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Filed pursuant to Rule 424(b)(3)
File No. 333-14859
LOGO
WESTERN WIRELESS CORPORATION
CLASS A COMMON STOCK
(NO PAR VALUE PER SHARE)
10 1/2% SENIOR SUBORDINATED NOTES DUE 2006
10 1/2% SENIOR SUBORDINATED NOTES DUE 2007
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SEE "RISK FACTORS" BEGINNING ON PAGE 13 FOR A DISCUSSION OF CERTAIN
CONSIDERATIONS RELEVANT TO AN INVESTMENT IN THE CLASS A COMMON STOCK, 10 1/2%
SENIOR SUBORDINATED NOTES DUE 2006 OR 10 1/2% SENIOR SUBORDINATED NOTES DUE
2007.
The Class A Common Stock is quoted on The Nasdaq National Market under the
symbol "WWCA."
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EACH OF THE 10 1/2% SENIOR SUBORDINATED NOTES DUE 2006 (THE "2006 NOTES")
AND THE 10 1/2% SENIOR SUBORDINATED NOTES DUE 2007 (THE "2007 NOTES" AND,
TOGETHER WITH 2006 NOTES, THE "SENIOR SUBORDINATED NOTES") ARE SENIOR UNSECURED
OBLIGATIONS OF THE COMPANY AND ARE 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 2006 NOTES AND THE 2007 NOTES RANK PARI PASSU WITH ONE
ANOTHER. 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 DECEMBER 31, 1996, SENIOR INDEBTEDNESS AGGREGATED APPROXIMATELY
$343.0 MILLION.
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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 shares of Class A Common Stock,
the 10 1/2% Senior Subordinated Notes Due 2006 and the 10 1/2% Senior
Subordinated Notes Due 2007 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. See "Plan of Distribution."
GOLDMAN, SACHS & CO.
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The date of this Prospectus is May 1, 1997.
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AVAILABLE INFORMATION
The Company has filed with the Commission a Registration Statement on Form
S-4 (the "Registration Statement," which term shall include all amendments,
exhibits, annexes and schedules thereto) pursuant to the Securities Act of 1933,
as amended (the "Securities Act"), and the rules and regulations promulgated
thereunder, covering the Class A Common Stock, 2006 Notes and 2007 Notes being
offered hereby. This Prospectus does not contain all the information set forth
in the Registration Statement, certain parts of which are omitted in accordance
with the rules and regulations of the Commission. Statements made in this
Prospectus as to the contents of any contract, agreement or other document
referred to in the Registration Statement are necessarily summaries of those
documents, and, with respect to each such contract, agreement or other document
filed as an exhibit to the Registration Statement, reference is made to the
exhibit for a more complete description of the matter involved.
The Company is subject to the periodic reporting and other informational
requirements of the Securities Exchange Act of 1934 (the "Exchange Act").
Periodic reports, proxy statements and other information filed by the Company
with the Commission may be inspected at the public reference facilities
maintained by the Commission at Room 1024, 450 Fifth Street, N.W., Washington,
D.C. 20549, or at its regional offices located at Citicorp Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661 and Seven World Trade
Center, Suite 1300, New York, New York 10048. Copies of such material can be
obtained from the Company upon request. The Commission maintains a Web site that
contains reports, proxy and information statements and other materials that are
filed through the Commission's Electronic Data Gathering, Analysis, and
Retrieval system. This Web site can be accessed at http://www.sec.gov.
The Company is required by the terms of the indenture dated as of May 22,
1996 by and between the Company and Harris Trust Company of California, as
trustee (the "Trustee"), under which the 2006 Notes were issued (the "2006 Notes
Indenture") and the indenture dated as of October 24, 1996 by and between the
Company and the Trustee, as trustee, under which the 2007 Notes were issued (the
"2007 Notes Indenture"), to furnish the Trustee with annual reports containing
consolidated financial statements audited by their independent certified public
accountants and with quarterly reports containing unaudited condensed
consolidated financial statements for each of the first three quarters of each
fiscal year.
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Western Wireless(R) and VoiceStream(R) are registered service marks and
"Telewaves" is a trademark of the Company. CELLULAR ONE(R) is a registered
service mark of Cellular One Group. See "Business -- Intellectual Property."
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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. Statements contained in this Prospectus that are not based on
historical fact are "forward looking statements" within the meaning of the
Private Securities Litigation Reform Act of 1995. The risk factors and
cautionary statements identifying important factors that could cause actual
results, events or developments to differ materially from those in the forward
looking statements are detailed in "Risk Factors" and 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 was effected in May 1996,
and its subsidiaries and predecessors. All share and per share data in this
Prospectus reflect the reclassification in May 1996 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 and 1997
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 been the high bidder in recently
concluded auctions of the Federal Communication Commission ("FCC") on, an
aggregate of 182 cellular and personal communications services ("PCS") licenses
for a geographic area covering approximately 63.9 million persons. In addition,
Western Wireless has a 49.9 percent interest in Cook Inlet Western Wireless
PV/SS PCS, L.P. ("Cook Inlet PCS"), which owns, or has been the high bidder in
the recently concluded FCC auctions on, 21 PCS licenses covering approximately
12.7 million persons. The Company's combined cellular and PCS licenses, together
with the Cook Inlet PCS licenses, cover approximately 59% of the land in the
continental United States. In its cellular and PCS markets, the Company served
359,700 subscribers at December 31, 1996.
The Company operates its cellular systems under the CELLULAR ONE(R) brand
name and operates its PCS markets under its proprietary VoiceStream(R) brand
name. It owns and operates cellular systems in 59 Rural Service Areas ("RSAs")
and 16 Metropolitan Statistical Areas ("MSAs") with an aggregate population of
approximately 6.1 million persons. The Company holds or was the high bidder on 7
Major Trading Area ("MTA") broadband PCS licenses and 100 Basic Trading Area
("BTA") broadband PCS licenses covering approximately 62.8 million persons. The
Company currently offers PCS service in six MTAs -- Honolulu, Salt Lake City, EI
Paso/Albuquerque, Portland, Oklahoma City, Des Moines/Quad Cities -- and expects
to begin offering service in the Denver MTA during the second quarter of 1997.
During 1997, the Company expects to begin design and construction in the Seattle
and Phoenix/Tucson BTAs. Each of the Company's operational PCS systems are
utilizing Global System for Mobile Communications ("GSM") technology as the
network standard. GSM is the leading digital wireless standard worldwide, with
systems operating in approximately 110 countries and serving over 30 million
subscribers, including systems operational in the United States.
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In addition, Western Wireless is engaged in activities related to its
principal wireless communications business. The Company has acquired interests
in entities which have made wireless license applications in certain foreign
countries, including joint ventures which have obtained GSM cellular licenses in
the Republics of Latvia, Georgia and Ghana. During 1997, one such joint venture
commenced operations in the Republic of Latvia. The joint ventures in the
Republics of Georgia and Ghana have not yet commenced operations. In addition,
since their acquisition in February 1996, the Company has operated paging
systems in eight western states and currently serves approximately 29,000
customers.
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 related
transactions, Western Wireless Corporation became the owner of all of the assets
of MCLP. Accordingly, all financial data relating to the Company herein with
respect to periods after the date of the Business Combination reflect the
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.
STRATEGY
Historically, the Company has focused on the acquisition and operation of
cellular communications systems in RSAs and small MSAs in the western United
States. The Company's 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 has been, and will continue to be, to commence operations in the most
densely populated areas within its PCS systems. The Company believes that
cellular is the optimum technology for rural, less densely populated areas
because they are less susceptible to competition and have a greater capacity for
future growth than most major markets, 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 has
entered markets at a relatively low cost, having purchased cellular licenses for
an average of $45.68 per pop overall. The Company's PCS MTA licenses were
purchased at an average of $10.81 per pop and the PCS BTA licenses were
purchased at an average of $3.13 per pop, including the Company's ownership
percentage in Cook Inlet PCS's licenses.
The Company's operating strategy has been to (i) achieve a critical
time-to-market advantage by rapidly constructing and commencing operations of
PCS systems in urban areas within selected 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 continuing to build its PCS systems, offer a
wide range of products and services at competitive prices, continually upgrade
the quality of its network, establish strong brand recognition, create a strong
sales and marketing program tailored to local markets and provide a superior
level of customer service.
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COMMON STOCK OUTSTANDING
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Common Stock outstanding as of March 31, 1997:
Class A Common Stock(1)(2)............................. 14,810,157 shares
Class B Common Stock(1)(2)............................. 55,198,604 shares
Total(2)............................................ 70,008,761 shares
Voting Rights............................................ The holders of Class A Common Stock
have identical rights to holders of
Class B Common Stock, except that
holders of Class A Common Stock are
entitled to one vote per share and
holders of Class B Common Stock are
entitled to ten votes per share. See
"Description of Capital Stock."
Nasdaq National Market Symbol............................ WWCA
</TABLE>
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(1) Does not include, as of March 31, 1997, an aggregate of 4,138,904 shares of
Class B Common Stock issuable upon exercise of outstanding stock options and
exchange rights and an aggregate of 3,791,697 shares of Class A Common Stock
issuable upon exercise of outstanding stock options and reserved for
issuance pursuant to future option grants under the Company's stock option
plan, issuable under the Company's Employee Stock Purchase Plan, issuable
under the Company's Executive Restated Stock Plan and issuable under an
agreement with an employee of the Company. See "Shares Eligible for Future
Sale" and Note 10 to the Company's consolidated financial statements.
(2) Shares of Class B Common Stock are convertible at any time into Class A
Common Stock on a one-for-one basis and generally convert automatically into
Class A Common Stock upon a transfer. See "Risk Factors -- Control by
Management and Existing Shareholders; Anti-Takeover Effect of Dual Classes
of Common Stock; Certain Charter Provisions and Washington Law" and
"Description of Capital Stock."
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10 1/2% SENIOR SUBORDINATED NOTES DUE 2006 OUTSTANDING
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2006 Notes.................... $200 million principal amount of 10 1/2% Senior Subordinated
Notes Due 2006 (the "2006 Notes").
Principal of, premium, if any, and interest on the 2006
Notes will be payable in immediately available funds.
Maturity Date................. The 2006 Notes will mature on June 1, 2006.
Interest Payment Dates........ June 1 and December 1 of each year, commencing December 1,
1996.
Ranking....................... The 2006 Notes are senior unsecured obligations of the
Company and are 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 2006 Notes. At December 31, 1996, Senior Indebtedness
aggregated approximately $343.0 million. At December 31,
1996, the total outstanding Indebtedness of the Company's
Subsidiaries not eliminated in the Company's consolidated
financial statements was approximately $143.0 million. The
2006 Notes rank pari passu with $200.0 million principal
amount of outstanding 2007 Notes. See "Risk Factors
-- Holding Company Structure; Subordination" and
"Description of Senior Subordinated Notes Due
2006 -- Subordination."
Optional Redemption........... Prior to June 1, 2001, the 2006 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 2006 Notes to be redeemed plus
accrued interest to but excluding the redemption date and
(ii) the Make-Whole Amount. After June 1, 2001, the 2006
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 June 1 of each of the years
indicated: 2001 at 105.25%, 2002 at 103.50%, 2003 at 101.75%
and 2004 and thereafter at 100%. In addition, on or before
June 1, 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 2006 Notes at 110.5% of principal amount
together with accrued interest. See "Description of Senior
Subordinated Notes Due 2006 -- Optional Redemption." In
addition, the Company may be required to offer to repurchase
the 2006 Notes upon the occurrence of a Change of Control or
upon certain Asset Dispositions. See "Description of Senior
Subordinated Notes Due 2006 -- Change of Control" and
"-- Covenants -- Limitation on Certain Asset Dispositions."
The Company's credit facility (the "Credit Facility") with a
consortium of leaders, which provides for $750 million of
revolving credit and a $200 million term loan, prohibits the
repayment of all or any portion of the principal amount of
the 2006 Notes prior to the repayment of all indebtedness
under the Credit Facility. See "Description of
Indebtedness -- Credit Facility."
Sinking Fund.................. The 2006 Notes are not entitled to any sinking fund.
</TABLE>
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<TABLE>
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Change of Control............. Upon a Change of Control, each Holder of 2006 Notes will
have the right to have the Company repurchase all or a
portion of such Holder's 2006 Notes at a purchase price in
cash equal to 101% of the aggregate principal amount of the
2006 Notes plus accrued interest to but excluding the
Purchase Date. The Company will not be able to so repurchase
2006 Notes without obtaining written consents from or
repaying the lenders under the Credit Facility.
