303
=========== =========== =========== ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE> 109
WESTERN WIRELESS CORPORATION
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(Dollars in thousands)
<TABLE>
<CAPTION>
COMMON STOCK
---------------------------- TOTAL
PAR VALUE AND DEFERRED SHAREHOLDERS'
SHARES PAID-IN CAPITAL COMPENSATION DEFICIT EQUITY
---------- --------------- ------------ --------- -------------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1992........ 21,658,612 $ 70,318 $ (457) $ (5,539) $ 64,322
Shares issued:
For cash, net of costs....... 4,217,761 17,008 17,008
In exchange for long-term
notes payable plus accrued
interest................... 277,512 1,058 1,058
Deferred compensation........... 172 172
Net income...................... 3,329 3,329
---------- ------- -------- ---------- --------
Balance, December 31, 1993........ 26,153,885 88,384 (285) (2,210) 85,889
Business Combination:
Shares issued:
To acquire MCLP............ 18,160,643 70,918 70,918
To acquire interests in
subsidiaries............ 39,761 160 160
GCC shares held by minority
interests.................. (1,370,929) (4,275) (4,275)
Deferred compensation........... 285 285
Net loss........................ (25,960) (25,960)
---------- ------- -------- ---------- --------
Balance, December 31, 1994........ 42,983,360 155,187 (28,170) 127,017
Shares issued:
For cash, net of costs....... 12,665,905 143,002 143,002
In exchange for shareholder
loans plus accrued
interest................... 1,245,998 14,068 14,068
For minority interests in
GCC, net................... 896,210 9,944 9,944
In exchange for wireless
assets..................... 217,000 2,450 2,450
Upon exercise of stock
options.................... 38,762 78 78
Net loss........................ (55,954) (55,954)
---------- ------- -------- ---------- --------
Balance, December 31, 1995........ 58,047,235 324,729 (84,124) 240,605
Shares issued (unaudited):
For cash, net of costs....... 88,567 1,000 1,000
In exchange for wireless
assets..................... 595,309 7,117 7,117
Deferred compensation
(unaudited).................. 1,829 (1,714) 115
Net loss (unaudited)............ (18,574) (18,574)
---------- ------- -------- ---------- --------
Balance, March 31, 1996
(unaudited)..................... 58,731,111 $ 334,675 $ (1,714) $(102,698) $ 230,263
========== ======= ======== ========== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE> 110
WESTERN WIRELESS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
<TABLE>
<CAPTION>
QUARTER ENDED
MARCH 31, YEAR ENDED DECEMBER 31,
------------------------- ---------------------------------
1996 1995 1995 1994 1993
----------- ---------- --------- --------- ---------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Operating activities:
Net income (loss).................................. $ (18,574) $ (12,463) $ (55,954) $ (25,960) $ 3,329
Adjustments to reconcile net income (loss) to net
cash used in operating activities:
Depreciation and amortization.................. 15,610 10,776 49,456 25,670 5,399
Amortization of deferred interest.............. 1,465
Extraordinary loss on early extinguishment of
debt........................................ 6,645
(Gain) loss on dispositions, net............... 573 (6,202) (10,102)
Employee equity compensation................... 115 285 172
Other, net..................................... 248 (65) 527 163
Changes in operating assets and liabilities,
net of effects from consolidating acquired
interests:
Accounts receivable, net.................. 1,741 (926) (5,748) (2,249) (2,303)
Inventory................................. (4,158) 565 (239) (3,454) (150)
Prepaid expenses and other current
assets.................................. (3,190) (113) (1,284) 4,843 111
Accounts payable.......................... 8,171 (3,788) (272) (1,465) 354
Accrued liabilities....................... (735) 1,743 6,421 5,082 1,110
Unearned revenue and customer deposits.... 553 642 (870) 2,299 360
--------- --------- -------- ------- -------
Net cash used in operating activities.......... (219) (3,629) (745) (988) (255)
--------- --------- -------- ------- -------
Investing activities:
Purchase of property and equipment................. (38,587) (11,178) (79,464) (47,423) (25,113)
Purchase of wireless licenses and other............ (4,233) (19,907) (137,805)
Acquisition of wireless properties, net of cash
acquired......................................... (36,045) (16,078) (60,700) (30,566) (25,661)
Proceeds from disposition of assets, net........... 10,163 19,739
Investments in unconsolidated affiliates........... (84) (70) (8,268) (2,364) (1,500)
Purchase of subsidiary stock, including fees....... (1,325) (5,842)
Deposit held by FCC................................ (1,500)
--------- --------- -------- ------- --------
Net cash used in investing activities.......... (78,949) (48,558) (293,579) (70,190) (32,535)
--------- --------- -------- ------- --------
Financing activities:
Proceeds from issuance of common stock, net........ 1,000 143,080 17,008
Additions to long-term debt........................ 75,800 46,000 438,000 214,729 20,726
Payment of debt.................................... (475) (277,015) (135,264) (981)
Deferred financing costs........................... (470) (12,798) (8,688) (541)
Loans from shareholders............................ 3,842 3,842
--------- --------- -------- --------- ---------
Net cash provided by financing activities...... 76,800 48,897 295,109 70,777 36,212
--------- --------- -------- --------- ---------
Increase (decrease) in cash and cash equivalents..... (2,368) (3,290) 785 (401) 3,422
Cash and cash equivalents, beginning of period....... 8,572 7,787 7,787 8,188 4,766
--------- --------- -------- --------- ---------
Cash and cash equivalents, end of period............. $ 6,204 $ 4,497 $ 8,572 $ 7,787 $ 8,188
========= ========= ======== ========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE> 111
WESTERN WIRELESS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND BASIS OF PRESENTATION:
Western Wireless Corporation (the "Company") is a wireless communications
company that owns and operates wireless communications systems in the western
United States. In 1995, the Company acquired six personal communications
services ("PCS") licenses in an auction administered by the Federal
Communications Commission ("FCC"). The Company plans to initiate wireless
services in these licensed areas by 1997.
The Company was formed in July 1994 in a business combination (the
"Business Combination") among several companies, principally MARKETS Cellular
Limited Partnership ("MCLP") and General Cellular Corporation ("GCC"). The
Business Combination has been accounted for as a purchase with GCC deemed to be
the acquiring company. As a result, the financial results after the date of the
Business Combination reflect the consolidated operations of GCC and MCLP; all
financial results prior to such date reflect only the consolidated operations of
GCC, which is considered the Company's predecessor for accounting purposes. The
Company had previously reported this transaction as a pooling of interests. The
impact of restating the transaction as a purchase was to increase licensing
costs.
The Company expects to incur significant operating losses and to generate
negative cash flows from operating activities during the next several years
while it develops and constructs its PCS systems and builds a PCS customer base.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Principles of consolidation:
The consolidated financial statements include the accounts of the Company,
its wholly owned subsidiaries and its affiliate investments in which the Company
has a greater than 50% interest. All affiliate investments in which the Company
has between a 20% and 50% interest are accounted for using the equity method.
All significant intercompany accounts and transactions have been eliminated.
Markets operated under an Interim Operating Authority ("IOA") are not material
to the Company's operations. All IOA revenues and expenses are included within
the appropriate line items of the Company's Consolidated Statements of
Operations.
Unaudited interim financial statements:
The interim consolidated financial information contained herein is
unaudited but reflect all adjustments which are, in the opinion of management,
necessary to a fair presentation of the financial position, results of
operations and cash flows for the periods presented. All such adjustments are of
a normal, recurring nature. Results of operations for interim periods presented
herein are not necessarily indicative of results of operations for the entire
year.
Cash and cash equivalents:
Cash and cash equivalents consist of cash on hand, deposits in banks and
highly liquid investments purchased with an original maturity of less than three
months. The carrying value of cash and cash equivalents reported in the balance
sheets approximates fair market value.
Revenue recognition:
Service revenues based on customer usage are recognized at the time the
service is provided. Access and special feature service revenues are recognized
when earned. Sales of equipment, primarily handsets, are recognized when the
goods are delivered.
F-7
<PAGE> 112
WESTERN WIRELESS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED):
Inventory:
Inventory consists primarily of handsets and accessories. Inventory is
stated at the lower of cost or market, determined on a first-in, first-out
basis.
Property and equipment and depreciation:
Property and equipment are stated at cost. Depreciation commences once the
assets have been placed in service and is computed using the straight-line
method over the estimated useful lives of the assets which primarily range from
three to ten years.
Licensing costs and other intangible assets and amortization:
Licensing costs primarily represent costs incurred to apply for or acquire
FCC wireless licenses, including cellular licenses obtained by the Company
principally through acquisitions, and PCS licenses, which were auctioned by the
FCC during 1995. Amortization of cellular licenses is computed using the
straight-line method over 15 years.
The Company's PCS licenses represent qualified assets pursuant to Statement
of Financial Accounting Standards 34; interest capitalizable to date has not
been material. Amortization of PCS licenses begins with commencement of service
to customers and is computed using the straight-line method over 40 years. At
December 31, 1995, operations had not commenced in any of the Company's PCS
markets.
In February 1996, the Company initiated commercial operations in its
Honolulu, Hawaii PCS market.
Other intangible assets consist primarily of deferred financing costs.
Deferred financing costs are amortized using the effective interest rate method
over the terms of the respective loans.
Income taxes:
The Company accounts for deferred taxes using the asset and liability
method.
Net income (loss) per common share:
Net income (loss) per common share is calculated using the weighted average
number of shares of outstanding common stock and common stock equivalents during
the period. As required by Securities and Exchange Commission (the "Commission")
regulations, common shares issued by the Company in the year preceding the
filing of an initial public offering have been included in the calculation of
shares used in determining the net income (loss) per share as if they had been
outstanding for all periods presented, the effect of which is anti-dilutive for
1995 and 1994.
Interest rate swap and cap agreements:
As required under the Credit Facility (as defined in Note 6), the Company
enters into interest rate swap and cap agreements to manage interest rate
exposure pertaining to long-term debt. Interest rate swap agreements are
accounted for on an accrual basis. Amounts to be paid or received under interest
rate swap agreements are included as a component of interest expense in the
periods in which they accrue. Premiums paid for purchased interest rate cap
agreements are amortized to interest expense over the terms of the agreements.
Unamortized premiums are accounted for as assets in the consolidated balance
sheets. Amounts received under the interest rate cap agreements, if any, are
accounted for on an accrual basis and recognized as a reduction to interest
expense.
F-8
<PAGE> 113
WESTERN WIRELESS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED):
Supplemental cash flow disclosure:
Cash paid for interest was $21.7 million, $10.9 million and $0.2 million
for the years ended December 31, 1995, 1994 and 1993, respectively.
Cash paid for interest was $7.9 million (unaudited) and $4.5 million
(unaudited) for the quarters ended March 31, 1996 and 1995, respectively.
Non-cash investing and financing activities were as follows (in thousands):
<TABLE>
<CAPTION>
QUARTER ENDED YEAR ENDED DECEMBER 31,
-------------- ----------------------------
MARCH 31, 1996 1995 1994 1993
-------------- ------- ------- ------
(UNAUDITED)
<S> <C> <C> <C> <C>
Conversion of FCC deposit to wireless
license................................ $10,000
Issuance of common stock in exchange for
wireless assets........................ $7,117 2,450
Exchange of shareholder loans and accrued
interest for common stock.............. 14,068
Shareholder loans to fund FCC deposit.... $10,000
Notes payable plus accrued interest
converted into common stock............ $1,058
</TABLE>
The Business Combination described in Notes 1 and 12 was also a non-cash
transaction involving the issuance of 18,160,643 shares of the Company's common
stock to acquire the assets and liabilities of MCLP and 39,761 shares of the
Company's common stock for interests in subsidiaries. During 1995, the Company
issued 896,210 shares of its common stock in exchange for minority interests in
GCC.
Concentration of credit risk:
The Company's customers are dispersed throughout rural areas of the western
United States. No single customer accounted for a significant amount of the
Company's sales, and there were no significant accounts receivable from a single
customer. The Company reviews the credit histories of potential customers prior
to extending credit and maintains allowances for potential credit losses. The
Company maintains cash and cash equivalents in high credit quality financial
institutions. The Company believes that its risk from concentration of credit is
limited.
Estimates used in preparation of financial statements:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting periods. Actual results could differ from those estimates.
Recently issued accounting standards:
The Financial Accounting Standards Board has recently issued Statement No.
121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of." This statement requires that long-lived assets and
certain identifiable intangible assets be reviewed to determine whether the
carrying amount is recoverable based on estimated future cash flows expected
from the use of the assets and cash to be received upon disposal of the assets.
The Financial Accounting Standards Board has also recently issued Statement No.
123 "Accounting for
F-9
<PAGE> 114
WESTERN WIRELESS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED):
Stock-Based Compensation." This statement affects the valuation and disclosure
of stock-based transactions with employees. The Company plans to use the pro
forma disclosure alternative. The Company does not anticipate any material
impact on the financial position, results of operations or cash flows of the
Company upon adoption of these standards in 1996.
3. PROPERTY AND EQUIPMENT:
Property and equipment consists of (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
MARCH 31, ---------------------
1996 1995 1994
----------- -------- --------
(UNAUDITED)
<S> <C> <C> <C>
Land, buildings and improvements................ $ 4,277 $ 2,879 $ 2,328
Wireless communications systems................. 201,802 165,825 124,165
Furniture and equipment......................... 21,209 16,273 7,391
-------- -------- --------
227,288 184,977 133,884
Less accumulated depreciation................... (62,802) (53,423) (25,098)
-------- -------- --------
164,486 131,554 108,786
Construction in progress........................ 67,002 62,138 11,862
-------- -------- --------
$231,488 $193,692 $120,648
======== ======== ========
</TABLE>
Depreciation expense was $30.2 million, $17.0 million and $4.1 million for
the years ended December 31, 1995, 1994 and 1993, respectively.
Depreciation expense was $9.4 million (unaudited) and $6.5 million
(unaudited) for the quarters ended March 31, 1996 and 1995, respectively.
4. INVESTMENTS IN UNCONSOLIDATED AFFILIATES:
At December 31, 1995, the Company's investments in unconsolidated
affiliates consisted of an interest in Sawtooth Paging, Inc. ("Sawtooth") and an
interest in Cook Inlet Western Wireless PV/SS PCS, L.P. ("Cook Inlet PCS").
The Company had approximately a 47% and 45% ownership interest in Sawtooth
as of December 31, 1995 and 1994, respectively. Sawtooth is also owned 47% by
certain officers, one of whom is also a director, of the Company. Subsequent to
year end, the Company purchased the remaining unowned portion of Sawtooth. (See
Note 17).
In November 1995, a wholly owned subsidiary of the Company entered into an
agreement to form Cook Inlet PCS in order to participate in the FCC's C Block
auction of PCS licenses. Cook Inlet PCS intends to bid on, acquire, own, develop
and operate systems for any PCS licenses acquired during the C Block auction.
The continued existence of Cook Inlet PCS is contingent upon the successful
acquisition of at least one C Block license during the auction currently
underway. The Company has a 49.9% ownership interest in Cook Inlet PCS. At
December 31, 1995, the Company's investment in Cook Inlet PCS was approximately
$7.6 million.
The assets, liabilities and results of operations of Sawtooth and Cook
Inlet PCS are not material to the Company.
F-10
<PAGE> 115
WESTERN WIRELESS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
5. ACCRUED LIABILITIES:
Accrued liabilities consist of (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1995 1994
-------- --------
<S> <C> <C>
Accrued payroll and benefits................................. $ 5,551 $ 3,913
Accrued sales and property taxes............................. 3,236 1,613
Accrued interest expense..................................... 4,471 1,697
Other........................................................ 3,401 4,217
------- -------
$ 16,659 $ 11,440
======= =======
</TABLE>
6. LONG-TERM DEBT:
Long-term debt consists of (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
MARCH 31, ---------------------
1996 1995 1994
------------ -------- --------
(UNAUDITED)
<S> <C> <C> <C>
Credit Facility (a)......................... $402,000 $347,000 $197,000
NORTEL Facility (b)......................... 33,800 13,000
Other(c).................................... 2,680 2,487 4,528
-------- -------- --------
438,480 362,487 201,528
Less current portion........................ 941
-------- -------- --------
$438,480 $362,487 $200,587
======== ======== ========
</TABLE>
(a) Credit Facility
On June 30, 1995, the Company entered into a credit facility with a group
of lenders (the "Credit Facility"). Pursuant to the Credit Facility, the banks
have agreed to make loans to the Company, on a revolving credit basis, in an
aggregate principal amount not to exceed $750 million during the period ending
December 30, 1998. On December 31, 1998, the loans convert to term loans payable
over five years.
Under the Credit Facility, interest is payable at the applicable margin in
excess of the prevailing Base Rate, Eurodollar or CD rate. The rate is selected
at the Company's option. The applicable margin is determined quarterly based on
the leverage ratio of the Company, excluding certain of its subsidiaries.
Interest is fixed for a period ranging from one month to one year, depending on
the type of loan, although if the Company selects the Base Rate option, the
interest rate will fluctuate during the period as the Base Rate fluctuates. At
December 31, 1995, all loans under the Credit Facility had been borrowed using
the Eurodollar rate option. The weighted average interest rate, including the
appropriate applicable margin, at December 31, 1995 was 7.41%. The Credit
Facility also provides for an annual fee of 0.5% of the unused commitment,
payable quarterly.
The weighted average interest rate, including applicable margin, at March
31, 1996 was 7.13% (unaudited).
The Credit Facility contains affirmative covenants, including among others,
maintenance of its licenses and properties, compliance with laws, insurance,
payment of taxes, payment of other indebtedness and delivery of financial and
other information. The Credit Facility requires that the Company, excluding
certain of its subsidiaries, comply with financial tests and maintain certain
F-11
<PAGE> 116
WESTERN WIRELESS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
6. LONG-TERM DEBT -- (CONTINUED):
financial ratios, including among others, maximum leverage, debt service and
fixed charges. As of March 31, 1996 and December 31, 1995, the unused portion of
the commitment under the Credit Facility was $348 million (unaudited) and $403
million, respectively.
The Credit Facility also contains certain restrictive covenants which
impose limitations on the operations and activities of the Company and certain
of its subsidiaries, including the incurrence of other indebtedness, the
creation of liens, the sale of assets, investments and acquisitions and payment
of dividends. The Credit Facility currently limits total investments by the
Company in its subsidiaries owning PCS licenses to $450 million and further
limits the total investment by the Company to $100 million (both of which are
exclusive of license acquisition costs of approximately $144 million and
exclusive of the proceeds of the NORTEL Facility (defined below)) in its PCS
subsidiaries until the PCS licenses granted by the FCC are final and
unappealable.
The repayment of the Credit Facility is secured by, among other things, the
grant of a security interest in substantially all of the assets of the Company,
excluding, among other items, the capital stock and assets of the subsidiary
that is party to the NORTEL Facility.
Upon execution of the Credit Facility, the Company repaid all of its
outstanding indebtedness under its then existing revolving/term loan agreement
(the "Previous Agreement"). Pursuant to the Previous Agreement, the lenders
thereunder agreed to make loans to the Company on a revolving credit basis in an
aggregate principal amount not to exceed $325 million. The Previous Agreement
was collateralized by substantially all of the assets of the Company. The
weighted average interest rate on the outstanding principal under the Previous
Agreement at December 31, 1994 was 8.21%.
The Company incurred an extraordinary loss of approximately $6.6 million in
connection with the early repayment of the outstanding indebtedness under the
Previous Agreement during 1995. The loss primarily consisted of the write-off of
the related financing costs which had been deferred and only partially
amortized.
(b) NORTEL Facility
Effective June 30, 1995, a wholly owned subsidiary of the Company entered
into a $200 million credit facility (the "NORTEL Facility") with Northern
Telecom Inc. ("NORTEL") which expires on December 31, 2003. The NORTEL Facility
bears interest at the subsidiary's option at either the higher of the prime rate
or the Federal Funds Rate, plus 0.625%, plus in either case a margin of 1.5%, or
the London Interbank Offered Rate ("LIBOR") plus a margin of 2.5%. The NORTEL
Facility includes quarterly financial covenants which contain provisions
regarding the maintenance of operating cash flow ratios beginning September 30,
2000, total debt and minimum revenue levels and a minimum cash coverage ratio.
The NORTEL Facility also contains certain restrictive covenants which impose
limitations on the operations and activities of the subsidiary, including limits
on new indebtedness, sale of existing assets, permitted investments and business
acquisitions and payment of cash dividends by the subsidiary. The NORTEL
Facility also provides for interest only payments through September 30, 2000,
and includes mandatory prepayment clauses contingent upon specific operating
results. The NORTEL Facility is collateralized by substantially all of the
subsidiary's assets and the stock of such subsidiary.
Commencing September 30, 2000, and at the end of each calendar quarter
thereafter, the subsidiary is required to make payments on the principal amount
outstanding under the NORTEL Facility in increasing quarterly installments.
F-12
<PAGE> 117
WESTERN WIRELESS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
6. LONG-TERM DEBT -- (CONTINUED):
As of December 31, 1995, the unused portion of the commitment under the
NORTEL Facility was $187 million. Outstanding borrowings at December 31, 1995,
were drawn under the LIBOR rate option with a weighted average interest rate of
8.43%.
As of March 31, 1996, the unused portion of the commitment under the NORTEL
Facility was $166.2 million (unaudited). Outstanding borrowings at March 31,
1996 were drawn under the LIBOR rate option with a weighted average interest
rate of 8.00% (unaudited).
(c) Other
At December 31, 1995 and 1994, the Company had other debt of approximately
$2.5 million and $4.5 million, respectively.
The Company expects to amend the Credit Facility in May 1996 to allow,
among other things, an increase of $200 million to the Credit Facility by the
inclusion of a term loan in such amount and to amend the existing repayment
terms and financial covenants. The March 31, 1996 debt maturities reflected
below have been shown as if the proposed amendment is in effect.
The aggregate amounts of principal maturities of the Company's debt are as
follows (in thousands):
<TABLE>
<CAPTION>
TWELVE MONTH PERIODS ENDING
--------------------------------
MARCH 31, DECEMBER 31,
---------- ------------
(UNAUDITED)
<S> <C> <C>
1996..................................... $ 0 $ 0
1997..................................... 0 0
1998..................................... 2,564 2,487
1999..................................... 46 24,290
2000..................................... 7,084 46,410
Thereafter............................... 428,786 289,300
-------- --------
$ 438,480 $ 362,487
======== ========
</TABLE>
7. FINANCIAL INSTRUMENTS:
The Company uses various financial instruments as part of its overall
strategy to manage the Company's exposure to market risks associated with
interest rate fluctuations. The Company has only limited involvement with these
financial instruments, and does not use them for trading purposes. Interest rate
swaps allow the Company to raise long-term borrowings at variable rates and swap
them into fixed rates for shorter durations. This enables the Company to
separate interest rate management from debt funding decisions. Interest rate cap
agreements are used to reduce the potential impact of increases in interest
rates on borrowings based upon variable interest rates. These transactions do
not subject the Company to risk of loss because gains and losses on these
contracts are offset against losses and gains on the underlying liabilities. No
collateral is held in relation to the Company's financial instruments.
At December 31, 1995, the Company had entered into interest rate caps and
swaps with a total notional amount of $375 million, of which $185 million was of
a short-term duration. The remaining $190 million had initial terms ranging from
three to 3 1/2 years and effectively converted $190 million of variable rate
debt to fixed rate. The weighted average interest rate under these agreements
was approximately 6.75% at December 31, 1995. Total net expense incurred during
the year ended December 31, 1995 for the Company's interest rate caps and swaps
was approximately $0.5 million. The amount of unrealized loss attributable to
changing interest rates at December 31, 1995 was immaterial.
F-13
<PAGE> 118
WESTERN WIRELESS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
7. FINANCIAL INSTRUMENTS -- (CONTINUED):
At December 31, 1994, the Company had interest rate protection in the form
of interest rate caps covering $105 million of the outstanding balance under the
Previous Agreement. Total net expense incurred during the year ended December
31, 1994 for the Company's interest rate caps and swaps was approximately $0.3
million. The amount of unrealized loss attributable to changing interest rates
at December 31, 1994 was immaterial.
At March 31, 1996, the Company had interest rate swap and cap agreements
with a total notional amount of $390 million (unaudited), of which $205 million
(unaudited) is of a long-term nature. Total net expense incurred for the quarter
ended March 31, 1996 was approximately $0.2 million (unaudited).
8. DISCLOSURES ABOUT FAIR VALUES OF FINANCIAL INSTRUMENTS:
The Company's carrying value of financial instruments approximated fair
value. The estimated fair value of the Company's financial instruments has been
determined using available market information and appropriate valuation
methodologies. The fair value of derivative positions were determined by
obtaining market quotes.
9. COMMITMENTS AND CONTINGENT LIABILITIES:
Commitments:
The Company leases various facilities, cell site locations, rights-of-way
and equipment under operating lease agreements. The leases expire at various
dates through the year 2036. Some leases have options to renew for additional
periods up to 30 years. Certain leases require the Company to pay property
taxes, insurance and normal maintenance costs. Significantly all of the
Company's leases have fixed minimum lease payments. The Company has no
significant capital lease liabilities.
Future minimum payments required under operating leases and agreements that
have initial or remaining noncancellable terms in excess of one year at December
31, 1995, are summarized below (in thousands):
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31,
------------------------------------------------------------------
<S> <C>
1996......................................................... $ 5,429
1997......................................................... 4,914
1998......................................................... 4,261
1999......................................................... 3,388
2000......................................................... 2,604
Thereafter................................................... 5,828
-------
$26,424
=======
</TABLE>
Subsequent to year end, the Company has entered into new operating leases
resulting in additional future minimum payments not reflected above of
approximately $1 million per year through 2001.
Aggregate rental expense for all operating leases was approximately $4.8
million, $2.2 million and $0.9 million for the years ended December 31, 1995,
1994 and 1993, respectively.
In order to ensure adequate supply of certain inventory requirements, the
Company has committed to purchase from a supplier a minimum number of PCS and
dual-mode handsets totaling approximately $43.7 million prior to October 1999.
No orders had been placed as of December 31,
F-14
<PAGE> 119
WESTERN WIRELESS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
9. COMMITMENTS AND CONTINGENT LIABILITIES -- (CONTINUED):
1995. At March 31, 1996 the Company, under this agreement, had purchased $3.2
million (unaudited) and had outstanding purchase orders totaling $15.8 million
(unaudited).
In December 1995, a wholly owned subsidiary of the Company entered into an
agreement with this supplier to purchase a minimum of $50 million of wireless
communications equipment and services for the Company's PCS systems prior to
December 31, 1998. The Company has an option to extend the purchase commitment
period to four years by increasing the minimum purchase commitment to $100
million. In exchange for meeting minimum purchase milestones, the Company will
receive volume discounts in the form of credit memos from the supplier which may
be used at the Company's option against either the most recent payment owed to
the supplier or future purchases. The purchase agreement is valid through
December 2005. At December 31, 1995, the Company had outstanding purchase orders
totaling approximately $16 million under the agreement. At March 31, 1996 the
Company, under this agreement, had purchased $4.1 million (unaudited) and had
outstanding purchase orders totaling $10.4 million (unaudited).
In connection with the NORTEL Facility, a wholly owned subsidiary of the
Company entered into an agreement with NORTEL to purchase $200 million of PCS
network equipment and related services. At December 31, 1995, under this
agreement, the Company had purchased approximately $22.5 million and had
outstanding purchase orders totaling approximately $3.2 million. The agreement
expires June 30, 2000. At March 31, 1996, the Company had purchased
approximately $26.0 million (unaudited) and had outstanding purchase orders
totaling approximately $10.1 million (unaudited).
The Company has various other purchase commitments for materials, supplies
and other items incident to the ordinary course of business. In the aggregate,
such commitments are not at prices in excess of current market value.
Contingent liabilities:
The Company is involved in various lawsuits arising in the normal course of
business, none of which is expected to have a material adverse effect on the
Company's financial position, cash flows, liquidity or results of operations.
In the ordinary course of business, the Company is subject to extensive and
changing federal, state and local laws and regulations with regard to
environmental matters. To date the Company has not identified any potential
liabilities pertaining to environmental cleanup on properties owned or operated
by the Company.
F-15
<PAGE> 120
WESTERN WIRELESS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
10. INCOME TAXES:
Significant components of deferred income tax assets and liabilities are as
follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1995 1994
-------- --------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards........................... $ 37,666 $ 20,494
Other temporary differences................................ 5,589 3,834
-------- --------
Total deferred tax assets.................................... 43,255 24,328
Valuation allowance.......................................... (34,083) (18,261)
-------- --------
9,172 6,067
Deferred tax liabilities:
Property and wireless licenses basis differences........... (9,172) (6,067)
-------- --------
$ 0 $ 0
======== ========
</TABLE>
For tax purposes, the Company had available at December 31, 1995, net
operating loss carryforwards for regular tax purposes of approximately $94
million which will expire in 2002 through 2010. The Company may be limited in
its ability to use these carryforwards in any one year due to ownership changes
that preceded the Business Combination. The change in the valuation allowance
was an increase of $15.8 million in 1995 and decreases of $4.7 million and $0.3
million in 1994 and 1993, respectively.
Management believes that, based on a number of factors, the available
objective evidence creates sufficient uncertainty regarding the realization of
the net deferred tax assets. Such factors include recurring operating losses
resulting primarily from the development of the Company's PCS business and
expected increased competition from new entrants into the Company's existing
markets. Accordingly, a valuation allowance has been provided for the net
deferred tax assets of the Company.
The difference between the statutory tax rate of approximately 40% (35%
federal and 5% state net of federal benefits) and the tax benefit of zero
recorded by the Company is primarily due to the Company's full valuation
allowance against its net deferred tax assets.
11. SHAREHOLDERS' EQUITY:
(a) Business Combination
On July 29, 1994, certain shareholders in GCC, holding approximately 95% of
the then outstanding stock of GCC, and holders of all MCLP partnership interests
exchanged their ownership interests for common stock of the Company in the
Business Combination. The participating GCC shareholders exchanged 23,384,345
shares of GCC common stock in a one-for-one exchange for common stock in the
Company. Under the terms of the Business Combination, the MCLP partnership
interests received 18,160,643 shares of common stock in the Company, net of
661,609 shares of GCC stock owned by MCLP. GCC directly and indirectly owned
MCLP partnership interests of approximately 9.9% which were converted into
2,059,352 shares of common stock of the Company. These shares are excluded from
those outstanding for each of the periods presented. GCC's investment in MCLP
had been recorded at a cost of $8.3 million. The fair value of common
F-16
<PAGE> 121
WESTERN WIRELESS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
11. SHAREHOLDERS' EQUITY -- (CONTINUED):
stock of the Company issued to acquire the non-GCC partnership interests in MCLP
was $70.9 million.
The Company recorded a provision for restructuring costs in 1994 of
approximately $2.5 million, primarily related to the elimination of duplicative
headquarters and other facilities and employee relocation costs.
(b) GCC Minority Interest
During 1995 and 1994, subsequent to the Business Combination, the Company
completed two cash redemptions of the remaining shares (the "Redemptions") of
GCC's common stock. In addition, as part of the 1995 Redemption, the Company
issued 896,210 shares of the Company's common stock for GCC common stock in a
one-for-one exchange.
These redemptions eliminated all minority interest positions in the equity
of GCC. The cost in excess of the carrying amounts of the minority interests
acquired increased licensing costs and other intangible assets by approximately
$11 million and $1 million for the years ended December 31, 1995 and 1994,
respectively.
(c) Stock Option Plan
On September 20, 1994, the Board of Directors of the Company established
the 1994 Management Incentive Stock Option Plan (the "Plan") which became
effective November 17, 1994. The Plan was amended by the Board of Directors on
September 15, 1995, and approved as adopted and amended by the shareholders of
the Company on November 16, 1995. The Plan, as amended, provides for the
issuance of up to 5,890,000 shares of common stock as either Nonstatutory Stock
Options or as Incentive Stock Options. The terms and conditions of options
granted under the Plan, including all vesting provisions, are at the discretion
of the Administrator of the Plan. The Plan provided for the conversion to stock
options of the Company for the stock options issued under a plan previously
created by GCC and for the conversion of unvested rights to ownership in MCLP by
its B Unit holders, as well as new options granted by the Company in the normal
course of business subsequent to the Business Combination.
As of July 29, 1994, GCC had granted options to purchase 1,061,251 shares
of GCC stock at an average of approximately $2.98 per share; 545,629 of such
options were fully vested as of that date. The Business Combination
automatically accelerated the vesting of the remaining options under the terms
of the GCC Option Plan. All such options were converted into options to purchase
common stock of the Company.
F-17
<PAGE> 122
WESTERN WIRELESS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
11. SHAREHOLDERS' EQUITY -- (CONTINUED):
Options granted, exercised and canceled under the above Plans are
summarized as follows:
<TABLE>
<CAPTION>
QUARTER ENDED YEAR ENDED DECEMBER 31,
MARCH 31, -------------------------------------------
1996 1995 1994 1993
------------- ------------- ------------ ------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Outstanding, beginning
of period............. 3,538,408 2,181,514 760,272 504,814
Options granted......... 137,320 1,453,125 1,112,900 263,500
Options issued for
conversion of unvested
MCLP B units.......... 322,013
Options exercised....... (38,762)
Options canceled........ (10,850 ) (57,469) (13,671) (8,042)
------------- ------------- ------------- -------------
Outstanding, end of
period................ 3,664,878 3,538,408 2,181,514 760,272
============= ============= ============= =============
Price of options:
Granted during period... $1.13-$12.90 $11.29-$12.90 $1.10-$ 9.68 $ 4.03
Exercised during
period................ N/A $ 1.61-$ 4.03 N/A N/A
Canceled during period.. $9.68-$12.90 $ 1.10-$ 9.68 $1.61-$ 3.23 $1.61-$ 4.03
Options exercisable..... 1,636,356 1,582,012 1,383,264 232,944
Options available for
future grant.......... 2,186,360 2,312,830 3,708,486 5,129,728
Exercise price of
outstanding options... $1.10-$12.90 $ 1.10-$12.90 $1.10-$ 9.68 $1.61-$ 4.03
</TABLE>
(d) Stock Issuances
In November 1995, the Board of Directors approved an increase in the number
of authorized shares of the Company's common stock from 25 million to 300
million.
During 1995, a wholly owned subsidiary issued 4,300,001 shares of Series A
Preferred Stock to certain existing shareholders of the Company at $35.00 per
share for aggregate proceeds of approximately $150 million, which was comprised
of approximately $14 million of converted debt to shareholders and approximately
$136 million in cash. The preferred stock in the subsidiary was converted into
common stock of the Company on a one for 3.1 basis. Additionally, the Company
sold 581,901 shares of common stock at $11.29 per share for cash during 1995 to
existing shareholders.
In November 1993, the Company completed a rights offering to existing
shareholders, pursuant to which shareholders subscribed for 3,875,273 shares of
common stock at $4.03 per share, for aggregate cash proceeds of approximately
$14.5 million and $1.1 million through the conversion of outstanding notes
payable and accrued interest to shareholders of the Company, less offering
expenses.
In February 1993, the Company sold 620,000 shares of common stock for
aggregate proceeds of $2.5 million.
Subsequent to December 31, 1995, the Company sold 88,567 shares of its
common stock to an officer of the Company at $11.29 per share for aggregate
proceeds of approximately $1.0 million.
F-18
<PAGE> 123
WESTERN WIRELESS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
12. ACQUISITION OF MARKETS CELLULAR LIMITED PARTNERSHIP:
On July 29, 1994, the Company acquired MCLP in the Business Combination in
exchange for 18,160,643 shares of common stock of the Company. The Business
Combination was accounted for using the purchase method.
The purchase price of MCLP was determined as follows (in thousands):
<TABLE>
<S> <C>
Fair value of shares issued to non-GCC interests....................... $ 70,918
GCC's investments in MCLP.............................................. 8,250
MCLP's long-term debt assumed.......................................... 59,590
Transaction fees and other............................................. 1,310
--------
$140,068
=========
The purchase price was allocated as follows (in thousands):
Cash acquired.......................................................... $ 11,726
Working capital and tangible assets acquired........................... 37,346
Licenses and other intangible assets................................... 90,996
--------
$140,068
=========
</TABLE>
The following unaudited pro forma information presents the results of
operations of the Company as if the Business Combination occurred on January 1,
1993. These results include certain adjustments to conform with the Company's
accounting policies, increased amortization expense and the elimination of the
provision for nonrecurring restructuring costs related to the Business
Combination. These results are not necessarily indicative of the results that
actually would have
F-19
<PAGE> 124
WESTERN WIRELESS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
12. ACQUISITION OF MARKETS CELLULAR LIMITED PARTNERSHIP -- (CONTINUED)
been attained if the Business Combination had been in effect at the beginning of
1993 or which may be attained in the future (in thousands, except per share
data):
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
---------------------------
1994 1993
----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
Revenues:
Subscriber revenues.............................................. $ 47,410 $ 17,310
Roamer revenues.................................................. 19,985 11,345
Equipment sales.................................................. 9,207 4,109
-------- --------
Total revenues........................................... 76,602 32,764
-------- --------
Operating expenses:
Cost of service.................................................. 15,961 7,692
Cost of equipment sales.......................................... 13,758 5,862
General and administrative....................................... 18,600 10,712
Sales and marketing.............................................. 23,099 11,398
Depreciation and amortization.................................... 33,389 13,102
-------- --------
Total operating expenses................................. 104,807 48,766
-------- --------
Operating loss..................................................... (28,205) (16,002)
Other income (expense):
Interest and financing expense................................... (13,113) (5,202)
Gain on dispositions, net........................................ 6,202 6,357
Other income (expense)........................................... 657 (120)
-------- --------
Net loss................................................. $ (34,459) $ (14,967)
======== ========
Net loss per common share.......................................... $ (0.66) $ (0.30)
======== ========
</TABLE>
F-20
<PAGE> 125
WESTERN WIRELESS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
13. OTHER ACQUISITIONS AND DISPOSITIONS:
Acquisitions:
The following table summarizes the cellular market acquisitions of the
Company for each of the three years ended December 31 (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------
1995 1994 1993
--------- --------- ---------
<S> <C> <C> <C>
MARKET
Kansas 14 RSA............................. April
South Dakota 3 RSA........................ May
Kansas 8 RSA.............................. May
South Dakota 1 RSA(a)..................... December
Nevada 5 RSA.............................. January
South Dakota 8 RSA........................ April
Nebraska 3 RSA............................ August
Kansas 4, 9 and 10 and Missouri 9 RSAs.... November
Minnesota 3 RSA........................... December
Sioux Falls, SD MSA....................... May
South Dakota 7 RSA........................ July
Odessa, TX MSA and New Mexico 6 RSA....... October
Nebraska 9 and 10 RSAs.................... November
Purchase price including cash and
liabilities assumed:
Cash paid................................. $38,600 $40,800 $16,200
--------- --------- ---------
--------- --------- ---------
Liabilities assumed....................... $ 500 $ 2,500 $25,500
--------- --------- ---------
--------- --------- ---------
</TABLE>
- ---------------
(a) 217,000 shares of common stock were issued at $11.29 per share as part of
the South Dakota 1 acquisition.
With the exception of the South Dakota 1, South Dakota 8 and the Nebraska 9
and 10 RSA acquisitions which were stock purchases, the above transactions were
asset purchases. All of these transactions were accounted for using the purchase
method. Approximately 95% of the total purchase price of each acquisition has
been allocated to licensing costs. Acquisitions of additional minority interests
in owned markets are not reflected above. The results of operations of the
properties acquired are included in the Consolidated Statement of Operations
from the date of acquisition.
In September 1993, the Company entered into an agreement to operate the
cellular system in the Abilene, TX MSA market. Pursuant to that agreement, the
Company funded the build-out of the system and operated the system throughout
the remainder of 1993 and 1994. In February 1994, the Company agreed to buy the
system subject to approval from the FCC. The transfer of the license was
approved by the FCC in November 1994, at which time the Company was obligated to
pay $16.1 million. This amount was paid in January 1995.
Exchanges:
In July 1995, a subsidiary of the Company exchanged its cellular assets in
the Minnesota 5 RSA market, Minnesota 3 RSA market, a portion of the Minnesota 2
RSA market (Beltrami County), its majority interest in the Alton, IL MSA market,
minority interests in the Wausau and Eau Claire, WI
F-21
<PAGE> 126
WESTERN WIRELESS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
13. OTHER ACQUISITIONS AND DISPOSITIONS -- (CONTINUED):
MSA markets and $3.0 million in cash for the cellular assets and license for the
Lubbock, TX MSA market. There was no gain or loss recognized on the transaction.
In November 1994, the Company exchanged the assets in Hood River Cellular
Telephone Company, a subsidiary of the Company, which included the cellular
licenses of the Oregon 2 and Washington 7 RSA markets, in return for the assets
and license in the Pueblo, CO MSA market and approximately $2.4 million in cash.
There was no gain or loss recognized on the transaction.
In July 1994, a subsidiary of the Company exchanged its Chico, CA MSA
market for the Texas 3 and Texas 8 RSA markets. As part of the same agreement, a
subsidiary of the Company obtained the Sioux City, IA MSA market and
approximately $4.5 million in cash. As a result of the transaction, a gain of
approximately $2.9 million was recognized.
In September 1993, the Company exchanged its majority interest in the
Alexandria, LA MSA market, together with the Company's minority interest in the
Lake Charles, LA MSA market and approximately $7.2 million in cash, for the
majority interest and certain minority interests in the Lincoln, NE MSA market.
There was no gain or loss recognized on the transaction.
In March 1993, pursuant to an agreement between the Company and MCLP, the
Company exchanged its Wyoming 2, Montana 4 and Montana 7 RSA markets along with
certain minority interests and cash in the amount of $1.3 million for the Rapid
City, SD MSA market and the South Dakota 5 and South Dakota 6 RSA markets.
Dispositions:
In April 1994, the assets of Lawton Cellular License Corporation, a
subsidiary of the Company, were sold including the cellular license for the
Lawton, OK MSA market for approximately $7.3 million in cash and marketable
securities. As a result of the transaction, the Company recorded a gain of
approximately $3.3 million.
In April 1993, the Company sold its Texas 4 market for approximately $0.5
million in cash, recording a gain of approximately $0.1 million. In addition,
the assets of Potomac Valley Cellular Partnership, the cellular licensee for the
Cumberland, MD/WV wireline MSA market, were sold for cash and marketable
securities. As a result of the transaction, the Company recorded a gain of
approximately $2.1 million.
In March 1993, the Company sold its majority interest in the Burlington, NC
MSA market and certain other minority interests for approximately $10.1 million
in cash. As a result of the transaction, the Company recorded a gain of
approximately $5.5 million.
During 1993, the Company sold certain of its minority interests in various
markets. As a result of these transactions, the Company recorded a gain of
approximately $2.4 million.
The following table reflects the operating results of the above
transactions since the effective date of the transactions. Pro forma unaudited
consolidated operating results of the Company and the above transactions
(including the acquisition of MCLP which is discussed in Note 12) for the
F-22
<PAGE> 127
WESTERN WIRELESS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
13. OTHER ACQUISITIONS AND DISPOSITIONS -- (CONTINUED):
years ended December 31, 1995 and 1994, assuming the acquisitions and
dispositions, had been made as of January 1, 1994, are summarized below (in
thousands, except per share amounts):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER
31,
---------------------
1995 1994
-------- --------
<S> <C> <C>
Revenues..................................................... $149,547 $ 89,945
======== ========
Loss before extraordinary item............................... $(49,840) $(44,043)
Extraordinary loss........................................... (6,645)
-------- --------
Net loss................................................ $(56,485) $(44,043)
======== ========
Loss per common share before extraordinary item.............. $ (0.88) $ (1.00)
Per common share effect of extraordinary item................ (0.12)
-------- --------
Net loss per common share............................... $ (1.00) $ (1.00)
======== ========
</TABLE>
These pro forma results have been prepared for comparative purposes only
and include certain adjustments such as additional depreciation and amortization
expense resulting from allocating a portion of the purchase price to fixed and
wireless assets, and increased interest expense. They do not purport to be
indicative of the results of operations which actually would have resulted had
the combinations been in effect on January 1, 1994 or of future results of
operations of the consolidated entities.
14. EMPLOYEE BENEFIT PLANS:
The Company has an employee savings plan (the "Savings Plan") that
qualifies as a deferred salary arrangement under Section 401(k) of the Internal
Revenue Code. After one year of full-time employment (1,000 hours), an employee
is eligible to participate in the Savings Plan. Under the Savings Plan,
participating employees may defer a portion of their pretax earnings, up to the
Internal Revenue Service annual contribution limit. The Company matches 50% of
each employee's contribution up to 6% of their total compensation. The Company's
contributions are fully vested upon the completion of three years of service.
The Company's contributions were approximately $0.4 million, $0.1 million and
$0.1 million for the years ended December 31, 1995, 1994 and 1993, respectively.
F-23
<PAGE> 128
WESTERN WIRELESS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
15. SELECTED QUARTERLY CONSOLIDATED FINANCIAL INFORMATION (UNAUDITED):
Selected quarterly consolidated financial information for the years ended
December 31, 1995 and 1994 is as follows (in thousands, except per share data):
<TABLE>
<CAPTION>
LOSS
BEFORE
LOSS BEFORE EXTRAORDINARY NET LOSS
TOTAL OPERATING EXTRAORDINARY ITEM PER PER COMMON
QUARTER ENDED(1) REVENUES LOSS ITEM NET LOSS COMMON SHARE SHARE
- ----------------------- -------- --------- ------------- -------- ------------ ----------
<S> <C> <C> <C> <C> <C> <C>
March 31, 1994......... $ 6,989 $ (5,441) $ (6,613) $ (6,613) $(0.20) $(0.20)
June 30, 1994.......... 9,135 (2,493) (488) (488) (0.01) (0.01)
September 30, 1994..... 23,289 (5,645) (5,938) (5,938) (0.11) (0.11)
December 31, 1994...... 23,695 (9,989) (12,921) (12,921) (0.25) (0.25)
------- ------- ------- -------
Total 1994... $ 63,108 $ (23,568) $ (25,960) $(25,960)
======= ======= ======= =======
March 31, 1995......... $ 26,084 $ (7,766) $ (12,463) $(12,463) $(0.24) $(0.24)
June 30, 1995.......... 34,613 (4,023) (10,145) (16,790) (0.19) (0.31)
September 30, 1995..... 42,120 (3,749) (11,135) (11,135) (0.19) (0.19)
December 31, 1995...... 43,738 (8,397) (15,566) (15,566) (0.25) (0.25)
------- ------- ------- -------
Total 1995... $146,555 $ (23,935) $ (49,309) $(55,954)
======= ======= ======= =======
</TABLE>
- ---------------
(1) Acquisitions and dispositions referenced in Notes 12 and 13 will affect the
comparability of the information presented from period to period.
16. RELATED PARTY TRANSACTIONS:
Cook Inlet Western Wireless PV/SS PCS, L.P.:
In 1995, a wholly owned subsidiary of the Company formed a limited
partnership with Cook Inlet PV/SS PCS Partners, L.P. (the "General Partner"). A
6.7% shareholder of the Company is also a limited partner of the General
Partner.
Shareholder loans:
During 1994 and 1995, certain shareholders entered into bridge loan
agreements with a wholly owned subsidiary of the Company. During 1995, the
bridge loans, together with accrued interest thereon, were exchanged for shares
of the Company's common stock.
During 1995, certain officers, one of whom is a director, of the Company
who are also shareholders of Palouse and Sawtooth provided Palouse and Sawtooth
with short-term financing which was repaid by the Company subsequent to year end
as a result of the merger discussed in Note 17 below.
17. SUBSEQUENT EVENTS AND PENDING TRANSACTIONS:
The Company's common stock will be split into 3.1 shares of common stock
for each share of the then-existing common stock. The Company's consolidated
financial statements and footnotes have been retroactively restated to reflect
the stock split for all periods presented.
On December 29, 1995, the shareholders of the Company, Palouse and Sawtooth
approved the merger of Palouse and Sawtooth into wholly owned subsidiaries of
the Company. Subsequent to year end, shareholders of Palouse and Sawtooth
exchanged their shares for 515,561 and 79,748 shares of the Company's common
stock, respectively. Certain shareholders of Palouse and
F-24
<PAGE> 129
WESTERN WIRELESS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
17. SUBSEQUENT EVENTS AND PENDING TRANSACTIONS -- (CONTINUED):
Sawtooth were also officers and shareholders of the Company. The holder of the
controlling interests in Palouse and Sawtooth did not hold a controlling
interest in the Company. The Company accounted for the transaction as a stock
purchase. In addition, the Company paid approximately $3.1 million and $0.3
million of outstanding debt of Palouse and Sawtooth, respectively.
Subsequent to December 31, 1995, the Company recorded deferred compensation
of approximately $1.8 million upon the issuance of 85,250 options to purchase
shares of common stock to an officer of the Company at an exercise price of
$1.13 per share.
On January 16, 1996, the Company entered into an agreement to purchase a
Denver MTA license for $66 million. The agreement permits the Company to pay up
to $33 million of the purchase price by delivery of a promissory note with a
final maturity 18 months after the closing date. This transaction is anticipated
to close in the second quarter of 1996.
On October 20, 1995, the Company entered into an agreement to purchase the
assets of the wireless communications system of the Fargo, ND MSA and the North
Dakota 3 RSA IOA for cash of approximately $31.5 million. This transaction was
completed on January 23, 1996.
The Company has entered into an agreement to purchase the Kansas 3 RSA
market for approximately $4.1 million. The transaction is anticipated to close
in the second quarter of 1996.
18. REINCORPORATION AND COMMISSION REGISTRATION STATEMENT:
The Company intends to effect a recapitalization pursuant to which the
Company will be authorized to issue 300 million shares into two classes of
common stock, Class A Common Stock and Class B Common Stock, each without par
value, and 50 million shares of preferred stock. Subsequently, the Company
intends to effect a reincorporation merger pursuant to which it will merge with
and into a wholly owned Washington subsidiary.
In March 1996, the Company filed registration statements with the
Commission relating to offerings of the Company's Class A Common Stock, no par
value, and Senior Subordinated Notes. An affiliate of the Company is expected to
act as an underwriter in the offerings.
F-25
<PAGE> 130
WESTERN WIRELESS CORPORATION
SCHEDULE II VALUATION AND QUALIFYING ACCOUNTS
ACCOUNTS RECEIVABLE ALLOWANCE FOR DOUBTFUL ACCOUNTS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
BALANCE AT CHARGED TO CHARGED TO BALANCE
BEGINNING COSTS AND OTHER DEDUCTIONS AT END OF
DESCRIPTION OF PERIOD EXPENSES ACCOUNTS(1) (2) PERIOD
- ----------------------------------------- ----------- ---------- ---------- ---------- ---------
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1995............. $ 1,772 $ 4,558 $ 892 $ (4,422) $ 2,800
====== ====== ==== ======= ======
Year ended December 31, 1994............. $ 476 $ 1,885 $ 638 $ (1,227) $ 1,772
====== ====== ==== ======= ======
Year ended December 31, 1993............. $ 298 $ 546 $ 286 $ (654) $ 476
====== ====== ==== ======= ======
</TABLE>
- ---------------
(1) Represents market acquisitions and dispositions and late fees.
(2) Write-offs, net of bad debt recovery.
F-26
<PAGE> 131
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
TO MARKETS CELLULAR LIMITED PARTNERSHIP:
We have audited the accompanying consolidated balance sheets of MARKETS
Cellular Limited Partnership (a Delaware limited partnership) and subsidiary
companies as of June 30, 1994, December 31, 1993 and 1992, and the related
consolidated statements of operations, partners' capital and cash flows for the
six months ended June 30, 1994, the year ended December 31, 1993, and the period
from October 6, 1992 (inception) to December 31, 1992. These financial
statements are the responsibility of the Partnership's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of MARKETS Cellular Limited
Partnership and subsidiary companies as of June 30, 1994, December 31, 1993 and
1992, and the results of their operations and their cash flows for the six
months ended June 30, 1994, the year ended December 31, 1993, and the period
from October 6, 1992 (inception) to December 31, 1992, in conformity with
generally accepted accounting principles.
/s/ ARTHUR ANDERSEN LLP
Seattle, Washington,
March 15, 1996
F-27
<PAGE> 132
MARKETS CELLULAR LIMITED PARTNERSHIP AND SUBSIDIARY COMPANIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER
JUNE 30, DECEMBER 31, 31,
1994 1993 1992
------------ ------------ -----------
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................... $ 11,726,000 $ 1,390,000 $ 3,026,000
Accounts receivable, net of allowance for
doubtful accounts of $436,000, $397,000
and $84,000, respectively................ 4,162,000 2,574,000 522,000
Inventory................................... 839,000 413,000 83,000
Prepaid expenses and other current assets... 1,035,000 1,783,000 206,000
------------ ------------ -----------
Total current assets................ 17,762,000 6,160,000 3,837,000
Property and equipment, net of accumulated
depreciation of $7,737,000, $4,335,000 and
$280,000, respectively...................... 40,887,000 35,212,000 12,088,000
Licensing costs and other intangible assets,
net of accumulated amortization of
$5,731,000, $3,664,000 and $275,000,
respectively................................ 56,537,000 57,189,000 25,493,000
Investments in unconsolidated affiliates...... 3,445,000 3,367,000 2,079,000
Cellular properties pending disposition,
net......................................... 10,884,000
Other assets.................................. 1,200,000 1,023,000 1,512,000
------------ ------------ -----------
$119,831,000 $102,951,000 $55,893,000
============ ============ ===========
LIABILITIES AND PARTNERS' CAPITAL
Current liabilities:
Accounts payable............................ $ 4,923,000 $ 1,855,000 $ 464,000
Accrued liabilities......................... 3,545,000 1,573,000 733,000
Accounts payable, affiliates................ 1,618,000
Construction accounts payable............... 865,000 1,196,000 1,553,000
Unearned revenue and customer deposits...... 1,368,000 804,000 65,000
Current portion of long-term debt........... 593,000 239,000 3,146,000
------------ ------------ -----------
Total current liabilities........... 11,294,000 5,667,000 7,579,000
Long-term debt, including deferred interest,
net of current portion...................... 58,997,000 57,584,000 5,051,000
Commitments (Note 5)
Minority interests in equity of consolidated
subsidiaries................................ 76,000 56,000 15,000
Partners' capital............................. 49,464,000 39,644,000 43,248,000
------------ ------------ -----------
$119,831,000 $102,951,000 $55,893,000
============ ============ ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-28
<PAGE> 133
MARKETS CELLULAR LIMITED PARTNERSHIP AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
SIX MONTHS ENDED
--------------------------- OCTOBER 6, 1992
JUNE 30, YEAR ENDED (INCEPTION) TO
1994 DECEMBER 31, 1993 DECEMBER 31, 1992
------------ JUNE 30, ----------------- -----------------
1993
------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Revenues:
Subscriber revenues............... $ 8,260,000 $ 1,718,000 $ 6,205,000 $ 249,000
Roamer revenues................... 3,101,000 831,000 4,060,000 412,000
Equipment sales................... 1,682,000 934,000 1,765,000 69,000
------------ ------------ ------------ ------------
Total revenues............. 13,043,000 3,483,000 12,030,000 730,000
------------ ------------ ------------ ------------
Operating expenses:
Cost of service................... 2,658,000 1,076,000 3,382,000 384,000
Cost of equipment sales........... 2,312,000 1,150,000 2,329,000 69,000
General and administrative........ 4,833,000 1,270,000 4,459,000 687,000
Sales and marketing............... 4,546,000 1,640,000 5,297,000 290,000
Depreciation and amortization..... 6,024,000 3,040,000 7,701,000 555,000
------------ ------------ ------------ ------------
Total operating expenses... 20,373,000 8,176,000 23,168,000 1,985,000
------------ ------------ ------------ ------------
Operating loss...................... (7,330,000) (4,693,000) (11,138,000) (1,255,000)
------------ ------------ ------------ ------------
Other income (expense):
Interest and financing expense.... (2,454,000) (734,000) (2,960,000) (156,000)
Loss on disposition of cellular
equipment....................... (3,704,000) (3,745,000)
Other, net........................ (1,751,000) (608,000) (451,000) 91,000
------------ ------------ ------------ ------------
Total other income
(expense)................ (4,205,000) (5,046,000) (7,156,000) (65,000)
------------ ------------ ------------ ------------
Net loss................... $(11,535,000) $ (9,739,000) $ (18,294,000) $ (1,320,000)
============ ============ ============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
F-29
<PAGE> 134
MARKETS CELLULAR LIMITED PARTNERSHIP AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENTS OF PARTNERS' CAPITAL
<TABLE>
<CAPTION>
LIMITED PARTNERS
GENERAL ----------------------
PARTNER UNITS AMOUNTS TOTAL
--------- ----- ------------ ------------
<S> <C> <C> <C> <C>
Partners' cash contributions.......... $ 750,000 1,236 $ 30,738,000 $ 31,488,000
Partners' property contributions...... 532 13,292,000 13,292,000
Offering and syndication costs........ (212,000) (212,000)
Net loss.............................. (19,000) (1,301,000) (1,320,000)
--------- ----- ------------ ------------
Balance at December 31, 1992.......... 731,000 1,768 42,517,000 43,248,000
Partners' cash contributions........ 567 14,690,000 14,690,000
Net loss............................ (261,000) (18,033,000) (18,294,000)
--------- ----- ------------ ------------
Balance at December 31, 1993.......... 470,000 2,335 39,174,000 39,644,000
Partners' cash contributions........ 35,000 772 19,220,000 19,255,000
Conversion of note and accrued
interest to equity............... 298,000 298,000
Class B unit awards recorded as
compensation expense............. 1,459,000 1,459,000
Partnership interests granted in
payment of fee................... 343,000 343,000
Net loss............................ (134,000) (11,401,000) (11,535,000)
--------- ----- ------------ ------------
Balance at June 30, 1994.............. $ 371,000 3,107 $ 49,093,000 $ 49,464,000
========= ===== ============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
F-30
<PAGE> 135
MARKETS CELLULAR LIMITED PARTNERSHIP AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
SIX MONTHS ENDED
--------------------------- OCTOBER 6, 1992
JUNE 30, YEAR ENDED (INCEPTION) TO
1994 JUNE 30, DECEMBER 31, 1993 DECEMBER 31, 1992
------------ 1993 ----------------- -----------------
------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Operating activities:
Net loss..................................... $(11,535,000) $ (9,739,000) $ (18,294,000) $ (1,320,000)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation and amortization............ 6,024,000 3,040,000 7,701,000 555,000
Deferred interest and financing costs.... 2,425,000 646,000 2,142,000 11,000
Class B unit awards...................... 1,459,000
Partnership interests granted in payment
of fee................................ 343,000
Loss on disposition of cellular
equipment............................. 3,704,000 3,745,000
Minority interests in net loss of
consolidated subsidiaries............. 72,000 (3,000) (12,000) (76,000)
Changes in operating assets and
liabilities, net of effects from
consolidating acquired interests:
Accounts receivable, net............ (1,588,000) (1,101,000) (1,888,000) 33,000
Other current assets................ (989,000) (888,000) (1,591,000) (32,000)
Current liabilities................. 4,485,000 2,047,000 2,263,000 836,000
------------ ------------ ------------ ------------
Net cash provided by (used in) operating
activities............................... 696,000 (2,294,000) (5,934,000) 7,000
------------ ------------ ------------ ------------
Investing activities:
Acquisition of cellular properties, net of
cash acquired.............................. (1,359,000) (10,208,000) (10,208,000) (24,840,000)
Investments in unconsolidated affiliates..... (150,000) (1,288,000) (266,000)
Purchase of property and equipment........... (7,576,000) (18,342,000) (27,657,000) (1,679,000)
Proceeds from disposition of assets, net..... 1,307,000 2,514,000
Additions to licensing costs and other
assets..................................... (986,000) (1,923,000) (2,491,000) (1,614,000)
------------ ------------ ------------ ------------
Net cash used in investing activities...... (10,071,000) (29,166,000) (39,130,000) (28,399,000)
------------ ------------ ------------ ------------
Financing activities:
Partner cash contributions, net of
syndication costs.......................... 19,255,000 7,320,000 14,690,000 31,276,000
Additions to long-term debt.................. 635,000 29,828,000 36,532,000 250,000
Payment of debt.............................. (179,000) (4,981,000) (5,630,000)
Purchase of interest rate caps............... (546,000)
Repayment of accounts payable, affiliates.... (1,618,000) (1,618,000) (108,000)
------------ ------------ ------------ ------------
Net cash provided by financing
activities............................... 19,711,000 30,549,000 43,428,000 31,418,000
------------ ------------ ------------ ------------
Increase (decrease) in cash and cash
equivalents.................................. 10,336,000 (911,000) (1,636,000) 3,026,000
Cash and cash equivalents, beginning of
period....................................... 1,390,000 3,026,000 3,026,000 0
------------ ------------ ------------ ------------
Cash and cash equivalents, end of period....... $ 11,726,000 $ 2,115,000 $ 1,390,000 $ 3,026,000
============ ============ ============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
F-31
<PAGE> 136
MARKETS CELLULAR LIMITED PARTNERSHIP AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. PARTNERSHIP ORGANIZATION AND OPERATIONS:
General:
MARKETS Cellular Limited Partnership ("MCLP" or the "Partnership") was a
Delaware limited partnership with PN Cellular Limited Partnership as the General
Partner ("GP"). The Partnership was formed on October 6, 1992. On July 29, 1994,
the Partnership was combined with General Cellular Corporation ("GCC") in a
business combination (the "Business Combination"), which was accounted for as a
purchase of the Partnership by GCC. Concurrent with the Business Combination,
Western Wireless Corporation (the "Company") became the successor entity. These
consolidated financial statements reflect the operations of MCLP through June
30, 1994. The results of operations of MCLP from July 1, 1994, to July 29, 1994,
are not significant.
The Partnership was principally engaged in the ownership and operation of
cellular communications systems. Cellular licenses are awarded by the Federal
Communications Commission ("FCC") in either Metropolitan Statistical Areas
("MSAs") or Rural Service Areas ("RSAs"). The Partnership had operations in the
states of Colorado, Idaho, Minnesota, Montana, North Dakota, Oregon, Washington
and Wyoming.
Organization:
The Partnership was comprised of Class A limited partners ("Class A LPs"),
Class B limited partners ("Class B LPs") and the General Partner. At December
31, 1992, a total of 3,004 Class A units were subscribed by Class A LPs at a
cost of $25,000 per unit. The Partnership Agreement authorized the sale of an
additional 103 units which were subscribed in 1993 at a cost per unit of
$25,000, plus an additional $5,000 per unit for the right to purchase the Class
A units. The $5,000 per unit was payable at the subscription date. The Class A
LPs (other than Class A LPs contributing cellular assets in exchange for Class A
units) were required to purchase at least one-half of their subscribed units
upon becoming Class A LPs.
The GP had the discretion to issue up to 2,320 Class B units in the
Partnership during the term of the Partnership to employees and persons who
performed services on behalf of the Partnership. The Class B units had no cash
purchase price. At June 30, 1994, 1,933 Class B units had been issued, of which
548 Class B units had vested and 1,385 Class B units had not yet vested. In
connection with the Business Combination, the 548 vested Class B units converted
into shares of the Company common stock; the 1,385 unvested Class B units became
automatically vested and were converted to fully vested options to purchase
shares of the Company common stock. Compensation expense of $1,459,000 was
recognized related to these units vesting.
Allocation of profits, losses and distributions:
Profits and losses of the Partnership were generally allocated as follows:
(1) To the GP and Class A LPs in proportion to their capital contributions
and the Preferred Return of 10% per annum on their capital
contributions,
(2) Next, to the Class B LPs 3.093% of the aggregate amount of the
Preferred Return of the GP and Class A LPs,
(3) Next, of the remaining amounts to be allocated -- 84% to the Class A
LPs, 3% to the Class B LPs and 13% to the GP.
F-32
<PAGE> 137
MARKETS CELLULAR LIMITED PARTNERSHIP AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Principles of consolidation:
The consolidated financial statements include the accounts of the
Partnership, its wholly owned subsidiaries and its affiliate investments in
which the Partnership has a greater than 50% interest. All affiliate investments
in which the Partnership has between a 20% and 50% interest are accounted for
using the equity method. All significant intercompany accounts and transactions
have been eliminated.
Unaudited interim financial statements:
The interim consolidated financial information contained herein is
unaudited but, in the opinion of management, includes all adjustments which are
necessary for a fair presentation of the financial position, results of
operations and cash flows for the periods presented. Results of operations for
interim periods presented herein are not necessarily indicative of results of
operations for the entire year.
Cash and cash equivalents:
Cash and cash equivalents consist of cash on hand, deposits in banks and
highly liquid investments purchased with an original maturity of less than three
months. The carrying value of cash and cash equivalents reported in the balance
sheets approximates fair market value.
Revenue recognition:
Service revenues based on customer usage are recognized at the time the
service is provided. Access and special feature service revenues are recognized
when earned. Sales of equipment, primarily handsets, are recognized when the
goods are delivered.
Inventory:
Inventory consists primarily of handsets and accessories. Inventory is
stated at the lower of cost or market, determined on a first-in, first-out
basis.
Property and equipment and depreciation:
Property and equipment were stated at cost. Depreciation was computed using
the straight-line method over the estimated useful lives of the assets which
ranged from three to ten years.
Licensing costs and other intangible assets and amortization:
Licensing costs primarily represented costs incurred to develop or acquire
cellular licenses. Amortization began with the commencement of service to
customers and was computed using the straight-line method over 15 years.
Intangible assets primarily included deferred financing costs and organization
costs, which included legal and other direct costs of certain acquisitions.
Using the effective interest rate method, deferred financing costs were
amortized over the life of the loan and organization costs were amortized over
five years.
Investments in unconsolidated affiliates:
Investments in unconsolidated affiliates reflected MCLP's investment in
Stanton Communications, Inc. ("SCI") and Sawtooth Paging, Inc. ("Sawtooth").
These investments were stated at cost and adjusted for the Partnership's share
of undistributed earnings and losses. The excess of
F-33
<PAGE> 138
MARKETS CELLULAR LIMITED PARTNERSHIP AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: -- (CONTINUED)
the Partnership's investment in SCI over the underlying book value of the net
assets was amortized using the straight-line method over 40 years. The assets,
liabilities and results of operations of SCI and Sawtooth were not material to
MCLP. Sawtooth was also owned 45% by managing partners of the Partnership.
Cellular properties pending disposition, net:
At December 31, 1992, the Partnership had agreements to trade certain
cellular assets for other cellular assets, pending approval for the transfers of
licenses. Accordingly, the assets of the cellular systems to be traded, net of
any related liabilities, and the results of operations related to those assets
were classified separately in the accompanying consolidated balance sheets and
statements of operations. For the period from October 6, 1992 to December 31,
1992, and the year ended December 31, 1993, the results of operations related to
these assets were not material. At December 31, 1993, the Partnership had
consummated the trades.
Other assets:
Included in other assets on the Consolidated Balance Sheets are assets, net
of liabilities, attributable to markets in which MCLP had an Interim Operating
Authority ("IOA") issued by the FCC. MCLP had IOAs which were granted by the FCC
in January 1993 for Wyoming 4 and North Dakota 3. In February 1994, the FCC
granted MCLP IOAs for Idaho 3 and Montana 3. MCLP management believes that
amounts capitalized relating to IOAs are realizable either through operations,
sale to the permanent licensee or ultimate acquisition of the license.
During 1992, MCLP managed certain cellular properties prior to ownership.
Included in other assets were advances to those properties still under
management agreements at December 31, 1992. Costs incurred by the Partnership
for managed properties prior to ownership were reflected as other income
(expense) in the 1992 Consolidated Statement of Operations.
Offering and syndication costs:
Costs incurred directly relating to the offering of the Class A LP units
were treated as a reduction of the capital contributed by the Limited Partners.
Federal income taxes:
The Partnership was not subject to federal income taxes since all taxable
income or loss accrued to the individual partners. No provision was made in the
statements of operations for federal income taxes.
Since the Partnership had losses since inception, there would have been no
tax benefit recorded had the Partnership been a taxable entity.
Other:
Accrued liabilities included $867,000 and $628,000 of accrued employee
expenses at June 30, 1994, and December 31, 1993, respectively. Other current
assets at December 31, 1993, included $1,237,000 of cellular communications
equipment credits.
F-34
<PAGE> 139
MARKETS CELLULAR LIMITED PARTNERSHIP AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: -- (CONTINUED)
Concentration of credit risk:
The Partnership's customers were dispersed throughout rural areas of the
western United States. No single customer accounted for a significant amount of
the Partnership's revenues, and there were no significant accounts receivable
from a single customer. The Partnership reviewed the credit histories of
potential customers prior to extending credit and maintains allowances for
potential credit losses. The Partnership maintained cash and cash equivalents in
high credit quality financial institutions. The Partnership believed that its
risk from concentration of credit was limited.
Interest rate swap and cap agreements:
As required by the loan agreement with AT&T Credit Corporation, the
Partnership entered into interest rate cap agreements to manage interest rate
exposure pertaining to long-term debt. Premiums paid for purchased interest rate
cap agreements were amortized to interest expense over the terms of the
agreements. Unamortized premiums were accounted for as assets in the
Consolidated Balance Sheets. Amounts received under the interest rate cap
agreements, if any, were accounted for on an accrual basis and recognized as a
reduction to interest expense.
Supplemental cash flow disclosures:
Non-cash investing and financing activities were as follows:
<TABLE>
<CAPTION>
OCTOBER 6,
SIX MONTHS 1992
ENDED YEAR ENDED (INCEPTION) TO
JUNE 30, DECEMBER 31, DECEMBER 31,
1994 1993 1992
---------- ------------ --------------
<S> <C> <C> <C>
Issuance of partnership units in exchange for
property........................................ $ 13,292,000
Acquisition of cellular market in exchange for
debt assumed.................................... $1,680,000
Conversion of note and accrued interest to
partners' capital............................... $298,000
</TABLE>
Estimates used in preparation of financial statements:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting periods. Actual results could differ from those estimates.
F-35
<PAGE> 140
MARKETS CELLULAR LIMITED PARTNERSHIP AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
3. PROPERTY AND EQUIPMENT:
Property and equipment consisted of the following at June 30, 1994 and
December 31, 1993 and 1992:
<TABLE>
<CAPTION>
DECEMBER DECEMBER
JUNE 30, 31, 31,
1994 1993 1992
----------- ----------- -----------
<S> <C> <C> <C>
Cellular property and equipment..... $38,698,000 $34,829,000 $ 9,902,000
Office equipment and improvements... 1,725,000 1,211,000 561,000
Automotive equipment................ 461,000 346,000 129,000
----------- ----------- -----------
40,884,000 36,386,000 10,592,000
Less accumulated depreciation....... (7,737,000) (4,335,000) (280,000)
----------- ----------- -----------
33,147,000 32,051,000 10,312,000
Construction in progress............ 7,740,000 3,161,000 1,776,000
----------- ----------- -----------
$40,887,000 $35,212,000 $12,088,000
=========== =========== ===========
</TABLE>
Depreciation expense was $2.1 million and $1.7 million (unaudited) for the
six months ended June 30, 1994 and 1993, respectively, and $4.3 million and $0.3
million for the year ended December 31, 1993 and the period from October 6, 1992
(inception) to December 31, 1992, respectively.
F-36
<PAGE> 141
MARKETS CELLULAR LIMITED PARTNERSHIP AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
4. LONG-TERM DEBT:
Long-term debt at June 30, 1994 and December 31, 1993 and 1992 consisted of
the following:
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31, DECEMBER 31,
1994 1993 1992
------------ ------------ ------------
<S> <C> <C> <C>
Loan agreement with AT&T Credit Corporation;
interest payable at 90 day commercial paper rate
plus 4.5%, including deferred interest of
$3,869,000 (9.02% total interest rate at June 30,
1994) and $1,975,000 at June 30, 1994 and December
31, 1993,
respectively...................................... $ 47,733,000 $ 45,208,000
Purchase money and working capital notes payable to
AT&T Credit Corporation; interest payable
quarterly at 9.5% per annum. Notes refinanced in
1993.............................................. $ 460,000
Purchase money and working capital notes payable to
vendors; interest payable at the prime rate plus
2%. Notes repaid in 1993.......................... 4,770,000
Purchase money and working capital notes payable to
vendor; interest payable monthly at the Morgan
Guaranty Base Rate plus 2% (9.25% total interest
rate at June 30, 1994); all of the assets and
license of Oregon 2 RSA and partnership interest
in Hood River Cellular Telephone Company were
pledged as collateral; due 1994 to 1998........... 2,511,000 2,523,000 1,956,000
Purchase money and working capital note payable to
vendor; interest payable monthly at the Chase
Manhattan Bank's prime rate plus 2% (9.25% total
interest rate at June 30, 1994); all of the assets
and license of Minnesota 5 RSA and partnership
interest in KETS Partnership were pledged as
collateral; due April 30, 1997.................... 3,500,000 3,500,000
Subordinated seller and other notes with interest
rates ranging from 7% to 10%, maturing to 2002.... 5,846,000 6,592,000 1,011,000
----------- ----------- ----------
59,590,000 57,823,000 8,197,000
Less current portion................................ 593,000 239,000 3,146,000
----------- ----------- ----------
$ 58,997,000 $ 57,584,000 $ 5,051,000
=========== =========== ==========
</TABLE>
These loans were substantially refinanced with borrowings of the Company
concurrent with the Business Combination in July 1994.
F-37
<PAGE> 142
MARKETS CELLULAR LIMITED PARTNERSHIP AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
4. LONG-TERM DEBT: -- (CONTINUED)
The aggregate amounts of principal maturities of long-term debt as of June
30, 1994 prior to the refinancing which occurred concurrent with the Business
Combination were as follows:
<TABLE>
<CAPTION>
TWELVE MONTH PERIODS
ENDING JUNE 30,
--------------------
<S> <C>
1995..................................... $ 593,000
1996..................................... 2,788,000
1997..................................... 13,330,000
1998..................................... 9,973,000
1999..................................... 10,054,000
Thereafter............................... 22,852,000
--------------------
$ 59,590,000
=================
</TABLE>
Total interest paid in cash amounted to $437,000 and $88,000 (unaudited)
for the six months ended June 30, 1994 and 1993, respectively, and $739,000 and
$57,000 for the year ended December 31, 1993 and the period from October 6, 1992
to December 31, 1992, respectively.
5. COMMITMENTS:
Operating leases:
The Partnership had operating leases principally for facilities, cell
sites, and office space and other operating agreements with remaining terms of
between one and fourteen years. Some leases had options for additional periods.
Certain leases provided for payment by the lessee of taxes, maintenance and
insurance.
Future minimum payments required under operating leases and agreements that
had initial or remaining noncancellable terms in excess of one year at June 30,
1994, are summarized below:
<TABLE>
<S> <C>
YEAR ENDING DECEMBER 31,
Remainder of 1994............................... $ 351,000
1995............................................ 639,000
1996............................................ 398,000
1997............................................ 341,000
1998............................................ 195,000
Thereafter...................................... 177,000
----------
$2,101,000
==========
</TABLE>
Total rent expense amounted to $421,000 and $264,000 (unaudited) for the
six months ended June 30, 1994 and 1993, respectively, and $591,000 and $59,000
for the year ended December 31, 1993, and the period from October 6, 1992 to
December 31, 1992, respectively.
F-38
<PAGE> 143
MARKETS CELLULAR LIMITED PARTNERSHIP AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
6. ACQUISITIONS:
The following table summarizes the cellular market acquisitions of the
Partnership for the six months ended June 30, 1994, the year ended December 31,
1993, and the period from October 6, 1992 (inception) to December 31, 1992.
<TABLE>
<CAPTION>
SIX MONTHS OCTOBER 6, 1992
ENDED JUNE YEAR ENDED (INCEPTION) TO
30, DECEMBER 31, DECEMBER 31,
1994 1993 1992
---------- ------------ ---------------
<S> <C> <C> <C>
Asset Purchases:
Grand Forks, ND MSA................................ October
North Dakota 2 RSA................................. October
CIS-2 (Bismarck, ND MSA -- 75.2% and
Montana 2 RSA)................................... November
Colorado 8 RSA..................................... November
Montana 10 RSA..................................... November
CIS-1 (Rapid City, SD MSA, Montana 8 RSA,
and South Dakota 6 RSA).......................... December
CIS-3 (South Dakota 5 RSA)......................... December
Montana 1 RSA...................................... December
Montana 6 RSA...................................... December
Montana 9 RSA...................................... December
North Dakota 1 RSA................................. January
North Dakota 4 RSA................................. January
North Dakota 5 RSA................................. February
GCC Trade (Montana 4 RSA,
Montana 7 RSA and Wyoming 2 RSA)................. March
Minnesota 1 and 2 RSAs............................. May
Minnesota 5 RSA.................................... May
Montana 5 RSA -- (99%)............................. June
Colorado 5 RSA..................................... September
Washington 7 RSA................................... June
Stock Purchases:
CIS-2 (Great Falls, MT MSA -- 54.8%)............... November
CIS-1 (Billings, MT MSA -- 63.5%).................. December
</TABLE>
Purchase price including cash paid and liabilities assumed at closing are
as follows:
<TABLE>
<S> <C> <C> <C>
Cash paid at closing............................. $1,359,000 $11,208,000 $23,867,000
Liabilities assumed.............................. 16,717,000 5,823,000
---------- ----------- -----------
$1,359,000 $27,925,000 $29,690,000
========== =========== ===========
</TABLE>
All of the acquisitions were accounted for using the purchase method. The
results of operations from the properties acquired are included in the
consolidated statements of operations from the date of acquisition. Results of
operations prior to the date of acquisition were not significant in relation to
the Partnership's results of operations.
F-39
<PAGE> 144
MARKETS CELLULAR LIMITED PARTNERSHIP AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
6. ACQUISITIONS: -- (CONTINUED)
During the six months ended June 30, 1994, the Partnership purchased
minority interests in the Billings, MT MSA and Great Falls, MT MSA from minority
partners for a total cash purchase price of $250,000.
During 1993, the Partnership purchased minority interests in the Bismarck,
ND MSA, Billings, MT MSA and Great Falls, MT MSA from minority partners for a
total cash purchase price of $437,000.
The September 1993 acquisition of Colorado 5 was a non-cash transaction as
the $1.7 million purchase price was directly applied to the loan agreement with
AT&T Credit Corporation.
During 1992, the Partnership purchased a number of cellular systems and
assets from subsidiaries of Cellular Information Systems, Inc. ("CIS"). Those
purchases occurred in November and December 1992 and are aggregated for the
purposes of this disclosure.