Certain Covenants............. The 2006 Notes 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 Due 2006 -- Covenants."
</TABLE>
For definitions of certain capitalized terms used herein, see "Description
of Senior Subordinated Notes Due 2006."
10 1/2% SERIES SUBORDINATED NOTES DUE 2007 OUTSTANDING
On October 24, 1996, the Company issued $200,000,000 aggregate principal
amount of 2007 Notes in a transaction exempt from registration under the
Securities Act (the "Original Notes"). The Company subsequently filed a
registration statement on Form S-4 in connection with its offer to exchange (the
"Exchange Offer") up to $200,000,000 aggregate principal amount of its
registered 2007 Notes for up to $200,000,000 aggregate principal amount of the
Original Notes. The Exchange Offer expired on December 4, 1996 and, as a result
of such Exchange Offer, $199.0 million in principal amount of Original Notes was
exchanged for $199.0 million principal amount of exchange notes (the "Exchange
Notes").
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2007 Notes.................... $200.0 million principal amount of 10 1/2% Senior
Subordinated Notes Due 2007, $199.0 million aggregate
principal amount of which was exchanged pursuant to the
Exchange Offer for Exchange Notes and $1.0 million aggregate
principal amount of which was not so exchanged. Although
information contained herein with respect to the 2007 Notes
is presented with respect to the full $200.0 million
aggregate principal amount of 2007 Notes, this Prospectus
relates only to the $199.0 million aggregate principal
amount of 2007 Notes exchanged in the Exchange Offer (i.e.,
the Exchange Notes).
Principal of, premium, if any, and interest on the 2007
Notes will be payable in immediately available funds.
Interest and Maturity Date.... The 2007 Notes bear interest from and including their date
of issuance. The 2007 Notes will mature on February 1, 2007.
Interest Payment Dates........ February 1 and August 1 of each year, commencing February 1,
1997.
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<S> <C>
Ranking....................... The 2007 Notes are senior unsecured obligations of the
Company and are subordinated in right of payment to the
prior payment in full of all Senior Indebtedness and senior
in right of payment to any 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 2007 Notes. At December 31, 1996, Senior Indebtedness
aggregated approximately $343.0 million. At December 31,
1996, the total outstanding Indebtedness of the Company's
subsidiaries not eliminated in the Company's consolidated
financial statements was approximately $143.0 million. The
2007 Notes rank pari passu with $200.0 million principal
amount of outstanding 2006 Notes. See "Risk
Factors -- Holding Company Structure; Subordination" and
"Description of Senior Subordinated Notes Due 2007 --
Subordination."
Optional Redemption........... Prior to February 1, 2002, the outstanding 2007 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 2007 Notes to be redeemed
plus accrued interest to but excluding the redemption date
and (ii) the Make-Whole Amount. On or after February 1, 2002
the outstanding 2007 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 February 1 of
each of the years indicated: 2002 at 105.25%, 2003 at
103.50%, 2004 at 101.75% and 2005 and thereafter at 100%. In
addition, on or before February 1, 1999, 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 2007 Notes at
110.5% of the stated principal amount thereof, together with
accrued interest. See "Description of Senior Subordinated
Notes Due 2007 -- Optional Redemption." In addition, the
Company may be required to offer to repurchase the 2007
Notes upon the occurrence of a Change of Control or upon
certain Asset Dispositions. See "Description of Senior
Subordinated Notes Due 2007 -- 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 2007 Notes prior to
the repayment of all indebtedness under the Credit Facility.
See "Description of Indebtedness -- Credit Facility."
Sinking Fund.................. The 2007 Notes are not entitled to any sinking fund.
Change of Control............. Upon a Change of Control, each Holder of 2007 Notes will
have the right to have the Company repurchase all or a
portion of such Holder's 2007 Notes at a purchase price in
cash equal to 101% of the aggregate principal amount of the
2007 Notes plus accrued interest to but excluding the
Purchase Date. The Company will not be able to so repurchase
2007 Notes without obtaining written consents from or
repaying the lenders under the Credit Facility.
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Certain Covenants............. The 2007 Notes 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 Due 2007 -- Covenants."
</TABLE>
For additional information regarding the 2007 Notes and for definitions of
certain capitalized terms used herein, see "Description of Senior Subordinated
Notes Due 2007."
USE OF PROCEEDS
The Company will not receive any proceeds pursuant to market-making
transactions.
RISK FACTORS
Certain factors should be considered in connection with an investment in
the Class A Common Stock, the 2006 Notes or the 2007 Notes. See "Risk Factors."
RECENT DEVELOPMENTS
On April 24, 1997, the Company and Triad Cellular Corporation, Triad
Cellular L.P. and certain of their affiliates (collectively "Triad") entered
into agreements whereby the Company has agreed to acquire from Triad the
cellular businesses and assets of Triad in the RSAs designated as Texas 1, 2, 4
and 5, Utah 3, 4 and 6, Oklahoma 7 and 8 and Minnesota 7, 8 and 9, for an
aggregate purchase price of (i) approximately $180,000,000, subject to
adjustment, plus (ii) 1,600,000 shares of the Company's Class A Common Stock,
or, if a registration statement covering such shares of Class A Common Stock is
not effective within 90 days after the date of acquisition of such assets, at
the option of Triad, $20,000,000. In addition, the Company has entered into an
agreement with Triad whereby the Company agrees to acquire from Triad their
rights in and to the D and E Block FCC Licenses for PCS Systems in Oklahoma
City, OK, Enid, OK, Stillwater, OK, Ponca City, OK, Lubbock, TX, St. George, UT,
Worthington, MN and Wilmer-Marshall, MN with respect to which Triad was the high
bidder in the recently conducted FCC auctions, for an aggregate purchase price
equal to the amounts paid through the closing to the FCC by Triad for such
licenses. Triad's successful bids for such licenses aggregated approximately
$4,800,000.
The closing of each of the acquisitions is conditional upon the
satisfaction of certain conditions, including obtaining all necessary FCC
approvals.
On April 29, 1997, Western PCS BTA I Corporation, a wholly-owned subsidiary
of the Company ("Western BTA"), received a civil investigative demand from the
Department of Justice ("DOJ") requiring production of certain documents and
responses to certain interrogatories in connection with the DOJ's investigation
of bid rigging and market allocation for PCS licenses auctioned by the FCC.
Western BTA understands that similar demands were issued to numerous other
participants in the FCC PCS auctions, including AT&T. Western BTA believes that
its conduct throughout the PCS auctions was consistent with all FCC regulations
and applicable laws and intends to cooperate fully with the DOJ's investigative
demand.
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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,
1996, which was derived from the Company's consolidated financial statements and
notes thereto that have been audited by Arthur Andersen LLP. 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 "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, 1994.
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<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------
1996 1995 1994
----------- ----------- -----------
(DOLLARS IN THOUSANDS, EXCEPT
PER SHARE DATA)
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CONSOLIDATED STATEMENTS OF OPERATIONS DATA:
Total revenues................................................ $ 243,085 $ 146,555 $ 63,108
----------- ----------- -----------
Operating expenses:
Cost of service............................................. 53,600 27,686 13,303
Cost of equipment sales..................................... 46,305 20,705 11,446
General and administrative.................................. 66,673 31,253 15,226
Sales and marketing......................................... 83,652 41,390 18,553
Depreciation and amortization............................... 79,741 49,456 25,670
Provision for restructuring costs........................... 2,478
----------- ----------- -----------
Total operating expenses................................. 329,971 170,490 86,676
----------- ----------- -----------
Operating loss................................................ (86,886) (23,935) (23,568)
----------- ----------- -----------
Other income (expense):
Interest and financing expense, net........................... (44,690) (25,428) (10,659)
Other, net(1)................................................. 1,471 (6,591) 8,267
----------- ----------- -----------
Net loss.................................................... $ (130,105) $ (55,954) $ (25,960)
=========== =========== ===========
Net loss per common share before extraordinary item........... $ (2.00) $ (0.87) $ (0.59)
Net loss per common share(2).................................. $ (2.00) $ (0.99) $ (0.59)
=========== =========== ===========
Weighted average common shares and common equivalent shares
outstanding................................................. 65,196,000 56,470,000 43,949,000
=========== =========== ===========
</TABLE>
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<CAPTION>
DECEMBER 31, 1996
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CONSOLIDATED BALANCE SHEETS DATA:
Cash and cash equivalents............................................................ $ 54,885
Property and equipment, net.......................................................... 538,617
Licensing costs and other intangible assets, net..................................... 540,482
Total assets......................................................................... 1,241,703
Long-term debt....................................................................... 743,000
Common stock and paid-in capital..................................................... 569,278
Total shareholders' equity........................................................... 354,249
</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, the 2006 Notes Indenture and the 2007 Notes
Indenture contain certain restrictions on the Company's ability to declare
and pay dividends on the Common Stock.
10
<PAGE> 11
SUMMARY OPERATING DATA
The following table sets forth summary operating data of the Company for
its cellular operations.
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------------
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
Cellular pops(1)....................................... 6,104,000 5,764,000 5,241,000
Cellular subscribers................................... 324,200 209,500 112,800
Penetration level(2)................................... 5.4% 3.6% 2.2%
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------
1996 1995 1994
--------- --------- --------
<S> <C> <C> <C>
Average monthly cellular service revenue per
subscriber(3)....................................... $ 65.76 $ 73.36 $ 77.79
Average monthly cellular subscriber revenue per
subscriber(4)....................................... $ 54.96 $ 57.25 $ 54.35
Cellular EBITDA (thousands)(5)........................ $ 60,289 $ 28,929 $ 2,102
Cellular capital expenditures (thousands)............. $ 98,953 $ 62,573 $ 47,423
Cellular cash flows provided by
(used in) (thousands):
Operating activities............................. $ 24,353 $ 3,370 $ (988)
Investing activities............................. $(146,927) $(140,332) $(70,190)
Financing activities............................. $ 163,496 $ 137,724 $ 70,777
</TABLE>
- ---------------
(1) For 1996, based on 1995 estimates by Equifax adjusted by the Company by a
growth factor based upon Equifax's growth factors from 1990 to 1995. For
1995, based upon 1995 estimates by Equifax. For 1994, the Company has evenly
applied Equifax's growth factors from 1990 to 1995 to the 1990 U.S. Census
Bureau population figures. See "Business -- Cellular 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 loss before 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.
11
<PAGE> 12
The following table sets forth summary consolidated operating and financial
data of the Company.
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------
1996 1995 1994
-------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Ratio of earnings to fixed charges(1)................... * * *
Cash and cash equivalents............................... $ 54,885 $ 8,572 $ 7,787
Total debt.............................................. $743,000 $362,487 $211,528
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------
1996 1995 1994
-------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
EBITDA(2)............................................... $(7,145) $ 25,521 $ 2,102
Capital expenditures.................................... $333,315 $ 79,464 $ 47,423
Cash interest expense................................... $ 36,200 $ 21,700 $ 10,900
</TABLE>
- ---------------
* Not meaningful
(1) 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 $135.3 million, $49.7
million and $26.0 million for the years ended December 31, 1996, 1995 and
1994, respectively. See "Risk Factors -- High Leverage; Debt Service;
Restrictive Covenants."
(2) EBITDA represents operating loss before 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.
12
<PAGE> 13
RISK FACTORS
In addition to the other information contained in this Prospectus, the
following should be considered carefully in evaluating the Company and an
investment in the Class A Common Stock, the 2006 Notes or the 2007 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 December 31, 1996, the
Company's total indebtedness was $743.0 million or approximately 67.7% of its
total capitalization. Indebtedness under the Credit Facility and the $300
million credit facility (the "NORTEL Facility" and, together with the Credit
Facility, the "Senior Secured Facilities") of a subsidiary of the Company with a
consortium of lenders 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. The $200 million
principal amount of each of the 2006 Notes and the 2007 Notes bear interest at
10 1/2% and mature on June 1, 2006, and February 1, 2007, respectively. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources" and "Description of
Indebtedness."
For the year ended December 31, 1996, the Company had negative ratios of
earnings to fixed charges and earnings coverage deficiencies of approximately
$135.3 million. 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 building out its PCS MTAs and selected BTAs
and pursuing opportunities to acquire additional wireless communications systems
that complement its existing systems. The Company currently anticipates that it
will require approximately $225 million to complete the build-out of its PCS MTA
systems and to begin construction of the Seattle and Phoenix/Tucson BTA systems
and approximately $81 million for the acquisition of the D and E Block PCS
licenses for which it was the high bidder in the FCC auctions that concluded in
1997. In addition, further funds will be required to finance the continued
growth of its cellular and PCS operations (which may be significant), provide
for working capital, and service debt. The Company will utilize cash on hand and
amounts available for borrowing under the Senior Secured Facilities for such
purposes. At December 31, 1996, the amounts available for borrowings under the
Credit Facility and the NORTEL Facility were $166.6 million and $23.7 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 the
reauction of MTAs or BTAs by the FCC, the Company may require additional funding
to implement its business strategy. The Company continues to consider additional
sources of funding to meet those potential needs which may include the issuance
of additional indebtedness or the sale of additional equity. There can be no
assurance that the Company will be able to obtain such financing on acceptable
or favorable terms and in adequate amounts to accomplish its objectives.
13
<PAGE> 14
The Senior Secured Facilities, the 2006 Notes Indenture and the 2007 Notes
Indenture contain, and any additional financing agreements may contain, certain
restrictive covenants. The Senior Secured Facilities, the 2006 Notes Indenture
and the 2007 Notes 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, the 2006
Notes Indenture and the 2007 Notes 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,
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).
Each of the 2006 Notes Indenture and the 2007 Notes 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,"
"Description of Senior Subordinated Notes Due 2006" and "Description of Senior
Subordinated Notes Due 2007" for a more detailed description of the restrictive
covenants and other terms of the Senior Secured Facilities, the 2006 Notes
Indenture, and the 2007 Notes Indenture. An event of default under the Senior
Secured Facilities, the 2006 Notes Indenture, or the 2007 Notes Indenture would
allow the acceleration of the maturities of the indebtedness thereunder. In such
event, it is likely that all of the Company's indebtedness 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 Due 2006," "Description of
Senior Subordinated Notes Due 2007" 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. 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,"
"Principal Shareholders" and "Certain Transactions."
The Company sustained operating losses of approximately $86.9 million
(including $81.8 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), and $23.6 million for the years ended December 31,
1996, 1995 and 1994, respectively. At December 31, 1996, the Company had an
accumulated deficit of $214.2 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
14
<PAGE> 15
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, 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. The Company's PCS business in
markets in which it operates faces competition from providers of cellular
service and from other providers of PCS services as they enter such 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 AirTouch
Cellular Communications, Inc. ("AirTouch"), Aliant Communications, Inc.
("Aliant"), CommNet Cellular, Inc. ("CommNet"), Kansas Cellular, Southwestern
Bell Mobile Systems ("Southwestern Bell") and United States Cellular Corporation
("US Cellular"), 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, Inc. ("AT&T Wireless"), as well as the two existing cellular providers
in its PCS markets. These cellular competitors include AT&T Wireless, US
Cellular and U S WEST Media Group. 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.
15
<PAGE> 16
The Company, together with the other MTA and BTA PCS licensees who have
announced their intent to deploy GSM-based systems, collectively will cover
markets containing approximately 260 million persons, representing approximately
98% of the U.S. population. PCS licensees in several markets adjacent to the
Company's PCS markets, including California, Minnesota, Missouri and 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. There can be no assurance that PCS
licensees who have announced their intent to deploy GSM-based systems will build
out their respective markets, and, accordingly, GSM-based systems may cover less
than 98% of the U.S. population. 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 estimated
that together, CDMA-based PCS providers, including competitors in several of the
Company's markets, own licenses covering approximately 100% 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 93% 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 completed C, D, E & F Block auctions of PCS licenses may or may not
select GSM technology; certain purchasers of licenses in such auctions 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. Although the Company has been advised by the
manufacturers of dual-mode handsets that handsets allowing a user to access both
GSM networks and analog cellular networks will be commercially available in
sufficient quantities by 1998, 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 will be 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."
16
<PAGE> 17
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 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 currently uses its VoiceStream registered service mark to
market its PCS services in all of its PCS markets. There can be no assurance
that such registration 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 December 31, 1996, the total outstanding
indebtedness of the Company's subsidiaries not eliminated in the Company's
consolidated financial statements was approximately $143.0 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 Due 2006" and "Description of Senior
Subordinated Notes Due 2007."
PCS BUILD-OUT AND CAPITAL EXPENDITURES
The Company currently operates PCS systems in the Honolulu, Salt Lake City,
El Paso/Albuquerque, Portland, Oklahoma City and Des Moines/Quad Cities MTAs,
and is in the construction phase of the initial build-out of its Denver MTA PCS
system, which is expected to be operational in the second quarter of 1997. The
Company's 30 MHz 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
17
<PAGE> 18
from the grant of the license (the "10-Year Build-out Requirement"). In each of
the Honolulu, Salt Lake City, El Paso/Albuquerque, Portland, Oklahoma City, and
Des Moines/Quad Cities MTAs, the Company currently has sufficient coverage to
satisfy the Five-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. The Company's 10
MHz PCS licenses are subject to a requirement that the Company construct network
facilities that offer coverage to at least one-quarter of the population in
their relevant BTA within five years of being licensed, or make a showing of
substantial service in their relevant BTA within five years of being licensed.
Should the Company fail to meet these coverage requirements, it may be subject
to forfeiture or nonrenewal 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 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 currently anticipates that it will require approximately $225
million to complete the build-out of its PCS MTA systems and to begin
construction of the Seattle and Phoenix/Tucson BTA systems and approximately $81
million for the acquisition of the D and E Block PCS licenses for which it was
the high bidder in the FCC auctions that concluded in 1997. In addition, further
funds will be required to finance the continued growth of its cellular and PCS
operations (which may be significant), provide for working capital, and service
debt. The Company will utilize cash on hand and amounts available for borrowing
under the Credit Facility and the NORTEL Facility for such purposes. The
build-out of the Company's PCS systems will require substantial additional funds
and the capital cost of completing the project in any particular MTA or BTA 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, Nokia Telecommunications Inc. and Lucent
Technologies Inc. ("Lucent Technologies"). 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 is higher than its cost of cellular
handsets. In order to compete effectively with sellers of analog cellular
handsets, the Company is subsidizing the sale
18
<PAGE> 19
of its PCS 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 ten 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 and BTAs. 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 (i) a transition plan to
relocate such microwave operators to other spectrum blocks and (ii) a cost
sharing plan so that if the relocation of an incumbent benefits more than one
PCS licensee, the benefitting PCS licensees will share the costs of the
relocation. In the case of A and B Block PCS license holders, 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 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. The transition and cost sharing plans expire on April 4, 2005 for A and
B Block licenses, at which time remaining incumbents in the PCS spectrum will be
responsible for their costs to relocate to alternate spectrum locations. The FCC
has shortened the voluntary negotiation period to one year (for non-public
safety entities) for all Blocks other than A and B. 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 135
microwave links. Through December 31, 1996, the Company has relocated or reached
agreement to relocate 110 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. The FCC is
currently conducting an auction of spectrum in other frequency bands (for
"Wireless Communication Service") which could potentially be used for wireless
communications and PCS-like services, although the FCC has indicated that
interference problems may be insurmountable for mobile applications. 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. Four of the Company's
cellular licenses 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.
19
<PAGE> 20
All PCS licenses are 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."
Because the Company has controlling interests in cellular markets that
overlap the Denver MTA, the Company must comply with FCC rules that limit the
aggregate amount of cellular and PCS spectrum that a single entity may own or
control in a given territory. Current rules would require divestiture of certain
cellular or PCS holdings. However, pending administrative challenges may result
in additional compliance options.
The wireless communications industry also is subject to continually
evolving regulation. There are a number of issues on which modification to
existing regulation or new 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 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. On August 1, 1996, the FCC updated the guidelines
and methods it uses for evaluating RF emissions from radio equipment, including
wireless handsets. While the update imposes 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. Petitions
for reconsideration of rules and requests to stay the effective date of the
rules are pending.
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
20
<PAGE> 21
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.
Currently, PCIA is conducting negotiations between representatives of persons
with disabilities and industry officials to decide on industry-wide standards of
compatibility. 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
All of the MTA PCS licenses, including those of the Company, and most of
the BTA PCS licenses auctioned under the C Block, have been awarded by the FCC
and the holders of the licenses are permitted to construct their PCS systems and
commence operations. The Orders granting the Company the A and B Block licenses
and Cook Inlet PCS the C Block licenses are final and non-appealable.
Nevertheless, there are certain unresolved actions before the FCC following
remand by a federal court challenging the validity of certain spectrum
aggregation limits which affected eligibility for the auction. 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. In addition, all licenses
which were the subject of the D, E and F Block auctions are subject to
completion of acquisition requirements and FCC grant. See
"Business -- Governmental Regulation."
CONTROL BY MANAGEMENT AND EXISTING SHAREHOLDERS; ANTI-TAKEOVER EFFECT OF DUAL
CLASSES OF
COMMON STOCK; CERTAIN CHARTER PROVISIONS AND WASHINGTON LAW
Holders of Class A Common Stock are entitled to one vote per share and
holders of Class B Common Stock are entitled to ten votes per share. Each share
of Class B Common Stock is convertible at any time into one share of Class A
Common Stock. John W. Stanton and Theresa E. Gillespie, the Company's Chairman
and Chief Executive Officer, and Senior Vice President, respectively, and
certain other holders of shares of Class B Common Stock who are parties to an
agreement (the "Shareholders Agreement"), beneficially own 65,000 shares of
outstanding Class A Common Stock and 47,357,416 shares of outstanding Class B
Common Stock, which represent approximately 67.7% of the outstanding shares of
Common Stock and 83.6% of the combined voting power of the Common Stock. These
shareholders have agreed to vote their shares for each other's designees,
subject to certain ownership requirements, and are able to control the election
of the entire Board of Directors. Such voting control by such holders of Common
Stock, and certain provisions of Washington law affecting acquisitions and
business combinations, which have been incorporated by the Company into its
Articles of Incorporation, may discourage certain transactions involving an
actual or potential change of control of the Company, including transactions in
which the holders of Class A Common Stock might receive a premium for their
shares over the then-prevailing market price, and may have a depressive effect
on the market price for Class A Common Stock. See "Principal Shareholders,"
"Certain Transactions" and "Description of Capital Stock."
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
21
<PAGE> 22
$180,000 per year (which base compensation has been subsequently adjusted by the
Board of Directors to $190,000 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 ASSURANCE OF PUBLIC MARKET FOR THE CLASS A COMMON STOCK; POSSIBLE VOLATILITY
OF PRICE OF CLASS A COMMON STOCK
Prior to the Company's public offering of Class A Common Stock in May 1996,
there was no public market for the Company's Common Stock. Although the Class A
Common Stock is quoted on The Nasdaq National Market, there is no guarantee that
a significant or active public market for the Class A Common Stock can be
sustained. The market price of the Class A Common Stock may be extremely
volatile. Factors such as fluctuations in the valuation of wireless licenses,
results of current and future FCC auctions, acquisitions by the Company,
significant announcements by the Company and its competitors, quarterly
fluctuations in the Company's operating results and general conditions in the
communications market may have a significant impact on the market price of the
Class A Common Stock. In addition, in recent years the stock market has
experienced extreme price and volume fluctuations. These fluctuations have had a
substantial effect on the market prices for many high technology and
communications companies, often unrelated to the operating performance of the
specific companies. The underwriters of the Company's initial public offering of
Class A Common Stock have informed the Company that, subject to applicable laws
and regulations, they intend to make a market in the Class A Common Stock. They
are not obligated to do so, however,
22
<PAGE> 23
and any such market-making may be discontinued at any time without notice.
Moreover, because of the affiliation of Goldman, Sachs & Co. with the Company,
Goldman, Sachs & Co. is required to deliver a current prospectus and otherwise
comply with the requirements of the Securities Act in connection with any
secondary market sale of the Class A Common Stock, which may affect their
ability to continue market-making activities. See "Plan of Distribution."
NO ASSURANCE OF PUBLIC MARKET FOR THE SENIOR SUBORDINATED NOTES; POSSIBLE
VOLATILITY OF PRICE OF SENIOR SUBORDINATED NOTES
The Company has not applied, and does not intend to apply, for listing of
the 2006 Notes or the 2007 Notes on any securities exchange or for the inclusion
of the 2006 Notes or the 2007 Notes in any automated quotation system. Although
the underwriters and the purchasers in the initial offerings of the 2006 Notes
and the 2007 Notes, respectively, have informed the Company that, subject to
applicable laws and regulations, they intend to make a market in the 2006 Notes
and the Exchange Notes, respectively, they are not obligated to do so and any
such market-making activities may be discontinued at any time without notice.