In December 1992, the Partnership purchased an additional 47.8% of Hood
River Cellular Telephone Company (Oregon 2 RSA) in exchange for 50 Class A LP
units and $8,000 in cash paid to the Partnership.
7. RELATED PARTY TRANSACTIONS:
General Cellular Corporation:
John W. Stanton was Chief Executive Officer of both MCLP and GCC. GCC owned
a 9.9% interest in PN Cellular Limited Partnership (MCLP's general partner) and
had subscribed for 300 limited partnership units in MCLP. MCLP owned 40% of SCI
which owned approximately 4.7% of the stock of GCC. During 1993, MCLP purchased
a direct interest in GCC representing approximately a 0.65% ownership interest.
MCLP exchanged the Rapid City, SD MSA market and the South Dakota 5 and
South Dakota 6 RSA markets that it acquired from CIS for GCC's Wyoming 2,
Montana 4 and Montana 7 RSA markets, GCC's minority interests in the Billings
and Great Falls, MT MSA markets and a cash payment of approximately $1,300,000.
No gain or loss was recorded on the transaction.
In 1993, MCLP sold certain decommissioned cellular equipment to GCC for a
cash price of $976,000.
McCaw Cellular Communications, Inc. ("McCaw"):
Mr. Stanton was a director of McCaw, now known as AT&T Wireless Services,
Inc., until May 1994. During 1992 and 1993, the Partnership and its predecessors
entered into a series of agreements with McCaw to purchase services in six of
MCLP's markets utilizing McCaw facilities located in Oregon, Idaho and Colorado.
Services provided included leasing switch capacity, roamer coordination and
billing. The majority of the agreements had a five-year term with options to
renew. The total amounts paid by the Partnership and its predecessors for
services rendered by McCaw during the six months ended June 30, 1994, the year
ended December 31, 1993 and the period from October 6, 1992, to December 31,
1992, were approximately $200,000, $524,000 and $262,000, respectively.
F-40
<PAGE> 145
MARKETS CELLULAR LIMITED PARTNERSHIP AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
7. RELATED PARTY TRANSACTIONS: -- (CONTINUED)
Reimbursement to Mr. Stanton/Ms. Gillespie:
During 1992, Mr. Stanton and Theresa Gillespie advanced funds to the
Partnership and its predecessors. Pursuant to the Partnership Agreement, MCLP
agreed to repay Mr. Stanton and Ms. Gillespie $3,412,000. As of December 31,
1992, Mr. Stanton and Ms. Gillespie were still owed $1,618,000. During 1992,
interest was accrued, but not paid, at the rate of 5.5%. In January 1993, the
$1,618,000 was repaid, plus accrued interest in the amount of $27,000.
GS Capital Partners, L.P. ("GS Capital"):
GS Capital was the largest limited partner in MCLP. Pursuant to the
Partnership Agreement, GS Capital loaned the Partnership $250,000 at an interest
rate of 10%. The principal and accrued interest was payable on December 31,
2002. At June 30, 1994, and December 31, 1993 and 1992, approximately $48,000,
$32,000 and $6,000, respectively, in interest had accrued on the loan. This note
was converted to equity in connection with the Business Combination.
The Goldman Sachs Group, L.P.:
In connection with the Business Combination, the Partnership granted
partnership interests to the Goldman Sachs Group, L.P. valued at $343,000 in
payment of a fee for advisory services.
Interest Rate Cap Transactions:
During 1993, the Partnership purchased interest rate protection through
interest rate cap transactions. These purchases were made from two affiliates of
MCLP partners. One purchase was executed with Goldman, Sachs & Co. pursuant to
which Goldman, Sachs & Co. was paid $126,000. The other transactions were with
Toronto Dominion Bank at a total cost of $420,000. The cost of the interest rate
caps is recorded as a prepaid expense and amortized over the term of the
contract, generally four to five years.
F-41
<PAGE> 146
UNDERWRITING
Subject to the terms and conditions set forth in the Underwriting
Agreement, the Company has agreed to sell to each of the Underwriters named
below, and each of such Underwriters, for whom Goldman, Sachs & Co., Donaldson,
Lufkin & Jenrette Securities Corporation, Merrill Lynch, Pierce, Fenner & Smith
Incorporated, Salomon Brothers Inc and Toronto Dominion Securities (USA) Inc.
are acting as representatives, has severally agreed to purchase, the principal
amount of the Senior Subordinated Notes set forth opposite its name below:
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT OF
SENIOR
SUBORDINATED
UNDERWRITER NOTES
--------------------------------------------------------------------- -------------
<S> <C>
Goldman, Sachs & Co. ................................................ $
Donaldson, Lufkin & Jenrette Securities Corporation..................
Merrill Lynch, Pierce, Fenner & Smith Incorporated...................
Salomon Brothers Inc.................................................
Toronto Dominion Securities (USA) Inc. ..............................
-------------
Total...................................................... $ 200,000,000
=============
</TABLE>
Under the terms and conditions of the Underwriting Agreement, the
Underwriters are committed to take and pay for all of the Senior Subordinated
Notes, if any are taken.
The Underwriters propose to offer the Senior Subordinated Notes in part
directly to the public at the initial public offering price set forth on the
cover page of this Prospectus, and in part to certain securities dealers at such
price less a concession of % of the principal amount of the Senior
Subordinated Notes. The Underwriters may allow, and such dealers may reallow, a
concession not to exceed % of the principal amount of the Senior
Subordinated Notes to certain brokers and dealers. After the Senior Subordinated
Notes are released for sale to the public, the offering price and other selling
terms may from time to time be varied by the representatives.
The Company has been advised by the representatives of the Underwriters
that the representatives intend to make a market in the Senior Subordinated
Notes but are not obligated to do so and may discontinue market making at any
time without notice. No assurance can be given as to the liquidity of the
trading market for the Senior Subordinated Notes.
Under Schedule E to the By-Laws of the National Association of Securities
Dealers, Inc. (the "NASD"), the Company may be deemed to be an affiliate of
Goldman Sachs. For a description of certain relationships between Goldman Sachs
and their affiliates and the Company, see "Management," "Certain Transactions"
and "Principal Shareholders." The Debt Offering is being conducted in accordance
with Schedule E, which provides that, among other things, when an NASD member
participates in the underwriting of an affiliate's debt securities, the yield to
maturity can be no lower than that recommended by a "qualified independent
underwriter" meeting certain standards. In accordance with this requirement,
Donaldson, Lufkin & Jenrette Securities Corporation has served in such role and
will recommend a minimum yield to maturity in compliance with the requirements
of Schedule E. Donaldson, Lufkin & Jenrette Securities Corporation will receive
compensation from the Company in the amount of $5,000 for serving in such role.
In connection with the Debt Offering, Donaldson, Lufkin & Jenrette Securities
Corporation in its role as qualified independent underwriter has performed due
diligence investigations and reviewed and participated in the preparation of
this Prospectus and the Registration Statement of which this Prospectus is a
part. In addition, the Underwriters may not confirm sales to any accounts over
which they exercise discretionary authority without the prior specific written
approval by the customer.
Settlement for the Senior Subordinated Notes will be made in immediately
available funds, and all secondary trading will settle in immediately available
funds.
U-1
<PAGE> 147
An affiliate of Toronto Dominion Securities (USA) Inc. is the managing
agent under the Credit Facility. To the extent proceeds from the Debt Offering
are used to repay outstanding indebtedness under the Credit Facility, such
affiliate will receive its proportional share of such proceeds.
The Company has agreed to indemnify the several Underwriters against
certain liabilities, including liabilities under the Securities Act.
U-2
<PAGE> 148
- ------------------------------------------------------
- ------------------------------------------------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THE SECURITIES TO
WHICH IT RELATES OR ANY OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY
SUCH SECURITIES IN ANY CIRCUMSTANCES IN WHICH SUCH OFFER OR SOLICITATION IS
UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER
SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO
CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT THE
INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary......................... 3
Risk Factors............................... 14
The Company................................ 23
Use of Proceeds............................ 24
Capitalization............................. 25
Selected Consolidated Financial Data....... 26
Management's Discussion and Analysis
of Financial Condition and Results of
Operations............................... 28
Business................................... 41
Management................................. 64
Principal Shareholders..................... 70
Certain Transactions....................... 73
Description of Senior Subordinated Notes... 76
Description of Indebtedness................ 95
Description of Capital Stock............... 98
Validity of Senior Subordinated Notes...... 100
Experts.................................... 100
Additional Information..................... 101
Index to Consolidated Financial
Statements............................... F-1
Underwriting............................... U-1
</TABLE>
------------------
THROUGH AND INCLUDING , 1996 (THE 90TH DAY AFTER THE DATE OF
THIS PROSPECTUS), ALL DEALERS EFFECTING TRANSACTIONS IN THE SENIOR SUBORDINATED
NOTES, WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO
DELIVER A PROSPECTUS. THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO
DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR
UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
$200,000,000
WESTERN WIRELESS
CORPORATION
% SENIOR SUBORDINATED
NOTES DUE 2006
------------------
LOGO
------------------
GOLDMAN, SACHS & CO.
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
MERRILL LYNCH & CO.
SALOMON BROTHERS INC
TORONTO DOMINION
SECURITIES (USA) INC.
REPRESENTATIVES OF THE UNDERWRITERS
- ------------------------------------------------------
- ------------------------------------------------------
<PAGE> 149
(ALTERNATE PAGE FOR MARKET-MAKING PROSPECTUS)
$200,000,000
LOGO
WESTERN WIRELESS CORPORATION
% SENIOR SUBORDINATED NOTES DUE 2006
------------------------
THE SENIOR SUBORDINATED NOTES WILL BE SENIOR UNSECURED OBLIGATIONS OF THE
COMPANY AND WILL BE SUBORDINATED IN RIGHT OF PAYMENT TO THE PRIOR PAYMENT IN
FULL OF ALL SENIOR INDEBTEDNESS AND SENIOR IN RIGHT OF PAYMENT TO ANY CURRENT OR
FUTURE SUBORDINATED INDEBTEDNESS OF THE COMPANY. IN ADDITION, ALL EXISTING AND
FUTURE INDEBTEDNESS AND OTHER LIABILITIES OF THE COMPANY'S SUBSIDIARIES WILL BE
EFFECTIVELY SENIOR IN RIGHT OF PAYMENT TO THE SENIOR SUBORDINATED NOTES. THE
COMPANY HAS NOT ISSUED, AND DOES NOT HAVE ANY FIRM ARRANGEMENT TO ISSUE, ANY
SIGNIFICANT INDEBTEDNESS TO WHICH THE SENIOR SUBORDINATED NOTES WOULD BE SENIOR.
AT MARCH 31, 1996, SENIOR INDEBTEDNESS AGGREGATED APPROXIMATELY $435.8 MILLION.
Interest on the Senior Subordinated Notes is payable on and
of each year, commencing , 1996. Prior to
, 2001, the Senior Subordinated Notes are redeemable at the option
of the Company in whole or in part at a price equal to the sum of (i) the
principal amount plus accrued interest to the redemption date and (ii) the
Make-Whole Amount; and on or after , 2001 at the redemption prices
set forth herein. In addition, on or before , 1998, the Company may,
at its option, apply Qualified Capital Stock Proceeds and Affiliate and Related
Person Proceeds to redeem up to $66.0 million in aggregate principal amount of
Senior Subordinated Notes together with accrued interest. The Senior
Subordinated Notes will be represented by one or more global notes registered in
the name of the nominee of the Depository Trust Company ("DTC"). Beneficial
interests in the global notes will be shown on, and transfers thereof will be
effected only through, records maintained by DTC and its participants. Except as
described herein, Senior Subordinated Notes in definitive form will not be
issued. The Senior Subordinated Notes will be issued only in denominations of
$1,000 and any integral multiples thereof. The Senior Subordinated Notes will
trade in DTC's Same-Day Funds Settlement System until maturity, and secondary
market trading activity for the Senior Subordinated Notes will therefore settle
in immediately available funds. All payments of principal and interest will be
made by the Company in immediately available funds. See "Description of Senior
Subordinated Notes."
SEE "RISK FACTORS" BEGINNING ON PAGE 14 HEREOF FOR CERTAIN CONSIDERATIONS
RELEVANT TO AN INVESTMENT IN THE SENIOR SUBORDINATED NOTES.
------------------------
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.
------------------------
This Prospectus has been prepared for and is to be used by Goldman, Sachs &
Co. in connection with offers and sales of the Senior Subordinated Notes related
to market-making transactions, at prevailing market prices, related prices or
negotiated prices. The Company will not receive any of the proceeds of such
sales. Goldman, Sachs & Co. may act as principal or agent in such transactions.
The closing of the Debt Offering referred to herein, which will constitute the
initial public offering of the Senior Subordinated Notes, is expected to occur
on , 1996. See "Plan of Distribution."
GOLDMAN, SACHS & CO.
------------------------
The date of this Prospectus is , 1996.
<PAGE> 150
(ALTERNATE PAGE FOR MARKET-MAKING PROSPECTUS)
[WESTERN WIRELESS LOGO]
Western Wireless(R) is a registered service mark of the Company. CELLULAR
ONE(R) is a registered service mark of Cellular One Group. See
"Business -- Intellectual Property."
---------------------
The Company intends to furnish to the registered holders of the Senior
Subordinated Notes annual reports containing audited financial statements and an
opinion thereon expressed by independent public accountants and unaudited
quarterly reports for the first three quarters of each fiscal year containing
unaudited summary financial information.
<PAGE> 151
(ALTERNATE PAGE FOR MARKET-MAKING PROSPECTUS)
PLAN OF DISTRIBUTION
This Prospectus may be used by Goldman Sachs in connection with offers and
sales related to market-making transactions in the Senior Subordinated Notes
effected from time to time after the commencement of the Debt Offering. Goldman
Sachs may act as principal or agent in such transactions, including as agent for
the counterparty when acting as principal or as agent for both counterparties,
and may receive compensation in the form of discounts and commissions, including
from both counterparties when they act as agent for both. Such sales will be
made at prevailing market prices at the time of sale, at prices related thereto
or at negotiated prices.
For a description of certain relationships and transactions between Goldman
Sachs and their affiliates and the Company, see "Management," "Certain
Transactions" and "Principal Shareholders."
The Company has been advised by Goldman Sachs that, subject to applicable
laws and regulations, Goldman Sachs currently intend to make a market in the
Senior Subordinated Notes following completion of the Debt Offering. However,
they are not obligated to do so and any market-making may be discontinued at any
time without notice. In addition, such market-making activity will be subject to
the limits imposed by the Securities Act and the Exchange Act. There can be no
assurance that an active trading market will develop or be sustained. See "Risk
Factors -- No Prior Market for Senior Subordinated Notes."
Goldman Sachs may not confirm sales to any accounts over which they
exercise discretionary authority without the prior specific written approval by
the customer.
Settlement for the Senior Subordinated Notes will be made in immediately
available funds, and all secondary trading will settle in immediately available
funds.
The Company has agreed to indemnify Goldman Sachs against certain
liabilities including liabilities under the Securities Act.
<PAGE> 152
(ALTERNATE PAGE FOR MARKET-MAKING PROSPECTUS)
- ------------------------------------------------------
- ------------------------------------------------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THE SECURITIES TO
WHICH IT RELATES OR ANY OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY
SUCH SECURITIES IN ANY CIRCUMSTANCES IN WHICH SUCH OFFER OR SOLICITATION IS
UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER
SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO
CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT THE
INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary......................... 3
Risk Factors............................... 13
The Company................................ 22
Use of Proceeds............................ 23
Capitalization............................. 24
Selected Consolidated Financial Data....... 25
Management's Discussion and Analysis
of Financial Condition and Results of
Operations............................... 27
Business................................... 39
Management................................. 62
Principal Shareholders..................... 68
Certain Transactions....................... 71
Description of Senior Subordinated Notes... 74
Description of Indebtedness................ 93
Description of Capital Stock............... 96
Validity of Senior Subordinated Notes...... 98
Experts.................................... 98
Additional Information..................... 99
Index to Consolidated Financial
Statements............................... F-1
Plan of Distribution....................... U-1
</TABLE>
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
$200,000,000
WESTERN WIRELESS
CORPORATION
% SENIOR SUBORDINATED
NOTES DUE 2006
------------------
LOGO
------------------
GOLDMAN, SACHS & CO.
- ------------------------------------------------------
- ------------------------------------------------------
<PAGE> 153
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the costs and expenses, other than
underwriting discounts and commissions, payable by the Company in connection
with the sale of Senior Subordinated Notes being registered (all amounts are (i)
aggregate amounts for this registration statement and the Company's Registration
Statement on Form S-1 (Registration No. 333-2688) and (ii) estimated except the
SEC Registration Fee and the NASD Filing Fee):
<TABLE>
<S> <C>
SEC Registration Fee..................................... $ 68,965
NASD Filing Fee.......................................... 20,500
Blue Sky Qualification Fees and Expenses (including Legal
Fees).................................................. 25,000
Transfer Agent and Registrar Fees........................ 10,000
Legal Fees and Expenses.................................. 200,000
Printing Expenses........................................ 150,000
Auditors' Fees and Expenses.............................. 40,000
Miscellaneous Expenses................................... 110,535
-------
TOTAL............................................... $625,000
=======
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 23B.08.510 of the Revised Code of Washington authorizes Washington
corporations to indemnify their officers and directors under certain
circumstances against expenses and liabilities incurred in legal proceedings
involving such persons because of their being or having been an officer or
director. The Company's Articles of Incorporation and Bylaws require
indemnification of the Company's officers and directors to the fullest extent
permitted by Washington law. The Company also maintains directors' and officers'
liability insurance.
The Company's By-laws and Articles of Incorporation provide that the
Company shall, to the full extent permitted by the Washington Business
Corporation Act (the "Washington Business Act") of the State of Washington, as
amended from time to time, indemnify all directors and officers of the Company.
In addition, the Company's Articles of Incorporation contains a provision
eliminating the personal liability of directors to the Company or its
shareholders for monetary damages arising out of a breach of fiduciary duty.
Under Washington law, this provision eliminates the liability of a director for
breach of fiduciary duty but does not eliminate the personal liability of any
director for (i) acts or omissions of a director that involve intentional
misconduct or a knowing violation of law, (ii) conduct in violation of Section
23B.08.310 of the Revised Code of Washington (which section relates to unlawful
distributions) or (iii) any transaction from which a director personally
received a benefit in money, property or services to which the director was not
legally entitled.
The Company intends to enter into separate indemnification agreements with
each of its directors and executive officers, which agreements will supersede
prior indemnification agreements entered into by the Company with each of its
directors and executive officers.
II-1
<PAGE> 154
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
The table below sets forth the sales of unregistered securities made by the
registrant or its subsidiaries since July 29, 1994. References to "Common Stock"
below are to the Company's Common Stock, par value $0.001 per share, which, upon
effectiveness of the recapitalization referred to in the Prospectus, will be
converted into shares of Class B Common Stock, no par value. The number of
shares set forth below reflects the 3.1-for-1 split to be effected in the
recapitalization.
<TABLE>
<CAPTION>
NUMBER OF
TITLE AND AMOUNT OF SECURITY DATE OF SALE PURCHASERS(1) EXEMPTION(1)
- -------------------------------------------- ------------------- ------------- ------------
<S> <C> <C> <C>
88,567 shares of Common Stock............... February 1996 1 (2)
515,561 shares of Common Stock.............. February 1996 3 (3)
79,748 shares of Common Stock............... February 1996 2 (4)
3,842,531 shares of Common Stock............ December 1995 1 (5)
217,000 shares of Common Stock.............. December 1995 2 (6)
Exchange Rights exchangeable into 327,882
shares of the Common Stock................ November 1995 3 (7)
896,210 shares of Common Stock.............. June 1995 47 (8)
13,241,428 shares of Common Stock........... June 1995 13 (9)
670,475 shares of Common Stock.............. June 1995 23 (10)
38,762 shares of Common Stock............... June-December 1995 6 (11)
45,042,712 shares of Common Stock........... July 1994 74 (12)
</TABLE>
- ---------------
(1) All sales were made to accredited investors in private transactions not
involving any public offering made in reliance upon the exemption from
registration provided by Section 4(2) of the Securities Act of 1933, as
amended (the "Securities Act"). No underwriters were involved. Unless
otherwise indicated, no purchaser was an officer or director of the Company
or holder of more than 5% of any class of the Company's voting securities
(a "5% shareholder"). Please refer to "Certain Transactions" in the
Prospectus for a more detailed description of the transactions in which the
Company's officers, directors and 5% shareholders participated.
(2) Issued to Donald Guthrie in consideration for $999,950.
(3) Issued to the shareholders of Palouse Paging, Inc. ("Palouse"), including
two officers of the Company (one of whom is also a director), in
consideration for all of the issued and outstanding stock of Palouse.
(4) Issued to the shareholders of Sawtooth Paging, Inc. ("Sawtooth"), including
two officers of the Company (one of whom is also a director), other than
the Company, in consideration for the shares of stock of Sawtooth
representing the 55% ownership interest in Sawtooth not held by the
Company.
(5) Issued to GS Capital Partners, L.P. ("GS Capital"), an affiliate of Goldman
Sachs, upon the termination of another Goldman Sachs affiliate, GS Capital
Partners Media Holding I, L.P. (the "Partnership"), which was the
registered owner of 3,842,531 shares of Common Stock that it acquired on
July 29, 1994. Following the distribution of the shares of Common Stock to
the Partnership's partners, GS Capital and GS Capital Partners Media
Holding I, Inc., GS Capital Partners Media Holding I, Inc. merged with and
into the Company and the 2,766,623 shares of Common Stock owned GS Capital
Partners Media Holding I, Inc. were canceled and a like number of shares of
Common Stock were issued to GS Capital. GS Capital reimbursed the Company
for all of the out-of-pocket expenses incurred by the Company in connection
with this transaction. No cash proceeds were received by the Company in
this transaction.
(6) Issued to the shareholders of Deadwood Cellular Telephone Company
("Deadwood"), the unaffiliated owner of the Harding (SD-1) cellular market,
in consideration for all the issued and outstanding stock of Deadwood.
(7) Issued to the general and limited partners of Cook Inlet PV/SS PCS
Partners, L.P., including Providence Media Partners, L.P., the general
partner of Cook Inlet Western Wireless PV/SS PCS, L.P., in which Western
PCS BTA I Corporation, a wholly-owned subsidiary of the Company, is the
sole limited partner.
II-2
<PAGE> 155
(8) Exchanged for 8,963 shares of common stock of GCC with purchasers including
three officers of the Company. A Form D with respect to such sale was filed
with the Securities and Exchange Commission under regulation D under the
Securities Act.
(9) Issued upon exchange of 4,271,428 shares of Series A Preferred Stock of
Western PCS Corporation by the holders thereof, including the Hellman
Entities, the Goldman Sachs Entities, Providence Ventures, L.P., and two
directors (one of whom is also an officer) and one officer of the Company.
Commitments to purchase shares of Series A Preferred Stock in the aggregate
amount of $149.5 million were received by Western PCS Corporation in April
1995. A Form D with respect to such sale was filed with the Securities and
Exchange Commission under regulation D under the Securities Act.
(10) Issued to certain then-existing shareholders for total proceeds of $7.6
million. A Form D with respect to such sale was filed with the Securities
and Exchange Commission under regulation D under the Securities Act.
(11) Issued upon exercise of stock options for total proceeds of $78,000.
(12) Issued in connection with the Business Combination. A Form D with respect
to such sale was filed with the Securities and Exchange Commission under
Regulation D under the Securities Act. See "Certain Transactions."
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits:
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
- ------- ---------------------------------------------------------------------------
<S> <C> <C>
1.1** -- Form of Underwriting Agreement.............................................
3.1++ -- Amended and Restated Articles of Incorporation of the Registrant...........
3.2++ -- Bylaws of the Registrant...................................................
4.1 -- Form of Indenture relating to the Senior Subordinated Notes Due 2006.......
5.1 -- Opinion of Preston Gates & Ellis...........................................
10.1++ -- Loan Agreement between Western PCS II Corporation and Northern Telecom
Inc., dated June 30, 1995..................................................
10.2++ -- PCS 1900 Project and Supply Agreement between Western PCS Corporation and
Northern Telecom Inc., dated June 30, 1995.................................
10.3++ -- Purchase Agreement between Motorola Nortel Communications Co. and General
Cellular Corporation, dated July 29, 1993..................................
10.4++ -- Loan Agreement among Western Wireless Corporation and The Toronto-Dominion
Bank, Barclays Bank, PLC, and Morgan Guaranty Trust Company of New York, as
Managing Agents for the Various Lenders, dated June 30, 1995...............
10.5++ -- First Amendment to Loan Agreement by and among Western Wireless
Corporation, The Toronto-Dominion Bank, Barclays Bank, PLC, and Morgan
Guaranty Trust Company of New York, as Managing Agents for the Various
Lenders, dated January 11, 1996............................................
10.6++ -- Supply Contract by and between Western PCS Corporation and Nokia
Telecommunications Inc., dated December 14, 1995...........................
10.7++ -- Purchase and Sale Agreement, Nokia Mobile Phones, Inc. and Western Wireless
Corporation, dated November 10, 1995.......................................
10.8++ -- Western Wireless Corporation, 1994 Management Incentive Stock Option Plan,
approved, as adopted and amended, by Shareholders November 16, 1995,
together with form of Stock Option Agreement for offers thereunder.........
10.9++ -- Stockholders Agreement by and among Western Wireless Corporation and
certain of its shareholders, dated July 29, 1994...........................
10.10++ -- First Amendment to Stockholders Agreement by and among Western Wireless
Corporation and certain of its shareholders, Adding as a Party Western PCS
Corporation, dated November 30, 1994.......................................
10.11++ -- Waiver Agreement by and among Western Wireless Corporation, Western PCS
Corporation and certain of Western Wireless Corporation's shareholders,
dated November 30, 1994....................................................
</TABLE>
II-3
<PAGE> 156
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
- ------- ---------------------------------------------------------------------------
<S> <C> <C>
10.12++ -- Waiver Agreement by and among Western Wireless Corporation, Western PCS
Corporation and certain of Western Wireless Corporation's shareholders,
dated February 15, 1996....................................................
10.13++ -- Voting Agreement by and among certain shareholders of Western Wireless
Corporation, dated July 29, 1994...........................................
10.14++ -- Voting Agreement by and among Western Wireless Corporation and certain of
its shareholders...........................................................
10.15++ -- Lease Agreement by and between WWC Holding Co., Inc., successor in interest
to MARKETS Cellular Limited Partnership, and WRC Properties, Inc., dated
May 1, 1994................................................................
10.16++ -- Lease Agreement by and between Western Wireless Corporation and Department
of Natural Resources, dated August 25, 1995................................
10.17++ -- First Amendment to Lease Agreement by and between Western Wireless
Corporation and Department of Natural Resources, dated February 28, 1996...
10.18++ -- Form of Cellular One Group License Agreement...............................
10.19++ -- Asset Purchase Agreement between Western PCS III License Corporation as
Buyer and GTE Mobilnet Incorporated as Seller, dated January 16, 1996......
10.20++ -- Purchase and Sale Agreement by and between Robert O. Tyler, Esq., as
Trustee, Seller, and GCC License Corporation, Purchaser, dated December 22,
1995.......................................................................
10.21++ -- Agreement for Purchase and Sale of Autoplex Cellular Equipment, Software
and Services by and among American Telephone and Telegraph Company, WWC
Holding Co., Inc., successor to MARKETS Cellular Limited Partnership and
MCII General Partnership, dated March 17, 1993.............................
10.22++ -- Agreement and Plan of Reorganization by and among Palouse Paging, Inc., the
Shareholders of 100% of the Stock of Palouse Paging, Inc., Western Paging I
Corporation and Western Wireless Corporation, dated February 5, 1996.......
10.23++ -- First Amendment to Agreement and Plan of Reorganization by and among
Western Paging I Corporation, the former Shareholders of 100% of the Stock
of Palouse Paging, Inc. and Western Wireless Corporation...................
10.24++ -- Agreement and Plan of Reorganization by and among Sawtooth Paging, Inc.,
the Shareholders of 52.93% of the Stock of Sawtooth Paging, Inc., Western
Paging II Corporation and Western Wireless Corporation, dated February 5,
1996.......................................................................
10.25++ -- Employment Agreement by and between John W. Stanton and Western Wireless
Corporation, dated March 12, 1996..........................................
10.26++ -- Employment Agreement by and between Robert R. Stapleton and Western
Wireless Corporation, dated March 12, 1996.................................
10.27++ -- Employment Agreement by and between Mikal J. Thomsen and Western Wireless
Corporation, dated March 12, 1996..........................................
10.28++ -- Employment Agreement by and between Theresa E. Gillespie and Western
Wireless Corporation, dated March 12, 1996.................................
10.29++ -- Employment Agreement by and between Alan R. Bender and Western Wireless
Corporation, dated March 12, 1996..........................................
10.30++ -- Employment Agreement by and between Cregg B. Baumbaugh and Western Wireless
Corporation, dated March 12, 1996..........................................
10.31++ -- Form of Registrant's Restrictive Covenant and Confidentiality Agreement....
10.32++ -- Form of Director and Officer Indemnification Agreement.....................
10.33++ -- Western PCS Corporation Series A Preferred Stock Purchase Agreement among
Western Wireless Corporation, Western PCS Corporation and the Purchasers
listed therein, dated April 10, 1995.......................................
10.34++ -- Second Amendment to Loan Agreement by and among Western Wireless
Corporation, The Toronto-Dominion Bank, Barclays Bank, PLC, and Morgan
Guaranty Trust Company of New York, as Managing Agents for the Various
Lenders, dated.............................................................
</TABLE>
II-4
<PAGE> 157
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
- ------- ---------------------------------------------------------------------------
<S> <C> <C>
10.35++ -- Subscription and Put and Call Agreement with respect to shares of Common
Stock of Western Wireless International Corporation, dated as of January 1,
1996.......................................................................
10.36++ -- PCS Block "C" Organization and Financing Agreement by and among Western PCS
BTA I Corporation, Western Wireless Corporation, Cook Inlet PV/SS PCS
Partners, L.P., Cook Inlet Telecommunications, Inc., SSPCS Corporation and
Providence Media Partners L.P. dated as of November 5, 1995................
10.37++ -- Limited Partnership Agreement by and between Cook Inlet PV/SS PCS Partners,
L.P. and Western PCS BTA I Corporation dated as of November 5, 1995........
10.38++ -- First Amendment to Block "C" Organization and Financing Agreement and Cook
Inlet Western Wireless PV/SS PCS, L.P. Limited Partnership Agreement by and
among Western PCS BTA I Corporation, Western Wireless Corporation, Cook
Inlet PV/SS PCS Partners, L.P., Cook Inlet Telecommunications, Inc., SSPCS
Corporation and Providence Media Partners L.P. dated as of April 8, 1996...
10.39++ -- Amended and Restated Loan Agreement among Western Wireless Corporation and
The Toronto-Dominion Bank, Barclays Bank, PLC, and Morgan Guaranty Trust
Company of New York, as Managing Agents for the Various Lenders, dated May
6, 1996....................................................................
12.1** -- Computation of Ratio of Earnings to Fixed Charges..........................
21++ -- List of material subsidiaries..............................................
23.1 -- Consent of Arthur Andersen LLP.............................................
23.2 -- Consent of Preston Gates & Ellis (see Exhibit 5.1).........................
24.1 -- Power of Attorney (see signature page).....................................
25.1** -- Statement of Eligibility of Trustee........................................
</TABLE>
- ---------------
** Incorporated herein by reference to the exhibit filed with the Company's
Registration Statement on Form S-1 (Commission File No. 333-2688).
++ Incorporated herein by reference to the exhibit filed with the Company's
Registration Statement on Form S-1 (Commission File No. 333-2432).
(b) Financial Statement Schedule:
Schedule II -- Valuation and Qualifying Accounts and Reserves (see
F-26)
ITEM 17. UNDERTAKINGS
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions or otherwise, the registrant has
been advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act 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 to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the
adjudication of such issue.
II-5
<PAGE> 158
The undersigned registrant hereby undertakes that:
(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;
(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. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high and of the estimated
maximum offering range may be reflected in the form of prospectus filed
with the Commission pursuant to Rule 424(b), if in the aggregate, the
changes in volume and price represent no more than 20 percent change in
the maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective 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, 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.
(4) For purposes of determining any liability under the Securities
Act, the information omitted from the form of prospectus filed as part of
this registration statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(5) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
II-6
<PAGE> 159
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment to Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized on this 22nd day of May,
1996.
WESTERN WIRELESS CORPORATION
By /s/ ALAN R. BENDER
------------------------------------
Alan R. Bender
Senior Vice President, General
Counsel
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints jointly and severally, John W. Stanton and Alan
R. Bender or any of them, with full power to act alone, his true and lawful
attorneys-in-fact, with full power of substitution, and resubstitution, for him
and in his name, place and stead, in any and all capacities, to sign any and all
amendments (including post-effective amendments) to the Registration Statement,
and file the same, with all exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact full power and authority to do and perform each and every act
and thing requisite and necessary to be done 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 or any of them may lawfully do or cause to be done
by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this Amendment
to Registration Statement has been signed below on May 22, 1996 by the following
persons in the capacities indicated.
<TABLE>
<CAPTION>
SIGNATURES TITLE
- --------------------------------------------- ---------------------------------------------
<C> <S>
/s/ JOHN W. STANTON Chairman, Chief Executive Officer and
- --------------------------------------------- Director (Principal Executive Officer)
John W. Stanton
/s/ THERESA E. GILLESPIE Chief Financial Officer (Principal Financial
- --------------------------------------------- Officer)
Theresa E. Gillespie
/s/ NASTASHIA S. PRESS Principal Accounting Officer
- ---------------------------------------------
Nastashia S. Press
- --------------------------------------------- Director
David A. Bayer
/s/ JOHN L. BUNCE, JR. Director
- ---------------------------------------------
John L. Bunce, Jr.
/s/ MITCHELL R. COHEN Director
- ---------------------------------------------
Mitchell R. Cohen
Director
- ---------------------------------------------
Jonathan M. Nelson
/s/ TERENCE M. O'TOOLE Director
- ---------------------------------------------
Terence M. O'Toole
</TABLE>
II-7
<PAGE> 160
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------
EXHIBITS
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------------
WESTERN WIRELESS CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 161
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------
EXHIBITS
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------------
WESTERN WIRELESS CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 162
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION PAGE NO.
- ------- ------------------------------------------------------------------ --------
<S> <C> <C> <C>
1.1** -- Form of Underwriting Agreement....................................
3.1++ -- Amended and Restated Articles of Incorporation of the
Registrant........................................................
3.2++ -- Bylaws of the Registrant..........................................
4.1 -- Form of Indenture relating to the Senior Subordinated Notes Due
2006..............................................................
5.1 -- Opinion of Preston Gates & Ellis..................................
10.1++ -- Loan Agreement between Western PCS II Corporation and Northern
Telecom Inc., dated June 30, 1995.................................
10.2++ -- PCS 1900 Project and Supply Agreement between Western PCS
Corporation and Northern Telecom Inc., dated June 30, 1995........
10.3++ -- Purchase Agreement between Motorola Nortel Communications Co. and
General Cellular Corporation, dated July 29, 1993.................
10.4++ -- Loan Agreement among Western Wireless Corporation and The
Toronto-Dominion Bank, Barclays Bank, PLC, and Morgan Guaranty
Trust Company of New York, as Managing Agents for the Various
Lenders, dated June 30, 1995......................................
10.5++ -- First Amendment to Loan Agreement by and among Western Wireless
Corporation, The Toronto-Dominion Bank, Barclays Bank, PLC, and
Morgan Guaranty Trust Company of New York, as Managing Agents for
the Various Lenders, dated January 11, 1996.......................
10.6++ -- Supply Contract by and between Western PCS Corporation and Nokia
Telecommunications Inc., dated December 14, 1995..................
10.7++ -- Purchase and Sale Agreement, Nokia Mobile Phones, Inc. and Western
Wireless Corporation, dated November 10, 1995.....................
10.8++ -- Western Wireless Corporation, 1994 Management Incentive Stock
Option Plan, approved, as adopted and amended, by Shareholders
November 16, 1995, together with form of Stock Option Agreement
for offers thereunder.............................................
10.9++ -- Stockholders Agreement by and among Western Wireless Corporation
and certain of its shareholders, dated July 29, 1994..............
10.10++ -- First Amendment to Stockholders Agreement by and among Western
Wireless Corporation and certain of its shareholders, Adding as a
Party Western PCS Corporation, dated November 30, 1994............
10.11++ -- Waiver Agreement by and among Western Wireless Corporation,
Western PCS Corporation and certain of Western Wireless
Corporation's shareholders, dated November 30, 1994...............
10.12++ -- Waiver Agreement by and among Western Wireless Corporation,
Western PCS Corporation and certain of Western Wireless
Corporation's shareholders, dated February 15, 1996...............
10.13++ -- Voting Agreement by and among certain shareholders of Western
Wireless Corporation, dated July 29, 1994.........................
10.14++ -- Voting Agreement by and among Western Wireless Corporation and
certain of its shareholders.......................................
10.15++ -- Lease Agreement by and between WWC Holding Co., Inc., successor in
interest to MARKETS Cellular Limited Partnership, and WRC
Properties, Inc., dated May 1, 1994...............................
10.16++ -- Lease Agreement by and between Western Wireless Corporation and
Department of Natural Resources, dated August 25, 1995............
10.17++ -- First Amendment to Lease Agreement by and between Western Wireless
Corporation and Department of Natural Resources, dated February
28, 1996..........................................................
10.18++ -- Form of Cellular One Group License Agreement......................
</TABLE>
<PAGE> 163
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION PAGE NO.
- ------- ------------------------------------------------------------------ --------
<S> <C> <C> <C>
10.19++ -- Asset Purchase Agreement between Western PCS III License
Corporation as Buyer and GTE Mobilnet Incorporated as Seller,
dated January 16, 1996............................................
10.20++ -- Purchase and Sale Agreement by and between Robert O. Tyler, Esq.,
as Trustee, Seller, and GCC License Corporation, Purchaser, dated
December 22, 1995.................................................
10.21++ -- Agreement for Purchase and Sale of Autoplex Cellular Equipment,
Software and Services by and among American Telephone and
Telegraph Company, WWC Holding Co., Inc., successor to MARKETS
Cellular Limited Partnership and MCII General Partnership, dated
March 17, 1993....................................................
10.22++ -- Agreement and Plan of Reorganization by and among Palouse Paging,
Inc., the Shareholders of 100% of the Stock of Palouse Paging,
Inc., Western Paging I Corporation and Western Wireless
Corporation, dated February 5, 1996...............................
10.23++ -- First Amendment to Agreement and Plan of Reorganization by and
among Western Paging I Corporation, the former Shareholders of
100% of the Stock of Palouse Paging, Inc. and Western Wireless
Corporation.......................................................
10.24++ -- Agreement and Plan of Reorganization by and among Sawtooth Paging,
Inc., the Shareholders of 52.93% of the Stock of Sawtooth Paging,
Inc., Western Paging II Corporation and Western Wireless
Corporation, dated February 5, 1996...............................
10.25++ -- Employment Agreement by and between John W. Stanton and Western
Wireless Corporation, dated March 12, 1996........................
10.26++ -- Employment Agreement by and between Robert R. Stapleton and
Western Wireless Corporation, dated March 12, 1996................
10.27++ -- Employment Agreement by and between Mikal J. Thomsen and Western
Wireless Corporation, dated March 12, 1996........................
10.28++ -- Employment Agreement by and between Theresa E. Gillespie and
Western Wireless Corporation, dated March 12, 1996................
10.29++ -- Employment Agreement by and between Alan R. Bender and Western
Wireless Corporation, dated March 12, 1996........................
10.30++ -- Employment Agreement by and between Cregg B. Baumbaugh and Western
Wireless Corporation, dated March 12, 1996........................
10.31++ -- Form of Registrant's Restrictive Covenant and Confidentiality
Agreement.........................................................
10.32++ -- Form of Director and Officer Indemnification Agreement............
10.33++ -- Western PCS Corporation Series A Preferred Stock Purchase
Agreement among Western Wireless Corporation, Western PCS
Corporation and the Purchasers listed therein, dated April 10,
1995..............................................................
10.34++ -- Second Amendment to Loan Agreement by and among Western Wireless
Corporation, The Toronto-Dominion Bank, Barclays Bank, PLC, and
Morgan Guaranty Trust Company of New York, as Managing Agents for
the Various Lenders, dated........................................
10.35++ -- Subscription and Put and Call Agreement with respect to shares of
Common Stock of Western Wireless International Corporation, dated
as of January 1, 1996.............................................
10.36++ -- PCS Block "C" Organization and Financing Agreement by and among
Western PCS BTA I Corporation, Western Wireless Corporation, Cook
Inlet PV/SS PCS Partners, L.P., Cook Inlet Telecommunications,
Inc., SSPCS Corporation and Providence Media Partners L.P. dated
as of November 5, 1995............................................
10.37++ -- Limited Partnership Agreement by and between Cook Inlet PV/SS PCS
Partners, L.P. and Western PCS BTA I Corporation dated as of
November 5, 1995..................................................
</TABLE>
<PAGE> 164
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION PAGE NO.
- ------- ------------------------------------------------------------------ --------
<S> <C> <C> <C>
10.38++ -- First Amendment to Block "C" Organization and Financing Agreement
and Cook Inlet, Western Wireless PV/SS PCS, L.P. Limited
Partnership Agreement by and among Western PCS BTA I Corporation,
Western Wireless Corporation, Cook Inlet PV/SS PCS Partners L.P.,
Cook Inlet Telecommunications, Inc., SSPCS Corporation and
Providence Media Partners L.P. dated as of April 8, 1996..........
10.39++ -- Amended and Restated Loan Agreement among Western Wireless
Corporation and The Toronto-Dominion Bank, Barclays Bank, PLC, and
Morgan Guaranty Trust Company of New York, as Managing Agents for
the Various Lenders, dated May 6, 1996............................
12.1** -- Computation of Ratio of Earnings to Fixed Charges.................
21++ -- List of material subsidiaries.....................................
23.1 -- Consent of Arthur Andersen LLP....................................
23.2 -- Consent of Preston Gates & Ellis (see Exhibit 5.1)................
24.1 -- Power of Attorney (see signature page)............................
25.1** -- Statement of Eligibility of Trustee...............................
</TABLE>
- ---------------
** Incorporated herein by reference to the exhibit filed with the Company's
Registration Statement No. 333-2688.
++ Incorporated herein by reference to the exhibit filed with the Company's
Registration Statement on Form S-1 (Commission File No. 333-2432).
<PAGE> 1
EXHIBIT 4.1
DRAFT OF MAY 22, 1996
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
WESTERN WIRELESS CORPORATION
TO
HARRIS TRUST COMPANY OF CALIFORNIA
TRUSTEE
------------------------------
INDENTURE
DATED AS OF , 1996
------------------------------
$200,000,000
% SENIOR SUBORDINATED NOTES DUE 2006
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 2
RECONCILIATION AND TIE BETWEEN TRUST INDENTURE ACT
OF 1939 AND INDENTURE, DATED AS OF , 1996
<TABLE>
<CAPTION>
TRUST INDENTURE INDENTURE
ACT SECTION SECTION
- ---------------------------------------------------------------------------- ---------------
<S> <C>
sec.310(a)(1)............................................................... 609
(a)(2)................................................................. 609
(a)(3)................................................................. Not Applicable
(a)(4)................................................................. Not Applicable
(b).................................................................... 608
610
sec.311(a).................................................................. 613(a)
(b).................................................................... 613(b)
(b)(2)................................................................. 703(a)(2)
703(b)
sec.312(a).................................................................. 701
702(a)
(b).................................................................... 702(b)
(c).................................................................... 702(c)
sec.313(a).................................................................. 703(a)
(b).................................................................... 703(b)
(c).................................................................... 703(a)
703(b)
(d).................................................................... 703(c)
sec.314(a).................................................................. 704
(b).................................................................... Not Applicable
(c)(1)................................................................. 102
(c)(2)................................................................. 102
(c)(3)................................................................. Not Applicable
(d).................................................................... Not Applicable
(e).................................................................... 102
sec.315(a).................................................................. 601(a)
(b).................................................................... 602
703(a)(6)
(c).................................................................... 601(b)
(d).................................................................... 601(c)
(d)(1)................................................................. 601(a)(1)
(d)(2)................................................................. 601(c)(2)
(d)(3)................................................................. 601(c)(3)
(e).................................................................... 514
</TABLE>
i
<PAGE> 3
<TABLE>
<CAPTION>
TRUST INDENTURE INDENTURE
ACT SECTION SECTION
- ---------------------------------------------------------------------------- ---------------
<S> <C>
sec.316(a).................................................................. 101
(a)(1)(A).............................................................. 502
512
(a)(1)(B).............................................................. 513
(a)(2)................................................................. Not Applicable
(b).................................................................... 508
sec.317(a)(1)............................................................... 503
(a)(2)................................................................. 504
(b).................................................................... 1003
sec.318(a).................................................................. 107
</TABLE>
- ---------------
Note: This reconciliation and tie shall not, for any purpose, be deemed to be a
part of the Indenture.
ii
<PAGE> 4
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Parties............................................................................... 1
Recitals of the Company............................................................... 1
ARTICLE ONE
DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICATION
SECTION 101. Definitions............................................................. 1
Act................................................................................. 1
Administrative Agent................................................................ 2
Affiliate........................................................................... 2
Affiliate and Related Person Proceeds............................................... 2
Asset Disposition................................................................... 2
Authenticating Agent................................................................ 2
Board of Directors.................................................................. 2
Board Resolution.................................................................... 2
Business Day........................................................................ 2
Capital Lease Obligation............................................................ 2
Capital Stock....................................................................... 2
Change of Control................................................................... 2
Commission.......................................................................... 2
Common Stock........................................................................ 2
Company............................................................................. 3
Company Request..................................................................... 3
Company Order....................................................................... 3
Consolidated Income Tax Expense..................................................... 3
Consolidated Indebtedness........................................................... 3
Consolidated Interest Expense....................................................... 3
Consolidated Net Income............................................................. 3
Consolidated Net Worth.............................................................. 3
Consolidated Restricted Subsidiary.................................................. 3
Corporate Trust Office.............................................................. 3
corporation......................................................................... 3
Credit Facility..................................................................... 4
Cumulative EBITDA................................................................... 4
Cumulative Interest Expense......................................................... 4
Defaulted Interest.................................................................. 4
Depositary.......................................................................... 4
Designated Senior Indebtedness...................................................... 4
EBITDA.............................................................................. 4
Event of Default.................................................................... 4
Exchange Act........................................................................ 4
</TABLE>
iii
<PAGE> 5
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Expiration Date..................................................................... 4
Fair Market Value................................................................... 4
Global Security..................................................................... 4
Guaranty............................................................................ 4
Holder.............................................................................. 5
Incur............................................................................... 5
Indebtedness........................................................................ 5
Indebtedness to EBITDA Ratio........................................................ 5
Indenture........................................................................... 5
Initial Investors................................................................... 5
Interest Hedge Agreements........................................................... 5
Interest Payment Date............................................................... 5
Lien................................................................................ 6
Make-Whole Amount................................................................... 6
Maturity............................................................................ 6
Net Available Proceeds.............................................................. 6
NORTEL Facility..................................................................... 6
Offer............................................................................... 6
Offer to Purchase................................................................... 6
Officers' Certificate............................................................... 8
Opinion of Counsel.................................................................. 8
Outstanding......................................................................... 8
pari passu.......................................................................... 8
Paying Agent........................................................................ 8
Payment Blockage Period............................................................. 8
Permitted Joint Venture............................................................. 8
Permitted Joint Venture Investment.................................................. 9
Person.............................................................................. 9
Predecessor Security................................................................ 9
Preferred Stock..................................................................... 9
Proceeding.......................................................................... 9
Purchase Amount..................................................................... 9
Purchase Date....................................................................... 9
Purchase Price...................................................................... 9
Qualified Capital Stock............................................................. 9
Qualified Capital Stock Proceeds.................................................... 9
Redeemable Stock.................................................................... 10
Redemption Date..................................................................... 10
Redemption Price.................................................................... 10
Regular Record Date................................................................. 10
Reinvestment Rate................................................................... 10
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Related Person...................................................................... 10
Restricted Payments................................................................. 10
Restricted Subsidiary............................................................... 10
Sale and Leaseback Transaction...................................................... 10
Securities.......................................................................... 10
Securities Payment.................................................................. 10
Security Registrar.................................................................. 10
Security Register................................................................... 10
Senior Indebtedness................................................................. 10
Senior Nonmonetary Default.......................................................... 11
Senior Payment Default.............................................................. 11
Stated Maturity..................................................................... 11
Statistical Release................................................................. 11
Subsidiary.......................................................................... 11
Trustee............................................................................. 11
Trust Indenture Act................................................................. 11
U.S. Government Obligations......................................................... 11
Unrestricted Subsidiary............................................................. 11
Vice President...................................................................... 12
Voting Power........................................................................ 12
Wholly Owned Restricted Subsidiary.................................................. 12
Wireless Communications Business.................................................... 12
SECTION 102. Compliance Certificates and Opinions.................................... 12
SECTION 103. Form of Documents Delivered to Trustee.................................. 12
SECTION 104. Acts of Holders; Record Date............................................ 13
SECTION 105. Notices, Etc., to Trustee and Company................................... 14
SECTION 106. Notice to Holders; Waiver............................................... 14
SECTION 107. Conflict with Trust Indenture Act....................................... 14
SECTION 108. Effect of Headings and Table of Contents................................ 14
SECTION 109. Successors and Assigns.................................................. 14
SECTION 110. Separability Clause..................................................... 15
SECTION 111. Benefits of Indenture................................................... 15
SECTION 112. Governing Law........................................................... 15
SECTION 113. Legal Holidays.......................................................... 15
ARTICLE TWO
SECURITY FORMS
SECTION 201. Forms Generally......................................................... 15
SECTION 202. Form of Face of Security................................................ 15
SECTION 203. Form of Reverse of Security............................................. 17
SECTION 204. Form of Legend for Global Securities.................................... 19
SECTION 205. Form of Trustee's Certificate of Authentication......................... 19
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ARTICLE THREE
THE SECURITIES
SECTION 301. Title and Terms......................................................... 20
SECTION 302. Denominations........................................................... 20
SECTION 303. Execution, Authentication, Delivery and Dating.......................... 20
SECTION 304. Temporary Securities.................................................... 21
SECTION 305. Registration, Registration of Transfer and Exchange..................... 21
SECTION 306. Mutilated, Destroyed, Lost and Stolen Securities........................ 22
SECTION 307. Payment of Interest; Interest Rights Preserved.......................... 23
SECTION 308. Persons Deemed Owners................................................... 24
SECTION 309. Cancellation............................................................ 24
SECTION 310. Computation of Interest................................................. 24
ARTICLE FOUR
SATISFACTION AND DISCHARGE
SECTION 401. Satisfaction and Discharge of Indenture................................. 24
SECTION 402. Application of Trust Money.............................................. 25
ARTICLE FIVE
REMEDIES
SECTION 501. Events of Default....................................................... 25
SECTION 502. Acceleration of Maturity; Rescission and Annulment...................... 27
SECTION 503. Collection of Indebtedness and Suits for Enforcement by Trustee......... 27
SECTION 504. Trustee May File Proofs of Claim........................................ 28
SECTION 505. Trustee May Enforce Claims Without Possession of Securities............. 28
SECTION 506. Application of Money Collected.......................................... 29
SECTION 507. Limitation on Suits..................................................... 29
SECTION 508. Unconditional Right of Holders to Receive Principal, Premium
and Interest....................................................... 29
SECTION 509. Restoration of Rights and Remedies...................................... 30
SECTION 510. Rights and Remedies Cumulative.......................................... 30
SECTION 511. Delay or Omission Not Waiver............................................ 30
SECTION 512. Control by Holders...................................................... 30
SECTION 513. Waiver of Past Defaults................................................. 30
SECTION 514. Undertaking for Costs................................................... 31
SECTION 515. Waiver of Stay or Extension Laws........................................ 31
ARTICLE SIX
THE TRUSTEE
SECTION 601. Certain Duties and Responsibilities..................................... 31
SECTION 602. Notice of Defaults...................................................... 31
SECTION 603. Certain Rights of Trustee............................................... 31
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SECTION 604. Not Responsible for Recitals or Issuance of Securities.................. 33
SECTION 605. May Hold Securities..................................................... 33
SECTION 606. Money Held in Trust..................................................... 33
SECTION 607. Compensation and Reimbursement.......................................... 33
SECTION 608. Disqualification; Conflicting Interests................................. 33
SECTION 609. Corporate Trustee Required; Eligibility................................. 34
SECTION 610. Resignation and Removal; Appointment of Successor....................... 34
SECTION 611. Acceptance of Appointment by Successor.................................. 35
SECTION 612. Merger, Conversion, Consolidation or Succession to Business............. 35
SECTION 613. Preferential Collection of Claims Against Company....................... 35
SECTION 614. Appointment of Authenticating Agent..................................... 35
ARTICLE SEVEN
HOLDERS' LISTS AND REPORTS BY TRUSTEE AND COMPANY
SECTION 701. Company to Furnish Trustee Names and Addresses of Holders............... 37
SECTION 702. Preservation of Information; Communications to Holders.................. 37
SECTION 703. Reports by Trustee...................................................... 37
SECTION 704. Reports by Company...................................................... 37
ARTICLE EIGHT
CONSOLIDATION, MERGER, CONVEYANCE, TRANSFER OR LEASE
SECTION 801. Company May Consolidate, Etc. Only on Certain Terms..................... 38
SECTION 802. Successor Substituted................................................... 38
ARTICLE NINE
SUPPLEMENTAL INDENTURES
SECTION 901. Supplemental Indentures Without Consent of Holders...................... 39
SECTION 902. Supplemental Indentures with Consent of Holders......................... 39
SECTION 903. Execution of Supplemental Indentures.................................... 40
SECTION 904. Effect of Supplemental Indentures....................................... 40
SECTION 905. Conformity with Trust Indenture Act..................................... 40
SECTION 906. Reference in Securities to Supplemental Indentures...................... 40
SECTION 907. Notice of Supplemental Indenture........................................ 40
ARTICLE TEN
COVENANTS
SECTION 1001. Payment of Principal, Premium and Interest............................. 41
SECTION 1002. Maintenance of Office or Agency........................................ 41
SECTION 1003. Money for Security Payments to be Held in Trust........................ 41
SECTION 1004. Existence.............................................................. 42
SECTION 1005. Maintenance of Properties.............................................. 42
SECTION 1006. Payment of Taxes and Other Claims...................................... 42
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SECTION 1007. Maintenance of Insurance............................................... 43
SECTION 1008. Limitation on Consolidated Indebtedness................................ 43
SECTION 1009. Limitation on Preferred Stock of Restricted Subsidiaries............... 44
SECTION 1010. Limitation on Certain Indebtedness..................................... 45
SECTION 1011. Limitation on Restricted Payments...................................... 45
SECTION 1012. Limitations Concerning Distributions and Transfers By Restricted
Subsidiaries........................................................... 46
SECTION 1013. Limitation on Liens.................................................... 46
SECTION 1014. Limitation on Transactions with Affiliates and Related Persons......... 47
SECTION 1015. Limitation on Certain Asset Dispositions............................... 47
SECTION 1016. Limitation on Issuances and Sales of Capital Stock of Wholly Owned
Restricted Subsidiaries................................................ 49
SECTION 1017. Change of Control...................................................... 49
SECTION 1018. Statement by Officers as to Default; Compliance Certificates........... 50
SECTION 1019. Waiver of Certain Covenants............................................ 51
ARTICLE ELEVEN
REDEMPTION OF SECURITIES
SECTION 1101. Right of Redemption.................................................... 51
SECTION 1102. Applicability of Article............................................... 51
SECTION 1103. Election to Redeem; Notice to Trustee.................................. 51
SECTION 1104. Selection by Trustee of Securities to Be Redeemed...................... 51
SECTION 1105. Notice of Redemption................................................... 52
SECTION 1106. Deposit of Redemption Price............................................ 52
SECTION 1107. Securities Payable on Redemption Date.................................. 52
SECTION 1108. Securities Redeemed in Part............................................ 53
ARTICLE TWELVE
SUBORDINATION OF SECURITIES
SECTION 1201. Securities Subordinate to Senior Indebtedness.......................... 53
SECTION 1202. Payment Over of Proceeds Upon Dissolution, Etc......................... 53
SECTION 1203. No Payment When Senior Indebtedness in Default......................... 54
SECTION 1204. Payment Permitted If No Default........................................ 55
SECTION 1205. Subrogation to Rights of Holders of Senior Indebtedness................ 55
SECTION 1206. Provisions Solely to Define Relative Rights............................ 55
SECTION 1207. Trustee to Effectuate Subordination.................................... 55
SECTION 1208. No Waiver of Subordination Provisions.................................. 56
SECTION 1209. Notice to Trustee...................................................... 56
SECTION 1210. Reliance on Judicial Order or Certificate of Liquidating Agent......... 57
SECTION 1211. Trustee Not Fiduciary for Holders of Senior Debt....................... 57
SECTION 1212. Rights of Trustee as Holder of Senior Indebtedness; Preservation of
Trustee's Rights....................................................... 57
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SECTION 1213. Article Applicable to Paying Agents.................................... 57
SECTION 1214. Defeasance of this Article Twelve...................................... 57
ARTICLE THIRTEEN
DEFEASANCE AND COVENANT DEFEASANCE
SECTION 1301. Company's Option to Effect Defeasance or Covenant Defeasance........... 58
SECTION 1302. Defeasance and Discharge............................................... 58
SECTION 1303. Covenant Defeasance.................................................... 58
SECTION 1304. Conditions to Defeasance or Covenant Defeasance........................ 58
SECTION 1305. Deposited Money and U.S. Government Obligations to be Held in Trust;
Other Miscellaneous Provisions......................................... 60
SECTION 1306. Reinstatement.......................................................... 60
TESTIMONIUM........................................................................... 61
SIGNATURES AND SEALS.................................................................. 62
ACKNOWLEDGMENTS.......................................................................
</TABLE>
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<PAGE> 11
INDENTURE, dated as of , 1996, between Western Wireless
Corporation, a corporation duly organized and existing under the laws of the
State of Washington (herein called the "Company"), having its principal office
at 2001 NW Sammamish Road, Issaquah, Washington 98027, and Harris Trust Company
of California, a trust company duly organized and existing under the laws of the
State of California, as Trustee (herein called the "Trustee").
RECITALS OF THE COMPANY
The Company has duly authorized the creation of an issue of its % Senior
Subordinated Notes Due 2006 (the "Securities") of substantially the tenor and
amount hereinafter set forth, and to provide therefor the Company has duly
authorized the execution and delivery of this Indenture.
All things necessary to make the Securities, when executed by the Company
and authenticated and delivered hereunder and duly issued by the Company, the
valid obligations of the Company, and to make this Indenture a valid agreement
of the Company, in accordance with their and its terms, have been done.
NOW, THEREFORE, THIS INDENTURE WITNESSETH:
For and in consideration of the premises and the purchase of the Securities
by the Holders thereof, it is mutually covenanted and agreed, for the equal and
proportionate benefit of all Holders of the Securities, as follows:
ARTICLE ONE
DEFINITIONS AND OTHER PROVISIONS
OF GENERAL APPLICATION
SECTION 101. Definitions.
For all purposes of this Indenture, except as otherwise expressly provided
or unless the context otherwise requires:
(1) the terms defined in this Article have the meanings assigned to
them in this Article and include the plural as well as the singular;
(2) all other terms used herein which are defined in the Trust
Indenture Act, either directly or by reference therein, have the meanings
assigned to them therein;
(3) all accounting terms not otherwise defined herein have the
meanings assigned to them in accordance with generally accepted accounting
principles (whether or not such is indicated herein), and, except as
otherwise herein expressly provided, the term "generally accepted
accounting principles" with respect to any computation required or
permitted hereunder shall mean such accounting principles as are generally
accepted at the date of such computation;
(4) unless otherwise specifically set forth herein, all calculations
or determinations of a Person shall be performed or made on a consolidated
basis in accordance with generally accepted accounting principles but shall
not include the accounts of Unrestricted Subsidiaries, except to the extent
of dividends and distributions actually paid to the Company or one of its
Wholly Owned Restricted Subsidiaries; and
(5) the words "herein," "hereof" and "hereunder" and other words of
similar import refer to this Indenture as a whole and not to any particular
Article, Section or other subdivision.
Certain terms, used principally in Article Six, are defined in that
Article.
"Act," when used with respect to any Holder, has the meaning specified in
Section 104.
<PAGE> 12
"Administrative Agent" means the Person or Persons designated as such under
the Credit Facility.
"Affiliate" of any Person means any other Person directly or indirectly
controlling or controlled by or under direct or indirect common control with
such Person. For the purposes of this definition, "control" when used with
respect to any Person means the power to direct the management and policies of
such Person, directly or indirectly, whether through the ownership of voting
securities, by contract or otherwise; and the terms "controlling" and
"controlled" have meanings correlative to the foregoing.
"Affiliate and Related Person Proceeds" means any cash payment received by
the Company or any Restricted Subsidiary from any Affiliate or Related Person
from any transaction permitted under Section 1014.
"Asset Disposition" by any Person means any transfer, conveyance, sale,
lease or other disposition by such Person or any of its Restricted Subsidiaries
(including a consolidation or merger or other sale of any such Restricted
Subsidiaries with, into or to another Person in a transaction in which such
Restricted Subsidiary ceases to be a Restricted Subsidiary, but excluding a
disposition by a Subsidiary of such Person to such Person or a Wholly Owned
Restricted Subsidiary of such Person or by such Person to a Wholly Owned
Restricted Subsidiary of such Person) of (i) shares of Capital Stock (other than
directors' qualifying shares) or other ownership interests of a Subsidiary of
such Person, (ii) substantially all of the assets of such Person or any of its
Subsidiaries representing a division or line of business or (iii) other assets
or rights of such Person or any of its Subsidiaries having a Fair Market Value
greater than $100,000.
"Authenticating Agent" means any Person authorized by the Trustee to act on
behalf of the Trustee to authenticate Securities.
"Board of Directors" means either the board of directors of the Company or
any duly authorized committee of that board.
"Board Resolution" means a copy of a resolution certified by the Secretary
or an Assistant Secretary of the Company to have been duly adopted by the Board
of Directors, to be in full force and effect on the date of such certification
and delivered to the Trustee.
"Business Day" means each Monday, Tuesday, Wednesday, Thursday and Friday
which is not a day on which banking institutions in New York City, the State of
Washington or the State of California are authorized or obligated by law or
executive order to close.
"Capital Lease Obligation" means that portion of any obligation of a Person
as lessee under a lease which is required to be capitalized on the balance sheet
of such lessee in accordance with generally accepted accounting principles.
"Capital Stock" of any Person means any and all shares, interests,
participations or other equivalents (however designated) of corporate stock of
such Person.
"Change of Control" has the meaning specified in Section 1017.
"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 Trust Indenture Act, then the body
performing such duties at such time.
"Common Stock" of any Person means Capital Stock of such Person that does
not rank prior, as to the payment of dividends or as to the distribution of
assets upon any voluntary or involuntary liquidation, dissolution or winding up
of such Person, to shares of Capital Stock of any other class of such Person.
2
<PAGE> 13
"Company" means the Person named as the "Company" in the first paragraph of
this instrument until a successor Person shall have become such pursuant to the
applicable provisions of this Indenture and thereafter "Company" shall mean such
successor Person.
"Company Request" or "Company Order" means a written request or order
signed in the name of the Company by its Chairman of the Board, its President or
a Vice President, and by its Treasurer, an Assistant Treasurer, its Secretary or
an Assistant Secretary, and delivered to the Trustee.
"Consolidated Income Tax Expense" of any Person means for any period the
provision for income taxes of such Person and its Consolidated Restricted
Subsidiaries for such period.
"Consolidated Indebtedness" of any Person means at any date the
Indebtedness of such Person and its Consolidated Restricted Subsidiaries at such
date.
"Consolidated Interest Expense" of any Person means for any period the
interest expense included in an income statement (taking into account the effect
of any Interest Hedge Agreements but without deduction of interest income) of
such Person and its Consolidated Restricted Subsidiaries for such period,
including without limitation or duplication (or, to the extent not so included,
with the addition of), (i) the portion of any rental obligation in respect of
any Capital Lease Obligation allocable to interest expense in accordance with
generally accepted accounting principles; (ii) the amortization of Indebtedness
discounts; (iii) any payments or fees with respect to letters of credit, bankers
acceptances or similar facilities; (iv) fees with respect to Interest Hedge
Agreements; (v) the portion of any rental obligations in respect of any Sale and
Leaseback Transaction allocable to interest expense (determined as if such were
treated as a Capital Lease Obligation); and (vi) Preferred Stock dividends
declared and payable in cash.
"Consolidated Net Income" of any Person means for any period the net income
(or loss) of such Person for such period determined on a consolidated basis in
accordance with generally accepted accounting principles; provided that there
shall be excluded therefrom (to the extent included and without duplication) (i)
the net income (or loss) of any Person acquired by such Person or a Restricted
Subsidiary of such Person after the date of this Indenture in a pooling-of-
interests transaction for any period prior to the date of such transaction, (ii)
the net income (or loss) of any Person that is not a Consolidated Restricted
Subsidiary of such Person except to the extent of the amount of dividends or
other distributions actually paid to such Person by such other Person during
such period, (iii) gains or losses from sales of assets other than sales of
assets acquired and held for resale in the ordinary course of business and (iv)
all extraordinary gains and extraordinary losses.
"Consolidated Net Worth" of any Person means the consolidated shareholders'
equity of such Person, determined on a consolidated basis in accordance with
generally accepted accounting principles; provided, that, with respect to the
Company, adjustments following the date of the Indenture to the accounting books
and records of the Company in accordance with Accounting Principles Board
Opinions Nos. 16 and 17 (or successor opinions thereto) or otherwise resulting
from the acquisition of control of the Company by another Person and its
Subsidiaries shall not be given effect to.
"Consolidated Restricted Subsidiary" of any Person means all other Persons
that would be accounted for as consolidated Persons in such Person's financial
statements in accordance with generally accepted accounting principles other
than Unrestricted Subsidiaries.
"Corporate Trust Office" means the principal office of the Trustee in Los
Angeles, California at which at any particular time its corporate trust business
shall be administered or such other location designated by the Trustee in a
report pursuant to Section 703(a).
"corporation" means a corporation, association, company, joint-stock
company, partnership or business trust.
3
<PAGE> 14
"Credit Facility" means the Loan Agreement, dated as of May 6, 1996, among
the Company, The Toronto-Dominion Bank, Barclays Bank, PLC and The Morgan
Guaranty Trust Company of New York, as Managing Agents, and the other financial
institutions named therein, as it may be amended, supplemented, restated or
otherwise modified from time to time.
"Cumulative EBITDA" means EBITDA of the Company and its Consolidated
Restricted Subsidiaries for the period beginning on the first day of the fiscal
quarter immediately following the date of this Indenture, through and including
the end of the last fiscal quarter preceding the date of any proposed Restricted
Payment.
"Cumulative Interest Expense" means the total amount of Consolidated
Interest Expense of the Company and its Consolidated Restricted Subsidiaries for
the period beginning on the first day of the fiscal quarter immediately
following the date of this Indenture, through and including the end of the last
fiscal quarter preceding the date of any proposed Restricted Payment.
"Defaulted Interest" has the meaning specified in Section 307.
"Depositary" means a clearing agency registered under the Exchange Act that
is designated to act as Depositary for the Securities until a successor
Depositary shall have become such pursuant to the applicable provisions of the
Indenture, and thereafter "Depositary" shall mean such successor Depositary. The
Depositary initially is The Depository Trust Company.
"Designated Senior Indebtedness" means the Indebtedness under the Credit
Facility.
"EBITDA" of any Person means for any period the Consolidated Net Income for
such period increased by the sum of (i) Consolidated Interest Expense of such
Person for such period, plus (ii) Consolidated Income Tax Expense of such Person
for such period, plus (iii) the consolidated depreciation and amortization
expense included in the income statement of such Person and its Consolidated
Restricted Subsidiaries for such period, plus (iv) all other non-cash charges
and expenses that were deducted in determining Consolidated Net Income for such
period, minus (v) all non-cash revenues and gains to the extent included in
Consolidated Net Income for such period.
"Event of Default" has the meaning specified in Section 501.
"Exchange Act" refers to the Securities Exchange Act of 1934 as it may be
amended and any successor act thereto.
"Expiration Date" has the meaning specified in the definition of Offer to
Purchase.
"Fair Market Value" means, with respect to any assets or Person, the price
which could be negotiated in an arm's-length free market transaction, for cash,
between a willing seller and a willing buyer, neither of whom is under undue
pressure or compulsion to complete the transaction. Fair Market Value will be
determined (i) if such Person or assets has a Fair Market Value of less than
$ million, by any officer of the Company and evidenced by an Officers'
Certificate, dated within 30 days of the relevant transaction, or (ii) if such
Person or assets has a Fair Market Value in excess of $ million, by a
majority of the Board of Directors of the Company and evidenced by a Board
Resolution, dated within 30 days of the relevant transaction
"Global Security" means a Security that evidences all or part of the
Securities of any series and bears the legend set forth in Section 204.
"Guaranty" by any Person means any obligation, contingent or otherwise, of
such Person guaranteeing any Indebtedness of any other Person (the "primary
obligor") in any manner, whether directly or indirectly, and including, without
limitation, any obligation of such Person, (i) to purchase or pay (or advance or
supply funds for the purchase or payment of) such Indebtedness or to purchase
(or to advance or supply funds for the purchase of) any security for the payment
of such Indebtedness, (ii) to purchase property, securities or services for the
purpose of assuring the holder of such Indebtedness of the payment of such
Indebtedness or (iii) to maintain working capital, equity capital or other
financial statement condition or liquidity of the primary obligor so as to
4
<PAGE> 15
enable the primary obligor to pay such Indebtedness (and "Guaranteed",
"Guaranteeing" and "Guarantor" shall have meanings correlative to the
foregoing); provided, however, that the Guaranty by any Person shall not include
endorsements by such Person for collection or deposit, in either case, in the
ordinary course of business.
"Holder" means a Person in whose name a Security is registered in the
Security Register.
"Incur" means, with respect to any Indebtedness or other obligation of any
Person, to create, issue, incur (by conversion, exchange or otherwise), assume,
Guarantee or otherwise become liable in respect of such Indebtedness or other
obligation or the recording, as required pursuant to generally accepted
accounting principles or otherwise, of any such Indebtedness or other obligation
on the balance sheet of such Person (and "Incurrence," "Incurred," "Incurrable"
and "Incurring" shall have meanings correlative to the foregoing); provided,
however, that a change in generally accepted accounting principles that results
in an obligation of such Person that exists at such time becoming Indebtedness
shall not be deemed an Incurrence of such Indebtedness.
"Indebtedness" means (without duplication), with respect to any Person,
whether recourse is to all or a portion of the assets of such Person and whether
or not contingent, (i) every obligation of such Person for money borrowed, (ii)
every obligation of such Person evidenced by bonds, debentures, notes or similar
instruments, including obligations Incurred in connection with the acquisition
of property, assets or businesses, (iii) every reimbursement obligation of such
Person with respect to letters of credit, bankers' acceptances or similar
facilities issued for the account of such Person, (iv) every obligation of such
Person issued or assumed as the deferred purchase price of property or services
(but excluding trade accounts payable or accrued liabilities arising in the
ordinary course of business), (v) every Capital Lease Obligation of such Person,
(vi) the maximum fixed redemption or repurchase price of Redeemable Stock of
such Person at the time of determination, (vii) every obligation to pay rent or
other payment amounts of such Person with respect to any Sale and Leaseback
Transaction to which such Person is a party, (viii) every obligation of the type
referred to in Clauses (i) through (vii) of another Person and all dividends of
another Person the payment of which, in either case, such Person has Guaranteed
or is responsible or liable, directly or indirectly, as obligor, Guarantor or
otherwise and (ix) the liquidation value of Preferred Stock issued pursuant to
Clause (v) of Section 1009.
"Indebtedness to EBITDA Ratio" of any Person means at any date the ratio of
Consolidated Indebtedness outstanding on such date to EBITDA for the four full
fiscal quarters immediately preceding such date; provided, however, that, in the
event such Person or any of its Restricted Subsidiaries has acquired a Person
during or after such period in a pooling-of-interests transaction, such
computation shall be made on a pro forma basis as if the transaction had taken
place on the first day of such period.
"Indenture" means this instrument as originally executed or as it may from
time to time be supplemented or amended by one or more indentures supplemental
hereto entered into pursuant to the applicable provisions hereof.
"Initial Investors" means John W. Stanton and Theresa E. Gillespie and
their Affiliates, Hellman & Friedman Capital Partners II, L.P. and its
Affiliates, the Goldman Sachs Group, L.P. and its Affiliates and Providence
Media Partners, L.P. and its Affiliates.
"Interest Hedge Agreements" means any interest rate swap, cap, collar,
floor, caption or swaption agreements, or any similar arrangements designed to
hedge the risk of variable interest rate volatility or to reduce interest costs,
arising at any time between the Company or any Restricted Subsidiary, on the one
hand, and any Person (other than an Affiliate of the Company or any Restricted
Subsidiary), on the other hand, as such agreement or arrangement may be
modified, supplemented and in effect from time to time.
"Interest Payment Date" means the Stated Maturity of an instalment of
interest on the Securities.
5
<PAGE> 16
"Lien" means, with respect to any property or assets, any mortgage or deed
of trust, pledge, hypothecation, assignment, deposit arrangement, security
interest, lien, charge, easement (other than any easement not materially
impairing usefulness or marketability), encumbrance, preference, priority or
other security agreement or preferential arrangement of any kind or nature
whatsoever on or with respect to such property or assets (including, without
limitation, any conditional sale or other title retention agreement having
substantially the same economic effect as any of the foregoing).
"Make-Whole Amount" on any date in respect of any Security means the
excess, if any, of (i) the aggregate present value as of such date of each
dollar of principal being redeemed or paid and the amount of interest (exclusive
of interest accrued to such date) that would have been payable in respect of
each such dollar if such redemption or payment had not been made, determined by
discounting, on a semi-annual basis, such principal and interest at the
Reinvestment Rate (determined on the third Business Day preceding the date on
which notice of redemption or payment is made) from the respective dates on
which principal and interest would have been payable if such redemption or
payment had not been made, over (ii) the aggregate principal amount of such
Security being redeemed or paid.
"Maturity" means, when used with respect to any Security, the date on which
the principal of such Security becomes due and payable as therein or herein
provided, whether at the Stated Maturity or by declaration of acceleration, call
for redemption or otherwise.
"Net Available Proceeds" from any Asset Disposition means the aggregate
amount of cash (including any other consideration that is converted into cash)
received by the Company or a Restricted Subsidiary in respect of such an Asset
Disposition, less the sum of (i) all fees, commissions and other expenses
Incurred in connection with such Asset Disposition, including the amount of
income taxes required to be paid by the Company or a Restricted Subsidiary in
connection therewith and (ii) the aggregate amount of cash so received which is
used to retire any existing Indebtedness of the Company or a Restricted
Subsidiary which is required to be repaid in connection therewith.
"NORTEL Facility" means the Loan Agreement, dated June 30, 1995, between
Western PCS II Corporation and Northern Telecom Inc., as such agreement may be
amended, supplemented, restated or otherwise modified from time to time.
"Offer" has the meaning specified in the definition of Offer to Purchase.
"Offer to Purchase" means a written offer (the "Offer") sent by the Company
by first class mail, postage prepaid, to each Holder at his address appearing in
the Security Register on the date of the Offer offering to purchase up to the
principal amount of Securities specified in such Offer at the purchase price
specified in such Offer (as determined pursuant to this Indenture). Unless
otherwise required by applicable law, the Offer shall specify an expiration date
(the "Expiration Date") of the Offer to Purchase which, subject to any contrary
requirements of applicable law, shall be not less than 30 days nor more than 60
days after the date of such Offer to Purchase and a settlement date (the
"Purchase Date") for purchase of Securities within five Business days after the
Expiration Date. The Company shall notify the Trustee at least 15 Business days
(or such shorter period as is acceptable to the Trustee) prior to the mailing of
the Offer of the Company's obligation to make an Offer to Purchase, and the
Offer shall be mailed by the Company or, at the Company's request, by the
Trustee in the name and at the expense of the Company. The Offer shall contain
information concerning the business of the Company and its Subsidiaries which
the Company in good faith believes will enable such Holders to make an informed
decision with respect to the Offer to Purchase (which at a minimum will include
(i) the most recent annual and quarterly financial statements and "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
contained in the documents required to be filed with the Trustee pursuant to
Section 704 (which requirements may be satisfied by delivery of such documents
together with the Offer), (ii) a description of material developments in the
Company's business subsequent to the date of the latest of such financial
statements referred to in Clause (i) (including a description of
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<PAGE> 17
the events requiring the Company to make the Offer to Purchase), (iii) if
applicable, appropriate pro forma financial information concerning the Offer to
Purchase and the events requiring the Company to make the Offer to Purchase and
(iv) any other information required by applicable law to be included therein.
The Offer shall contain all instructions and materials necessary to enable such
Holders to tender Securities pursuant to the Offer to Purchase. The Offer shall
also state:
(1) the Section of this Indenture pursuant to which the Offer to
Purchase is being made;
(2) the Expiration Date and the Purchase Date;
(3) the aggregate principal amount of the Outstanding Securities
offered to be purchased by the Company pursuant to the Offer to Purchase
(including, if less than 100%, the manner by which such has been determined
pursuant to the Section hereof requiring the Offer to Purchase) (the
"Purchase Amount");
(4) the purchase price to be paid by the Company for each $1,000
aggregate principal amount of Securities accepted for payment (as specified
pursuant to this Indenture) (the "Purchase Price");
(5) that the Holder may tender all or any portion of the Securities
registered in the name of such Holder and that any portion of a Security
tendered must be tendered in an integral multiple of $1,000 principal
amount;
(6) the place or places where Securities are to be surrendered for
tender pursuant to the Offer to Purchase;
(7) that on the Purchase Date the Purchase Price will become due and
payable upon each Security accepted for payment pursuant to the Offer to
Purchase and that interest thereon shall cease to accrue on and after the
Purchase Date;
(8) that each Holder electing to tender a Security pursuant to the
Offer to Purchase will be required to surrender such Security at the place
or places specified in the Offer prior to the close of business on the
Expiration Date (such Security being, if the Company or the Trustee so
requires, duly endorsed by, or accompanied by a written instrument of
transfer in form satisfactory to the Company and the Trustee duly executed
by, the Holder thereof or his attorney duly authorized in writing);
(9) that Holders will be entitled to withdraw all or any portion of
Securities tendered if the Company (or its Paying Agent) receives, not
later than the close of business on the Expiration Date, a telegram, telex,
facsimile transmission or letter setting forth the name of the Holder, the
principal amount of the Security the Holder tendered, the certificate
number of the Security the Holder tendered and a statement that such Holder
is withdrawing all or a portion of his tender;
(10) that (a) if Securities in an aggregate principal amount less than
or equal to the Purchase Amount are duly tendered and not withdrawn
pursuant to the Offer to Purchase, the Company shall purchase all such
Securities and (b) if Securities in an aggregate principal amount in excess
of the Purchase Amount are tendered and not withdrawn pursuant to the Offer
to Purchase, the Company shall purchase Securities having an aggregate
principal amount equal to the Purchase Amount on a pro rata basis (with
such adjustments as may be deemed appropriate so that only Securities in
denominations of $1,000 or integral multiples thereof shall be purchased);
and
(11) that in case of any Holder whose Security is purchased only in
part, the Company shall execute, and the Trustee shall authenticate and
deliver to the Holder of such Security without service charge, a new
Security or Securities, of any authorized denomination as requested by such
Holder, in an aggregate principal amount equal to and in exchange for the
unpurchased portion of the Security so tendered.