Moreover, because of the affiliation of Goldman, Sachs & Co. with the Company,
Goldman, Sachs & Co. is required to deliver a current prospectus and otherwise
comply with the requirements of the Securities Act in connection with any
secondary market sale of the 2006 Notes or the Exchange Notes, which may affect
their ability to continue market-making activities. See "Plan of Distribution."
Accordingly, there can be no assurance as to the liquidity of any trading market
for the 2006 Notes or the Exchange Notes or the ability of holders to sell their
2006 Notes or Exchange Notes or the price at which such holders may be able to
sell their 2006 Notes or their Exchange Notes. The 2006 Notes and the Exchange
Notes could trade at prices that may be higher or lower than their initial
offering price depending upon many factors, including prevailing interest rates,
the Company's operating results and the markets for similar securities.
Historically, the market for non-investment grade debt has been subject to
disruptions that have caused substantial volatility in the prices of securities
similar to the 2006 Notes and the Exchange Notes. There can be no assurance that
the trading markets for the 2006 Notes and the Exchange Notes will not be
subject to similar disruptions.
SHARES ELIGIBLE FOR FUTURE SALE
Sales of substantial amounts of Class A Common Stock in the public market
could adversely affect prevailing market prices. Shares sold in the public
offerings of Class A Common Stock are freely tradeable in the public market.
Shares of Class B Common Stock are convertible at any time into shares of Class
A Common Stock on a one-for-one basis and such shares generally convert
automatically into Class A Common Stock upon a transfer. In addition to the
shares of Class A Common Stock sold by the Company and the Selling Shareholders
in the public offerings of Class A Common Stock and by certain shareholders
pursuant to Rule 144 or Rule 701, 55,198,604 additional outstanding shares of
Class A Common Stock (assuming the conversion of Class B Common Stock into Class
A Common Stock on a one-for-one basis) are eligible for sale in the public
market. Also, up to an aggregate of 5,849,297 shares of Class A Common Stock,
including an aggregate of 3,050,548 shares of Class B Common Stock (assuming the
conversion of Class B Common Stock into Class A Common Stock on a one-for-one
basis), and 922,000 Shares of Class A Common Stock, issuable upon exercise of
outstanding stock options ("Option Shares"), and up to an aggregate of 1,000,000
shares of Class A Common Stock purchased under the Company's Employee Stock
Purchase Plan have been registered by the Company and are eligible for resale in
the public market at various times, depending upon when such shares are actually
issued, if at all. 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, and 8,860 shares of Class A Common Stock
(based on the fair value of the stock of Western Wireless International
Corporation ("Western International") on the date hereof is salable under an
agreement with the President of Western International (the "Horwitz Agreement").
In addition, up to an aggregate of 500,000 shares of Class A Common Stock issued
under the Company's Executive
23
<PAGE> 24
Restricted Stock Plan may become eligible for resale in the public market at
various times, depending upon when related vesting requirements are satisfied,
if at all, and whether such shares are registered for resale under the
Securities Act or whether and when such shares are subject to the resale
provisions of Rule 144 or Rule 701 under the Securities Act. See "Description of
Capital Stock" and "Shares Eligible for Future Sale."
The Company has registered all of the Option Shares and the shares issuable
under the Employee Stock Pension Plan for resale in the public market. Options
with respect to 1,766,912 of the Options Shares are currently exercisable, and
1,360,837 additional shares of Class A Common Stock are reserved for issuance
pursuant to future option grants under the Company's stock option plan. See
"Management -- Executive Compensation," "Principal Shareholders" and "Shares
Eligible for Future Sale."
ABSENCE OF DIVIDENDS
The Company has never paid dividends on any of its Common Stock, including
its Class A Common Stock, and does not anticipate paying any such dividends in
the foreseeable future. In addition, the Senior Secured Facilities, the 2006
Notes Indenture and the 2007 Notes Indenture contain restrictions on the
Company's ability to declare and pay dividends on any of its Common Stock,
including its Class A Common Stock. See "Description of Indebtedness,"
"Description of Senior Subordinated Notes Due 2006," "Description of Senior
Subordinated Notes Due 2007" and "Dividend Policy."
FORWARD-LOOKING STATEMENTS
Statements contained in this Prospectus that are not based on historical
fact, including without limitation statements containing the words "believes,"
"may," "will," "estimate," "continue," "anticipates," "intends," "expects" and
words of similar import, constitute "forward-looking statements" within the
meaning of the Private Securities Litigation Reform Act of 1995. Such
forward-looking statements involve known and unknown risks, uncertainties and
other factors that may cause the actual results, events or developments to be
materially different from any future results, events or developments expressed
or implied by such forward-looking statements. Such factors include, among
others, the following: general economic and business conditions, both nationally
and in the regions in which the Company operates; technology changes;
competition; changes in business strategy or development plans; the high
leverage of the Company; the ability to attract and retain qualified personnel;
existing governmental regulations and changes in, or the failure to comply with,
governmental regulations; liability and other claims asserted against the
Company; and other factors referenced in this Prospectus, including without
limitation under the captions "Prospectus Summary," "Risk Factors,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Business." GIVEN THESE UNCERTAINTIES, PROSPECTIVE INVESTORS ARE
CAUTIONED NOT TO PLACE UNDUE RELIANCE ON SUCH FORWARD-LOOKING STATEMENTS. The
Company disclaims any obligation to update any such factors or to publicly
announce the result of any revisions to any of the forward-looking statements
contained herein to reflect future results, events or developments.
24
<PAGE> 25
THE COMPANY
Western Wireless provides wireless communications services in the western
United States. The Company owns, or has been the high bidder in recently
concluded auctions of the FCC on, an aggregate of 182 cellular and PCS licenses
for a geographic area covering approximately 63.9 million persons. In addition,
Western Wireless has a 49.9 percent interest in Cook Inlet PCS, which owns, or
has been the high bidder in the recently concluded FCC auctions on, 21 PCS
licenses covering approximately 12.7 million persons. Western Wireless combined
cellular and PCS licenses, together with the Cook Inlet PCS licenses, cover
approximately 59% of the land in the continental United States. In its cellular
and PCS markets, the Company served 359,700 subscribers at December 31,1996.
The Company operates its cellular systems under the CELLULAR ONE brand name
and operates its PCS markets under its proprietary VoiceStream brand name. It
owns and operates cellular systems in 59 RSAs and 16 MSAs with an aggregate
population of approximately 6.1 million persons. The Company holds or was the
high bidder on 7 MTA broadband PCS licenses and 100 BTA broadband PCS licenses
covering approximately 62.8 million persons. The Company currently offers PCS
service in six MTAs -- Honolulu, Salt Lake City, EI Paso/Albuquerque, Portland,
Oklahoma City, Des Moines/Quad Cities -- and expects to begin offering service
in the Denver MTA during the second quarter of 1997. During 1997, the Company
expects to begin design and construction in the Seattle and Phoenix/Tucson BTAs.
Each of the Company's operational PCS systems are utilizing GSM technology as
the network standard. GSM is the leading digital wireless standard worldwide,
with systems operating in approximately 110 countries and serving over 30
million subscribers, including systems operational in the United States.
In addition, Western Wireless is engaged in activities related to its
principal wireless communications business. The Company has acquired interests
in entities which have made wireless license applications in certain foreign
countries, including joint ventures which have obtained GSM cellular licenses in
the Republics of Latvia, Georgia and Ghana. During 1997, one such joint venture
commenced operations in the Republic of Latvia. The joint ventures in the
Republics of Georgia and Ghana have not yet commenced operations. In addition,
since their acquisition in February 1996, the Company has operated paging
systems in eight western states and currently serves approximately 29,000
customers.
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.
USE OF PROCEEDS
The Company will not receive any of the proceeds from market-making
transactions.
DIVIDEND POLICY
The Company has never paid dividends on any of its common stock, including
the Class A Common Stock, and does not anticipate paying any dividends on any of
its common stock, including the Class A Common Stock, in the foreseeable future.
The Company's Senior Secured Facilities, the 2006 Notes Indenture and the 2007
Notes Indenture contain certain restrictions on the Company's ability to declare
and pay dividends on the Common Stock. See "Description of Senior Subordinated
Notes Due 2006 -- Covenants," "Description of Senior Subordinated Notes Due
2007 -- Covenants" and "Description of Indebtedness." The declaration and
payment of dividends by the Company are subject to the discretion of the Board
of Directors. Any determination as to the payment of dividends in the future
will depend upon results of operations, capital requirements, restrictions in
loan agreements, if any, and such other factors as the Board of Directors may
deem relevant.
25
<PAGE> 26
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 four years in the
period ended December 31, 1996, 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 and for the nine months ended December 31, 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. 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. 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, 1994. 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.
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED DECEMBER 31, ENDED
----------------------------------------------------------- DECEMBER 31,
1996 1995 1994 1993 1992
----------- ----------- ----------- ----------- ------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENTS OF
OPERATIONS DATA:
Revenues:
Subscriber revenues............................. $ 182,441 $ 105,430 $ 38,838 $ 11,105 $ 4,861
Roamer revenues................................. 34,065 29,660 16,746 7,285 4,468
Equipment sales and other revenue............... 26,579 11,465 7,524 2,344 1,208
----------- ----------- ----------- ----------- -----------
Total revenues................................ 243,085 146,555 63,108 20,734 10,537
----------- ----------- ----------- ----------- -----------
Operating Expenses:
Cost of service................................. 53,600 27,686 13,303 4,310 2,730
Cost of equipment sales......................... 46,305 20,705 11,446 3,533 1,818
General and administrative...................... 66,673 31,253 15,226 6,253 5,048
Sales and marketing............................. 83,652 41,390 18,553 6,101 3,074
Depreciation and amortization................... 79,741 49,456 25,670 5,399 3,746
Provision for restructuring costs............... 2,478
----------- ----------- ----------- ----------- -----------
Total operating expenses...................... 329,971 170,490 86,676 25,596 16,416
----------- ----------- ----------- ----------- -----------
Operating loss.................................... (86,886) (23,935) (23,568) (4,862) (5,879)
----------- ----------- ----------- ----------- -----------
Other income (expense):
Interest and financing expense, net............. (44,690) (25,428) (10,659) (2,242) (1,666)
Gain (loss) on dispositions, net................ (573) 6,202 10,102 1,876
Other, net...................................... 1,471 627 2,065 331 130
----------- ----------- ----------- ----------- -----------
Income (loss) before extraordinary item........... (130,105) (49,309) (25,960) 3,329 (5,539)
Extraordinary item................................ (6,645)
----------- ----------- ----------- ----------- -----------
Net income (loss)............................... $ (130,105) $ (55,954) $ (25,960) $ 3,329 $ (5,539)
=========== =========== =========== =========== ===========
Share data (1):
Income (loss) per common share before
extraordinary item............................ $ (2.00) $ (0.87) $ (0.59) $ 0.10 $ (0.22)
Per common share effect of extraordinary item... (0.12)
----------- ----------- ----------- ----------- -----------
Net income (loss) per common share................ $ (2.00) $ (0.99) $ (0.59) $ 0.10 $ (0.22)
=========== =========== =========== =========== ===========
Weighted average common shares and common
equivalent shares outstanding................... 65,196,000 56,470,000 43,949,000 32,253,000 25,665,000
=========== =========== =========== =========== ===========
</TABLE>
26
<PAGE> 27
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------------------------------------
1996 1995 1994 1993 1992
---------- --------- -------- -------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEETS DATA:
Current assets............................................ $ 149,790 $ 37,508 $ 36,769 $ 14,686 $ 8,098
Property and equipment, net............................... 538,617 193,692 120,648 48,591 27,528
Licensing and other intangible, assets net................ 540,482 417,971 211,309 86,270 43,873
Other assets.............................................. 12,814 9,857 1,468 6,219 5,522
---------- --------- -------- -------- --------
Total assets............................................ $1,241,703 $ 659,028 $370,194 $155,766 $ 85,021
========== ========= ======== ======== ========
Current liabilities ...................................... $ 144,454 $ 55,936 $ 39,214 $ 16,447 $ 5,806
Total long-term debt, net of current portion.............. 743,000 362,487 200,587 53,430 14,893
Minority interests in equity of consolidated subsidiary... 3,376
Shareholders' equity...................................... 354,249 240,605 127,017 85,889 64,322
---------- --------- -------- -------- --------
Total liabilities and shareholders' equity.............. $1,241,703 $ 659,028 $370,194 $155,766 $ 85,021
========== ========= ======== ======== ========
OTHER DATA:
Cellular subscribers...................................... 324,200 209,500 112,800 30,000 13,700
PCS subscribers........................................... 35,500
EBITDA (2)................................................ $ (7,145) $ 25,521 $ 2,102 $ 537 $ (2,133)
Ratio of earnings to fixed charges (3).................... * * * 2.22 *
CASH FLOWS PROVIDED BY (USED IN):
Operating activities.................................... $ (61,333) $ (745) $ (998) $ (255) $ (1,490)
Investing activities ................................... $ (489,086) $(293,579) $(70,190) $(32,535) $(13,159)
Financing activities.................................... $ 596,732 $ 295,109 $(70,777) $ 36,212 $ 16,552
</TABLE>
- ---------------
(1) As required by the Commission, 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 loss per share as
if they had been outstanding for all periods presented, the effect of which
is anti-dilutive. The number of shares outstanding for periods subsequent to
May 22, 1996 has been calculated based on the requirements of Accounting
Principles Board ("APB") Opinion No. 15.