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<PAGE> 18
Any Offer to Purchase shall be governed by and effected in accordance with the
Offer for such Offer to Purchase.
"Officers' Certificate" means a certificate signed by two officers at least
one of whom shall be the principal executive officer, principal accounting
officer or principal financial officer of the Company and delivered to the
Trustee.
"Opinion of Counsel" means a written opinion of counsel, who may be counsel
for the Company, and who shall be reasonably acceptable to the Trustee and
delivered to the Trustee.
"Outstanding," when used with respect to Securities, means, as of the date
of determination, all Securities theretofore authenticated and delivered under
this Indenture, except:
(i) Securities theretofore cancelled by the Trustee or delivered to
the Trustee for cancellation;
(ii) Securities for whose payment or redemption money in the necessary
amount has been theretofore deposited with the Trustee or any Paying Agent
(other than the Company) in trust or set aside and segregated in trust by
the Company (if the Company shall act as its own Paying Agent) for the
Holders of such Securities; provided that, if such Securities are to be
redeemed, notice of such redemption has been duly given pursuant to this
Indenture or provision therefor satisfactory to the Trustee has been made;
and
(iii) Securities which have been paid pursuant to Section 306 or in
exchange for or in lieu of which other Securities have been authenticated
and delivered pursuant to this Indenture, other than any such Securities in
respect of which there shall have been presented to the Trustee proof
satisfactory to it that such Securities are held by a bona fide purchaser
in whose hands such Securities are valid obligations of the Company;
provided, however, that in determining whether the Holders of the requisite
principal amount of the Outstanding Securities have given any request, demand,
authorization, direction, notice, consent or waiver hereunder, Securities owned
by the Company or any other obligor upon the Securities 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 Securities which the Trustee knows to be so owned shall
be so disregarded. Securities 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 Securities and that
the pledgee is not the Company or any other obligor upon the Securities or any
Affiliate of the Company or of such other obligor.
"pari passu," when used with respect to the ranking of any Indebtedness of
any Person in relation to other Indebtedness of such Person, means that each
such Indebtedness (a) either (i) is not subordinated in right of payment to any
other Indebtedness of such Person or (ii) is subordinate in right of payment to
the same Indebtedness of such Person as is the other and is so subordinate to
the same extent and (b) is not subordinate in right of payment to the other or
to any Indebtedness of such Person as to which the other is not so subordinate.
"Paying Agent" means any Person authorized by the Company to pay the
principal of (and premium, if any) or interest on any Securities on behalf of
the Company.
"Payment Blockage Period" has the meaning specified in Section 1203.
"Permitted Joint Venture" means, as applied to any Person, any corporation
or other entity (a) engaged in the acquisition, ownership, operation and
management of assets in the Wireless Communications Business, (b) over which
such Person is responsible (either directly or through a services agreement) for
day-to-day operations or otherwise has operational and managerial control, (c)
of which more than forty percent (40%) of the outstanding Capital Stock (other
than
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<PAGE> 19
directors' qualifying shares) having ordinary Voting Power to elect its board of
directors, regardless of the existence at the time of a right of the holders of
any class or classes of securities of such corporation to exercise such Voting
Power by reason of the happening of any contingency, in the case of a
corporation, or more than forty percent (40%) of the outstanding ownership
interests, in the case of an entity other than a corporation, is at the time
owned directly or indirectly by such Person, or by one or more Subsidiaries of
such Person, or by such Person and by one or more Subsidiaries of such Person
and (d) with respect to which such Person has the right or option to acquire all
of the outstanding Capital Stock or ownership interests not owned by such
Person.
"Permitted Joint Venture Investment" means (i) any payment on account of
the purchase, redemption, retirement or acquisition of (A) any shares of Capital
Stock or other ownership interests of a Permitted Joint Venture or (B) any
option, warrant or other right to acquire shares of Capital Stock or ownership
interests of a Permitted Joint Venture or (ii) any loan, advance, lease, capital
contribution to, or investment in, or payment of a Guaranty of any obligation of
a Permitted Joint Venture; provided that such loan, advance, lease, capital
contribution, investment or payment provides for a return that is senior in
right of payment to any return on the Capital Stock or ownership interests of
such Permitted Joint Venture; provided, further, that not less than 75% of the
aggregate Permitted Joint Venture Investments in any Permitted Joint Venture
shall be Permitted Joint Venture Investments described in Clause (ii).
"Person" means any individual, corporation, partnership, joint venture,
trust, unincorporated organization or government or any agency or political
subdivision thereof.
"Predecessor Security" of any particular Security means every previous
Security evidencing all or a portion of the same debt as that evidenced by such
particular Security; and, for the purposes of this definition, any Security
authenticated and delivered under Section 306 in exchange for or in lieu of a
mutilated, destroyed, lost or stolen Security shall be deemed to evidence the
same debt as the mutilated, destroyed, lost or stolen Security.
"Preferred Stock," as applied to the Capital Stock of any Person, means
Capital Stock of such Person of any class or classes (however designated) that
ranks prior, as to the payment of dividends or as to the distribution of assets
upon any voluntary or involuntary liquidation, dissolution or winding up of such
Person, to shares of Capital Stock of any other class of such Person.
"Proceeding" has the meaning specified in Section 1202.
"Purchase Amount" has the meaning specified in the definition of Offer to
Purchase.
"Purchase Date" has the meaning specified in the definition of Offer to
Purchase.
"Purchase Price" has the meaning specified in the definition of Offer to
Purchase.
"Qualified Capital Stock" means, with respect to any Person, any and all
shares of Capital Stock issued by such Person after the date of this Indenture
other than Redeemable Stock.
"Qualified Capital Stock Proceeds" means, with respect to any Person, (a)
in the case of any sale of Qualified Capital Stock, the aggregate net cash
proceeds received by such Person, after payment of expenses, commissions and the
like Incurred by such Person in connection therewith, and net of Indebtedness
that such Person Incurred, Guaranteed or otherwise became liable for in
connection with the issuance or acquisition of such Capital Stock; and (b) in
the case of any exchange, exercise, conversion or surrender of any Preferred
Stock or Indebtedness of such Person or any Subsidiary issued for cash after the
date of this Indenture for or into shares of Qualified Capital Stock of such
Person, the liquidation value of the Preferred Stock or the net book value of
such Indebtedness as adjusted on the books of such Person to the date of such
exchange, exercise, conversion or surrender, plus any additional amount paid by
the securityholders to such Person upon such exchange, exercise, conversion or
surrender and less any and all payments made to the securityholders, and all
other expenses, commissions and the like Incurred by such Person or any
Subsidiary in connection therewith.
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"Redeemable Stock" of any Person means any equity security of such Person
that by its terms or otherwise is required to be redeemed prior to the final
Stated Maturity of the Securities or is redeemable at the option of the holder
thereof at any time prior to the final Stated Maturity of the Securities.
"Redemption Date," when used with respect to any Security to be redeemed,
means the date fixed for such redemption by or pursuant to this Indenture.
"Redemption Price," when used with respect to any Security to be redeemed,
means the price at which it is to be redeemed pursuant to this Indenture.
"Regular Record Date" for the interest payable on any Interest Payment Date
means the or (whether or not a
Business Day), as the case may be, next preceding such Interest Payment Date.
"Reinvestment Rate" means the arithmetic mean of the yields under the
respective heading "Week Ending" published in the most recent Statistical
Release under the caption "Treasury Constant Maturities" for the maturity
(rounded to the nearest month) corresponding to the remaining life to maturity,
as of the payment date of the principal being redeemed or paid. If no maturity
exactly corresponds to such maturity, yields for the two published maturities
most closely corresponding to such maturity shall be calculated pursuant to the
immediately preceding sentence and the Reinvestment Rate shall be interpolated
or extrapolated from such yields on a straight-line basis, rounding in each of
the relevant periods to the nearest month. For the purpose of calculating the
Reinvestment Rate, the most recent Statistical Release published prior to the
date of determination of the Make-Whole Amount shall be used.
"Related Person" of any Person means any other Person owning (a) 5% or more
of the outstanding Common Stock of such Person or (b) 5% or more of the Voting
Power of such Person.
"Restricted Payments" has the meaning specified in Section 1011.
"Restricted Subsidiary" of any Person means any Subsidiary of such Person
other than an Unrestricted Subsidiary.
"Sale and Leaseback Transaction" of any Person means an arrangement with
any lender or investor or to which such lender or investor is a party providing
for the leasing by such Person of any property or asset of such Person which has
been or is being sold or transferred by such Person more than 270 days after the
acquisition thereof or the completion of construction or commencement of
operation thereof to such lender or investor or to any person to whom funds have
been or are to be advanced by such lender or investor on the security of such
property or asset. The stated maturity of such arrangement shall be the date of
the last payment of rent or any other amount due under such arrangement prior to
the first date on which such arrangement may be terminated by the lessee without
payment of a penalty.
"Securities" means securities designated in the first paragraph of the
RECITALS OF THE COMPANY.
"Securities Payment" has the meaning set forth in Section 1202.
"Security Registrar" and "Security Register" have the respective meanings
specified in Section 305.
"Senior Indebtedness" means the principal of (and premium, if any) and
interest (including interest accruing on or after the filing of any petition in
bankruptcy or for reorganization relating to the Company whether or not a claim
for post-petition interest is allowed in such proceeding) on (i) Indebtedness of
the Company created pursuant to the Credit Facility and all other obligations
thereunder or under the notes, security documents, pledge agreements, Interest
Hedge Agreements or other agreements or instruments executed in connection
therewith, (ii) Indebtedness of the Company created pursuant to any vendor
financing Incurred for the acquisition, construction or
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<PAGE> 21
improvement by the Company or any Restricted Subsidiary of assets in the
Wireless Communications Business, (iii) all other Indebtedness of the Company
referred to in the definition of Indebtedness other than Clauses (iv), (vi) and
(ix) thereof (and Clause (viii) thereof to the extent applicable to Indebtedness
Incurred under Clauses (iv) and (vi) thereof), whether Incurred on or prior to
the date of this Indenture or thereafter Incurred, other than the Securities,
and (iv) amendments, renewals, extensions, modifications, refinancings and
refundings of any such Indebtedness; provided, however, the following shall not
constitute Senior Indebtedness: (A) any Indebtedness owed to a Person when such
Person is a Restricted Subsidiary of the Company, (B) any Indebtedness which by
the terms of the instrument creating or evidencing the same is not superior in
right of payment to the Securities, (C) any Indebtedness Incurred in violation
of this Indenture (but, as to any such Indebtedness, no such violation shall be
deemed to exist for purposes of this clause (C) if the holder(s) of such
Indebtedness or their representative and the Trustee shall have received an
Officers' Certificate of the Company to the effect that the Incurrence of such
Indebtedness does not (or, in the case of revolving credit Indebtedness, that
the Incurrence of the entire committed amount thereof at the date on which the
initial borrowing thereunder is made would not) violate this Indenture) or (D)
any Indebtedness which is subordinated in right or payment in respect to any
other Indebtedness of the Company.
"Senior Nonmonetary Default" has the meaning specified in Section 1203.
"Senior Payment Default" has the meaning specified in Section 1203.
"Stated Maturity," when used with respect to any Security or any
installment of interest thereon, means the date specified in such Security as
the date on which the principal of such Security or such installment of interest
is due and payable.
"Statistical Release" means the statistical release designated "H.15(519)"
or any successor publication which is published weekly by the Federal Reserve
System and which establishes yields on actively traded United States government
securities adjusted to constant maturities, or, if such statistical release is
not published at the time of any determination under the Indenture, then such
other reasonably comparable index which shall be designated by the Company.
"Subsidiary" of any Person means (i) any corporation of which more than
fifty percent (50%) of the outstanding Capital Stock (other than directors'
qualifying shares) having ordinary Voting Power to elect its board of directors,
regardless of the existence at the time of a right of the holders of any class
or classes of securities of such corporation to exercise such Voting Power by
reason of the happening of any contingency, or any entity other than a
corporation of which more than fifty percent (50%) of the outstanding ownership
interests, is at the time owned directly or indirectly by such Person, or by one
or more Subsidiaries of such Person, or by such Person and one or more
Subsidiaries of such Person, or (ii) any other entity which is directly or
indirectly controlled or capable of being controlled by such Person, or by one
or more Subsidiaries of such Person, or by such Person and one or more
Subsidiaries of such Person, including Permitted Joint Ventures.
"Trustee" means the Person named as the "Trustee" in the first paragraph of
this instrument until a successor Trustee shall have become such pursuant to the
applicable provisions of this Indenture, and thereafter "Trustee" shall mean
such successor Trustee.
"Trust Indenture Act" means the Trust Indenture Act of 1939 as in force at
the date as of which this instrument was executed, except as provided in Section
905; provided, however, that in the event the Trust Indenture Act of 1939 is
amended after such date, "Trust Indenture Act" means, to the extent required by
any such amendment, the Trust Indenture Act of 1939 as so amended.
"U.S. Government Obligations" has the meaning specified in Section 1304.
"Unrestricted Subsidiary" of any Person means (i) any Subsidiary of such
Person that at the time of determination shall be designated an Unrestricted
Subsidiary by the Board of Directors of such Person in the manner provided below
and (ii) any Subsidiary of an Unrestricted Subsidiary.
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The Board of Directors of any Person may designate any Restricted Subsidiary to
be an Unrestricted Subsidiary unless such Subsidiary owns any Common Stock or
Preferred Stock of, or owns or holds any Lien on any property of, such Person or
any Restricted Subsidiary; provided that either (A) the Subsidiary to be so
designated has total assets of $1,000 or less or (B) if such Subsidiary has
assets greater than $1,000, the Fair Market Value of the Subsidiary at the time
of such designation would be permitted as an investment under Section 1011. The
Board of Directors of any Person may designate any Unrestricted Subsidiary to be
a Restricted Subsidiary of such Person; provided that immediately after giving
effect to such designation (x) such Person would be permitted to Incur $1.00 of
additional Indebtedness pursuant to the first paragraph of Section 1008 and (y)
no Event of Default or event which with notice or lapse of time or both would
become an Event of Default has occurred and is continuing. Any such designation
by the Board of Directors shall be evidenced by a Board Resolution submitted to
the Trustee.
"Vice President," when used with respect to the Company or the Trustee,
means any vice president, whether or not designated by a number or a word or
words added before or after the title "vice president."
"Voting Power" of any Person means the aggregate number of votes of all
classes of Capital Stock of such Person which ordinarily has voting power for
the election of directors of such Person.
"Wholly Owned Restricted Subsidiary" of any Person means a Restricted
Subsidiary of such Person all of the outstanding Capital Stock or other
ownership interests of which (other than directors' qualifying shares) shall at
the time be owned by such Person or by one or more Wholly Owned Restricted
Subsidiaries of such Person or by such Person and one or more Wholly Owned
Restricted Subsidiaries of such Person.
"Wireless Communications Business" means the provision of wireless
communications services and other related services.
SECTION 102. Compliance Certificates and Opinions.
Upon any application or request by the Company to the Trustee to take any
action under any provision of this Indenture, the Company shall furnish to the
Trustee such certificates and opinions as may be required under the Trust
Indenture Act. Each such certificate or opinion shall be given in the form of an
Officers' Certificate, if to be given by an officer of the Company, or an
Opinion of Counsel, if to be given by counsel, and shall comply with the
requirements of the Trust Indenture Act and any other requirement set forth in
this Indenture.
Every certificate or opinion with respect to compliance with a condition or
covenant provided for in this Indenture shall include
(1) a statement that each individual signing such certificate or
opinion has read such covenant or condition and the definitions herein
relating thereto;
(2) a brief statement as to the nature and scope of the examination or
investigation upon which the statements or opinions contained in such
certificate or opinion are based;
(3) a statement that, in the opinion of each such individual, he has
made such examination or investigation as in its reasonable judgment is
necessary to enable him to express an informed opinion as to whether or not
such covenant or condition has been complied with; and
(4) a statement as to whether, in the opinion of each such individual,
such condition or covenant has been complied with.
SECTION 103. Form of Documents Delivered to Trustee.
In any case where several matters are required to be certified by, or
covered by an opinion of, any specified Person, it is not necessary that all
such matters be certified by, or covered by the
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<PAGE> 23
opinion of, only one such Person, or that they be so certified or covered by
only one document, but one such Person may certify or give an opinion with
respect to some matters and one or more other such Persons as to other matters,
and any such Person may certify or give an opinion as to such matters in one or
several documents.
Any certificate or opinion of an officer of the Company may be based,
insofar as it relates to legal matters, upon a certificate or opinion of, or
representations by, counsel, unless such officer knows that the certificate or
opinion or representations with respect to the matters upon which his
certificate or opinion is based are erroneous. Any such certificate or opinion
of counsel may be based, insofar as it relates to factual matters, upon a
certificate or opinion of, or representations by, an officer or officers of the
Company stating that the information with respect to such factual matters is in
the possession of the Company, unless such counsel knows that the certificate or
opinion or representations with respect to such matters are erroneous.
Where any Person is required to make, give or execute two or more
applications, requests, consents, certificates, statements, opinions or other
instruments under this Indenture, they may, but need not, be consolidated and
form one instrument.
SECTION 104. Acts of Holders; Record Date.
(a) Any request, demand, authorization, direction, notice, consent, waiver
or other action provided by this Indenture to be given or taken by Holders may
be embodied in and evidenced by one or more instruments of substantially similar
tenor signed by such Holders in person or by agent duly appointed in writing;
and, except as herein otherwise expressly provided, such action shall become
effective when such instrument or instruments are delivered to the Trustee and,
where it is hereby expressly required, to the Company. Such instrument or
instruments (and the action embodied therein and evidenced thereby) are herein
sometimes referred to as the "Act" of the Holders signing such instrument or
instruments. Proof of execution of any such instrument or of a writing
appointing any such agent shall be sufficient for any purpose of this Indenture
and (subject to Section 601) conclusive in favor of the Trustee and the Company,
if made in the manner provided in this Section.
(b) The fact and date of the execution by any Person of any such instrument
or writing may be proved by the affidavit of a witness of such execution or by a
certificate of a notary public or other officer authorized by law to take
acknowledgments of deeds, certifying that the individual signing such instrument
or writing acknowledged to him the execution thereof. Where such execution is by
a signer acting in a capacity other than his individual capacity, such
certificate or affidavit shall also constitute sufficient proof of his
authority. The fact and date of the execution of any such instrument or writing,
or the authority of the Person executing the same, may also be proved in any
other manner which the Trustee reasonably deems sufficient.
(c) The Company may, in the circumstances permitted by the Trust Indenture
Act, fix any day as the record date for the purpose of determining the Holders
entitled to give or take any request, demand, authorization, direction, notice,
consent, waiver or other action, or to vote on any action, authorized or
permitted to be given or taken by Holders. If not set by the Company prior to
the first solicitation of a Holder made by any Person in respect of any such
action, or, in the case of any such vote, prior to such vote, the record date
for any such action or vote shall be the 30th day (or, if later, the date of the
most recent list of Holders required to be provided pursuant to Section 701)
prior to such first solicitation or vote, as the case may be. With regard to any
record date, only the Holders on such date (or their duly designated proxies)
shall be entitled to give or take, or vote on, the relevant action.
(d) The ownership of Securities shall be proved by the Security Register.
(e) Any request, demand, authorization, direction, notice, consent, waiver
or other Act of the Holder of any Security shall bind every future Holder of the
same Security and the Holder of every
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<PAGE> 24
Security issued upon the registration of transfer thereof or in exchange
therefor or in lieu thereof in respect of anything done, omitted or suffered to
be done by the Trustee or the Company in reliance thereon, whether or not
notation of such action is made upon such Security.
SECTION 105. Notices, Etc., to Trustee and Company.
Any request, demand, authorization, direction, notice, consent, waiver or
Act of Holders or other document provided or permitted by this Indenture to be
made upon, given or furnished to, or filed with,
(1) the Trustee by any Holder or by the Company shall be sufficient
for every purpose hereunder if made, given, furnished or filed in writing
to or with the Trustee at its Corporate Trust Office, Attention: Senior
Trust Officer, or
(2) the Company by the Trustee or by any Holder shall be sufficient
for every purpose hereunder (unless otherwise herein expressly provided) if
in writing and mailed, first-class postage prepaid, to the Company,
Attention: Chief Executive Officer, addressed to it at the address of its
principal office specified in the first paragraph of this instrument or at
any other address previously furnished in writing to the Trustee by the
Company with a copy to its General Counsel.
SECTION 106. Notice to Holders; Waiver.
Where this Indenture provides for notice to Holders of any event, such
notice shall be sufficiently given (unless otherwise herein expressly provided)
if in writing and mailed, first-class postage prepaid, to each Holder affected
by such event, at his address as it appears in the Security Register, not later
than the latest date (if any), and not earlier than the earliest date (if any),
prescribed for the giving of such notice. In any case where notice to Holders is
given by mail, neither the failure to mail such notice, nor any defect in any
notice so mailed, to any particular Holder shall affect the sufficiency of such
notice with respect to other Holders. 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.
SECTION 107. Conflict with Trust Indenture Act.
If any provision hereof limits, qualifies or conflicts with a provision of
the Trust Indenture Act that is required under such Act to be part of and govern
this Indenture, the latter provision shall control. If any provision of this
Indenture modifies or excludes any provision of the Trust Indenture Act that may
be so modified or excluded, the provision of this Indenture shall be deemed to
apply.
SECTION 108. Effect of Headings and Table of Contents.
The Article and Section headings herein and the Table of Contents are for
convenience only and shall not affect the construction hereof.
SECTION 109. Successors and Assigns.
All covenants and agreements in this Indenture by the Company shall bind
its successors and assigns, whether so expressed or not.
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SECTION 110. Separability Clause.
In case any provision in this Indenture or in the Securities 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 111. Benefits of Indenture.
Nothing in this Indenture or in the Securities, express or implied, shall
give to any Person, other than the parties hereto and their successors
hereunder, the holders of Senior Indebtedness (subject to Article Thirteen
hereof) and the Holders of Securities, any benefit or any legal or equitable
right, remedy or claim under this Indenture.
SECTION 112. Governing Law.
This Indenture and the Securities shall be governed by and construed in
accordance with the laws of the State of New York.
SECTION 113. Legal Holidays.
In any case where any Interest Payment Date, Redemption Date, Purchase Date
or Stated Maturity of any Security shall not be a Business Day, then
(notwithstanding any other provision of this Indenture or of the Securities)
payment of interest or principal (and premium, if any) 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, Redemption Date or Purchase
Date, or at the Stated Maturity, provided that no interest shall accrue for the
period from and after such Interest Payment Date, Redemption Date, Purchase Date
or Stated Maturity, as the case may be.
ARTICLE TWO
SECURITY FORMS
SECTION 201. Forms Generally.
The Securities and the Trustee's certificates of authentication shall be in
substantially the forms set forth in this Article, with such appropriate
insertions, omissions, substitutions and other variations as are required or
permitted by this Indenture, and may have such letters, numbers or other marks
of identification and such legends or endorsements placed thereon as may be
required to comply with the rules of any securities exchange or as may,
consistently herewith, be determined by the officers executing such Securities,
as evidenced by their execution of the Securities.
The definitive Securities may be Global Securities and shall be printed,
lithographed or engraved or produced by any combination of these methods on
steel engraved borders or may be produced in any other manner permitted by the
rules of any securities exchange on which the Securities may be listed, all as
determined by the officers executing such Securities, as evidenced by their
execution of such Securities.
SECTION 202. Form of Face of Security.
% SENIOR SUBORDINATED NOTES DUE 2006
No. $
Western Wireless Corporation, a corporation duly organized and existing
under the laws of Washington (herein called the "Company," which term includes
any successor Person under the Indenture hereinafter referred to), for value
received, hereby promises to pay to , or registered assigns, the
principal sum of Dollars on , and to pay interest thereon
15
<PAGE> 26
from or from the most recent Interest Payment Date to which interest
has been paid or duly provided for, semi-annually on and in
each year, commencing , at the rate of % per annum, until the
principal hereof is paid or made available for payment, and (to the extent that
the payment of such interest shall be legally enforceable) at the rate of
% per annum on any overdue principal and premium, if any, and on any
overdue installment of interest until paid. The interest so payable, and
punctually paid or duly provided for, on any Interest Payment Date will, as
provided in such Indenture, be paid to the Person in whose name this Security
(or one or more Predecessor Securities) is registered at the close of business
on the Regular Record Date for such interest, which shall be the or
(whether or not a Business Day), as the case may be, next preceding
such Interest Payment Date. Any such interest not so punctually paid or duly
provided for will forthwith cease to be payable to the Holder on such Regular
Record Date and may either be paid to the Person in whose name this Security (or
one or more Predecessor Securities) is registered at the close of business on a
Special Record Date for the payment of such Defaulted Interest to be fixed by
the Trustee, notice whereof shall be given to Holders of Securities not less
than 10 days prior to such Special Record Date, or be paid at any time in any
other lawful manner not inconsistent with the requirements of any securities
exchange on which the Securities may be listed, and upon such notice as may be
required by such exchange, all as more fully provided in said Indenture.
Payment of the principal of (and premium, if any) and interest on this
Security will be made at the Corporate Trust Office or at the office or agency
of the Company maintained for that purpose in the Borough of Manhattan, New York
City, in such coin or currency of the United States of America as at the time of
payment is legal tender for payment of public and private debts; provided,
however, that at the option of the Company payment of interest may be made by
check mailed to the address of the Person entitled thereto as such address shall
appear in the Security Register.
Reference is hereby made to the further provisions of this Security set
forth on the reverse hereof, which further provisions shall for all purposes
have the same effect as if set forth at this place.
Unless the certificate of authentication hereon has been executed by the
Trustee referred to on the reverse hereof by manual signature, this Security
shall not be entitled to any benefit under the Indenture or be valid or
obligatory for any purpose.
IN WITNESS WHEREOF, the Company has caused this instrument to be duly
executed under its corporate seal.
Dated:
Western Wireless Corporation
[Seal]
By
------------------------------------
Title:
Attest:
- ------------------------------------------------------
Title:
16
<PAGE> 27
SECTION 203. Form of Reverse of Security.
This Security is one of a duly authorized issue of Securities of the
Company designated as its % Senior Subordinated Notes Due 2006 (herein
called the "Securities"), limited in aggregate principal amount to $200,000,000,
issued and to be issued under an Indenture, dated as of , 1996 (herein
called the "Indenture"), between the Company and Harris Trust Company of
California, as Trustee (herein called the "Trustee," which term includes any
successor trustee under the Indenture), to which Indenture and all indentures
supplemental thereto reference is hereby made for a statement of the respective
rights, limitations of rights, duties and immunities thereunder of the Company,
the Trustee, the holders of Senior Indebtedness and the Holders of the
Securities and of the terms upon which the Securities are, and are to be,
authenticated and delivered.
Prior to , 2001, the Securities may be redeemed at any time at
the option of the Company, in whole or from time to time in part, at a
redemption price equal to the sum of (i) the principal amount of the Securities
to be redeemed together with accrued interest thereon to but excluding the date
fixed for redemption and (ii) the MakeWhole Amount, if any, with respect to the
Securities or portion thereof being redeemed.
After , 2001, the Securities may be redeemed at any time at the
option of the Company, in whole or from time to time in part, at the following
Redemption Prices (expressed as percentages of the principal amount): If
redeemed during the 12-month period beginning of the years indicated,
<TABLE>
<CAPTION>
REDEMPTION
YEAR PRICE
---- ----------
<S> <C>
2001 %
2002 %
2003 %
</TABLE>
and thereafter at a Redemption Price equal to 100% of the principal amount,
together in the case of any such redemption with accrued interest to but
excluding the Redemption Date, but interest installments whose Stated Maturity
is on or prior to such Redemption Date will be payable to the Holders of such
Securities, or one or more Predecessor Securities, of record at the close of
business on the relevant Record Dates referred to on the face hereof, all as
provided in the Indenture.
Notwithstanding the previous two paragraphs, on or before , 1998,
the Company may at its option, apply Qualified Capital Stock Proceeds and
Affiliate and Related Person Proceeds to redeem up to $66 million in aggregate
principal amount of Securities at % (expressed as a percentage of
principal amount) together with accrued interest to but excluding the date fixed
for redemption.
Notice of any optional redemption of any Securities (or portion thereof)
will be given to the Holders at their addresses appearing in the Security
Register not less than 30 nor more than 60 days prior to the date fixed for
redemption.
The Securities do not have the benefit of any sinking fund obligations.
In the event of redemption or purchase pursuant to an Offer to Purchase of
this Security in part only, a new Security or Securities for the unredeemed or
unpurchased portion hereof will be issued in the name of the Holder hereof upon
the cancellation hereof.
The indebtedness evidenced by this Security is, to the extent provided in
the Indenture, subordinate and subject in right of payment to the prior payment
in full of all Senior Indebtedness, and this Security is issued subject to the
provisions of the Indenture with respect thereto. Each Holder of this Security,
by accepting the same, (a) agrees to and shall be bound by such provisions, (b)
authorizes and directs the Trustee on his behalf to take such action as may be
necessary or
17
<PAGE> 28
appropriate to effectuate the subordination so provided and (c) appoints the
Trustee his attorney-in-fact for any and all such purposes.
If an Event of Default shall occur and be continuing, the principal of all
the Securities may be declared due and payable in the manner and with the effect
provided in the Indenture.
The Indenture provides that, subject to certain conditions, if (i) certain
Net Available Proceeds are available to the Company as a result of Asset
Dispositions or (ii) a Change of Control occurs, the Company shall be required
to make an Offer to Purchase for Securities.
The Indenture contains provisions for defeasance at any time of (i) the
entire indebtedness of this Security or (ii) certain restrictive covenants and
Events of Default with respect to this Security, in each case upon compliance
with certain conditions set forth therein.
The Indenture permits, with certain exceptions as therein provided, the
amendment thereof and the modification of the rights and obligations of the
Company and the rights of the Holders of the Securities under the Indenture at
any time by the Company and the Trustee with the consent of the Holders of a
majority in aggregate principal amount of the Securities at the time
Outstanding. The Indenture also contains provisions permitting the Holders of
specified percentages in aggregate principal amount of the Securities at the
time Outstanding, on behalf of the Holders of all the Securities, to waive
compliance by the Company with certain provisions of the Indenture and certain
past defaults under the Indenture and their consequences. Any such consent or
waiver by the Holder of this Security shall be conclusive and binding upon such
Holder and upon all future Holders of this Security and of any Security issued
upon the registration of transfer hereof or in exchange herefor or in lieu
hereof, whether or not notation of such consent or waiver is made upon this
Security.
No reference herein to the Indenture and no provision of this Security or
of the Indenture shall alter or impair the obligation of the Company, which is
absolute and unconditional, to pay the principal of (and premium, if any) and
interest on this Security at the times, place and rate, and in the coin or
currency, herein prescribed.
As provided in the Indenture and subject to certain limitations therein set
forth, the transfer of this Security is registrable in the Security Register,
upon surrender of this Security for registration of transfer at the Corporate
Trust Office or at the office or agency of the Company in the Borough of
Manhattan, New York City, duly endorsed by, or accompanied by a written
instrument of transfer in form satisfactory to the Company and the Security
Registrar duly executed by, the Holder hereof or his attorney duly authorized in
writing, and thereupon one or more new Securities, of authorized denominations
and for the same aggregate principal amount, will be issued to the designated
transferee or transferees.
The Securities are issuable only in registered form without coupons in
denominations of $1,000 and any integral multiple thereof. As provided in the
Indenture and subject to certain limitations therein set forth, Securities are
exchangeable for a like aggregate principal amount of Securities of a different
authorized denomination, as requested by the Holder surrendering the same.
No service charge shall be made for any such registration of transfer or
exchange, but the Company may require payment of a sum sufficient to cover any
tax or other governmental charge payable in connection therewith.
Prior to due presentment of this Security for registration of transfer, the
Company, the Trustee and any agent of the Company or the Trustee may treat the
Person in whose name this Security is registered as the owner hereof for all
purposes, whether or not this Security be overdue, and neither the Company, the
Trustee nor any such agent shall be affected by notice to the contrary.
Interest on this Security shall be computed on the basis of a 360-day year
of twelve 30-day months.
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<PAGE> 29
All terms used in this Security which are defined in the Indenture shall
have the meanings assigned to them in the Indenture.
The Indenture and this Security shall be governed by and construed in
accordance with the laws of the State of New York.
OPTION OF HOLDER TO ELECT PURCHASE
If you want to elect to have this Security purchased in its entirety by the
Company pursuant to Section 1015 or 1017 of the Indenture, check the box:
/ /
If you want to elect to have only a part of this Security purchased by the
Company pursuant to Section 1015 or 1017 of the Indenture, state the amount: $
Dated: Your Signature:
- ---------------------------------------
(Sign exactly as name appears
on the other side of this
Security
Signature Guarantee:
- --------------------------------------------------------------------------------
(Signature must be guaranteed by a member firm of the New
York
Stock Exchange or a commercial bank or trust company)
SECTION 204. Form of Legend for Global Securities.
Every Global Security authenticated and delivered hereunder shall bear a
legend in substantially the following form:
This Security is a Global Security within the meaning of the Indenture
hereinafter referred to and is registered in the name of a Depositary or a
nominee thereof. This Security may not be exchanged in whole or in part for
a Security registered, and no transfer of this Security in whole or in part
may be registered, in the name of any Person other than such Depositary or
a nominee thereof, except in the limited circumstances described in the
Indenture. Unless this certificate is presented by an authorized
representative of The Depository Trust Company, a New York corporation
("DTC"), to the Company or its agent for registration of transfer, exchange
or payment, and any certificate issued is registered in the name of Cede &
Co. or in such other name as is requested by an authorized representative
of DTC (and any payment is to be made to Cede & Co. or to such other entity
as is requested by an authorized representative of DTC), ANY TRANSFER,
PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS
WRONGFUL inasmuch as the registered owner hereof, Cede & Co., has an
interest herein.
SECTION 205. Form of Trustee's Certificate of Authentication.
This is one of the Securities referred to in the within-mentioned
Indenture.
HARRIS TRUST COMPANY OF CALIFORNIA,
as Trustee
By:
--------------------------------------
Authorized Officer
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<PAGE> 30
ARTICLE THREE
THE SECURITIES
SECTION 301. Title and Terms.
The aggregate principal amount of Securities which may be authenticated and
delivered under this Indenture is limited to $200,000,000, except for Securities
authenticated and delivered upon registration of transfer of, or in exchange
for, or in lieu of, other Securities pursuant to Section 304, 305, 306, 906 or
1108 or in connection with an Offer to Purchase pursuant to Section 1015 or
1017.
The Securities shall be known and designated as the " % Senior
Subordinated Notes Due 2006" of the Company. Their Stated Maturity shall be
, 2006 and they shall bear interest at the rate of % per annum, from
or from the most recent Interest Payment Date to which interest has
been paid or duly provided for, as the case may be, payable semi-annually on
and , commencing on , 1996, to the Holders
of record on the immediately preceding and , until the principal thereof is paid
or made available for payment.
The principal of (and premium, if any) and interest on the Securities
shall be payable at the Corporate Trust Office or at the office or agency of the
Company in the City and State of New York maintained for such purpose; provided,
however, that at the option of the Company payment of interest may be made by
check mailed to the address of the Person entitled thereto as such address shall
appear in the Security Register.
The Securities shall be subject to repurchase by the Company pursuant to an
Offer to Purchase as provided in Sections 1015 and 1017.
The Securities shall be redeemable as provided in Article Eleven.
The Securities shall be subordinated in right of payment to Senior
Indebtedness as provided in Article Twelve.
The Securities shall be subject to defeasance at the option of the Company
as provided in Article Thirteen.
SECTION 302. Denominations.
The Securities shall be issuable only in registered form without coupons
and only in denominations of $1,000 and any integral multiples thereof.
SECTION 303. Execution, Authentication, Delivery and Dating.
The Securities shall be executed on behalf of the Company by its Chairman
of the Board, its President or one of its Vice Presidents, under its corporate
seal reproduced thereon attested by its Secretary or one of its Assistant
Secretaries. The signature of any of these officers on the Securities may be
manual or facsimile.
Securities bearing the manual or facsimile signatures of individuals who
were at any time the proper officers of the Company shall bind the Company,
notwithstanding that such individuals or any of them have ceased to hold such
offices prior to the authentication and delivery of such Securities or did not
hold such offices at the date of such Securities.
At any time and from time to time after the execution and delivery of this
Indenture, the Company may deliver Securities executed by the Company to the
Trustee for authentication, together with a Company Order for the authentication
and delivery of such Securities; and the Trustee in accordance with such Company
Order shall authenticate and deliver such Securities as in this Indenture
provided and not otherwise.
Each Security shall be dated the date of its authentication.
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<PAGE> 31
No Security shall be entitled to any benefit under this Indenture or be
valid or obligatory for any purpose unless there appears on such Security a
certificate of authentication substantially in the form provided for herein
executed by the Trustee by manual signature, and such certificate upon any
Security shall be conclusive evidence, and the only evidence, that such Security
has been duly authenticated and delivered hereunder.
SECTION 304. Temporary Securities.
Pending the preparation of definitive Securities, the Company may execute,
and upon Company Order the Trustee shall authenticate and deliver, temporary
Securities which are printed, lithographed, typewritten, mimeographed or
otherwise produced, in any authorized denomination, substantially of the tenor
of the definitive Securities in lieu of which they are issued and with such
appropriate insertions, omissions, substitutions and other variations as the
officers executing such Securities may determine, as evidenced by their
execution of such Securities.
If temporary Securities are issued, the Company will cause definitive
Securities to be prepared without unreasonable delay. After the preparation of
definitive Securities, the temporary Securities shall be exchangeable for
definitive Securities upon surrender of the temporary Securities at any office
or agency of the Company designated pursuant to Section 1002, without charge to
the Holder. Upon surrender for cancellation of any one or more temporary
Securities the Company shall execute and the Trustee shall authenticate and
deliver in exchange therefor a like principal amount of definitive Securities of
authorized denominations. Until so exchanged the temporary Securities shall in
all respects be entitled to the same benefits under this Indenture as definitive
Securities.