(2) EBITDA represents operating income (loss) from operations before
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 provisions for restructuring costs of $2.5
million. EBITDA before such provisions for restructuring costs would have
been $4.6 million.
(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 135.3 million, $49.7 million
and $26.0 million for the years ended December 31, 1996, 1995 and 1994,
respectively, and $5.5 million for the nine months ended December 31, 1992.
See "Risk Factors -- High Leverage; Debt Service; Restrictive Covenants."
27
<PAGE> 28
MARKET PRICES
The following table sets forth the high and low bid price of the Class A
Common Stock. Shares of Class A Common Stock are traded as "national market
securities" on The Nasdaq National Market under the symbol WWCA for the periods
indicated. All quotations are as reported in published financial sources.
<TABLE>
<CAPTION>
CLASS A
COMMON STOCK(1)
---------------
<S> <C>
Calendar 1996
Second Quarter........................................... $25 1/2/$19 7/8
Third Quarter............................................ $22 1/8/$13 3/4
Fourth Quarter........................................... $18 1/8/$13
Calendar 1997
First Quarter............................................ $16 1/8/$12
</TABLE>
- ---------------
(1) Shares of Class A Common Stock began trading on May 22, 1996, the date of
the Company's initial public offering.
28
<PAGE> 29
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following is a discussion and analysis of the consolidated financial
condition and results of operations of the Company and should be read in
conjunction with the Company's consolidated financial statements and notes
thereto and other financial information included herein. As a result of
acquisitions, the Company's operating results for prior periods may not be
indicative of future performance.
OVERVIEW
The Company provides wireless communications services in the western United
States through the ownership and operation of cellular communications systems in
75 RSAs and MSAs. At December 31, 1996, the Company had acquired broadband PCS
licenses in seven MTAs. Through December 31, 1996, the Company has commenced
commercial operations in six of its PCS MTAs. In 1996, Cook Inlet PCS, a limited
partnership in which the Company holds a 49.9% partnership interest, acquired
broadband PCS licenses in 14 BTAs. These BTAs are not yet operational. During
1997, the Company was the high bidder on 100 additional PCS licenses in the FCC
D and E Block auctions. Cook Inlet PCS was the high bidder on 7 additional PCS
licenses in the FCC F Block auction during 1997.
The Company's revenues consist primarily 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 are included in other revenue and
account for less than 2% 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. As used herein, "service
revenues" include subscriber, roamer and other revenue.
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 centralized general and administrative costs, including customer
service, accounting and other centralized functions, benefit 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.
As used herein, "EBITDA" represents operating loss from operations before
depreciation and amortization. EBITDA is a measure commonly used in the industry
and should not be construed as an alternative to operating income (loss) as
determined in accordance with GAAP or as a measure of liquidity. Cellular EBITDA
represents EBITDA from the Company's cellular operations.
29
<PAGE> 30
The Company expects a decline in consolidated EBITDA as it develops,
constructs and operates its PCS systems and aggressively seeks 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
necessarily be indicative of future performance.
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 did not
commence operations until 1996, although the Company incurred start-up costs
beginning in the third quarter of 1995 in connection with such PCS operations.
RESULTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1996 COMPARED TO THE YEAR
ENDED DECEMBER 31, 1995
The Company had 324,200 cellular subscribers at December 31, 1996,
representing an increase of 114,700 or 54.7% during 1996. At December 31, 1995
the Company had 209,500 cellular subscribers representing an increase of 96,700
or 85.7% during 1995. In 1996 and 1995, the net number of subscribers added
through system acquisitions was approximately 4,900 and 3,300, respectively. The
Company had 35,500 PCS subscribers at December 31, 1996.
REVENUES
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------
1996 1995
-------------------- --------
CELLULAR PCS CELLULAR
-------- ------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Subscriber revenues....................................... $174,647 $ 7,794 $105,430
Roamer revenues........................................... 34,065 29,660
Equipment sales........................................... 12,595 9,745 11,465
Other revenue(1).......................................... 4,239
-------- ------- --------
Total revenues.................................. $225,546 $17,539 $146,555
======== ======= ========
</TABLE>
- ---------------
(1) Primarily revenue from paging services
Cellular subscriber revenues increased to $174.6 million in 1996 from
$105.4 million in 1995. This $69.2 million or 65.7% increase is primarily due to
the growth in the number of subscribers and a decrease in the average monthly
cellular subscriber revenue per subscriber. Average monthly cellular subscriber
revenue per subscriber, calculated as the average of the monthly averages, was
$54.96 in 1996 as compared to $57.25 in 1995. Historically, the Company has
experienced a relatively stable average monthly cellular subscriber revenue per
subscriber, but experienced a 4.0% decline in 1996 as compared to 1995. The
Company anticipates this downward trend to continue in 1997. Over the past few
years the cellular industry as a whole has also shown a decline in the average
monthly cellular subscriber revenue per subscriber.
PCS subscriber revenues in 1996 were $7.8 million. Average monthly PCS
subscriber revenue per subscriber was $62.85 in 1996. As the Company's PCS
operations only began generating revenue during 1996, these results are not
necessarily representative of future operations.
Roamer revenues were $34.1 million in 1996 compared to $29.7 million in
1995, an increase of $4.4 million or 14.9%. Growth in the Company's roamer
revenues generally reflects increases in
30
<PAGE> 31
roaming services provided due to the general subscriber growth in the industry
offset by the decline in rates charged by carriers between each other in the
industry. Roamer revenues as a percentage of total cellular revenues declined to
15.1% in 1996 from 20.3% in 1995. While the Company expects total roamer minutes
to continue to increase, further declines in the rates charged between carriers
may limit revenue growth in 1997.
Cellular equipment sales, which consist primarily of handset sales,
increased to $12.6 million in 1996 compared to $11.5 million in 1995. This $1.1
million or 9.9% increase is primarily due to the 18.6% increase in net
subscriber additions offset by a slight decrease in the average cellular handset
sales price. PCS equipment sales were $9.7 million in 1996 as a result of the
commencement of commercial operations in six of the Company's PCS MTAs. The
Company anticipates continued growth in equipment sales as a result of increases
in cellular and PCS subscriber additions and the commencement of commercial
operations in its remaining PCS markets.
Other revenue, which consists primarily of paging revenues, were $4.2
million in 1996 following the acquisition of paging operations in February 1996.
OPERATING EXPENSES
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------
1996 1995
-------------------- -------------------
CELLULAR(1) PCS CELLULAR PCS
-------- ------- -------- ------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Cost of service................................ $ 41,130 $12,470 $ 27,686
Cost of equipment sales........................ 25,516 20,789 20,705
General and administrative..................... 46,464 20,209 28,184 $3,069
Sales and marketing............................ 52,147 31,505 41,051 339
Depreciation and amortization.................. 65,346 14,395 49,187 269
-------- ------- -------- ------
Total operating expenses............. $230,603 $99,368 $166,813 $3,677
======== ======= ======== ======
</TABLE>
- ---------------
(1) Includes expenses attributable to paging services
CELLULAR OPERATING EXPENSES
Cost of cellular service increased to $41.1 million in 1996 from $27.7
million in 1995. This increase is primarily attributable to the increased number
of subscribers. While cost of service increased $13.4 million or 48.6%, it
decreased as a percentage of service revenues to 19.3% in 1996 from 20.5% in
1995 which is due primarily to efficiencies gained from the growing subscriber
base.
Cost of cellular equipment sales increased to $25.5 million in 1996 from
$20.7 million in 1995. This $4.8 million or 23.2% increase is due primarily to
the 18.6% increase in net subscriber additions in 1996 from 1995.
Cellular general and administrative costs increased to $46.5 million in
1996 from $28.2 million in 1995, an increase of $18.3 million or 64.9%. The
Company's general and administrative costs are principally considered to be
variable costs, that is costs that will vary with the level of subscribers. The
increase is primarily attributable to the increase in costs associated with
supporting the increased subscriber base. 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.
Cellular sales and marketing costs increased to $52.1 million in 1996 from
$41.1 million in 1995 primarily due to net subscriber additions. Sales and
marketing cost per gross subscriber added declined in 1996 from 1995. Although
the Company noted a decline in the rate of churn in 1996 from 1995, the growing
subscriber base resulted in a higher number of disconnected subscribers. This
31
<PAGE> 32
increase in the number of disconnected subscribers resulted in an increase in
the cost per net subscriber added in 1996 to $475 from $446 in 1995. Including
the losses on equipment sales, the cost per net subscriber added increased to
$593 in 1996 from $546 in 1995.
Cellular depreciation expense increased to $42.3 million in 1996 from $30.1
million in 1995. This increase of $12.2 million or 40.5%, is attributable to the
continued expansion of the Company's cellular systems. Cellular amortization
expense increased to $23.0 million in 1996 from $19.1 million in 1995. This $3.9
million or 20.4% increase is primarily attributable to an increase in gross
cellular licensing costs and other intangible assets to $365.9 million at
December 31, 1996 from $300.5 million at December 31, 1995.
PCS OPERATING EXPENSES
Total PCS operating expenses were $99.4 million in 1996. A portion of each
individual component of PCS operating expenses were start-up costs incurred
prior to the commencement of operations in each PCS system. Exclusive of
depreciation and amortization expense which was not material, approximately $17
million of start-up costs was incurred in 1996. As these costs are not
reflective of the annual operating costs to support a growing subscriber base,
the Company expects total PCS operating expenses to increase in 1997.
Accordingly, the PCS operating expenses are not representative of future
operations. Cost of service represents the expenses incurred by the six PCS
systems since they respectively began commercial operations during 1996.
Depreciation expense of $12.6 million and amortization expense of $1.8 million
in 1996 will increase in 1997 as none of the PCS systems were operational for an
entire year.
OPERATING LOSS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------------
1996 1995
------------------------ --------------------
CELLULAR(1) PCS CELLULAR PCS
----------- -------- -------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Operating loss............................... $(5,057) $(81,829) $(20,258) (3,677)
======= ======== ======== =======
</TABLE>
- ---------------
(1) Includes paging operations
Total operating loss increased to $86.9 million in 1996 from $23.9 million
in 1995 primarily as a result of the $81.8 million operating loss attributable
to PCS operations partially offset by the improved cellular operating loss.
OTHER INCOME (EXPENSE); EXTRAORDINARY LOSS; NET OPERATING LOSS
CARRYFORWARDS
Interest and financing expense, net of capitalized interest, increased to
$44.7 million in 1996 from $25.4 million in 1995. The increase of $19.3 million
or 75.8% is primarily attributable to an increase in long-term debt, which
increased to $743.0 million at December 31, 1996 from $362.5 million at December
31, 1995, incurred primarily to fund the Company's capital expenditures
associated with the build-out of the Company's PCS systems. Interest expense
will increase in 1997 as a result of increased borrowings the Company has
incurred, and will continue to incur, to fund its expansion. The weighted
average interest rate was 9.8% in 1996 and 9.2% in 1995.
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, 1996 net operating loss
carryforwards ("NOLs") of approximately $250 million, which will expire in the
years 2002 through 2011. 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
32
<PAGE> 33
limitations. Any amount of NOLs 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 NOLs of $233 million. Management
believes that, based on a number of factors, there is sufficient uncertainty
regarding the utilization of all of the Company's NOLs. See Note 8 of the
Company's Notes to the consolidated financial statements.