SECTION 305. Registration, Registration of Transfer and Exchange.
The Company shall cause to be kept at the Corporate Trust Office of the
Trustee a register (the register maintained in such office and in any other
office or agency designated pursuant to Section 1002 being herein sometimes
collectively referred to as the "Security Register") in which, subject to such
reasonable regulations as it may prescribe, the Company shall provide for the
registration of Securities and of transfers of Securities. The Trustee is hereby
appointed "Security Registrar" for the purpose of registering Securities and
transfers of Securities as herein provided.
Upon surrender for registration of transfer of any Security at an office or
agency of the Company designated pursuant to Section 1002 for such purpose, the
Company shall execute, and the Trustee shall authenticate and deliver, in the
name of the designated transferee or transferees, one or more new Securities of
any authorized denominations and of a like aggregate principal amount.
At the option of the Holder, Securities may be exchanged for other
Securities of any authorized denominations and of a like aggregate principal
amount, upon surrender of the Securities to be exchanged at such office or
agency. Whenever any Securities are so surrendered for exchange, the Company
shall execute, and the Trustee shall authenticate and deliver, the Securities
which the Holder making the exchange is entitled to receive.
All Securities issued upon any registration of transfer or exchange of
Securities shall be the valid obligations of the Company, evidencing the same
debt, and entitled to the same benefits under this Indenture, as the Securities
surrendered upon such registration of transfer or exchange.
Every Security presented or surrendered for registration of transfer or for
exchange shall (if so required by the Company or the Trustee) be duly endorsed,
or be accompanied by a written instrument of transfer in form satisfactory to
the Company and the Security Registrar duly executed, by the Holder thereof or
his attorney duly authorized in writing.
No service charge shall be made for any registration of transfer or
exchange of Securities, but the Company may require payment of a sum sufficient
to cover any tax or other governmental charge that may be imposed in connection
with any registration of transfer or exchange of
21
<PAGE> 32
Securities, other than exchanges pursuant to Section 304, 906 or 1108 or in
accordance with any Offer to Purchase pursuant to Section 1015 or 1017 not
involving any transfer.
The Company shall not be required (i) to issue, register the transfer of or
exchange any Security during a period beginning at the opening of business 15
days before the day of the mailing of a notice of redemption of Securities
selected for redemption under Section 1104 and ending at the close of business
on the day of such mailing, or (ii) to register the transfer of or exchange any
Security so selected for redemption in whole or in part, except the unredeemed
portion of any Security being redeemed in part.
The provisions of Clauses (1), (2), (3) and (4) below shall apply only to
Global Securities:
(1) Each Global Security authenticated under this Indenture shall be
registered in the name of the Depositary designated for such Global
Security or a nominee thereof and delivered to such Depositary or a nominee
thereof or custodian therefor, and each such Global Security shall
constitute a single Security for all purposes of this Indenture.
(2) Notwithstanding any other provision in this Indenture, no Global
Security may be exchanged in whole or in part for Securities registered,
and no transfer of a Global Security in whole or in part may be registered,
in the name of any Person other than the Depositary for such Global
Security or a nominee thereof unless (A) such Depositary (i) has notified
the Company that it is unwilling or unable to continue as Depositary for
such Global Security or (ii) has ceased to be a clearing agency registered
under the Exchange Act or (B) there shall have occurred and be continuing
an Event of Default with respect to such Global Security.
(3) Subject to Clause (2) above, any exchange of a Global Security for
other Securities may be made in whole or in part, and all Securities issued
in exchange for a Global Security or any portion thereof shall be
registered in such names as the Depositary for such Global Security shall
direct.
(4) Every Security authenticated and delivered upon registration of
transfer of, or in exchange for or in lieu of, a Global Security or any
portion thereof, whether pursuant to this Section, Section 304, 306, 906 or
1108 or otherwise, shall be authenticated and delivered in the form of, and
shall be, a Global Security, unless such Security is registered in the name
of a Person other than the Depositary for such Global Security or a nominee
thereof.
SECTION 306. Mutilated, Destroyed, Lost and Stolen Securities.
If any mutilated Security is surrendered to the Trustee, the Company shall
execute and the Trustee shall authenticate and deliver in exchange therefor a
new Security of like tenor and principal amount and bearing a number not
contemporaneously outstanding.
If there shall be delivered to the Company and the Trustee (i) evidence to
their satisfaction of the destruction, loss or theft of any Security and (ii)
such security or indemnity as may be required by them to save each of them and
any agent of either of them harmless, then, in the absence of notice to the
Company or the Trustee that such Security has been acquired by a bona fide
purchaser, the Company shall execute and upon its request the Trustee shall
authenticate and deliver, in lieu of any such destroyed, lost or stolen
Security, a new Security of like tenor and principal amount and bearing a number
not contemporaneously outstanding.
In case any such mutilated, destroyed, lost or stolen Security has become
or is about to become due and payable, the Company in its discretion may,
instead of issuing a new Security, pay such Security.
Upon the issuance of any new Security under this Section, the Company may
require the payment of a sum sufficient to cover any tax or other governmental
charge that may be imposed in relation thereto and any other expenses (including
the fees and expenses of the Trustee) connected therewith.
22
<PAGE> 33
Every new Security issued pursuant to this Section in lieu of any
destroyed, lost or stolen Security shall constitute an original additional
contractual obligation of the Company, whether or not the destroyed, lost or
stolen Security shall be at any time enforceable by anyone, and shall be
entitled to all the benefits of this Indenture equally and proportionately with
any and all other Securities duly issued hereunder.
The provisions of this Section are exclusive and shall preclude (to the
extent lawful) all other rights and remedies with respect to the replacement or
payment of mutilated, destroyed, lost or stolen Securities.
SECTION 307. Payment of Interest; Interest Rights Preserved.
Interest on any Security which is payable, and is punctually paid or duly
provided for, on any Interest Payment Date shall be paid to the Person in whose
name that Security (or one or more Predecessor Securities) is registered at the
close of business on the Regular Record Date for such interest.
Any interest on any Security which is payable, but is not punctually paid
or duly provided for, on any Interest Payment Date (herein called "Defaulted
Interest") shall forthwith cease to be payable to the Holder on the relevant
Regular Record Date by virtue of having been such Holder, and such Defaulted
Interest may be paid by the Company, at its election in each case, as provided
in Clause (1) or (2) below:
(1) The Company may elect to make payment of any Defaulted Interest to
the Persons in whose names the Securities (or their respective Predecessor
Securities) are registered at the close of business on a Special Record
Date for the payment of such Defaulted Interest, which shall be fixed in
the following manner. The Company shall notify the Trustee in writing of
the amount of Defaulted Interest proposed to be paid on each Security and
the date of the proposed payment, and at the same time the Company shall
deposit with the Trustee an amount of money equal to the aggregate amount
proposed to be paid in respect of such Defaulted Interest or shall make
arrangements satisfactory to the Trustee for such deposit prior to the date
of the proposed payment, such money when deposited to be held in trust for
the benefit of the Persons entitled to such Defaulted Interest as in this
Clause provided. Thereupon the Trustee shall fix a Special Record Date for
the payment of such Defaulted Interest which shall be not more than 15 days
and not less than 10 days prior to the date of the proposed payment and not
less than 10 days after the receipt by the Trustee of the notice of the
proposed payment. The Trustee shall promptly notify the Company of such
Special Record Date and, in the name and at the expense of the Company,
shall cause notice of the proposed payment of such Defaulted Interest and
the Special Record Date therefor to be mailed, first-class postage prepaid,
to each Holder at his address as it appears in the Security Register, not
less than 10 days prior to such Special Record Date. Notice of the proposed
payment of such Defaulted Interest and the Special Record Date therefor
having been so mailed, such Defaulted Interest shall be paid to the Persons
in whose names the Securities (or their respective Predecessor Securities)
are registered at the close of business on such Special Record Date and
shall no longer be payable pursuant to the following Clause (2).
(2) The Company may make payment of any Defaulted Interest in any
other lawful manner not inconsistent with the requirements of any
securities exchange on which the Securities may be listed, and upon such
notice as may be required by such exchange, if, after notice given by the
Company to the Trustee of the proposed payment pursuant to this Clause,
such manner of payment shall be deemed practicable by the Trustee.
Subject to the foregoing provisions of this Section, each Security
delivered under this Indenture upon registration of transfer of or in exchange
for or in lieu of any other Security shall carry the rights to interest accrued
and unpaid, and to accrue, which were carried by such other Security.
23
<PAGE> 34
SECTION 308. Persons Deemed Owners.
Prior to due presentment of a Security for registration of transfer, the
Company, the Trustee and any agent of the Company or the Trustee may treat the
Person in whose name such Security is registered as the owner of such Security
for the purpose of receiving payment of principal of (and premium, if any) and
(subject to Section 307) interest on such Security and for all other purposes
whatsoever, whether or not such Security be overdue, and neither the Company,
the Trustee nor any agent of the Company or the Trustee shall be affected by
notice to the contrary.
None of the Company, the Trustee, any Paying Agent or the Security
Registrar will have any responsibility or liability for any aspect of the
records relating to or payments made on account of beneficial ownership
interests of a Global Security or for maintaining, supervising or reviewing any
records relating to such beneficial ownership interests.
SECTION 309. Cancellation.
All Securities surrendered for payment, redemption, registration of
transfer or exchange or for credit against any Offer to Purchase pursuant to
Section 1015 or 1017 shall, if surrendered to any Person other than the Trustee,
be delivered to the Trustee and shall be promptly cancelled by it. The Company
may at any time deliver to the Trustee for cancellation any Securities
previously authenticated and delivered hereunder which the Company may have
acquired in any manner whatsoever, and all Securities so delivered shall be
promptly cancelled by the Trustee. No Securities shall be authenticated in lieu
of or in exchange for any Securities cancelled as provided in this Section,
except as expressly permitted by this Indenture. All cancelled Securities held
by the Trustee shall be disposed of as directed by a Company Order.
SECTION 310. Computation of Interest.
Interest on the Securities shall be computed on the basis of a 360-day year
of twelve 30-day months.
ARTICLE FOUR
SATISFACTION AND DISCHARGE
SECTION 401. Satisfaction and Discharge of Indenture.
This Indenture shall cease to be of further effect (except as to any
surviving rights of registration of transfer or exchange of Securities herein
expressly provided for), and the Trustee, on demand of and at the expense of the
Company, shall execute proper instruments acknowledging satisfaction and
discharge of this Indenture (including, but not limited to, Article Twelve
hereof), when
(1) either
(A) all Securities theretofore authenticated and delivered (other
than (i) Securities which have been destroyed, lost or stolen and which
have been replaced or paid as provided in Section 306 and (ii)
Securities for whose payment money has theretofore been deposited in
trust or segregated and held in trust by the Company and thereafter
repaid to the Company or discharged from such trust, as provided in
Section 1003) have been delivered to the Trustee for cancellation; or
24
<PAGE> 35
(B) all such Securities not theretofore delivered to the Trustee
for cancellation
(i) have become due and payable, or
(ii) will become due and payable at their Stated Maturity within
one year, or
(iii) are to be called for redemption within one year under
arrangements satisfactory to the Trustee for the giving of notice of
redemption by the Trustee in the name, and at the expense, of the
Company,
and the Company, in the case of (i), (ii) or (iii) above, has deposited
or caused to be deposited with the Trustee as trust funds in trust for
the purpose an amount sufficient to pay and discharge the entire
indebtedness on such Securities not theretofore delivered to the Trustee
for cancellation, for principal (and premium, if any) and interest to
the date of such deposit (in the case of Securities which have become
due and payable) or to the Stated Maturity or Redemption Date, as the
case may be;
(2) the Company has paid or caused to be paid all other sums payable
hereunder by the Company; and
(3) the Company has delivered to the Trustee an Officers' Certificate
and an Opinion of Counsel, each stating that all conditions precedent
herein provided for relating to the satisfaction and discharge of this
Indenture have been complied with.
Notwithstanding the satisfaction and discharge of this Indenture pursuant to
this Article Four, the obligations of the Company to the Trustee under Section
607, the obligations of the Trustee to any Authenticating Agent under Section
614 and, if money shall have been deposited with the Trustee pursuant to
subclause (B) of Clause (1) of this Section, the obligations of the Trustee
under Section 402 and the last paragraph of Section 1003 shall survive.
SECTION 402. Application of Trust Money.
Subject to the provisions of the last paragraph of Section 1003, all money
deposited with the Trustee pursuant to Section 401 shall be held in trust and
applied by it, in accordance with the provisions of the Securities and this
Indenture, to the payment, either directly or through any Paying Agent
(including the Company acting as its own Paying Agent) as the Trustee may
determine, to the Persons entitled thereto, of the principal (and premium, if
any) and interest for whose payment such money has been deposited with the
Trustee.
ARTICLE FIVE
REMEDIES
SECTION 501. Events of Default.
"Event of Default," wherever used herein, means any one of the following
events (whatever the reason for such Event of Default and whether it shall be
occasioned by the provisions of Article Twelve or be voluntary or involuntary or
be effected by operation of law or pursuant to any judgment, decree or order of
any court or any order, rule or regulation of any administrative or governmental
body):
(1) default in the payment of the principal of (or premium, if any,
on) any Security at its Maturity; or
(2) default in the payment of any interest upon any Security when it
becomes due and payable, and continuance of such default for a period of 30
days; or
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(3) failure, on the applicable Purchase Date, to purchase Securities
required to be purchased by the Company pursuant to an Offer to Purchase as
to which an Offer has been mailed to Holders; or
(4) default in the performance, or breach, of Section 801; or
(5) default in the performance, or breach, of any covenant or warranty
of the Company in this Indenture (other than a covenant or warranty a
default in whose performance or whose breach is elsewhere in this Section
specifically dealt with), and continuance of such default or breach for a
period of 30 days after there has been given, by registered or certified
mail, to the Company by the Trustee or to the Company and the Trustee by
the Holders of at least 25% in principal amount of the Outstanding
Securities a written notice specifying such default or breach and requiring
it to be remedied and stating that such notice is a "Notice of Default"
hereunder; or
(6) a default or defaults under any bond(s), debenture(s), note(s) or
other evidence(s) of Indebtedness by the Company or any Restricted
Subsidiary of the Company or under any mortgage(s), indenture(s) or
instrument(s) under which there may be issued or by which there may be
secured or evidenced any Indebtedness of such type by the Company or any
such Restricted Subsidiary with a principal amount then outstanding,
individually or in the aggregate, in excess of $5 million, whether such
Indebtedness now exists or shall hereafter be created, which default or
defaults shall constitute a failure to pay any portion of the principal of
such Indebtedness at final maturity after the expiration of any applicable
grace period with respect thereto or shall have resulted in such
Indebtedness becoming or being declared due and payable prior to the date
on which it would otherwise have become due and payable; or
(7) a final judgment or final judgments for the payment of money are
entered against the Company or a Restricted Subsidiary in an aggregate
amount in excess of $5 million by a court or courts of competent
jurisdiction, which judgments remain undischarged or unbonded for a period
(during which execution shall not be effectively stayed) of 60 days after
the right to appeal all such judgments has expired; or
(8) the entry by a court having jurisdiction in the premises of (A) a
decree or order for relief in respect of the Company or any Restricted
Subsidiary of the Company in an involuntary case or proceeding under any
applicable Federal or State bankruptcy, insolvency, reorganization or other
similar law or (B) a decree or order adjudging the Company or any such
Restricted Subsidiary a bankrupt or insolvent, or approving as properly
filed a petition seeking reorganization, arrangement, adjustment or
composition of or in respect of the Company or any such Restricted
Subsidiary under any applicable Federal or State law, or appointing a
custodian, receiver, liquidator, assignee, trustee, sequestrator or other
similar official of the Company or any such Restricted Subsidiary or of any
substantial part of the property of the Company or any such Restricted
Subsidiary, or ordering the winding up or liquidation of the affairs of the
Company or any such Restricted Subsidiary, and the continuance of any such
decree or order for relief or any such other decree or order unstayed and
in effect for a period of 60 consecutive days; or
(9) the commencement by the Company or any Restricted Subsidiary of
the Company of a voluntary case or proceeding under any applicable Federal
or State bankruptcy, insolvency, reorganization or other similar law or of
any other case or proceeding to be adjudicated a bankrupt or insolvent, or
the consent by the Company or any such Restricted Subsidiary to the entry
of a decree or order for relief in respect of the Company or any Restricted
Subsidiary of the Company in an involuntary case or proceeding under any
applicable Federal or State bankruptcy, insolvency, reorganization or other
similar law or to the commencement of any bankruptcy or insolvency case or
proceeding against the Company or any Restricted Subsidiary of the Company,
or the filing by the Company or any such Restricted Subsidiary of a
petition or answer or consent seeking reorganization or relief under any
applicable Federal or State law, or
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the consent by the Company or any such Restricted Subsidiary to the filing
of such petition or to the appointment of or taking possession by a
custodian, receiver, liquidator, assignee, trustee, sequestrator or similar
official of the Company or any Restricted Subsidiary of the Company or of
any substantial part of the property of the Company or any Restricted
Subsidiary of the Company, or the making by the Company or any Restricted
Subsidiary of the Company of an assignment for the benefit of creditors, or
the admission by the Company or any such Restricted Subsidiary in writing
of its inability to pay its debts generally as they become due, or the
taking of corporate action by the Company or any such Restricted Subsidiary
in furtherance of any such action.
SECTION 502. Acceleration of Maturity; Rescission and Annulment.
If an Event of Default (other than an Event of Default specified in Section
501(8) or (9)) occurs and is continuing, then and in every such case the Trustee
or the Holders of not less than 25% in principal amount of the Outstanding
Securities may declare the principal of all the Securities to be due and payable
immediately, by a notice in writing to the Company (and to the Trustee if given
by Holders), and upon any such declaration such principal and any accrued
interest shall become immediately due and payable. If an Event of Default
specified in Section 501(8) or (9) occurs, the principal of and any accrued
interest on the Securities then Outstanding shall ipso facto become 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 has been made and
before a judgment or decree for payment of the money due has been obtained by
the Trustee as hereinafter in this Article provided, the Holders of a majority
in principal amount of the Outstanding Securities, by written notice to the
Company and the Trustee, may rescind and annul such declaration and its
consequences if
(1) the Company has paid or deposited with the Trustee a sum
sufficient to pay
(A) all overdue interest on all Securities,
(B) the principal of (and premium, if any, on) any Securities which
have become due otherwise than by such declaration of acceleration
(including any Securities required to have been purchased on the
Purchase Date pursuant to an Offer to Purchase made by the Company) and,
to the extent that payment of such interest is lawful, interest thereon
at the rate provided by the Securities,
(C) to the extent that payment of such interest is lawful, interest
upon overdue interest at the rate provided by the Securities, and
(D) all sums paid or advanced by the Trustee hereunder and the
reasonable compensation, expenses, disbursements and advances of the
Trustee, its agents and counsel;
and
(2) all Events of Default, other than the non-payment of the principal
of Securities which have become due solely by such declaration of
acceleration, have been cured or waived as provided in Section 513.
No such rescission shall affect any subsequent default or impair any right
consequent thereon.
SECTION 503. Collection of Indebtedness and Suits for Enforcement by Trustee.
The Company covenants that if
(1) default is made in the payment of any interest on any Security
when such interest becomes due and payable and such default continues for a
period of 30 days, or
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(2) default is made in the payment of the principal of (or premium, if
any, on) any Security at the Maturity thereof or, with respect to any
Security required to have been purchased pursuant to an Offer to Purchase
made by the Company, at the Purchase Date thereof,
the Company will, upon demand of the Trustee, and subject to Article Twelve, pay
to it, for the benefit of the Holders of such Securities, the whole amount then
due and payable on such Securities for principal (and premium, if any) and
interest, and, to the extent that payment of such interest shall be legally
enforceable, interest on any overdue principal (and premium, if any) and on any
overdue interest, at the rate provided by the Securities, and, in addition
thereto, such further amount as shall be sufficient to cover the costs and
expenses of collection, including the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel.
If the Company fails to pay such amounts forthwith upon such demand, the
Trustee, in its own name and as trustee of an express trust, may institute a
judicial proceeding for the collection of the sums so due and unpaid, may
prosecute such proceeding to judgment or final decree and may enforce the same
against the Company or any other obligor upon the Securities and collect the
moneys adjudged or decreed to be payable in the manner provided by law out of
the property of the Company or any other obligor upon the Securities, wherever
situated.
If an Event of Default occurs and is continuing, the Trustee may in its
discretion proceed to protect and enforce its rights and the rights of the
Holders by such appropriate judicial proceedings as the Trustee shall deem most
effectual to protect and enforce any such rights, whether for the specific
enforcement of any covenant or agreement in this Indenture or in aid of the
exercise of any power granted herein, or to enforce any other proper remedy.
SECTION 504. Trustee May File Proofs of Claim.
In case of any judicial proceeding relative to the Company (or any other
obligor upon the Securities), its property or its creditors, the Trustee shall
be entitled and empowered, by intervention in such proceeding or otherwise, to
take any and all actions authorized under the Trust Indenture Act in order to
have claims of the Holders and the Trustee allowed in any such proceeding. In
particular, the Trustee shall be authorized to collect and receive any moneys or
other property payable or deliverable on any such claims and, subject to Article
Twelve, 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 it for
the reasonable compensation, expenses, disbursements and advances of the
Trustee, its agents and counsel, and any other amounts due the Trustee under
Section 607.
No provision of this Indenture shall be deemed to authorize 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 Securities
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; provided, however,
that the Trustee may, on behalf of the Holders, vote for the election of a
trustee in bankruptcy or similar official and may be a member of the creditors'
committee.
SECTION 505. Trustee May Enforce Claims Without Possession of Securities.
All rights of action and claims under this Indenture or the Securities may
be prosecuted and enforced by the Trustee without the possession of any of the
Securities or the production thereof in any proceeding relating thereto, and any
such proceeding instituted by the Trustee shall be brought in its own name as
trustee of an express trust, and any recovery of judgment shall, after provision
for the payment of the reasonable compensation, expenses, disbursements and
advances of the Trustee, its agents and counsel, be for the ratable benefit of
the Holders of the Securities in respect of which such judgment has been
recovered.
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SECTION 506. Application of Money Collected.
Subject to Article Twelve, any money collected by the Trustee pursuant to
this Article shall be applied in the following order, at the date or dates fixed
by the Trustee and, in case of the distribution of such money on account of
principal (or premium, if any) or interest, upon presentation of the Securities
and the notation thereon of the payment if only partially paid and upon
surrender thereof if fully paid:
FIRST: To the payment of all amounts due the Trustee under Section
607; and
SECOND: To the extent provided in Article Twelve, to the holders of
Senior Indebtedness in accordance with Article Twelve; and
THIRD: To the payment of the amounts then due and unpaid for
principal of (and premium, if any) and interest on the Securities 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 Securities for principal (and premium, if
any) and interest, respectively.
SECTION 507. Limitation on Suits.
No Holder of any Security shall have any right to institute any proceeding,
judicial or otherwise, with respect to this Indenture, or for the appointment of
a receiver or trustee, or for any other remedy hereunder, unless
(1) such Holder has previously given written notice to the Trustee of
a continuing Event of Default;
(2) the Holders of not less than 25% in principal amount of the
Outstanding Securities shall have made written request to the Trustee to
institute proceedings in respect of such Event of Default in its own name
as Trustee hereunder;
(3) such Holder or Holders have offered to the Trustee reasonable
indemnity against the costs, expenses and liabilities to be incurred in
compliance with such request;
(4) the Trustee for 60 days after its receipt of such notice, request
and offer of indemnity has failed to institute any such proceeding; and
(5) no direction inconsistent with such written request has been given
to the Trustee during such 60-day period by the Holders of a majority in
principal amount of the Outstanding Securities;
it being understood and intended that no one or more Holders shall have any
right in any manner whatever by virtue of, or by availing of, any provision of
this Indenture to affect, disturb or prejudice the rights of any other Holders,
or to obtain or to seek to obtain priority or preference over any other Holders
or to enforce any right under this Indenture, except in the manner herein
provided and for the equal and ratable benefit of all the Holders.
SECTION 508. Unconditional Right of Holders to Receive Principal, Premium and
Interest.
Notwithstanding any other provision in this Indenture, the Holder of any
Security shall have the right, which is absolute and unconditional, to receive
payment of the principal of (and premium, if any) and (subject to Section 307)
interest on such Security on the respective Stated Maturities expressed in such
Security (or, in the case of redemption, on the Redemption Date or, in the case
of an Offer to Purchase made by the Company and required to be accepted as to
such Security, on the Purchase Date) and to institute suit for the enforcement
of any such payment, and such rights shall not be impaired without the consent
of such Holder.
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SECTION 509. 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 Trustee and the Holders shall continue as though
no such proceeding had been instituted.
SECTION 510. Rights and Remedies Cumulative.
Except as otherwise provided with respect to the replacement or payment of
mutilated, destroyed, lost or stolen Securities in the last paragraph of Section
306, 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 511. Delay or Omission Not Waiver.
No delay or omission of the Trustee or of any Holder of any Security 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 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.
SECTION 512. Control by Holders.
The Holders of a majority in principal amount of the Outstanding Securities
shall have the right to 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
(1) such direction shall not be in conflict with any rule of law or
with this Indenture,
(2) the Trustee may take any other action deemed proper by the Trustee
which is not inconsistent with such direction, and
(3) subject to the provisions of Section 601, the Trustee shall have
the right to decline to follow any such direction if the Trustee, being
advised by counsel, shall determine that the action or proceeding so
directed may not lawfully be taken or if the Trustee in good faith shall
determine that the action or proceedings so directed might involve the
Trustee in personal liability or if the Trustee in good faith shall so
determine that the actions or forebearances specified in or pursuant to
such direction shall be unduly prejudicial to the interest of holders of
the Securities not joining in the giving of said direction, it being
understood that the Trustee shall have no duty to ascertain whether or not
such actions or forebearances are unduly prejudicial to such holders.
SECTION 513. Waiver of Past Defaults.
The Holders of not less than a majority in principal amount of the
Outstanding Securities may on behalf of the Holders of all the Securities waive
any past default hereunder and its consequences, except a default
(1) in the payment of the principal of (or premium, if any) or
interest on any Security (including any Security which is required to have
been purchased pursuant to an Offer to Purchase which has been made by the
Company), or
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(2) in respect of a covenant or provision hereof which under Article
Nine cannot be modified or amended without the consent of the Holder of
each Outstanding Security 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 impair any right consequent thereon.
SECTION 514. 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, suffered or
omitted by it as Trustee, a court may require any party litigant in such suit to
file an undertaking to pay the costs of such suit, and may assess costs against
any such party litigant, in the manner and to the extent provided in the Trust
Indenture Act; provided, that neither this Section nor the Trust Indenture Act
shall be deemed to authorize any court to require such an undertaking or to make
such an assessment in any suit instituted by the Company.
SECTION 515. Waiver of Stay or Extension 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 wherever enacted,
now or at any time hereafter in force, which may affect the covenants or the
performance of this Indenture; and the Company (to the extent that it may
lawfully do so) hereby 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.
ARTICLE SIX
THE TRUSTEE
SECTION 601. Certain Duties and Responsibilities.
The duties and responsibilities of the Trustee shall be as provided by the
Trust Indenture Act. 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 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 Section.
SECTION 602. Notice of Defaults.
The Trustee shall give the Holders notice of any default hereunder as and
to the extent provided by the Trust Indenture Act; provided, however, that in
the case of any default of the character specified in Section 501(4), no such
notice to Holders shall be given until at least 30 days after the occurrence
thereof. For the purpose of this Section, the term "default" means any event
which is, or after notice or lapse of time or both would become, an Event of
Default.
SECTION 603. Certain Rights of Trustee.
Subject to the provisions of Section 601:
(a) the Trustee may rely and shall be protected in acting or
refraining from acting upon any resolution, certificate, Officers'
Certificate, statement, instrument, opinion, report, notice, request,
direction, consent, order, bond, debenture, note, other evidence of
indebtedness or other
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paper or document believed by it to be genuine and to have been signed or
presented by the proper party or parties;
(b) any request or direction of the Company mentioned herein shall be
sufficiently evidenced by a Company Request or Company Order and any
resolution of the Board of Directors may be sufficiently evidenced by a
Board Resolution;
(c) 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 Officers' Certificate;
(d) before the Trustee acts or refrains from acting, the Trustee may
consult with counsel and the written advice of such counsel or any Opinion
of Counsel shall be full and complete authorization and protection in
respect of any action taken, suffered or omitted by it hereunder in good
faith and in reliance thereon;
(e) 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 pursuant to this Indenture, unless such Holders shall
have offered to the Trustee reasonable security or indemnity against the
costs, expenses and liabilities which might be incurred by it in compliance
with such request or direction;
(f) 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 unless requested to do so by the Holders of not less than a
majority in principal amount of the Securities then outstanding, 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;
(g) the Trustee may execute any of the trusts or powers hereunder or
perform any duties hereunder either directly or by or through agents or
attorneys and the Trustee shall not be responsible for any misconduct or
negligence on the part of any agent or attorney appointed with due care by
it hereunder;
(h) the Trustee shall not be required to give any bond or surety in
respect of the performance of its powers and duties hereunder;
(i) the Trustee shall not be bound to ascertain or inquire as to the
performance or observance of any covenants, conditions or agreements on the
part of the Company, except as otherwise provided herein, but the Trustee
may require of the Company full information and advice as to the
performance of the covenants, conditions and agreements contained herein
and shall be entitled in connection herewith to examine the books, records
and premises of the Company; and
(j) except for (i) a default under Sections 501(1), (2) or (3) hereof,
or (ii) any other event of which the Trustee has "actual knowledge" and
which event, with the giving of notice or the passage of time or both,
would constitute an Event of Default under this Indenture, the Trustee
shall not be deemed to have notice of any default or Event of Default
unless specifically notified in writing of such event by the Company or the
Holders of not less than 25% in aggregate principal amount of the
Securities then outstanding; as used herein, the term "actual knowledge"
means the actual fact or statement of knowing, without any duty to make any
investigation with regard thereto.
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SECTION 604. Not Responsible for Recitals or Issuance of Securities.
The recitals contained herein and in the Securities, except the Trustee's
certificates of authentication, shall be taken as the statements of the Company,
and the Trustee assumes no responsibility for their correctness. The Trustee
makes no representations as to the validity or sufficiency of this Indenture or
of the Securities. The Trustee shall not be accountable for the use or
application by the Company of Securities or the proceeds thereof.
SECTION 605. May Hold Securities.
The Trustee, any Authenticating Agent, any Paying Agent, any Security
Registrar or any other agent of the Company, in its individual or any other
capacity, may become the owner or pledgee of Securities and, subject to Sections
608 and 613, may otherwise deal with the Company with the same rights it would
have if it were not Trustee, Authenticating Agent, Paying Agent, Security
Registrar or such other agent.
SECTION 606. Money Held in Trust.
Money held by the Trustee in trust hereunder need not be segregated from
other funds except to the extent required by law. The Trustee shall be under no
liability for interest on any money received by it hereunder except as otherwise
agreed with the Company.
SECTION 607. Compensation and Reimbursement.
The Company agrees
(1) to pay to the Trustee from time to time, and the Trustee shall be
entitled to, reasonable compensation for all services rendered by it hereunder
(which compensation shall not be limited by any provision of law in regard to
the compensation of a trustee of an express trust);
(2) except as otherwise expressly provided herein, to reimburse the Trustee
upon its request for all reasonable expenses, disbursements and advances
incurred or made by the Trustee in accordance with any provision of this
Indenture (including the reasonable compensation and the expenses and
disbursements of its agents and counsel), except any such expense, disbursement
or advance as may be attributable to its negligence or willful misconduct; and
(3) to indemnify the Trustee for, and to hold it harmless against, any
loss, liability or expense incurred without negligence or willful misconduct on
its part, arising out of or in connection with the acceptance or administration
of this trust, including the costs and expenses of defending itself against or
investigating any claim or liability in connection with the exercise or
performance of any of its powers or duties hereunder.
The obligations of the Company under this Section shall survive the
satisfaction and discharge of this Indenture. As security for the performance of
such obligations of the Company, the Trustee shall have a claim prior to the
Securities upon all property and funds held or collected by the Trustee as such,
except funds held in trust for the payment of principal of (and premium, if any)
and interest on particular Securities. When the Trustee incurs expenses or
renders services in connection with an Event of Default specified in Article
Five hereof, the expenses (including reasonable fees and expenses of its
counsel) and the compensation for the services in connection therewith are
intended to constitute expense of administration under any applicable bankruptcy
law.
SECTION 608. Disqualification; Conflicting Interests.
If the Trustee has or shall acquire a conflicting interest within the
meaning of the Trust Indenture Act, the Trustee shall either eliminate such
interest or resign, to the extent and in the manner provided by, and subject to
the provisions of, the Trust Indenture Act and this Indenture.
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SECTION 609. Corporate Trustee Required; Eligibility.
There shall at all times be a Trustee hereunder which shall be a Person
that is eligible pursuant to the Trust Indenture Act to act as such and has (or
in the case of a Person included in a bank holding company system, the related
bank holding company shall have) a combined capital and surplus of at least
$50,000,000 and its Corporate Trust Office in New York City or Los Angeles. If
such Person publishes reports of condition at least annually, pursuant to law or
to the requirements of said supervising or examining authority, then for the
purposes of this Section, the combined capital and surplus of such Person shall
be deemed to be its combined capital and surplus as set forth in its most recent
report of condition so published. If at any time the Trustee shall cease to be
eligible in accordance with the provisions of this Section, it shall resign
immediately in the manner and with the effect hereinafter specified in this
Article.
SECTION 610. Resignation and Removal; Appointment of Successor.
(a) No resignation or removal of the Trustee and no appointment of a
successor Trustee pursuant to this Article shall become effective until the
acceptance of appointment by the successor Trustee under Section 611.
(b) The Trustee may resign at any time by giving written notice thereof to
the Company. If an instrument of acceptance by a successor Trustee shall not
have been delivered to the Trustee within 30 days after the giving of such
notice of resignation, the resigning Trustee may petition any court of competent
jurisdiction for the appointment of a successor Trustee.
(c) The Trustee may be removed at any time by Act of the Holders of a
majority in principal amount of the Outstanding Securities, delivered to the
Trustee and to the Company.
(d) If at any time:
(1) the Trustee shall fail to comply with Section 608 after written
request therefor by the Company or by any Holder who has been a bona fide
Holder of a Security for at least six months, or
(2) the Trustee shall cease to be eligible under Section 609 and shall
fail to resign after written request therefor by the Company or by any such
Holder, or
(3) the Trustee shall become incapable of acting or shall be adjudged
a bankrupt or insolvent or a receiver of the Trustee or of its property
shall be appointed or any public officer shall take charge or control of
the Trustee or of its property or affairs for the purpose of
rehabilitation, conservation or liquidation,
then, in any such case, (i) the Company by a Board Resolution may remove the
Trustee, or (ii) subject to Section 514, any Holder who has been a bona fide
Holder of a Security for at least six months may, on behalf of himself and all
others similarly situated, petition any court of competent jurisdiction for the
removal of the Trustee and the appointment of a successor Trustee.
(e) If the Trustee shall resign, be removed or become incapable of acting,
or if a vacancy shall occur in the office of Trustee for any cause, the Company,
by a Board Resolution, shall promptly appoint a successor Trustee. If, within
one year after such resignation, removal or incapability, or the occurrence of
such vacancy, a successor Trustee shall be appointed by Act of the Holders of a
majority in principal amount of the Outstanding Securities delivered to the
Company and the retiring Trustee, the successor Trustee so appointed shall,
forthwith upon its acceptance of such appointment, become the successor Trustee
and supersede the successor Trustee appointed by the Company. If no successor
Trustee shall have been so appointed by the Company or the Holders and accepted
appointment in the manner hereinafter provided, any Holder who has been a bona
fide Holder of a Security for at least six months may, on behalf of himself and
all others similarly situated, petition any court of competent jurisdiction for
the appointment of a successor Trustee.
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(f) The Company shall give notice of each resignation and each removal of
the Trustee and each appointment of a successor Trustee to all Holders in the
manner provided in Section 106. Each notice shall include the name of the
successor Trustee and the address of its Corporate Trust Office.
SECTION 611. Acceptance of Appointment by Successor.
Every successor Trustee appointed hereunder shall execute, acknowledge and
deliver to the Company and to the retiring Trustee an instrument accepting such
appointment, and thereupon the resignation or removal of the retiring Trustee
shall become effective and such successor Trustee, without any further act, deed
or conveyance, shall become vested with all the rights, powers, trusts and
duties of the retiring Trustee; but, on request of the Company or the successor
Trustee, such retiring Trustee shall, upon payment of its charges, execute and
deliver an instrument transferring to such successor Trustee all the rights,
powers and trusts of the retiring Trustee and shall duly assign, transfer and
deliver to such successor Trustee all property and money held by such retiring
Trustee hereunder. Upon request of any such successor Trustee, the Company shall
execute any and all instruments for more fully and certainly vesting in and
confirming to such successor Trustee all such rights, powers and trusts.
No successor Trustee shall accept its appointment unless at the time of
such acceptance such successor Trustee shall be qualified and eligible under
this Article.
SECTION 612. Merger, Conversion, Consolidation or Succession to Business.
Any corporation into which the Trustee may be merged or converted or with
which it may be consolidated, or any corporation resulting from any merger,
conversion or consolidation to which the Trustee shall be a party, or any
corporation succeeding to all or substantially all the corporate trust business
of the Trustee, shall be the successor of the Trustee hereunder, provided such
corporation shall be otherwise qualified and eligible under this Article,
without the execution or filing of any paper or any further act on the part of
any of the parties hereto. In case any Securities shall have been authenticated,
but not delivered, by the Trustee then in office, any successor by merger,
conversion or consolidation to such authenticating Trustee may adopt such
authentication and deliver the Securities so authenticated with the same effect
as if such successor Trustee had itself authenticated such Securities.
SECTION 613. Preferential Collection of Claims Against Company.
If and when the Trustee shall be or become a creditor of the Company (or
any other obligor upon the Securities), the Trustee shall be subject to the
provisions of the Trust Indenture Act regarding the collection of claims against
the Company (or any such other obligor).
SECTION 614. Appointment of Authenticating Agent.
The Trustee may appoint an Authenticating Agent or Agents which shall be
authorized to act on behalf of the Trustee to authenticate Securities issued
upon original issue and upon exchange, registration of transfer, partial
conversion or partial redemption or pursuant to Section 306, and Securities so
authenticated shall be entitled to the benefits of this Indenture and shall be
valid and obligatory for all purposes as if authenticated by the Trustee
hereunder. Wherever reference is made in this Indenture to the authentication
and delivery of Securities by the Trustee or the Trustee's certificate of
authentication, such reference shall be deemed to include authentication and
delivery on behalf of the Trustee by an Authenticating Agent and a certificate
of authentication executed on behalf of the Trustee by an Authenticating Agent.
Each Authenticating Agent shall be acceptable to the Company and shall at all
times be a corporation organized and doing business under the laws of the United
States of America, any State thereof or the District of Columbia, authorized
under such laws to act as Authenticating Agent, having (or in the case of a
corporation included in a bank holding company system, the related bank holding
company having) a combined
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capital and surplus of not less than $50,000,000 and subject to supervision or
examination by Federal or State authority. If such Authenticating Agent
publishes reports of condition at least annually, pursuant to law or to the
requirements of said supervising or examining authority, then for the purposes
of this Section, the combined capital and surplus of such Authenticating Agent
shall be deemed to be its combined capital and surplus as set forth in its most
recent report of condition so published. If at any time an Authenticating Agent
shall cease to be eligible in accordance with the provisions of this Section,
such Authenticating Agent shall resign immediately in the manner and with the
effect specified in this Section.