EBITDA
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------------
1996 1995
------------------------ -------------------
CELLULAR(1) PCS CELLULAR PCS
----------- -------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
EBITDA........................................ $60,289 $(67,434) $28,929 $(3,408)
======= ======== ======= =======
</TABLE>
- ---------------
(1) Includes paging operations
EBITDA declined to negative $7.1 million in 1996 from $25.5 million in 1995
primarily due to the negative $67.4 million EBITDA attributable to PCS
operations offset by an increase in cellular EBITDA. Cellular EBITDA increased
108% to $60.3 million in 1996 from $28.9 million in 1995 primarily as a result
of increased revenues due to the increased subscriber base and the related cost
efficiencies recognized. As a result, cellular operating margin (cellular EBITDA
as a percentage of cellular service revenues) increased to 28.3% in 1996 from
21.4% in 1995.
RESULTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1995 COMPARED TO THE 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.
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.
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
33
<PAGE> 34
Company's geographic 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.
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 due primarily to the increase in net subscriber additions (including
as a result of the Business Combination), offset by a slight decrease in the
average handset sales price.
OPERATING EXPENSES
As PCS operations had not yet commenced in 1995, all PCS operating expenses
reflect start-up costs that are not representative of future operating expenses.
All operating expenses discussed below are from cellular operations.
<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>
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 expanding 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 due primarily
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
attributable primarily 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.
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. 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 increased to $30.1 million in 1995 from $17.0 million
in 1994. This increase of $13.1 million or 77.1% 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.
34
<PAGE> 35
Provision for restructuring costs of $2.5 million in 1994 consists of costs
relating to the Business Combination, which relate primarily 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
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 attributable
primarily 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.
The $6.2 million gain on dispositions in 1994 represents nonrecurring gains
associated with the exchange or sale of certain cellular systems.
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.
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 in 1995 from $2.1 million in 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 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.
LIQUIDITY AND CAPITAL RESOURCES
The Company's initial public offering of common stock (the "Equity
Offering") became effective on May 22, 1996. Approximately 12.7 million shares
of common stock were sold to the public, of which approximately 10.7 million
shares were sold by the Company. The net proceeds to the Company of the Equity
Offering after the underwriting discount and other offering expenses, were
approximately $233.9 million. Simultaneously with the Equity Offering, the
Company sold $200 million of Senior Subordinated Notes Due 2006 (the "2006 Debt
Offering") on the public market.
35
<PAGE> 36
The net proceeds to the Company of the 2006 Debt Offering after the underwriting
discount and other offering expenses, were approximately $193 million. In
October 1996, the Company sold $200 million of Senior Subordinated Notes Due
2007 (the "2007 Debt Offering" and together with the Equity Offering and the
2006 Debt Offering are collectively known as the "Offerings") in a transaction
exempt from registration under the Securities Act of 1933. In December 1996, the
Company exchanged the unregistered notes issued under the 2007 Debt Offering for
notes which have been registered under the Securities Act of 1933. The net
proceeds to the Company from the 2007 Debt Offering after the underwriting
discount and other offering expenses, were approximately $194 million.
The Company has 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 entered into the NORTEL Facility with a consortium of
lenders. The NORTEL Facility was recently amended to increase the amount of the
facility from $200 million to $300 million. As of December 31, 1996, $200.0
million and $143.0 million were outstanding under the Credit Facility and the
NORTEL Facility, respectively, and the amounts available for borrowing under the
Credit Facility and the NORTEL Facility were $166.6 million and $23.7 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.
The Company currently anticipates that it will require approximately $225
million to complete the build-out of its PCS MTA systems and to begin
construction of the Seattle and Phoenix/Tucson BTA systems and approximately $81
million for the acquisition of the D and E Block PCS licenses for which it was
the high bidder in the recently concluded FCC auction in 1997. In addition,
further funds will be required to finance the continued growth of its cellular
and PCS operations (which may be significant), provide for working capital, and
service debt. The Company will utilize cash on hand and amounts available for
borrowing under the Credit Facility and the NORTEL Facility for such purposes.
While the Company believes such sources will be sufficient, to the extent that
the build-out of the PCS systems or other costs associated with the growth of
its business are greater than expected, the Company will need to seek additional
financing. The Company continues to consider additional sources of funding to
meet those potential needs which may include the issuance of additional
indebtedness or the sale of additional equity. There can be no assurance that
such funds will be available to the Company on acceptable or favorable terms.
The Company continues to evaluate acquisition opportunities, joint ventures
and other potential business transactions. Such transactions, if completed,
could require additional funds raised through the issuance of additional
indebtedness or the sale of additional equity. There can be no assurance that
such funds will be available to the Company on acceptable or favorable terms.
Net cash used in operating activities in 1996 was $61.3 million.
Adjustments to the $130.1 million net loss for such period to reconcile to net
cash used in operating activities primarily included $81.7 million of
depreciation and amortization (including the amortization of deferred financing
costs). Other adjustments included changes in operating assets and liabilities,
net of effects from consolidating acquired interests, consisting primarily of an
increase of $10.3 million in accounts receivable primarily as a result of the
increased subscriber base, an increase of $20.5 million in inventory as a result
of the purchase of PCS handsets, an increase of $11.0 million in prepaid
expenses and other current assets primarily as a result of escrow deposits made
in conjunction with international ventures and an increase of $19.6 million in
accrued liabilities as a result of the growth of the business. Net cash used in
operating activities was $0.7 million and $1.0 million in 1995 and 1994,
respectively.
Net cash used in investing activities was $489.1 million in 1996. Investing
activities for such period consisted primarily of purchases of wireless licenses
and other of $86.1 million of which $66.1 million was attributable to the
purchase of the Denver PCS MTA, purchases of property and equipment of $333.3
million of which $234.4 million was attributable to PCS capital expenditures,
36
<PAGE> 37
acquisitions of wireless properties, net of cash acquired, which used net cash
proceeds to the company of $40.2 million and net deposits made with the FCC of
$23.5 million. Net cash used in investing activities was $293.6 million and
$70.2 million in 1995 and 1994, respectively.
Net cash provided by financing activities was $596.7 million in 1996.
Financing activities for such period consisted primarily of additions to
long-term debt, which provided cash of $361.1 million net of $512.7 million in
repayments and $19.1 million in fees, and the issuance of stock, primarily under
the Equity Offering, which provided net cash proceeds to the Company of $235.6
million. Net cash provided by financing activities was $295.1 million and $70.8
million in 1995 and 1994, respectively.
The Company holds a 49.9% limited partnership interest in Cook Inlet PCS,
an entity which acquired licenses in 14 BTAs in the FCC C Block auctions and was
the high bidder on 7 BTA licenses in the F Block auction. Cook Inlet PCS is
subject to the FCC's build-out requirements and will require significant
additional amounts to complete the build-out of its PCS systems and to meet the
government debt service requirements on the C Block license purchase prices. The
potential sources of such additional funding include vendor loans, loans or
capital contributions by the partners of Cook Inlet PCS or other third party
financing. The Company funded the operations of Cook Inlet PCS during 1996 and
has agreed to enter into a loan agreement with Cook Inlet PCS whereby the
Company would agree to provide a $20 million revolver/term loan to Cook Inlet
PCS at an interest rate equal to the higher of fifteen percent or the London
Interbank Offer Rate ("LIBOR") plus 5%. At December 31, 1996, the Company had
advanced funds totaling $1.9 million to Cook Inlet PCS. These advances are due
in August 1997.
In the ordinary course of business, the Company continuously reviews
potential acquisition opportunities and has entered into various joint
development agreements with respect to international interests. Any such
prospective acquisitions would be financed with the borrowings under the Senior
Secured Facilities or additional financing, which may not be on terms favorable
to the Company.
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.
37
<PAGE> 38
BUSINESS
INTRODUCTION
Western Wireless provides wireless communications services in the western
United States. The Company owns, or has been the high bidder in recently
concluded auctions of the FCC on, an aggregate of 182 cellular and PCS licenses
for a geographic area covering approximately 63.9 million persons. In addition,
Western Wireless has a 49.9 percent interest in Cook Inlet PCS, which owns, or
has been the high bidder in the recently concluded FCC auctions on, 21 PCS
licenses covering approximately 12.7 million persons. Western Wireless combined
cellular and PCS licenses, together with the Cook Inlet PCS licenses, cover
approximately 59% of the land in the continental United States. In its cellular
and PCS markets, the Company served 359,700 subscribers at December 31, 1996.
The Company operates its cellular systems under the CELLULAR ONE brand name
and operates its PCS markets under its proprietary VoiceStream brand name. It
owns and operates cellular systems in 59 RSAs and 16 MSAs with an aggregate
population of approximately 6.1 million persons. The Company holds or was the
high bidder on 7 MTA broadband PCS licenses and 100 BTA broadband PCS licenses
covering approximately 62.8 million persons. The Company currently offers PCS
service in six MTAs -- Honolulu, Salt Lake City, EI Paso/Albuquerque, Portland,
Oklahoma City, Des Moines/Quad Cities -- and expects to begin offering service
in the Denver MTA during the second quarter of 1997. During 1997, the Company
expects to begin design and construction in the Seattle and Phoenix/Tucson BTAs.
Each of the Company's operational PCS systems are utilizing GSM technology as
the network standard. GSM is the leading digital wireless standard worldwide,
with systems operating in approximately 110 countries and serving over 30
million subscribers, including systems operational in the United States.
In addition, Western Wireless is engaged in activities related to its
principal wireless communications business. The Company has acquired interests
in entities which have made wireless license applications in certain foreign
countries, including joint ventures which have obtained GSM cellular licenses in
the Republics of Latvia, Georgia and Ghana. During 1997, one such joint venture
commenced operations in the Republic of Latvia. The joint ventures in the
Republics of Georgia and Ghana have not yet commenced operations. In addition,
since their acquisition in February 1996, the Company has operated paging
systems in eight western states and currently serves approximately 29,000
customers.
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 assets of MCLP. Accordingly, all
financial data relating to the Company herein with respect to periods after the
date of the Business Combination reflect the 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.
STRATEGY
Historically, the Company has focused on the acquisition and operation of
cellular communications systems in RSAs and small MSAs in the western United
States. The Company's 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 has been, and will continue to be, to commence operations in the most
densely populated areas within its PCS systems. The Company believes that
cellular is the optimum technology for rural, less densely populated areas
because they are less susceptible to competition and have a greater capacity for
future growth than most major markets, and that PCS is the optimum
38
<PAGE> 39
technology for more densely populated urban areas where analog cellular systems
are more expensive to deploy and face potential capacity constraints. The
Company has entered markets at a relatively low cost, having purchased cellular
licenses for an average of $45.68 per pop overall. The Company's PCS MTA
licenses were purchased at an average of $10.81 per pop and the PCS BTA licenses
were purchased at an average of $3.13 per pop, including the Company's ownership
percentage in Cook Inlet PCS's licenses.
The Company's operating strategy has been to (i) achieve a critical
time-to-market advantage by rapidly constructing and commencing operations of
PCS systems in urban areas within selected 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 continuing to build its PCS systems, offer a
wide range of products and services at competitive prices, continually upgrade
the quality of its network, establish strong brand recognition, create a strong
sales and marketing program tailored to local markets and provide a superior
level of customer service.
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.
Since its introduction in 1983, wireless service has grown dramatically. As
of December 31, 1996, according to Cellular Telecommunications Industry
Association ("CTIA"), there were over 44.0 million wireless subscribers in the
United States, representing a penetration rate of 17.0% and a growth rate of
30.4% from December 31, 1995.
39
<PAGE> 40
The following chart illustrates the annual growth in United States wireless
subscribers through December 31, 1996:
U.S. WIRELESS SUBSCRIBERS
<TABLE>
<S> <C> <C> <C> <C>
1984 .2
1985 .34
1986 .68
1987 1.23
1988 2
1989 4
1990 5
1991 8
1992 11
1993 16
1994 24
1995 34
1996 44
</TABLE>
Source: Cellular Telecommunications Industry Association
The following table sets forth certain domestic wireless industry
statistics derived from the data survey results published semi-annually by CTIA:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------
1992 1993 1994 1995 1996
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
WIRELESS INDUSTRY STATISTICS
Total Service Revenues (in billions)....... $ 7.8 $ 10.9 $ 14.2 $ 19.0 $ 23.6
Ending Wireless Subscribers (in
millions)................................ 11.0 16.0 24.1 33.8 44.0
Subscriber Growth.......................... 46.0% 45.1% 50.8% 40.0% 30.4%
Average Monthly Service Revenue per
Subscriber............................... $70.13 $67.13 $59.08 $54.90 $50.61
Average Monthly Subscriber Revenue per
Subscriber............................... $61.40 $58.74 $51.48 $47.59 $44.66
Ending Penetration......................... 4.4% 6.2% 9.4% 13.0% 17.0%
</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 the wireless communications industry, there are two principal services
licensed by the FCC for transmitting voice and data signals, "cellular services"
and "PCS." 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 830-870 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
40
<PAGE> 41
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). PCS spectrum was auctioned by the FCC beginning
with the A and B Blocks, which were auctioned by the FCC in late 1994 and 1995.