Any corporation into which an Authenticating Agent may be merged or
converted or with which it may be consolidated, or any corporation resulting
from any merger, conversion or consolidation to which such Authenticating Agent
shall be a party, or any corporation succeeding to the corporate agency or
corporate trust business of an Authenticating Agent, shall continue to be an
Authenticating Agent, provided such corporation shall be otherwise eligible
under this Section, without the execution or filing of any paper or any further
act on the part of the Trustee or the Authenticating Agent.
An Authenticating Agent may resign at any time by giving written notice
thereof to the Trustee and to the Company. The Trustee may at any time terminate
the agency of an Authenticating Agent by giving written notice thereof to such
Authenticating Agent and to the Company. Upon receiving such a notice of
resignation or upon such a termination, or in case at any time such
Authenticating Agent shall cease to be eligible in accordance with the
provisions of this Section, the Trustee may appoint a successor Authenticating
Agent which shall be acceptable to the Company and shall mail written notice of
such appointment by first-class mail, postage prepaid, to all Holders as their
names and addresses appear in the Security Register. Any successor
Authenticating Agent upon acceptance of its appointment hereunder shall become
vested with all the rights, powers and duties of its predecessor hereunder, with
like effect as if originally named as an Authenticating Agent. No successor
Authenticating Agent shall be appointed unless eligible under the provisions of
this Section.
The Trustee agrees to pay to each Authenticating Agent from time to time
reasonable compensation for its services under this Section, and the Trustee
shall be entitled to be reimbursed for such payments, subject to the provisions
of Section 607.
If an appointment is made pursuant to this Section, the Securities may have
endorsed thereon, in addition to the Trustee's certificate of authentication, an
alternative certificate of authentication in the following form:
This is one of the Securities described in the within-mentioned Indenture.
HARRIS TRUST COMPANY OF CALIFORNIA,
As Trustee
By ___________________________________
As Authenticating Agent
By ___________________________________
Authorized Officer
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ARTICLE SEVEN
HOLDERS' LISTS AND REPORTS BY TRUSTEE AND COMPANY
SECTION 701. Company to Furnish Trustee Names and Addresses of Holders.
The Company will furnish or cause to be furnished to the Trustee
(a) semi-annually, not more than 15 days after each Regular Record
Date, a list, in such form as the Trustee may reasonably require, of the
names and addresses of the Holders as of such Regular Record Date, and
(b) at such other times as the Trustee may request in writing, within
30 days after the receipt by the Company of any such request, a list of
similar form and content as of a date not more than 15 days prior to the
time such list is furnished;
excluding from any such list names and addresses received by the Trustee in its
capacity as Security Registrar.
SECTION 702. Preservation of Information; Communications to Holders.
(a) The Trustee shall preserve, in as current a form as is reasonably
practicable, the names and addresses of Holders contained in the most recent
list furnished to the Trustee as provided in Section 701 and the names and
addresses of Holders received by the Trustee in its capacity as Security
Registrar. The Trustee may destroy any list furnished to it as provided in
Section 701 upon receipt of a new list so furnished.
(b) The rights of Holders to communicate with other Holders with respect to
their rights under this Indenture or under the Securities and the corresponding
rights and duties of the Trustee, shall be provided by the Trust Indenture Act.
(c) Every Holder of Securities, by receiving and holding the same, agrees
with the Company and the Trustee that neither the Company nor the Trustee nor
any agent of either of them shall be held accountable by reason of any
disclosure of information as to the names and addresses of Holders made pursuant
to the Trust Indenture Act.
SECTION 703. Reports by Trustee.
(a) The Trustee shall transmit to Holders such reports concerning the
Trustee and its actions under this Indenture as may be required pursuant to the
Trust Indenture Act at the times and in the manner provided pursuant thereto.
(b) A copy of each such report shall, at the time of such transmission to
Holders, be filed by the Trustee with each stock exchange upon which the
Securities are listed, with the Commission and with the Company. The Company
will notify the Trustee when the Securities are listed on any stock exchange.
SECTION 704. Reports by Company.
The Company shall file with the Trustee and the Commission, and transmit to
Holders, such information, documents and other reports, and such summaries
thereof, as may be required pursuant to the Trust Indenture Act at the times and
in the manner provided pursuant to such Act; provided that any such information,
documents or reports required to be filed with the Commission pursuant to
Section 13 or 15(d) of the Securities Exchange Act of 1934 shall be filed with
the Trustee within 15 days after the same is so required to be filed with the
Commission.
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ARTICLE EIGHT
CONSOLIDATION, MERGER, CONVEYANCE, TRANSFER OR LEASE
SECTION 801. Company May Consolidate, Etc. Only on Certain Terms.
The Company (a) shall not consolidate with or merge into any other Person;
(b) shall not permit any other Person to consolidate with or merge into the
Company; and (c) shall not, directly or indirectly, transfer, convey, sell,
lease or otherwise dispose of all or substantially all of its properties and
assets as an entirety; unless, in any such transaction:
(1) immediately after giving effect to such transaction and treating
any Indebtedness Incurred by the Company or a Restricted Subsidiary of the
Company as a result of such transaction as having been Incurred by the
Company or such Restricted Subsidiary at the time of such transaction, no
Event of Default, and no event which, after notice or lapse of time, or
both, would become an Event of Default, shall have happened and be
continuing;
(2) in the case the Company shall consolidate with or merge into
another Person or shall directly or indirectly transfer, convey, sell,
lease or otherwise dispose of all or substantially all of its properties
and assets as an entirety, the Person formed by such consolidation or into
which the Company is merged or the Person which acquires by transfer,
conveyance, sale, lease or other disposition all or substantially all of
the properties and assets of the Company as an entirety (for purposes of
this Article Eight, a "Successor Company") shall be a corporation,
partnership or trust, shall be organized and validly existing under the
laws of the United States of America, any State thereof or the District of
Columbia and shall expressly assume by an indenture supplemental hereto
executed and delivered to the Trustee, in form satisfactory to the Trustee,
the due and punctual payment of the principal of (and premium, if any) and
interest on all the Securities and the performance of every covenant of
this Indenture on the part of the Company to be performed or observed;
(3) immediately after giving effect to such transaction, the
Consolidated Net Worth of the Company or, if applicable, the Successor
Company shall be equal to or greater than the Consolidated Net Worth of the
Company immediately prior to such transaction;
(4) immediately after giving effect to such transaction, and treating
any Indebtedness Incurred by the Company or any Restricted Subsidiary as a
result of such transaction as having been Incurred at the time of such
transaction, the Company or the Successor Company would be permitted to
Incur at least $1.00 of additional Indebtedness pursuant to the first
paragraph under Section 1008;
(5) the Company has delivered to the Trustee an Officer's Certificate
and an Opinion of Counsel, each stating that such consolidation, merger,
conveyance, transfer, lease or acquisition and, if a supplemental indenture
is required in connection with such transaction, such supplemental
indenture, complies with this Article and that all conditions precedent
herein provided for relating to such transaction have been complied with,
and, with respect to such Officer's Certificate, setting forth the manner
of determination of the Consolidated Net Worth and the ability to Incur
Indebtedness in accordance with Clause (4) of Section 801, the Company or,
if applicable, of the Successor Company as required pursuant to the
foregoing.
SECTION 802. Successor Substituted.
Upon any consolidation of the Company with, or merger of the Company into,
any other Person or any transfer, conveyance, sale, lease or other disposition
of all or substantially all of the properties and assets of the Company as an
entirety in accordance with Section 801, the Successor Company 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
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the Company herein, and thereafter, except in the case of a lease, the
predecessor Person shall be relieved of all obligations and covenants under this
Indenture and the Securities.
ARTICLE NINE
SUPPLEMENTAL INDENTURES
SECTION 901. Supplemental Indentures Without Consent of Holders.
Without the consent of any Holders, the Company, when authorized by a Board
Resolution, and the Trustee, at any time and from time to time, may enter into
one or more indentures supplemental hereto, in form satisfactory to the Trustee,
for any of the following purposes:
(1) to evidence the succession of another Person to the Company and
the assumption by any such successor of the covenants of the Company herein
and in the Securities; or
(2) to add to the covenants of the Company for the benefit of the
Holders, or to surrender any right or power herein conferred upon the
Company; or
(3) to secure the Securities pursuant to the requirements of Section
1013 or otherwise; or
(4) to comply with any requirements of the Commission in order to
effect and maintain the qualification of this Indenture under the Trust
Indenture Act; or
(5) to cure any ambiguity, to correct or supplement any provision
herein which may be inconsistent with any other provision herein, or to
make any other provisions with respect to matters or questions arising
under this Indenture which shall not be inconsistent with the provisions of
this Indenture, provided such action pursuant to this Clause (5) shall not
adversely affect the interests of the Holders in any material respect.
SECTION 902. Supplemental Indentures with Consent of Holders.
With the consent of the Holders of not less than a majority in principal
amount of the Outstanding Securities, by Act of said Holders delivered to the
Company and the Trustee, the Company, when authorized by a Board Resolution, and
the Trustee may enter into an indenture or indentures supplemental hereto for
the purpose of adding any provisions to or changing in any manner or eliminating
any of the provisions of this Indenture or of modifying in any manner the rights
of the Holders under this Indenture; provided, however, that no such
supplemental indenture shall, without the consent of the Holder of each
Outstanding Security affected thereby,
(1) change the Stated Maturity of the principal of, or any instalment
of interest on, any Security, or reduce the principal amount thereof or the
rate of interest thereon or any premium payable thereon, or change the
place of payment where, or the coin or currency in which, any Security 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 or, in the case of an Offer to Purchase which has been
made, on or after the applicable Purchase Date), or
(2) reduce the percentage in principal amount of the Outstanding
Securities, the consent of whose Holders is required for any such
supplemental indenture, or the consent of whose Holders is required for any
waiver (of compliance with certain provisions of this Indenture or certain
defaults hereunder and their consequences) provided for in this Indenture,
or
(3) modify any of the provisions of this Section, Section 513 or
Section 1019, 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 Security affected
thereby, or
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(4) modify any of the provisions of this Indenture relating to the
subordination of the Securities in a manner adverse to the Holders, or
(5) following the mailing of an Offer with respect to an Offer to
Purchase pursuant to Sections 1015 or 1017, modify the provisions of this
Indenture with respect to such Offer to Purchase in a manner adverse to
such Holder.
It shall not be necessary for any Act of Holders under this Section to
approve the particular form of any proposed supplemental indenture, but it shall
be sufficient if such Act shall approve the substance thereof.
SECTION 903. Execution of Supplemental Indentures.
In executing, or accepting the additional trusts created by, any
supplemental indenture permitted by this Article or the modifications thereby of
the trusts created by this Indenture, the Trustee shall be entitled to receive,
and (subject to Section 601) shall be fully protected in relying upon, an
Opinion of Counsel stating that the execution of such supplemental indenture is
authorized or permitted by, and that all conditions precedent have been met
under, this Indenture. The Trustee may, but shall not be obligated to, enter
into any such supplemental indenture which affects the Trustee's own rights,
duties or immunities under this Indenture or otherwise.
SECTION 904. Effect of Supplemental Indentures.
Upon the execution of any supplemental indenture under this Article, this
Indenture shall be modified in accordance therewith, and such supplemental
indenture shall form a part of this Indenture for all purposes; and every Holder
of Securities theretofore or thereafter authenticated and delivered hereunder
shall be bound thereby. No such supplemental indenture shall directly or
indirectly modify the provisions of Article Twelve in any manner which might
terminate or impair the rights of the Senior Indebtedness pursuant to such
subordination provisions.
SECTION 905. Conformity with Trust Indenture Act.
Every supplemental indenture executed pursuant to this Article shall
conform to the requirements of the Trust Indenture Act.
SECTION 906. Reference in Securities to Supplemental Indentures.
Securities authenticated and delivered after the execution of any
supplemental indenture pursuant to this Article may bear a notation in form
approved by the Trustee as to any matter provided for in such supplemental
indenture. If the Company shall so determine, new Securities so modified as to
conform, in the opinion of the Trustee and the Company, to any such supplemental
indenture may be prepared and executed by the Company and authenticated and
delivered by the Trustee in exchange for Outstanding Securities.
SECTION 907. Notice of Supplemental Indenture.
Promptly after the execution by the Company and the Trustee of any
supplemental indenture pursuant to Section 902, the Company shall transmit to
the Holders a notice setting forth the substance of such supplemental indenture.
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ARTICLE TEN
COVENANTS
SECTION 1001. Payment of Principal, Premium and Interest.
The Company will duly and punctually pay the principal of (and premium, if
any) and interest on the Securities in accordance with the terms of the
Securities and this Indenture.
SECTION 1002. Maintenance of Office or Agency.
The Company will maintain in the Borough of Manhattan, New York City, an
office or agency where Securities may be presented or surrendered for payment,
where Securities may be surrendered for registration of transfer or exchange and
where notices and demands to or upon the Company in respect of the Securities
and this Indenture may be served. The Company will give prompt written notice to
the Trustee of the location, and any 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
Corporate Trust Office of the Trustee, and the Company hereby appoints the
Trustee as its agent to receive all such presentations, surrenders, notices and
demands.
The Company may also from time to time designate one or more other offices
or agencies (in or outside the Borough of Manhattan, New York City) where the
Securities may be presented or surrendered for any or all such purposes and may
from time to time rescind such designations; provided, however, 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.
SECTION 1003. Money for Security Payments to be Held in Trust.
If the Company shall at any time act as its own Paying Agent, it will, on
or before each due date of the principal of (and premium, if any) or interest on
any of the Securities, segregate and hold in trust for the benefit of the
Persons entitled thereto a sum sufficient to pay the principal (and premium, if
any) or interest so becoming due until such sums shall be paid to such Persons
or otherwise disposed of as herein provided and will promptly notify the Trustee
of its action or failure so to act.
Whenever the Company shall have one or more Paying Agents, it will, prior
to each due date of the principal of (and premium, if any) or interest on any
Securities, deposit with a Paying Agent a sum sufficient to pay the principal
(and premium, if any) or interest so becoming due, such sum to be held in trust
for the benefit of the Persons entitled to such principal, premium or interest,
and (unless such Paying Agent is the Trustee) the Company will promptly notify
the Trustee of its action or failure so to act.
The Company will cause each Paying Agent other than the Trustee to execute
and deliver to the Trustee an instrument in which such Paying Agent shall agree
with the Trustee, subject to the provisions of this Section, that such Paying
Agent will:
(1) hold all sums held by it for the payment of the principal of (and
premium, if any) or interest on Securities in trust for the benefit of the
Persons entitled thereto until such sums shall be paid to such Persons or
otherwise disposed of as herein provided;
(2) give the Trustee notice of any default by the Company (or any
other obligor upon the Securities) in the making of any payment of
principal (and premium, if any) or interest; and
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(3) at any time during the continuance of any such default, upon the
written request of the Trustee, forthwith pay to the Trustee all sums so
held in trust by such Paying Agent.
The Company may at any time, for the purpose of obtaining the satisfaction
and discharge of this Indenture or for any other purpose, pay, or by Company
Order direct any Paying Agent to pay, to the Trustee all sums held in trust by
the Company or such Paying Agent, such sums to be held by the Trustee upon the
same trusts as those upon which such sums were held by the Company or such
Paying Agent; and, upon such payment by any Paying Agent to the Trustee, such
Paying Agent shall be released from all further liability with respect to such
money.
Any money deposited with the Trustee or any Paying Agent, or then held by
the Company, in trust for the payment of the principal of (and premium, if any)
or interest on any Security and remaining unclaimed for two years after such
principal (and premium, if any) or interest has become due and payable shall be
paid to the Company on Company Request, or (if then held by the Company) shall
be discharged from such trust; and the Holder of such Security shall thereafter,
as an unsecured general creditor, look only to the Company for payment thereof,
and all liability of the Trustee or such Paying Agent with respect to such trust
money, and all liability of the Company as trustee thereof, shall thereupon
cease; provided, however, that the Trustee or such Paying Agent, before being
required to make any such repayment, may at the expense of the Company cause to
be published once, in a newspaper published in the English language, customarily
published on each Business Day and of general circulation in New York City,
notice that such money remains unclaimed and that, after a date specified
therein, which shall not be less than 30 days from the date of such publication,
any unclaimed balance of such money then remaining will be repaid to the
Company.
SECTION 1004. Existence.
Subject to Article Eight, the Company will do or cause to be done all
things necessary to preserve and keep in full force and effect its existence,
rights (charter and statutory) and franchises; provided, however, that the
Company shall not be required to preserve any such right or franchise if the
Board of Directors in good faith shall determine that the preservation thereof
is no longer desirable in the conduct of the business of the Company and that
the loss thereof is not disadvantageous in any material respect to the Holders.
SECTION 1005. Maintenance of Properties.
The Company will cause all properties used or useful in the conduct of its
business or the business of any Restricted Subsidiary of the Company 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, however, that nothing in this Section shall prevent the Company from
discontinuing the operation or maintenance of any of such properties if such
discontinuance is, as determined by the Board of Directors in good faith,
desirable in the conduct of its business or the business of any Restricted
Subsidiary and not disadvantageous in any material respect to the Holders.
SECTION 1006. Payment of Taxes and Other Claims.
The Company will pay or discharge or cause to be paid or discharged, before
the same shall become delinquent, (1) all taxes, assessments and governmental
charges levied or imposed upon the Company or any of its Restricted Subsidiaries
or upon the income, profits or property of the Company or any of its Restricted
Subsidiaries, and (2) all lawful claims for labor, materials and supplies which,
if unpaid, might by law become a lien upon the property of the Company or any of
its
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Restricted Subsidiaries; provided, however, 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 whose amount, applicability or validity is being
contested in good faith by appropriate proceedings.
SECTION 1007. Maintenance of Insurance.
The Company shall, and shall cause its Restricted Subsidiaries to, keep at
all times all of their properties which are of an insurable nature insured
against loss or damage with insurers believed by the Company to be responsible
to the extent that property of similar character is usually so insured by
corporations similarly situated and owning like properties in accordance with
good business practice.
SECTION 1008. Limitation on Consolidated Indebtedness.
The Company shall not, and shall not permit any of its Restricted
Subsidiaries to, Incur any Indebtedness unless the Company's Indebtedness to
EBITDA Ratio at the end of the fiscal quarter immediately preceding the
Incurrence of such Indebtedness, after giving pro forma effect to the Incurrence
of such Indebtedness and any other Indebtedness Incurred since such date and the
receipt and application of the proceeds thereof, would be less than 9 to 1 for
the period ending December 31, 1999 and 7 to 1 thereafter.
Notwithstanding the foregoing paragraph, the Company and/or any Restricted
Subsidiary of the Company, as the case may be, may Incur the following
Indebtedness:
(i) Indebtedness evidenced by the Securities or otherwise arising
under this Indenture;
(ii) Indebtedness of the Company or any Restricted Subsidiary, as the
case may be, that is outstanding or committed at the date hereof under the
Credit Facility (including any letters of credit issued thereunder) and the
NORTEL Facility and any renewal, extension, refinancing or refunding
thereof in an amount which, together with any amount remaining outstanding
or committed under the Credit Facility and the NORTEL Facility, does not
exceed $950 million at any time outstanding; provided that this Clause (ii)
shall not prohibit the Company from Incurring additional Indebtedness under
the Credit Facility or the NORTEL Facility otherwise permitted pursuant to
this Section 1008;
(iii) Indebtedness of the Company or any Restricted Subsidiary of the
Company that is outstanding or committed prior to , 1999 for the
acquisition, construction or improvement by the Company or any Restricted
Subsidiary of assets in the Wireless Communications Business; provided that
the amount of such Indebtedness at any time outstanding does not exceed
100% of the Fair Market Value of such assets;
(iv) Indebtedness owed by the Company to any Wholly Owned Restricted
Subsidiary of the Company (provided that such Indebtedness is at all times
held by a Person which is a Wholly Owned Restricted Subsidiary of the
Company) or Indebtedness owed by a Wholly Owned Restricted Subsidiary of
the Company to the Company or a Wholly Owned Restricted Subsidiary of the
Company (provided that such Indebtedness is at all times held by the
Company or a Person which is a Wholly Owned Restricted Subsidiary of the
Company); provided, however, that for purposes of this Section 1008, upon
either (x) the transfer or other disposition by such Wholly Owned
Restricted Subsidiary or the Company of any Indebtedness so permitted to a
Person other than the Company or another Wholly Owned Restricted Subsidiary
of the Company or (y) the issuance (other than directors' qualifying
shares), sale, lease, transfer or other disposition of shares of Capital
Stock (including by consolidation or merger) of such Wholly Owned
Restricted Subsidiary to a Person other than the Company or another such
Wholly Owned Restricted Subsidiary, the provisions of this Clause (iv)
shall no longer be applicable to such Indebtedness and such Indebtedness
shall be deemed to have been Incurred at the time of such transfer or other
disposition;
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(v) Indebtedness of the Company or any Restricted Subsidiary of the
Company to renew, extend, refinance or refund any Indebtedness of the
Company or any Restricted Subsidiary outstanding or committed on the date
of renewal, extension, refinancing or refunding other than Indebtedness
Incurred pursuant to Clause (ii) or (iv) above; provided, however, that
such Indebtedness does not exceed the principal amount of outstanding or
committed Indebtedness so renewed, extended, refinanced or refunded plus
financing fees and other expenses Incurred in connection therewith; and
provided further, that Indebtedness the proceeds of which are used to
refinance or refund Indebtedness which is pari passu to the Securities or
Indebtedness which is subordinate in right of payment to the Securities
shall only be permitted if (A) in the case of any refinancing or refunding
of Indebtedness which is pari passu to the Securities, the refinancing or
refunding Indebtedness is made pari passu to the Securities or subordinate
to the Securities, and, in the case of any refinancing or refunding of
Indebtedness which is subordinated to the Securities, the refinancing or
refunding Indebtedness is made subordinate to the Securities to
substantially the same extent as the Indebtedness refinanced or refunded,
(B) in either case, the renewing, extending, refinancing or refunding
Indebtedness by its terms, or by the terms of any agreement or instrument
pursuant to which such Indebtedness is issued, does not provide for
payments of principal of such Indebtedness at the stated maturity thereof
or by way of a sinking fund applicable thereto or by way of any mandatory
redemption, defeasance, retirement or repurchase thereof by the Company
(including any redemption, retirement or repurchase which is contingent
upon events or circumstances, but excluding any retirement required by
virtue of acceleration of such Indebtedness upon an event of default
thereunder), in each case prior to the stated maturity of the Indebtedness
being renewed, extended, refinanced or refunded;
(vi) Indebtedness Incurred by the Company or any Restricted Subsidiary
under Interest Hedge Agreements to hedge permitted Indebtedness; and
(vii) Indebtedness of the Company or any Restricted Subsidiary that is
outstanding or committed prior to , 1999 not otherwise
permitted to be Incurred pursuant to Clauses (i) through (vi) above, which,
together with any other outstanding Indebtedness Incurred pursuant to this
Clause (vii), has an aggregate principal amount not in excess of $50
million at any time outstanding.
SECTION 1009. Limitation on Preferred Stock of Restricted Subsidiaries.
The Company shall not permit any Restricted Subsidiary of the Company to
create or issue any Preferred Stock except:
(i) Preferred Stock outstanding on the date of this Indenture;
(ii) Preferred Stock issued to and held by the Company or any Wholly
Owned Restricted Subsidiary of the Company (provided that such Preferred
Stock is at all times held by the Company or a Person which is a Wholly
Owned Restricted Subsidiary of the Company);
(iii) Preferred Stock issued by a Person prior to the time such Person
became a direct or indirect Restricted Subsidiary of the Company;
(iv) Preferred Stock issued by a Restricted Subsidiary the proceeds of
which are used to refinance any outstanding Preferred Stock of a Restricted
Subsidiary, in an aggregate liquidation preference not to exceed the
liquidation preference of the Preferred Stock so refinanced plus the amount
of any financing fees and other expenses incurred in connection with such
refinancing, and provided such refinancing Preferred Stock by its terms, or
by the terms of any agreement or instrument pursuant to which such
Preferred Stock is issued, does not provide for payments of liquidation
value at the stated maturity of such Preferred Stock or by way of a sinking
fund applicable to such Preferred Stock or by way of any mandatory
redemption, defeasance, retirement or repurchase of such Preferred Stock by
the Company (including any
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redemption, retirement or repurchase which is contingent upon events or
circumstances) prior to the stated maturity of the Preferred Stock being
refinanced; and
(v) Preferred Stock issued by a Restricted Subsidiary with a
cumulative liquidation preference in an amount which could have been
Incurred at the time of such issuance as Indebtedness under Section 1008.
SECTION 1010. Limitation on Certain Indebtedness.
The Company shall not Incur or suffer to exist any Indebtedness (other than
the Securities) that would rank subordinate in right of payment to any other
Indebtedness of the Company unless the Indebtedness so Incurred is either (i)
pari passu Indebtedness or (ii) subordinate in right of payment to the
Securities.
SECTION 1011. Limitation on Restricted Payments.
The Company (i) shall not, and shall not permit any Restricted Subsidiary
of the Company to, directly or indirectly, declare or pay any dividend, or make
any distribution, of any kind or character (whether in cash, property or
securities) in respect of any class of its or such Restricted Subsidiary's
Capital Stock or to the holders of any class of its or such Restricted
Subsidiary's Capital Stock (excluding any dividends or distributions payable
solely in shares of its or such Restricted Subsidiary's Capital Stock or in
options, warrants or other rights to acquire its or such Restricted Subsidiary's
Capital Stock), (ii) shall not, and shall not permit any Restricted Subsidiary
of the Company, directly or indirectly, to purchase, redeem or otherwise acquire
or retire for value (a) any Capital Stock of the Company or any Related Person
(other than a Restricted Subsidiary) of the Company or (b) any options, warrants
or rights to purchase or acquire shares of Capital Stock of the Company or such
Restricted Subsidiary or any Related Person (other than a Restricted Subsidiary)
of the Company or such Restricted Subsidiary, in each case other than pursuant
to the cashless exercise of options, (iii) shall not make, or permit any
Restricted Subsidiary of the Company to make, any loan, advance, capital
contribution to, or investment in, or payment of a Guaranty of any obligation
of, or purchase, redemption or other acquisition of any shares of capital stock
or any Indebtedness of, any Affiliate or Related Person (other than a Restricted
Subsidiary) and (iv) shall not, and shall not permit any Restricted Subsidiary
of the Company to, redeem, defease (including, but not limited to, legal or
covenant defeasance), repurchase, retire or otherwise acquire or retire for
value prior to any scheduled maturity, repayment or sinking fund payment,
Indebtedness of the Company or such Restricted Subsidiary (other than the
Securities) which is subordinate in right of payment to the Securities (the
transactions described in Clauses (i) through (iv) being referred to herein as
"Restricted Payments"), if at the time thereof and giving effect thereto:
(1) an Event of Default, or an event that with the lapse of time or
the giving of notice, or both, would constitute an Event of Default, shall
have occurred and is continuing;
(2) the Company would not be permitted to Incur an additional $1.00 of
Indebtedness pursuant to the first paragraph of Section 1008; and
(3) the aggregate of all Restricted Payments made on or after the date
of this Indenture exceeds the sum of:
(A) Cumulative EBITDA less 1.6 times Cumulative Interest Expense;
and
(B) 100% of the aggregate Affiliate and Related Person Proceeds and
Qualified Capital Stock Proceeds of the Company after the date of this
Indenture.
The foregoing provision shall not be violated by reason of (i) the payment
of any dividend within 60 days after declaration thereof if at the declaration
date such payment would have complied with the foregoing provision; (ii) any
refinancing of any Indebtedness otherwise permitted under
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Clause (ii) or (v) of Section 1008; (iii) Permitted Joint Venture Investments;
(iv) the payment of scheduled dividends on, or the redemption of, Preferred
Stock permitted to be created or issued pursuant to Section 1009; or (v)
Restricted Payments, in addition to Restricted Payments permitted pursuant to
Clauses (i) through (iv) above, not in excess of $25 million in the aggregate
after the date of this Indenture.
SECTION 1012. Limitations Concerning Distributions and Transfers By Restricted
Subsidiaries.
The Company shall not, and shall not permit any Restricted Subsidiary of
the Company to, create or otherwise cause or suffer to exist any consensual
restriction or prohibition on the ability of any Restricted Subsidiary of the
Company (i) to pay, directly or indirectly, dividends or make any other
distributions in respect of its Capital Stock or any other ownership interest or
participation in, or measured by, its profits, to the Company or any Restricted
Subsidiary of the Company or pay any Indebtedness or other obligation owed to
the Company or any Restricted Subsidiary of the Company; (ii) to make loans or
advances to the Company or any Restricted Subsidiary of the Company; or (iii) to
transfer any of its property or assets to the Company or any Restricted
Subsidiary of the Company, except, in any such case, any restriction or
prohibition:
(a) pursuant to any agreement in effect on the date of this Indenture,
or
(b) pursuant to an agreement entered into after the date of this
Indenture relating to any Indebtedness the Incurrence of which is permitted
under this Indenture, provided, however, that the provisions contained in
such agreement relating to such encumbrance or restriction are, taken as a
whole, no more restrictive in any material respect than those contained in
the NORTEL Facility, or
(c) pursuant to an agreement relating to any Indebtedness of such
Restricted Subsidiary which was outstanding or committed prior to the date
on which such Restricted Subsidiary was acquired by the Company other than
in anticipation of becoming a Restricted Subsidiary, or
(d) pursuant to an agreement effecting a renewal, extension,
refinancing or refunding of any agreement described in Clauses (a) through
(c) above; provided, however, that the provisions contained in such
renewal, extension, refinancing or refunding agreement relating to such
encumbrance or restriction are no more restrictive in any material respect
than the provisions contained in the agreement the subject thereof.
SECTION 1013. Limitation on Liens.
(a) The Company shall not, and shall not permit any Restricted Subsidiary
of the Company to, Incur or suffer to exist any Lien on or with respect to any
property or assets now owned or hereafter acquired to secure any Indebtedness
that is pari passu or subordinated to the Securities without making, or causing
such Restricted Subsidiary to make, effective provision for securing the
Securities (i) equally and ratably with such Indebtedness as to such property
for so long as such Indebtedness will be so secured or (ii) in the event such
Indebtedness is Indebtedness of the Company which is subordinate in right of
payment to the Securities, prior to such Indebtedness as to such property for so
long as such Indebtedness will be so secured.
The foregoing restrictions will not apply to:
(i) Liens in respect of Indebtedness existing at the date of this
Indenture;
(ii) Liens in favor of the Company or Liens in favor of a Wholly Owned
Restricted Subsidiary of the Company on the assets or Capital Stock of
another Wholly Owned Restricted Subsidiary of the Company;
(iii) Liens to secure Indebtedness outstanding or committed for the
purpose of financing all or any part of the purchase price or the cost of
construction or improvement of the equipment or other property subject to
such Liens; provided, however, that (a) the principal
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amount of any Indebtedness secured by such a Lien does not exceed 100% of
such purchase price or cost, (b) such Lien does not extend to or cover any
other property other than such item of property and any improvements on
such item and (c) the Incurrence of such Indebtedness is otherwise
permitted by Section 1008;
(iv) Liens on property existing immediately prior to the time of
acquisition thereof (and not Incurred in anticipation of the financing of
such acquisition); or
(v) Liens to secure Indebtedness to extend, renew, refinance or refund
(or successive extensions, renewals, refinancings or refundings), in whole
or in part, Indebtedness secured by any Lien referred to in the foregoing
Clauses (i), (iii) and (iv) so long as such Lien does not extend to any
other property and the principal amount of Indebtedness so secured is not
increased except as otherwise permitted under Clause (ii) or (v) of Section
1008.
SECTION 1014. Limitation on Transactions with Affiliates and Related Persons.
The Company shall not, and shall not permit any Restricted Subsidiary of
the Company to, directly or indirectly, enter into any transaction (including,
without limitation, the purchase, sale, lease or exchange of property, the
rendering of any service) involving aggregate consideration in excess of $1
million, with or to any Affiliate or Related Person (other than a Restricted
Subsidiary), unless a majority of the disinterested members of the Board of
Directors of the Company shall determine, evidenced by a Board Resolution that:
(1) such transaction is in the best interests of the Company or such
Restricted Subsidiary; and
(2) such transaction is on terms no less favorable to the Company or
such Restricted Subsidiary than those that could be obtained in a
comparable arm's length transaction with a third party at the time.
SECTION 1015. Limitation on Certain Asset Dispositions.
(a) The Company shall not, and shall not permit any Restricted Subsidiary
of the Company to, make any Asset Disposition in one or more related
transactions that would result in aggregate net proceeds in excess of $10
million unless
(i) the consideration received at the time of such Asset Disposition
is at least equal to the Fair Market Value of the assets as determined by
the Board of Directors and evidenced by a Board Resolution,
(ii) (x) at least 85% of the consideration received consists of cash
or readily marketable cash equivalents or the assumption of Indebtedness of
the Company or any Restricted Subsidiary or (y) so long as no Event of
Default or event which with notice or lapse of time would become an Event
of Default has occurred and is continuing, the consideration paid to the
Company or such Restricted Subsidiary is substantially comparable in type
to the assets being sold as determined by the Board of Directors of the
Company (which determination will be evidenced by a Board Resolution) and
(iii) 100% of the Net Available Proceeds from such disposition
(including from the sale of any marketable cash equivalents received
therein) are applied by the Company (or the Restricted Subsidiary, as the
case may be) (A) first, to repayment (in whole or in part) of Senior
Indebtedness (or Indebtedness of such Restricted Subsidiary, as the case
may be); (B) second, to the extent Net Available Proceeds are not required
to be applied to Senior Indebtedness as specified in Clause (A), to make an
Offer to Purchase any Outstanding Securities at a purchase price equal to
100% of their principal amount plus accrued interest to but excluding the
date of purchase (provided, however, that installments of interest whose
Stated Maturity is on or prior to the Purchase Date shall be payable to the
Holders of such Securities, or one or more Predecessor Securities,
registered as such at the close of
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business on the relevant Record Dates according to their terms and the
provisions of Section 307); and (C) third, to the extent of any remaining
Net Available Proceeds following completion of the Offer to Purchase
referred to in subclause (B) above, to the repayment, within five Business
Days after the Purchase Date of such Offer to Purchase, of other
Indebtedness of the Company.
Notwithstanding Clause (iii) above, the Company will not be required to
repay Senior Indebtedness or Indebtedness of such Restricted Subsidiary then
Outstanding, to make an Offer to Purchase any Outstanding Securities or to
repay any other Indebtedness with the proceeds of any Asset Disposition to the
extent that the Net Available Proceeds are invested within 365 days of such
Asset Disposition in assets or an entity in the Wireless Communications Business
or the Company or a Restricted Subsidiary shall have entered into a binding
agreement to invest in such assets and such investment shall have been
consummated within eighteen months of such Asset Disposition.
(b) In the event that the Company is required to repurchase or to redeem
Securities pursuant to Clause (a)(iii) above, the Company will mail the Offer
for an Offer to Purchase required pursuant to Section 1015(a) not more than 30
days after the expiration of the 365-day or 18-month period referred to in
Section 1015(a). The aggregate principal amount of the Securities to be offered
to be purchased pursuant to the Offer to Purchase shall equal the Net Available
Proceeds available therefor pursuant to Clause (iii)(B) of Section 1015(a)
(rounded down to the next lowest integral multiple of $1,000). Each Holder shall
be entitled to tender all or any portion of the Securities owned by such Holder
pursuant to the Offer to Purchase, subject to the requirement that any portion
of a Security tendered must be tendered in an integral multiple of $1,000
principal amount.
The Company shall not be entitled to any credit against its obligations
under this Section 1015 for the principal amount of any Securities acquired by
the Company otherwise than pursuant to the Offer to Purchase pursuant to this
Section 1015.
(c) Not later than the date of the Offer with respect to an Offer to
Purchase pursuant to this Section 1015, the Company shall deliver to the Trustee
an Officers' Certificate as to (i) the Purchase Amount, (ii) the allocation of
the Net Available Proceeds from the Asset Disposition pursuant to which such
Offer is being made, including, if amounts are invested in assets or an entity
in the Wireless Communications Business, the actual assets or entity acquired
and (iii) the compliance of such allocation with the provisions of Clause (a).
The Company and the Trustee shall perform their respective obligations
specified in the Offer to Purchase. On or prior to the Purchase Date, the
Company shall (i) accept for payment (on a pro rata basis, if necessary)
Securities or portions thereof tendered pursuant to the Offer, (ii) deposit with
the Paying Agent (or, if the Company is acting as its own Paying Agent,
segregate and hold in trust as provided in Section 1003) money sufficient to pay
the purchase price of all Securities or portions thereof so accepted and (iii)
deliver or cause to be delivered to the Trustee all Securities so accepted
together with an Officers' Certificate stating the Securities or portions
thereof accepted for payment by the Company. The Paying Agent (or the Company,
if so acting) shall promptly mail or deliver to Holders of Securities so
accepted payment in an amount equal to the purchase price, and the Trustee shall
promptly authenticate and mail or deliver to such Holders a new Security equal
in principal amount to any unpurchased portion of the Security surrendered. Any
Security not accepted for payment shall be promptly mailed or delivered by the
Company to the Holder thereof. The Company shall publicly announce the results
of the Offer on or as soon as practicable after the Purchase Date.
(d) Notwithstanding the foregoing, this Section 1015 shall not apply to any
Asset Disposition which constitutes a transfer, conveyance, sale, lease or other
disposition of all or substantially all of the Company's properties or assets
within the meaning of Section 801 hereof.
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SECTION 1016. Limitation on Issuances and Sales of Capital Stock of Wholly
Owned Restricted Subsidiaries.
Subject to the requirements of Section 801 (if applicable), the Company (i)
shall not, and shall not permit any Wholly Owned Restricted Subsidiary to,
transfer, convey, sell, lease or otherwise dispose of any Capital Stock of such
Wholly Owned Restricted Subsidiary or any other Wholly Owned Restricted
Subsidiary to any Person (other than the Company or a Wholly Owned Restricted
Subsidiary) unless such transfer, conveyance, sale, lease or other disposition
is of all the Capital Stock of such Wholly Owned Restricted Subsidiary and the
Net Available Proceeds from such sale, assignment, transfer or conveyance are
applied in accordance with Section 1015 (including the provisions thereof
relating to the application of the Net Available Proceeds therefrom) and (ii)
shall not permit any Wholly Owned Restricted Subsidiary to issue shares of its
Capital Stock (other than directors' qualifying shares or to the Company or a
Wholly Owned Restricted Subsidiary of the Company), or securities convertible
into, or warrants, rights or options to subscribe for or purchase shares of, its
Capital Stock to any Person unless such issuance is of all the Capital Stock of
such Wholly Owned Restricted Subsidiary and the Net Available Proceeds from such
issuance are applied in accordance with Section 1015 (including the provisions
thereof relating to the application of the Net Available Proceeds therefrom).
SECTION 1017. Change of Control.
(a) Upon the occurrence of a Change in Control, each Holder of a Security
shall have the right to have such Security repurchased by the Company on the
terms and conditions set forth in this Section 1017 and this Indenture. Subject
to the limitations of Article Twelve and to the compliance by the Company with
the requirements of paragraph (d) of this Section 1017, the Company shall,
within 30 days following the date of the consummation of a transaction resulting
in a Change of Control, mail to each Holder of Securities an Offer to Purchase
all Outstanding Securities at a purchase price equal to 101% of their aggregate
principal amount plus accrued interest, if any, to but excluding the Purchase
Date (provided, however, that installments of interest whose Stated Maturity is
on or prior to the Purchase Date shall be payable to the Holders of such
Securities, or one or more Predecessor Securities, registered as such at the
close of business on the relevant Record Dates according to their terms and the
provisions of Section 307). Each Holder shall be entitled to tender all or any
portion of the Securities owned by such Holder pursuant to the Offer to
Purchase, subject to the requirement that any portion of a Security tendered
must be tendered in an integral multiple of $1,000 principal amount.
(b) The Company and the Trustee shall perform their respective obligations
specified in the Offer to Purchase. Prior to the Purchase Date, the Company
shall (i) accept for payment Securities or portions thereof tendered pursuant to
the Offer, (ii) deposit with the Paying Agent (or, if the Company is acting as
its own Paying Agent, segregate and hold in trust as provided in Section 1003)
money sufficient to pay the purchase price of all Securities or portions thereof
so accepted and (iii) deliver or cause to be delivered to the Trustee all
Securities so accepted together with an Officers' Certificate stating the
Securities or portions thereof accepted for payment by the Company. The Paying
Agent shall promptly mail or deliver to Holders of Securities so accepted
payment in an amount equal to the purchase price, and the Trustee shall promptly
authenticate and mail or deliver to such Holders a new Security or Securities
equal in principal amount to any unpurchased portion of the Security surrendered
as requested by the Holder. Any Security not accepted for payment shall be
promptly mailed or delivered by the Company to the Holder thereof. The Company
shall publicly announce the results of the Offer on or as soon as practicable
after the Purchase Date.
(c) "Change of Control" means (i) directly or indirectly a sale, transfer
or other conveyance of all or substantially all the assets of the Company, on a
consolidated basis, to any "person" or "group" (as such terms are used for
purposes of Sections 13(d) and 14(d) of the Exchange Act, whether or not
applicable), excluding transfers or conveyances to or among the Company's Wholly
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Owned Restricted Subsidiaries, as an entirety or substantially as an entirety in
one transaction or series of related transactions, in each case with the effect
that any Person or group of Persons that, as of the date of this Indenture, are
not Initial Investors or Affiliates of the Initial Investors own more than 50%
of the total Voting Power entitled to vote in the election of directors,
managers or trustees of the transferee entity immediately after such
transaction, (ii) any "person" or "group" (as such terms are used for purposes
of Sections 13(d) and 14(d) of the Exchange Act, whether or not applicable),
other than the Initial Investors (or any Person or group of Persons that, at the
date of this Indenture, are Affiliates of the Initial Investors), is or becomes
the "beneficial owner" (as that term is used in Rules 13d-3 and 13d-5 under the
Exchange Act, whether or not applicable, except that a Person shall be deemed to
have "beneficial ownership" of all shares that any such Person has the right to
acquire, whether such right is exercisable immediately or only after the passage
of time), directly or indirectly, of more than 50% of the total Voting Power of
the Company or (iii) during any period of 24 consecutive months, individuals who
at the beginning of such period constituted the Board of Directors of the
Company (together with any new directors whose election by such Board or whose
nomination for election by the stockholders of the Company was approved by a
vote of a majority of the directors then still in office who were either
directors at the beginning of such period or whose election or nomination for
election was previously so approved), cease for any reason to constitute a
majority of the Board of Directors of the Company then in office.
(d) Prior to the time required for the mailing of an Offer to Purchase
pursuant to paragraph (a), the Company will in good faith (i) seek to obtain any
required consent of holders of Senior Indebtedness so as to permit the making of
the Offer to Purchase and the purchase of Securities pursuant to this Section
1017, or (ii) seek to repay all or a portion of the lenders under the Credit
Facility to the extent necessary (including, if necessary, payment in full of
such Indebtedness and payment of any prepayment premiums, fees, expenses or
penalties) to permit the making of the Offer to Purchase and the purchase of
Securities pursuant to this Section 1017 without such consent or (iii) if such
Indebtedness is not then prepayable to such extent, make an offer to the lenders
under the Credit Facility from which consent is required and cannot be obtained
to repay such Indebtedness in full for an amount equal to the outstanding
principal balance thereof and accrued interest to the date of repayment, plus
any fees, expenses and penalties required pursuant to the instruments governing
such Indebtedness, plus, in the event such Indebtedness is subsequently
prepayable at a premium, the premium payable when such Indebtedness is first
prepayable, and repay any lender who accepts such Offer. Following compliance by
the Company with the requirements of the foregoing sentence and assuming that
the required consent has been obtained or that the Indebtedness under the Credit
Facility has been repaid, the Company shall, within the time required for the
mailing of an Offer with respect to an Offer to Purchase pursuant to Clause (a),
mail such Offer.
SECTION 1018. Statement by Officers as to Default; Compliance Certificates.
(a) The Company will deliver to the Trustee, within 90 days after the end
of each fiscal year, and within 60 days after the end of each fiscal quarter
(other than the fourth fiscal quarter), of the Company ending after the date
hereof an Officers' Certificate, stating whether or not to the best knowledge of
the signers thereof the Company is in default in the performance and observance
of any of the terms, provisions and conditions of Section 801 or Sections 1004
to 1017, inclusive, and if the Company shall be in default, specifying all such
defaults and the nature and status thereof of which they may have knowledge.
(b) The Company shall deliver to the Trustee, as soon as possible and in
any event within 10 days after the Company becomes aware or should reasonably
become aware of the occurrence of an Event of Default or an event which, with
notice or the lapse of time or both, would constitute an Event of Default, an
Officers' Certificate setting forth the details of such Event of Default or
default, the period of existence thereof and the action which the Company
proposes to take with respect thereto.
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(c) The Company shall deliver to the Trustee within 90 days after the end
of each fiscal year a written statement by the Company's independent public
accountants stating (A) that their audit examination has included a review of
the terms of this Indenture and the Securities as they relate to accounting
matters, and (B) whether, in connection with their audit examination, any event
which, with notice or the lapse of time or both, would constitute an Event of
Default has come to their attention and, if such a default has come to their
attention, specifying the nature and period of the existence thereof.
SECTION 1019. Waiver of Certain Covenants.
The Company may omit in any particular instance to comply with any covenant
or condition set forth in Section 801 and Sections 1004 to 1017, if before the
time for such compliance the Holders of at least a majority in principal amount
of the Outstanding Securities shall, by Act of such Holders, either waive such
compliance in such instance or generally waive compliance with such covenant or
condition, but no such waiver shall extend to or affect such covenant or
condition except to the extent so expressly waived, and, until such waiver shall
become effective, the obligations of the Company and the duties of the Trustee
in respect of any such covenant or condition shall remain in full force and
effect; provided, however, with respect to an Offer to Purchase as to which an
Offer has been mailed, no such waiver may be made or shall be effective against
any Holder tendering Securities pursuant to such Offer, and the Company may not
omit to comply with the terms of such Offer as to such Holder.
ARTICLE ELEVEN
REDEMPTION OF SECURITIES
SECTION 1101. Right of Redemption.
Subject to Article Twelve, the Securities may be redeemed at the election
of the Company, as a whole or from time to time in part, at the Redemption
Prices specified in the form of Security hereinbefore set forth together with
accrued interest to but excluding the Redemption Date.
SECTION 1102. Applicability of Article.
Redemption of Securities at the election of the Company, as permitted by
any provision of this Indenture, shall be made in accordance with such provision
and this Article.
SECTION 1103. Election to Redeem; Notice to Trustee.
The election of the Company to redeem any Securities pursuant to Section
1101 shall be evidenced by a Board Resolution. In case of any redemption at the
election of the Company of less than all the Securities, the Company shall, at
least 60 days prior to the Redemption Date fixed by the Company (unless a
shorter notice shall be satisfactory to the Trustee), notify the Trustee of such
Redemption Date and of the principal amount of Securities to be redeemed.
SECTION 1104. Selection by Trustee of Securities to Be Redeemed.
If less than all the Securities are to be redeemed, the particular
Securities to be redeemed shall be selected not more than 60 days prior to the
Redemption Date by the Trustee, from the Outstanding Securities not previously
called for redemption, by such method as the Trustee shall deem fair and
appropriate and which may provide for the selection for redemption of portions
(equal to $1,000 or any integral multiple thereof) of the principal amount of
Securities of a denomination larger than $1,000.
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The Trustee shall promptly notify the Company and each Security Registrar
in writing of the Securities selected for redemption and, in the case of any
Securities selected for partial redemption, the principal amount thereof to be
redeemed.
For all purposes of this Indenture, unless the context otherwise requires,
all provisions relating to the redemption of Securities shall relate, in the
case of any Securities redeemed or to be redeemed only in part, to the portion
of the principal amount of such Securities which has been or is to be redeemed.
SECTION 1105. Notice of Redemption.
Notice of redemption shall be given by first-class mail, postage prepaid,
mailed not less than 30 nor more than 60 days prior to the Redemption Date, to
each Holder of Securities to be redeemed, at his address appearing in the
Security Register.
All notices of redemption shall state:
(1) the Redemption Date,
(2) the Redemption Price,
(3) if less than all the Outstanding Securities are to be redeemed,
the identification (and, in the case of partial redemption, the principal
amounts) of the particular Securities to be redeemed,
(4) that on the Redemption Date the Redemption Price will become due
and payable upon each such Security to be redeemed and that interest
thereon will cease to accrue on and after said date, and
(5) the place or places where such Securities are to be surrendered
for payment of the Redemption Price.
Notice of redemption of Securities to be redeemed at the election of the
Company shall be given by the Company or, at the Company's request, by the
Trustee in the name and at the expense of the Company.
SECTION 1106. Deposit of Redemption Price.
Prior to any Redemption Date, the Company shall deposit with the Trustee or
with a Paying Agent (or, if the Company is acting as its own Paying Agent,
segregate and hold in trust as provided in Section 1003) an amount of money
sufficient to pay the Redemption Price of, and (except if the Redemption Date
shall be an Interest Payment Date) accrued interest on, all the Securities which
are to be redeemed on that date.
SECTION 1107. Securities Payable on Redemption Date.
Notice of redemption having been given as aforesaid, the Securities so to
be redeemed shall, on the Redemption Date, become due and payable at the
Redemption Price therein specified, and from and after such date (unless the
Company shall default in the payment of the Redemption Price and accrued
interest) such Securities shall cease to bear interest. Upon surrender of any
such Security for redemption in accordance with said notice, such Security shall
be paid by the Company at the Redemption Price, together with accrued interest
to the Redemption Date; provided, however, that installments of interest whose
Stated Maturity is on or prior to the Redemption Date shall be payable to the
Holders of such Securities, or one or more Predecessor Securities, registered as
such at the close of business on the relevant Record Dates according to their
terms and the provisions of Section 307.
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If any Security called for redemption shall not be so paid upon surrender
thereof for redemption, the principal (and premium, if any) shall, until paid,
bear interest from the Redemption Date at the rate provided by the Security.
SECTION 1108. Securities Redeemed in Part.
Any Security which is to be redeemed only in part shall be surrendered at
an office or agency of the Company designated for that purpose pursuant to
Section 1002 (with, if the Company or the Trustee so requires, due endorsement
by, or a written instrument of transfer in form satisfactory to the Company and
the Trustee duly executed by, the Holder thereof or his attorney duly authorized
in writing), and the Company shall execute, and the Trustee shall authenticate
and deliver to the Holder of such Security without service charge, a new
Security or Securities, of any authorized denomination as requested by such
Holder, in aggregate principal amount equal to and in exchange for the
unredeemed portion of the principal of the Security so surrendered.
ARTICLE TWELVE
SUBORDINATION OF SECURITIES
SECTION 1201. Securities Subordinate to Senior Indebtedness.
The Company covenants and agrees, and each Holder of a Security, by his
acceptance thereof, likewise covenants and agrees, that, to the extent and in
the manner hereinafter set forth in this Article (subject to the provisions of
Article Fourth and Article Thirteen), the payment of the principal of (and
premium, if any) and interest on each and all of the Securities are hereby
expressly made subordinate and subject in right of payment to the prior payment
in full of all Senior Indebtedness.
SECTION 1202. Payment Over of Proceeds Upon Dissolution, Etc.
In the event of (a) any insolvency or bankruptcy case or proceeding, or any
receivership, liquidation, reorganization or other similar case or proceeding in
connection therewith, relative to the Company or to its creditors, as such, or
to its assets, or (b) any liquidation, dissolution or other winding up of the
Company, whether voluntary or involuntary and whether or not involving
insolvency or bankruptcy, or (c) any assignment for the benefit of creditors or
any other marshalling of assets and liabilities of the Company, then and in any
such event specified in (a), (b) or (c) above (each such event, if any, herein
sometimes referred to as a "Proceeding") the holders of Senior Indebtedness
shall be entitled to receive payment in full of all amounts due or to become due
on or in respect of all Senior Indebtedness, or provision shall be made for such
payment in cash or cash equivalents or otherwise in a manner satisfactory to the
holders of Senior Indebtedness, before the Holders of the Securities are
entitled to receive any payment or distribution of any kind or character,
whether in cash, property or securities, on account of principal of (or premium,
if any) or interest on or other obligations in respect of the Securities or on
account of any purchase or other acquisition of Securities by the Company or any
Subsidiary of the Company (all such payments, distributions, purchases and
acquisitions herein referred to, individually and collectively, as a "Securities
Payment"), and to that end the holders of Senior Indebtedness shall be entitled
to receive, for application to the payment thereof, any Securities Payment which
may be payable or deliverable in respect of the Securities in any such
Proceeding.
In the event that, notwithstanding the foregoing provisions of this
Section, the Trustee or the Holder of any Security shall have received any
Securities Payment before all Senior Indebtedness is paid in full or payment
thereof has been provided for in cash or cash equivalents or otherwise in a
manner satisfactory to the holders of Senior Indebtedness, and if such fact
shall, at or prior to the time of such Securities Payment, have been made known
to the Trustee by delivery to the Trustee of any notice set forth in Section
1209 or, as the case may be, such Holder, then and in such event such Securities
Payment shall be paid over or delivered forthwith by the Trustee (if any notice
set
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forth in Section 1209 has been delivered to the Trustee) or by the Holder to the
trustee in bankruptcy, receiver, liquidating trustee, custodian, assignee, agent
or other Person making payment or distribution of assets of the Company (which
may be the Administrative Agent) for application to the payment of all Senior
Indebtedness remaining unpaid, to the extent necessary to pay all Senior
Indebtedness in full, after giving effect to any concurrent payment or
distribution to or for the holders of Senior Indebtedness.
For purposes of this Article only, the words "any payment or distribution
of any kind or character, whether in cash, property or securities" shall not be
deemed to include a payment or distribution of stock or securities of the
Company provided for by a plan of reorganization or readjustment authorized by
an order or decree of a court of competent jurisdiction in a reorganization
proceeding under any applicable bankruptcy law or of any other corporation
provided for by such plan of reorganization or readjustment which stock or
securities are subordinated in right of payment to all then outstanding Senior
Indebtedness to substantially the same extent as the Securities are so
subordinated as provided in this Article. The consolidation of the Company with,
or the merger of the Company into, another Person or the liquidation or
dissolution of the Company following the conveyance or transfer of all or
substantially all of its properties and assets as an entirety to another Person
upon the terms and conditions set forth in Article Eight shall not be deemed a
Proceeding for the purposes of this Section if the Person formed by such
consolidation or into which the Company is merged or the Person which acquires
by conveyance or transfer such properties and assets as an entirety, as the case
may be, shall, as a part of such consolidation, merger, conveyance or transfer,
comply with the conditions set forth in Article Eight.
SECTION 1203. No Payment When Senior Indebtedness in Default.
In the event that any Senior Payment Default (as defined below) shall have
occurred and be continuing, then no Securities Payment shall be made unless and
until such Senior Payment Default shall have been cured or waived or shall have
ceased to exist or all amounts then due and payable in respect of Senior
Indebtedness shall have been paid in full, or provision shall have been made for
such payment in cash or cash equivalents or otherwise in a manner satisfactory
to the holders of Senior Indebtedness. "Senior Payment Default" means any
default in the payment of principal of (or premium, if any) or interest on any
Senior Indebtedness when due, whether at the Stated Maturity of any such payment
or by declaration of acceleration, call for redemption or otherwise.
In the event that any Senior Nonmonetary Default (as defined below) shall
have occurred and be continuing, then, upon the receipt by the Company and the
Trustee of written notice of such Senior Nonmonetary Default from an
Administrative Agent or, if there is no outstanding Designated Senior
Indebtedness, any representative of a holder of Senior Indebtedness, no
Securities Payment shall be made during the period (the "Payment Blockage
Period") commencing on the date of such receipt of such written notice and
ending on the earlier of (i) the date on which such Senior Nonmonetary Default
shall have been cured or waived or shall have ceased to exist and any
acceleration of Senior Indebtedness shall have been rescinded or annulled or the
Senior Indebtedness to which such Senior Nonmonetary Default relates shall have
been discharged or (ii) the 179th day after the date of such receipt of such
written notice. No more than one Payment Blockage Period may be commenced with
respect to the Securities during any 360-day period and there shall be a period
of at least 181 consecutive days in each 360-day period when no Payment Blockage
Period is in effect. For all purposes of this paragraph, no Senior Nonmonetary
Default that was known to the holders of Senior Indebtedness to exist or be
continuing on the date of commencement of any Payment Blockage Period shall be,
or be made, the basis for the commencement of a subsequent Payment Blockage
Period by an Administrative Agent for the Designated Senior Indebtedness unless
such Senior Nonmonetary Default shall have been cured for a period of not less
than 90 consecutive days. "Senior Nonmonetary Default" means the occurrence or
existence and continuance of any event of default, or of any event which, after
notice or lapse of time (or both), would become an event of default, under the
terms of any instrument pursuant to which any
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Senior Indebtedness is outstanding, permitting (after notice or lapse of time or
both) one or more holders of such Senior Indebtedness (or a trustee or agent on
behalf of the holders thereof) to declare such Senior Indebtedness due and
payable prior to the date on which it would otherwise become due and payable,
other than a Senior Payment Default.
SECTION 1204. Payment Permitted If No Default.
Nothing contained in this Article or elsewhere in this Indenture or in any
of the Securities shall prevent (a) the Company, at any time except during the
pendency of any Proceeding referred to in Section 1202 or under the conditions
described in Section 1203, from making Securities Payments, or (b) the
application by the Trustee of any money deposited with it hereunder to
Securities Payments or the retention of such Securities Payment by the Holders,
if, at the time of such application by the Trustee, it had not received any
notice set forth in Section 1209.
SECTION 1205. Subrogation to Rights of Holders of Senior Indebtedness.
Subject to the payment in full of all amounts due or to become due on or in
respect of Senior Indebtedness, or the provision for such payment in cash or
cash equivalents or otherwise in a manner satisfactory to the holders of Senior
Indebtedness, the Holders of the Securities shall be subrogated to the rights of
the holders of such Senior Indebtedness to receive payments and distributions of
cash, property and securities applicable to the Senior Indebtedness until the
principal of (and premium, if any) and interest on the Securities shall be paid
in full. For purposes of such subrogation, no payments or distributions to the
holders of the Senior Indebtedness of any cash, property or securities to which
the Holders of the Securities or the Trustee would be entitled except for the
provisions of this Article, and no payments over pursuant to the provisions of
this Article to the holders of Senior Indebtedness by Holders of the Securities
or the Trustee, shall, as among the Company, its creditors other than holders of
Senior Indebtedness and the Holders of the Securities, be deemed to be a payment
or distribution by the Company to or on account of the Senior Indebtedness.
SECTION 1206. Provisions Solely to Define Relative Rights.
The provisions of this Article are and are intended solely for the purpose
of defining the relative rights of the Holders on the one hand and the holders
of Senior Indebtedness on the other hand. Nothing contained in this Article or
elsewhere in this Indenture or in the Securities is intended to or shall (a)
impair, as among the Company, its creditors other than holders of Senior
Indebtedness and the Holders of the Securities, the obligation of the Company,
which is absolute and unconditional (and which, subject to the rights under this
Article of the holders of Senior Indebtedness, is intended to rank equally with
all other general obligations of the Company), to pay to the Holders of the
Securities the principal of (and premium, if any) and interest on the Securities
as and when the same shall become due and payable in accordance with their
terms; or (b) affect the relative rights against the Company of the Holders of
the Securities and creditors of the Company other than the holders of Senior
Indebtedness; or (c) prevent the Trustee or the Holder of any Security from
exercising all remedies otherwise permitted by applicable law upon default under
this Indenture, subject to the rights, if any, under this Article of the holders
of Senior Indebtedness to receive cash, property and securities otherwise
payable or deliverable to the Trustee or such Holder.
SECTION 1207. Trustee to Effectuate Subordination.
Each Holder of a Security by his acceptance thereof authorizes and directs
the Trustee on his behalf to take such action as may be necessary or appropriate
to effectuate the subordination provided in this Article and appoints the
Trustee his attorney-in-fact for any and all such purposes.
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SECTION 1208. No Waiver of Subordination Provisions.
No right of any present or future holder of any Senior Indebtedness to
enforce subordination as herein provided shall at any time in any way be
prejudiced or impaired by any act or failure to act on the part of the Company
or by any act or failure to act, in good faith, by any such holder, or by any
noncompliance by the Company with the terms, provisions and covenants of this
Indenture, regardless of any knowledge thereof any such holder may have or be
otherwise charged with.
Without in any way limiting the generality of the foregoing paragraph, the
holders of Senior Indebtedness may, at any time and from time to time, without
the consent of or notice to the Trustee or the Holders of the Securities,
without incurring responsibility to the Holders of the Securities and without
impairing or releasing the subordination provided in this Article or the
obligations hereunder of the Holders of the Securities to the holders of Senior
Indebtedness, do any one or more of the following: (i) change the manner, place
or terms of payment or extend the time of payment of, or renew or alter, Senior
Indebtedness, or otherwise amend or supplement in any manner Senior Indebtedness
or any instrument evidencing the same or any agreement under which Senior
Indebtedness is outstanding; (ii) sell, exchange, release or otherwise deal with
any property pledged, mortgaged or otherwise securing Senior Indebtedness; (iii)
release any Person liable in any manner for the collection of Senior
Indebtedness; and (iv) exercise or refrain from exercising any rights against
the Company and any other Person.
SECTION 1209. Notice to Trustee.
The Company shall give prompt written notice to the Trustee of any fact
known to the Company which would prohibit the making of any payment to or by the
Trustee in respect of the Securities. Notwithstanding the provisions of this
Article or any other provision of this Indenture, the Trustee shall not be
charged with knowledge of the existence of any facts which would prohibit the
making of any payment to or by the Trustee in respect of the Securities, unless
and until the Trustee shall have received written notice thereof from the
Company or a holder of Senior Indebtedness or from any trustee or Administrative
Agent therefor; and, prior to the receipt of any such written notice, the
Trustee, subject to the provisions of Section 601, shall be entitled in all
respects to assume that no such facts exist; provided, however, that if the
Trustee shall not have received the notice provided for in this Section at least
5 Business Days prior to the date upon which by the terms hereof any money may
become payable for any purpose (including, without limitation, the payment of
the principal of (and premium, if any) or interest on any Security), then,
anything herein contained to the contrary notwithstanding, the Trustee shall
have full power and authority to receive such money and to apply the same to the
purpose for which such money was received and shall not be affected by any
notice to the contrary which may be received by it within 5 Business Days prior
to such date.
Subject to the provisions of Section 601, the Trustee shall be entitled to
rely on the delivery to it of a written notice by a Person representing himself
to be a holder of Senior Indebtedness (or a trustee or Administrative Agent
therefor) to establish that such notice has been given by a holder of Senior
Indebtedness (or a trustee or Administrative Agent therefor). In the event that
the Trustee determines in good faith that further evidence is required with
respect to the right of any Person as a holder of Senior Indebtedness to
participate in any payment or distribution pursuant to this Article, the Trustee
may request such Person to furnish evidence to the reasonable satisfaction of
the Trustee as to the amount of Senior Indebtedness held by such Person, the
extent to which such Person is entitled to participate in such payment or
distribution and any other facts pertinent to the rights of such Person under
this Article, and if such evidence is not furnished, the Trustee may defer any
payment to such Person pending judicial determination as to the right of such
Person to receive such payment.
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SECTION 1210. Reliance on Judicial Order or Certificate of Liquidating Agent.
Upon any payment or distribution of assets of the Company referred to in
this Article, the Trustee, subject to the provisions of Section 601, and the
Holders of the Securities shall be entitled to rely upon any order or decree
entered by any court of competent jurisdiction in which such Proceeding is
pending, or a certificate of the trustee in bankruptcy, receiver, liquidating
trustee, custodian, assignee for the benefit of creditors, agent or other Person
making such payment or distribution, delivered to the Trustee or to the Holders
of Securities, for the purpose of ascertaining the Persons entitled to
participate in such payment or distribution, the holders of the Senior
Indebtedness and other indebtedness of the Company, the amount thereof or
payable thereon, the amount or amounts paid or distributed thereon and all other
facts pertinent thereto or to this Article.
SECTION 1211. Trustee Not Fiduciary for Holders of Senior Debt.
The Trustee shall not be deemed to owe any fiduciary duty to the holders of
Senior Indebtedness and it undertakes to perform and observe only such of its
covenants and obligations with respect to the Senior Indebtedness as are
specifically set forth in this Indenture, and no implied covenants or
obligations with respect to the Senior Indebtedness shall be read into this
Indenture against the Trustee and the Trustee shall not be liable to any such
holders if it shall in good faith mistakenly pay over or distribute to Holders
of Securities or to the Company or to any other Person cash, property or
securities to which any holders of Senior Indebtedness shall be entitled by
virtue of this Article or otherwise.
SECTION 1212. Rights of Trustee as Holder of Senior Indebtedness;
Preservation of Trustee's Rights.
The Trustee in its individual capacity shall be entitled to all the rights
set forth in this Article with respect to any Senior Indebtedness which may at
any time be held by it, to the same extent as any other holder of Senior
Indebtedness, and nothing in this Indenture shall deprive the Trustee of any of
its rights as such holder.
Nothing in this Article shall apply to claims of, or payments to, the
Trustee under or pursuant to Section 607.
SECTION 1213. Article Applicable to Paying Agents.
In case at any time any Paying Agent other than the Trustee shall have been
appointed by the Company and be then acting hereunder, the term "Trustee" as
used in this Article shall in such case (unless the context otherwise requires)
be construed as extending to and including such Paying Agent within its meaning
as fully for all intents and purposes as if such Paying Agent were named in this
Article in addition to or in place of the Trustee; provided, however, that
Section 1212 shall not apply to the Company or any Affiliate of the Company if
it or such Affiliate acts as Paying Agent.
SECTION 1214. Defeasance of this Article Twelve.
The subordination of the Securities provided by this Article Twelve is
expressly made subject to the provisions for defeasance or covenant defeasance
in Article Thirteen hereof and, anything herein to the contrary notwithstanding,
upon the effectiveness of any such defeasance or covenant defeasance, the
Securities then outstanding shall thereupon cease to be subordinated pursuant to
this Article Twelve.
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ARTICLE THIRTEEN
DEFEASANCE AND COVENANT DEFEASANCE
SECTION 1301. Company's Option to Effect Defeasance or Covenant Defeasance.
The Company may at its option by Board Resolution, at any time, elect to
have either Section 1302 or Section 1303 applied to the Outstanding Securities
upon compliance with the conditions set forth below in this Article Thirteen.
SECTION 1302. Defeasance and Discharge.
Upon the Company's exercise of the option provided in Section 1301
applicable to this Section, the Company shall be deemed to have been discharged
from its obligations with respect to the Outstanding Securities, and the
provisions of Article Twelve hereof shall cease to be effective, on the date the
conditions set forth below are satisfied (hereinafter, "defeasance"). For this
purpose, such defeasance means that the Company shall be deemed to have paid and
discharged the entire indebtedness represented by the Outstanding Securities and
to have satisfied all its other obligations under such Securities and this
Indenture insofar as such Securities are concerned (and the Trustee, at the
expense of the Company, shall execute proper instruments acknowledging the
same), except for the following which shall survive until otherwise terminated
or discharged hereunder: (A) the rights of Holders of such Securities to
receive, solely from the trust fund described in Section 1304 and as more fully
set forth in such Section, payments in respect of the principal of (and premium,
if any) and interest on such Securities when such payments are due, (B) the
Company's obligations with respect to such Securities under Sections 304, 305,
306, 1002 and 1003, (C) the rights, powers, trusts, duties and immunities of the
Trustee hereunder and (D) this Article Thirteen. Subject to compliance with this
Article Thirteen, the Company may exercise its option under this Section 1302
notwithstanding the prior exercise of its option under Section 1303.
SECTION 1303. Covenant Defeasance.
Upon the Company's exercise of the option provided in Section 1301
applicable to this Section, (i) the Company shall be released from its
obligations under Sections 1005 through 1017, inclusive, and Clauses (3), (4)
and (5) of Section 801, (ii) the occurrence of an event specified in Sections
501(3), 501(4) (with respect to Clauses (1), (3), (4) or (5) of Section 801),
501(5) (with respect to any of Sections 1005 through 1017, inclusive), 501(6)
and 501(7) shall not be deemed to be an Event of Default and (iii) the
provisions of Article Twelve hereof shall cease to be effective on and after the
date the conditions set forth below are satisfied (hereinafter, "covenant
defeasance"). For this purpose, such covenant defeasance means that the Company
may omit to comply with and shall have no liability in respect of any term,
condition or limitation set forth in any such Section, Clause or Article,
whether directly or indirectly by reason of any reference elsewhere herein to
any such Section, Clause or Article or by reason of any reference in any such
Section, Clause or Article to any other provision herein or in any other
document, but the remainder of this Indenture and such Securities shall be
unaffected thereby.
SECTION 1304. Conditions to Defeasance or Covenant Defeasance.
The following shall be the conditions to application of either Section 1302
or Section 1303 to the then Outstanding Securities:
(1) The Company shall irrevocably have deposited or caused to be
deposited with the Trustee (or another trustee satisfying the requirements
of Section 609 who shall agree to comply with the provisions of this
Article Thirteen applicable to it) as trust funds in trust for the purpose
of making the following payments, specifically pledged as security for, and
dedicated solely to, the benefit of the Holders of such Securities, (A)
money in an amount, or (B) U.S.
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Government Obligations which through the scheduled payment of principal and
interest in respect thereof in accordance with their terms will provide,
not later than one day before the due date of any payment, money in an
amount, or (C) a combination thereof, 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, and which shall be applied by the Trustee (or other qualifying
trustee) to pay and discharge, the principal of (and premium, if any,) and
each instalment of interest on the Securities on the Stated Maturity of
such principal or instalment of interest in accordance with the terms of
this Indenture and of such Securities. For this purpose, "U.S. Government
Obligations" means securities that are (x) direct obligations of the United
States of America for the payment of which its full faith and credit is
pledged or (y) 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, and shall also
include a depository receipt issued by a bank (as defined in Section
3(a)(2) of the Securities Act of 1933, as amended) as custodian with
respect to any such U.S. Government Obligation or a specific payment of
principal of or interest on any such U.S. Government Obligation held by
such custodian for the account of the holder of such 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 principal of or
interest on the U.S. Government Obligation evidenced by such depository
receipt.
(2) In the case of an election under Section 1302, the Company shall
have delivered to the Trustee an Opinion of Counsel stating that (x) the
Company has received from, or there has been published by, the Internal
Revenue Service a ruling, or (y) since the date of this Indenture there has
been a change in the applicable Federal income tax law, in either case to
the effect that, and based thereon such opinion shall confirm that, the
Holders of the Outstanding Securities will not recognize gain or loss for
Federal income tax purposes as a result of such deposit, defeasance and
discharge and will be subject to Federal income tax on the same amount, in
the same manner and at the same times as would have been the case if such
deposit, defeasance and discharge had not occurred.
(3) In the case of an election under Section 1303, the Company shall
have delivered to the Trustee an Opinion of Counsel to the effect that the
Holders of the Outstanding Securities will not recognize gain or loss for
Federal income tax purposes as a result of such deposit and covenant
defeasance and will be subject to Federal income tax on the same amount, in
the same manner and at the same times as would have been the case if such
deposit and covenant defeasance had not occurred.
(4) The Company shall have delivered to the Trustee an Officer's
Certificate to the effect that the Securities, if then listed on any
securities exchange, will not be delisted as a result of such deposit.
(5) Such defeasance or covenant defeasance shall not cause the Trustee
to have a conflicting interest as defined in Section 608 and for purposes
of the Trust Indenture Act with respect to any securities of the Company.
(6) No Event of Default or event which with 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, insofar as subsections 501(8) and (9) are
concerned, at any time during the period ending on the 121st day after the
date of such deposit (it being understood that this condition shall not be
deemed satisfied until the expiration of such period).
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(7) Such defeasance or covenant defeasance shall not result in a
breach or violation of, or constitute a default under, any other agreement
or instrument to which the Company is a party or by which it is bound.
(8) The Company shall have delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, each stating that all conditions
precedent provided for relating to either the defeasance under Section 1302
or the covenant defeasance under Section 1303 (as the case may be) have
been complied with.
(9) Such defeasance or covenant defeasance shall not result in the
trust arising from such deposit constituting an investment company as
defined in the Investment Company Act of 1940, as amended, or such trust
shall be qualified under such act or exempt from regulation thereunder.
SECTION 1305. Deposited Money and U.S. Government Obligations to be Held in
Trust;
Other Miscellaneous Provisions.
Subject to the provisions of the last paragraph of Section 1003, all money
and U.S. Government Obligations (including the proceeds thereof) deposited with
the Trustee (or other qualifying trustee--collectively, for purposes of this
Section 1305, the "Trustee") pursuant to Section 1304 in respect of the
Securities shall be held in trust and applied by the Trustee, in accordance with
the provisions of such Securities and this Indenture, to the payment, either
directly or through any Paying Agent (including the Company acting as its own
Paying Agent) as the Trustee may determine, to the Holders of such Securities,
of all sums due and to become due thereon in respect of principal (and premium,
if any) and interest, but such money need not be segregated from other funds
except to the extent required by law. Money so held in trust shall not be
subject to the provisions of Article Twelve.
The Company shall pay and indemnify the Trustee against any tax, fee or
other charge imposed on or assessed against the U.S. Government Obligations
deposited pursuant to Section 1304 or the principal and interest received in
respect thereof other than any such tax, fee or other charge which by law is for
the account of the Holders of the Outstanding Securities.
Anything in this Article Thirteen to the contrary notwithstanding, the
Trustee shall deliver or pay to the Company from time to time upon Company
Request any money or U.S. Government Obligations held by it as provided in
Section 1304 which, in the opinion of a nationally recognized firm of
independent public accountants expressed in a written certification thereof
delivered to the Trustee, are in excess of the amount thereof which would then
be required to be deposited to effect an equivalent defeasance or covenant
defeasance.
SECTION 1306. Reinstatement.
If the Trustee or the Paying Agent is unable to apply any money in
accordance with Section 1302 or 1303 by reason of any order or judgment of any
court or governmental authority enjoining, restraining or otherwise prohibiting
such application, then the Company's obligations under this Indenture and the
Securities shall be revived and reinstated as though no deposit had occurred
pursuant to this Article Thirteen until such time as the Trustee or Paying Agent
is permitted to apply all such money in accordance with Section 1302 or 1303;
provided, however,that if the Company makes any payment of principal of (and
premium, if any) or interest on any Security following the reinstatement of its
obligations, the Company shall be subrogated to the rights of the Holders of
such Securities to receive such payment from the money held by the Trustee or
the Paying Agent.
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This instrument may be executed in any number of counterparts, each of
which so executed shall be deemed to be an original, but all such counterparts
shall together constitute but one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Indenture to be
duly executed, and their respective corporate seals to be hereunto affixed and
attested, all as of the day and year first above written.
WESTERN WIRELESS CORPORATION
By___________________________________
Attest:
- ---------------------------------
HARRIS TRUST COMPANY OF CALIFORNIA
By___________________________________
Authorized Officer
Attest:
- ----------------------------------
61
<PAGE> 72
STATE OF NEW YORK ) SS.:
COUNTY OF NEW YORK )
On the day of , 1996, before me personally came
, to me known, who, being by me duly sworn, did depose
and say that [he -- she] is
of Western Wireless
Corporation, one of the corporations described in and which executed the
foregoing instrument; that [he -- she] knows the seal of said corporation; that
the seal affixed to said instrument is such corporate seal; that it was so
affixed by authority of the Board of Directors of said corporation, and that
[he -- she] signed [his -- her] name thereto by like authority.
--------------------------------------
STATE OF CALIFORNIA ) SS.:
COUNTY OF LOS ANGELES )
On the day of , 1996, before me personally came
, to me known, who, being by me duly sworn, did depose
and say that [he -- she] is
of Harris Trust Company of
California, one of the corporations described in and which executed the
foregoing instrument; that [he -- she] knows the seal of said corporation; that
the seal affixed to said instrument is such corporate seal; that it was so
affixed by authority of the Board of Directors of said corporation, and that
[he -- she] signed [his -- her] name thereto by like authority.
--------------------------------------
SS.:
SS.:
<PAGE> 1
EXHIBIT 5.1
[letterhead of Preston Gates & Ellis]
May 22, 1996
Western Wireless Corporation
2001 NW Sammamish Road
Issaquah, Washington 98027
Re: Registration Statements on Form S-1 of Western Wireless Corporation
(Commission File No. 333-2688 and 333- )
Ladies and Gentlemen:
We have acted as counsel to Western Wireless Corporation (the
"Company") in connection with the filing of the above-referenced Registration
Statements (the "Registration Statements") relating to the registration of an
aggregate of $200,000,000 principal amount of Senior Subordinated Notes Due
2006 (the "Notes") of the Company. In connection therewith, we have reviewed the
Company's Articles of Incorporation, Bylaws, minutes of appropriate meetings,
the Indenture under which the Notes will be issued (the "Indenture") and such
other matters we deemed appropriate.
Based on this review, it is our opinion that:
1. The Company is duly incorporated and validly existing under the
laws of the State of Washington.
2. The Notes will be legally issued, fully paid, non-assessable and
binding obligations of the Company when (i) the Company's Board of Directors
shall have duly adopted final resolutions authorizing the issuance and sale of
the Notes to be sold by the Company as contemplated by the Registration
Statement; and (ii) securities representing the Notes shall have been duly
authenticated in accordance with the terms of the Indenture and duly delivered
to the purchasers thereof against payment of the agreed consideration therefor.
We do not find it necessary for the purposes of this opinion to cover,
and accordingly we express no opinion as to, the application of the securities
or blue sky laws of the various states to the sale of the Notes.
<PAGE> 2
May 22, 1996
Page 2
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statements and to all references to our firm included in or made a
part of the Registration Statements.
Very truly yours,
PRESTON GATES & ELLIS
By /s/ G. Scott Greenburg
G. Scott Greenburg
<PAGE> 1
Exhibit 23.1
[letterhead of Arthur Anderson LLP]
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our reports
dated March 15, 1996 (and to all references to our Firm) included in or made a
part of this registration statement.
/s/ Arthur Andersen LLP
Seattle, Washington,
May 22, 1996