In late 1995 and in 1996 the C Block was auctioned and the FCC has recently
concluded simultaneous auctions of the D, E and F Blocks. 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
that 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. In addition, wireless providers may 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.
The Company, and the wireless communications industry in general, have
historically experienced significant subscriber growth during the fourth
calendar quarter. The Company has historically experienced highest usage and
revenue per subscriber during the summer months. The Company expects these
trends to continue.
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
41
<PAGE> 42
traveling through their service areas. Agreements among system operators provide
that the carrier that normally provides services to the roaming subscriber pays
the serving carrier at rates prescribed by the serving carrier.
Although PCS and cellular systems utilize similar technologies and
hardware, they operate on different frequencies and use different technical and
network standards. As a result, and as discussed further below, it currently is
not 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 will also be true for PCS subscribers seeking to roam in
a PCS service area served by operators using different technical standards.
PCS systems will 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 is currently 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 will be
more expensive than single-mode handsets.
CELLULAR OPERATIONS
The Company operates cellular systems in 59 RSAs and 16 smaller MSAs, and
generally owns 100% of each of its cellular licenses. In these rural and small
urban markets, the Company's cellular systems cover large geographic areas with
relatively few Cell Sites, incorporating cost efficient technology.
The Company's experience is that several inherent attributes of RSAs and
small MSAs make such markets attractive. Such attributes include high subscriber
growth rates, population bases of customers with substantial needs for wireless
communications, the ability to cover larger geographic areas with fewer Cell
Sites than is possible in urban areas, less intense competitive environments and
less vulnerability to PCS competition.
42
<PAGE> 43
CELLULAR MARKETS AND SYSTEMS
The Company owns FCC licenses to provide wireless cellular communications
services in 75 separate markets. The Company's pops by cellular market are as
follows:
<TABLE>
<CAPTION>
OWNERSHIP THE COMPANY'S
CELLULAR MARKETS(1) POPULATION(2) PERCENTAGE POPULATION(2)
- -------------------------------------------------- ------------- ---------- -------------
<S> <C> <C> <C>
California
Mono (CA-8)....................................... 30,000 100 30,000
--------- ---------
California Total................................ 30,000 30,000
--------- ---------
Colorado
Pueblo............................................ 127,000 100 127,000
Elbert (CO-5)..................................... 28,000 100 28,000
Saguache (CO-7)................................... 46,000 100 46,000
Kiowa (CO-8)...................................... 44,000 100 44,000
Costilla (CO-9)................................... 27,000 100 27,000
--------- ---------
Colorado Total.................................. 272,000 272,000
--------- ---------
Idaho
Idaho (ID-2)(3)................................... 78,000 100 78,000
--------- ---------
Idaho Total..................................... 78,000 78,000
--------- ---------
Iowa
Sioux City........................................ 119,000 100 119,000
Monona (IA-8)..................................... 54,000 100 54,000
--------- ---------
Iowa Total...................................... 173,000 173,000
--------- ---------
Kansas
Jewell (KS-3)..................................... 50,000 100 50,000
Marshall (KS-4)................................... 145,000 100 145,000
Elisworth (KS-8).................................. 129,000 100 129,000
Morris (KS-9)..................................... 57,000 100 57,000
Franklin (KS-10).................................. 107,000 100 107,000
Reno (KS-14)...................................... 170,000 100 170,000
--------- ---------
Kansas Total.................................... 658,000 658,000
--------- ---------
Minnesota
Kittson (MN-1).................................... 50,000 100 50,000
Lake of the Woods (MN-2-A1)....................... 25,000 100 25,000
--------- ---------
Minnesota Total................................. 75,000 75,000
--------- ---------
Missouri
Bates (MO-9)...................................... 75,000 100 75,000
--------- ---------
Missouri Total.................................. 75,000 75,000
--------- ---------
Montana
Billings.......................................... 133,000 97 129,000
Great Falls....................................... 83,000 100 83,000
Lincoln (MT-1).................................... 151,000 100 151,000
Toole (MT-2)...................................... 39,000 100 39,000
Malta (MT-3)...................................... 15,000 49 7,000
Daniels (MT-4).................................... 39,000 100 39,000
Mineral (MT-5).................................... 196,000 100 196,000
Deer Lodge (MT-6)................................. 65,000 100 65,000
Fergus (MT-7)..................................... 29,000 100 29,000
Beaverhead (MT-8)................................. 96,000 100 96,000
Carbon (MT-9)..................................... 34,000 100 34,000
Prairie (MT-10)................................... 20,000 100 20,000
--------- ---------
Montana Total................................... 900,000 888,000
--------- ---------
</TABLE>
43
<PAGE> 44
<TABLE>
<CAPTION>
OWNERSHIP THE COMPANY'S
CELLULAR MARKETS(1) POPULATION(2) PERCENTAGE POPULATION(2)
- -------------------------------------------------- ------------- ---------- -------------
<S> <C> <C> <C>
Nevada
Humbolt (NV-1).................................... 46,000 100 46,000
Lander (NV-2)..................................... 59,000 100 59,000
Mineral (NV-4).................................... 30,000 100 30,000
White Pine (NV-5)................................. 15,000 100 15,000
--------- ---------
Nevada Total.................................... 150,000 150,000
--------- ---------
New Mexico
Lincoln (NM-6).................................... 240,000 100 240,000
--------- ---------
New Mexico Total................................ 240,000 240,000
--------- ---------
North Dakota
Bismarck.......................................... 89,000 99 88,000
Fargo............................................. 167,000 100 167,000
Grand Forks....................................... 105,000 100 105,000
Divide (ND-1)..................................... 101,000 100 101,000
Bottineau (ND-2).................................. 58,000 100 58,000
McKenzie (ND-4)................................... 62,000 100 62,000
Kidder (ND-5)..................................... 47,000 100 47,000
--------- ---------
North Dakota Total.............................. 629,000 628,000
--------- ---------
South Dakota
Rapid City........................................ 117,000 100 117,000
Sioux Falls....................................... 140,000 99 139,000
Harding (SD-1).................................... 36,000 100 36,000
Corson (SD-2)..................................... 22,000 100 22,000
McPherson (SD-3).................................. 52,000 100 52,000
Marshall (SD-4)................................... 65,000 100 65,000
Custer (SD-5)..................................... 25,000 100 25,000
Haakon (SD-6)..................................... 38,000 100 38,000
Sully (SD-7)...................................... 66,000 100 66,000
Kingsbury (SD-8).................................. 73,000 100 73,000
Harrison (SD-9)................................... 93,000 100 93,000
--------- ---------
South Dakota Total.............................. 727,000 726,000
--------- ---------
Texas
Abilene........................................... 154,000 100 154,000
Lubbock........................................... 233,000 100 233,000
Midland........................................... 124,000 96 119,000
Odessa............................................ 132,000 96 127,000
San Angelo........................................ 107,000 100 107,000
Parmer (TX-3)..................................... 150,000 100 150,000
Gaines (TX-8)..................................... 140,000 100 140,000
Hudspeth (TX-12).................................. 26,000 100 26,000
Reeves (TX-13).................................... 32,000 100 32,000
Loving (TX-14).................................... 49,000 100 49,000
--------- ---------
Texas Total..................................... 1,147,000 1,137,000
--------- ---------
Nebraska
Lincoln........................................... 233,000 100 233,000
Cherry (NE-2)..................................... 30,000 100 30,000
Knox (NE-3)....................................... 113,000 100 113,000
Grant (NE-4)...................................... 35,000 100 35,000
Keith (NE-6)...................................... 109,000 100 109,000
Hall (NE-7)....................................... 90,000 100 90,000
Chase (NE-8)...................................... 56,000 100 56,000
Adams (NE-9)...................................... 79,000 100 79,000
Cass (NE-10)...................................... 84,000 100 84,000
--------- ---------
Nebraska Total.................................. 829,000 829,000
--------- ---------
</TABLE>
44
<PAGE> 45
<TABLE>
<CAPTION>
OWNERSHIP THE COMPANY'S
CELLULAR MARKETS(1) POPULATION(2) PERCENTAGE POPULATION(2)
- -------------------------------------------------- ------------- ---------- -------------
<S> <C> <C> <C>
Wyoming
Casper............................................ 63,000 100 63,000
Sheridan (WY-2)................................... 76,000 100 76,000
Douglas (WY-5).................................... 12,000 49 6,000
--------- ---------
Wyoming Total................................... 151,000 145,000
--------- ---------
Cellular Total.................................... 6,134,000 6,104,000
========= =========
</TABLE>
- ---------------
(1) Excludes three markets containing a population of 370,000 in which the
Company operates under an Interim Operating Authority ("IOA").
(2) Estimated 1997 populations are 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) The population for Idaho 2 includes 5,000 persons in Idaho 3 which the
Company has construction permits to build Cell Sites under its Idaho 2
license.
PCS OPERATIONS
The Company owns, or has been the high bidder on, 107 PCS licenses,
covering approximately 62.8 million persons, including 100 licenses covering
approximately 43.5 million persons for which the Company was the higher bidder
in the FCC auction of PCS licenses designated as D and E Blocks, which concluded
during 1997.
The Company has completed initial construction and commenced commercial
operations of its PCS systems in the Honolulu, Salt Lake City, El
Paso/Albuquerque, Portland, Oklahoma City and Des Moines/Quad Cities MTAs, and
is constructing the initial phase of its PCS system in the Denver MTA, which the
Company expects to become operational during the second quarter of 1997. In
1997, the Company intends to begin design and construction of PCS systems in the
Seattle and Phoenix/Tucson BTAs, for which it was the high bidder in the FCC D
and E Block auctions. The Company has not yet finalized its construction plans
for all of the licenses for which it was the high bidder in the D and E
auctions.
The Company believes its PCS service offerings are broader than those
generally offered by cellular systems in the Company's PCS markets. PCS service
offerings 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'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 generally provided by
cellular operators and providing superior customer service. In addition, the
Company is structured to be a low-cost provider of PCS services by taking
advantage of the existing business infrastructure and business experience
established in connection with 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's experience is that PCS technology is better suited to urban
areas than rural areas and has 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
likely to provide greater capacity in urban areas.
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<PAGE> 46
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 the experience of 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 over 30 million customers in 110
countries. The GSM digital standard also has been selected by other PCS
licensees which, together with the Company, would cover over 260 million persons
representing approximately 98% of the US population.
The Company has entered into roaming agreements or letters of intent with
all of the MTA licensees which have chosen to deploy the GSM standard in their
PCS markets in the United States which 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 35 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.
PCS MARKETS AND SYSTEMS
The Company owns, or was the high bidder on 107 FCC licenses to provide
wireless PCS communications services in the markets listed below. The MTA
licenses owned by the Company are 30 MHz blocks in the A and B Blocks and the
BTA licenses are 10 MHz blocks in the D and E Blocks. See "-- Governmental
Regulation -- Licensing of PCS Systems."
<TABLE>
<CAPTION>
PCS MTA MARKETS PCS BTA MARKETS POPULATION(1)
- ------------------------------ ---------------------------------------- -------------
<S> <C> <C>
Honolulu ........................................ 1,234,000
Portland ........................................ 3,527,000
Salt Lake City ........................................ 3,071,000
Denver ........................................ 4,500,000
El Paso/Albuquerque ........................................ 2,433,000
Oklahoma City ........................................ 1,957,000
Des Moines/Quad Cities(2) ........................................ 3,078,000
Clinton-Sterling........................ 148,000
Burlington.............................. 140,000
Mason City.............................. 115,000
Marshalltown............................ 54,000
Seattle
Seattle-Tacoma.......................... 3,117,000
Olympia-Centralia....................... 333,000
Phoenix
Phoenix................................. 2,772,000
Tucson.................................. 752,000
Yuma.................................... 143,000
Prescott................................ 139,000
Flagstaff............................... 119,000
Sierra Vista-Douglas.................... 114,000
Nogales................................. 38,000
San Antonio
San Antonio............................. 1,749,000
Corpus Christi.......................... 544,000
McAllen................................. 561,000
Brownsville-Harlin...................... 342,000
Laredo.................................. 195,000
San Francisco
San Francisco........................... 6,896,000
</TABLE>
46
<PAGE> 47
<TABLE>
<CAPTION>
PCS MTA MARKETS PCS BTA MARKETS POPULATION(1)
- ------------------------------ ---------------------------------------- -------------
<S> <C> <C>
Spokane
Billings................................ 314,000
Great Falls............................. 170,000
Walla Walla............................. 172,000
Kennewick-Pasco......................... 185,000
Missoula................................ 167,000
Lewiston................................ 129,000
Butte................................... 69,000
Bozeman................................. 80,000
Kalispell............................... 72,000
Helena.................................. 69,000
Wichita
Wichita................................. 636,000
Salina.................................. 140,000
Hutchinson.............................. 122,000
Tulsa
Coffeyville............................. 60,000
Omaha
Lincoln................................. 326,000
Grand Island............................ 145,000
Norfolk................................. 110,000
North Platte............................ 85,000
Hastings................................ 71,000
McCook.................................. 33,000
Kansas City
Manhattan............................... 134,000
Minneapolis
Fargo................................... 306,000
Grand Forks............................. 211,000
Sioux Falls............................. 226,000
Bismarck................................ 125,000
Aberdeen................................ 85,000
Mitchell................................ 83,000
Watertown............................... 72,000
Bemidji................................. 64,000
Huron................................... 52,000
Dallas
Austin.................................. 1,086,000
Amarillo................................ 400,000
Abilene................................. 258,000
Odessa(3)............................... 229,000
San Angelo.............................. 167,000
Midland(3).............................. 129,000
Paris................................... 93,000
Clovis.................................. 83,000
Brownwood............................... 61,000
Hobbs................................... 59,000
Big Spring.............................. 36,000
St. Louis
St. Louis............................... 2,829,000
Carbondale-Marion....................... 208,000
Columbia................................ 200,000
Cape Girardeau.......................... 187,000
Quincy-Hannibal......................... 175,000
Poplar Bluff............................ 154,000
Jefferson City.......................... 151,000
Mount Vernon............................ 116,000
Rolla................................... 106,000
West Plains............................. 72,000
Kirksville.............................. 54,000
</TABLE>
47
<PAGE> 48
<TABLE>
<CAPTION>
PCS MTA MARKETS PCS BTA MARKETS POPULATION(1)
- ------------------------------ ---------------------------------------- -------------
<S> <C> <C>
Milwaukee
Milwaukee............................... 1,810,000
Cleveland
Cleveland-Akron......................... 2,936,000
Canton.................................. 528,000
Youngstown-Warren....................... 493,000
Erie.................................... 284,000
Mansfield............................... 228,000
Sandusky................................ 137,000
Sharon.................................. 122,000
East Liverpool-Salem.................... 113,000
Ashtabula............................... 102,000
Meadville............................... 86,000
Chicago
Jacksonville............................ 69,000
Little Rock
Little Rock............................. 921,000
Fort Smith.............................. 305,000
Fayetteville............................ 262,000
Jonesboro............................... 172,000
Pine Bluff.............................. 154,000
Hot Springs............................. 129,000
Russellville............................ 91,000
Harrison................................ 82,000
Cincinnati
Dayton-Springfield...................... 1,242,000
Richmond
Norfolk-VA Beach........................ 1,818,000
Richmond-Petersburg..................... 1,213,000
Danville................................ 169,000
Lynchburg............................... 161,000
Staunton-Waynesboro..................... 108,000
Martinsville............................ 93,000
----------
PCS Total(4)............................ 62,808,000
==========
</TABLE>
- ---------------
(1) Estimated 1997 populations are based on 1995 estimates by Equifax adjusted
by the Company by a growth factor based upon Equifax's growth factors from
1990 to 1995.
(2) "Quad Cities" refers to the cities of Moline and Rock Island, Illinois, and
Bettendorf and Davenport, Iowa.
(3) The Company was the high bidder on two 10 MHz licenses in these BTAs.
(4) Total PCS pops reflected here are net of the Des Moines BTA markets which
overlap the Des Moines/Quad Cities MTA markets.
The Company has a 49.9 percent partnership interest in Cook Inlet PCS,
which owns PCS licenses for 14 BTAs covering approximately 3.4 million persons,
and was the high bidder for 7 PCS licenses covering approximately 9.3 million
persons in the FCC auction of PCS licenses designated as F Block, which
concluded during 1997. Cook Inlet PCS is a Delaware limited partnership
ultimately controlled by Cook Inlet Region, Inc., an Alaska Native Regional
Corporation, which qualifies Cook Inlet PCS for additional benefits available to
a small business. Cook Inlet PCS has begun to construct its PCS system in the
Tulsa BTA, which is expected to be operational in the third quarter of 1997.
Cook Inlet PCS has not yet finalized its construction plans for the other
licenses that it owns or those for which it was the high bidder in the FCC's F
Block auction.
Cook Inlet PCS owns, or was the high bidder on, FCC licenses to provide
wireless PCS communications services in 21 separate markets. The BTA licenses
owned by Cook Inlet PCS are
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<PAGE> 49
30 MHz blocks in the C Block except as noted below. See "-- Governmental
Regulation -- Licensing of PCS Systems."
<TABLE>
<CAPTION>
PCS MTA MARKETS PCS BTA MARKETS POPULATION(1)
- ------------------------------ ---------------------------------------- -------------
<S> <C> <C>
Seattle
Seattle-Tacoma(2)....................... 3,117,000
Yakima.................................. 247,000
Bremerton............................... 251,000
Wenatchee............................... 198,000
Aberdeen................................ 91,000
Port Angeles............................ 93,000
Bellingham(2)........................... 155,000
Spokane
Spokane................................. 715,000
Walla Walla............................. 172,000
Phoenix
Phoenix(2).............................. 2,772,000
Tucson(2)............................... 752,000
Dallas
Temple(2)............................... 317,000
Wichita Falls........................... 207,000
Sherman-Dennison........................ 159,000
Tulsa
Tulsa................................... 913,000
Muskogee................................ 159,000
Coffeyville............................. 60,000
Bartlesville............................ 49,000
Kansas City
Pittsburg(2)............................ 90,000
Minneapolis
Worthington............................. 96,000
Cincinnati
Cincinnati(2)........................... 2,104,000
----------
Total................................... 12,717,000
==========
</TABLE>
- ---------------
(1) Estimated 1997 populations are based on 1995 estimates by Equifax adjusted
by the Company by a growth factor based upon Equifax's growth factors from
1990 to 1995.
(2) Represents a 10 MHz license for which it was the high bidder in the F Block.
See "Governmental Regulation -- Licensing of PCS Systems."
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 government emergency services from
their cellular handsets (with no air time charge) by dialing 911. 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. In addition, in most cases
the Company separately charges for its custom calling features.
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<PAGE> 50
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 North American Cellular Network ("NACN") and other
regional networking arrangements. 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. 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.
PCS
The Company is currently operating PCS systems in the Honolulu, Salt Lake
City, El Paso/Albuquerque, Portland, Oklahoma City and Des Moines/Quad Cities
MTAs and will offer PCS services in the Denver MTA and selected BTAs using the
GSM standard. The Company currently offers several distinct services and
features in its PCS systems, including:
Enhanced Features -- The Company's PCS systems offer caller identification,
call hold, voice mail, numeric paging, as well as custom calling features such
as call waiting, conference calling and call forwarding.
Messaging and Wireless Data Transmission -- Digital networks 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.
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, allow subscribers to obtain PCS connectivity
automatically, simply by inserting their smart cards into compatible PCS
handsets.
Over-the-Air Activation and Over-the-Air Subscriber Profile
Management -- The Company is able to transmit changes in the subscriber's
feature package, including mobile number assignment and personal directory
numbers, directly to the subscriber's handset.
Extended Battery Performance -- Digital handsets are capable of entering
into a "sleep" mode when not in use, significantly extending the handset's
battery performance. In addition, because the Company's PCS systems utilize
tightly spaced, low power transmitters, less power is required to transmit
calls, thereby further extending battery performance.
Roaming -- 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 by using dual-mode handsets that can be used on existing cellular
systems. The Company has entered into roaming agreements which allow its PCS
customers to roam on cellular systems. The Company has been advised by the
manufacturers of dual-mode handsets that such handsets will be commercially
available in significant quantities in 1998 and it has entered into agreements
with suppliers to acquire dual-mode handsets when available.
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.
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<PAGE> 51
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
cellular licensees in the 50 states with a combined estimated population of over
173 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 markets its PCS products and services under its proprietary
VoiceStream brand name. 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 businesses and individuals "on-the-go," which would benefit from
integrated mobile voice, messaging and wireless data transmission 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 162 local sales offices (which also
serve as retail sales locations), including 102 under the CELLULAR ONE brand
name, 14 under the Phones-To-Go brand name and 46 under the VoiceStream brand
name, and utilizes a direct sales force of over 850 persons based out of these
offices, who are trained to educate new customers on the features of its
products. 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. 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 has historically sold handsets below cost to respond to competition and
in accordance with general industry practice.
CUSTOMER SERVICE
Customer service is a significant 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 rate of subscriber attrition). The
Company believes that it helps manage its churn through an outreach program by
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.
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<PAGE> 52
In February 1997, the Company announced plans to build a customer call
center in Albuquerque, New Mexico. The facility is slated to open during the
second half of 1997. This facility, along with the Company's current customer
call center in Issaquah, Washington, will support the Company's current cellular
and PCS customers and will be able to support the Company's expected subscriber
growth for the foreseeable future. As these customer call centers are in
different regions of the country, they will also provide backup for one another
in case of natural disaster, which will allow the Company to maintain continuous
customer service.
SUPPLIERS AND EQUIPMENT VENDORS
The Company does not manufacture any of the handsets or Cell Site equipment
used in the Company's operations. The high degree of compatibility among
different manufacturer's models of handsets and Cell Site equipment allows the
Company to design, supply and operate its systems without being dependent upon
any single source of such equipment. The handsets and Cell Site equipment used
in the Company's operations are available for purchase from multiple sources,
and the Company anticipates that such equipment will continue to be available in
the foreseeable future. The Company currently purchases handsets primarily from
Motorola, Inc., Ericsson Inc. and Nokia. The Company currently purchases Cell
Site and switching equipment primarily from NORTEL, Lucent Technologies and
Nokia.
COMPETITION
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 larger, 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 AirTouch, Aliant, CommNet, Kansas Cellular, Southwestern Bell and US
Cellular, and there will be six PCS licenses in each of its markets. Currently,
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 more directly with traditional landline telephone service providers.
The Company's PCS business will directly 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, AirTouch and US Cellular.
The FCC requires all cellular and PCS licensees to provide service to
"resellers." A reseller provides wireless service to customers but does not hold
an FCC license or own facilities. Instead, the reseller buys blocks of wireless
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 wireless licensee's services and also a competitor of that
licensee. Several small resellers currently operate in competition with the
Company's systems. With respect to PCS licensees, the resale obligations
terminate five years after the last group of initial licenses of currently
allotted PCS spectrum is awarded.
52
<PAGE> 53
In the future, in its cellular and PCS markets the Company expects to face
increased competition from entities providing other communications technologies
and services, including digital mobile communications systems on existing SMR
frequencies, referred to as ESMR, and satellite-based telecommunications
systems. Although some of these technologies and services are currently
operational, others are being developed or may be developed in the future.
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.
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 (the "Communications Act"), as amended from time to
time, and the rules, regulations and policies promulgated by the FCC thereunder.
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.
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<PAGE> 54
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 CMRS includes
cellular (and PCS) service.
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 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 sales 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. During 1997, the last of these auctions was
completed. The high bidder for each of these licenses has been announced, but
the licenses for the D, E and F Block licenses have not yet been awarded.
Under the FCC's current rules specifying spectrum aggregation limits
affecting broadband PCS licensees, 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
54
<PAGE> 55
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)).
The Company owns cellular licenses serving markets that are wholly or
partially within the Denver MTA, resulting in the Company exceeding the FCC's
current 45 MHz CMRS crossownership restriction described above. The Company has
a period of time after acquisition of the Denver MTA in which to comply with
this ownership restriction. In the event that this restriction is not waived or
revised, the Company will be obligated to divest sufficient portions of its PCS
market or its cellular holdings to come into compliance with the rules. The
Company does not believe such restriction or any actions the Company is required
to take to comply therewith will have a material adverse effect on the Company.
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 PCS licensees, including the Company, must
construct 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. During the first five years of the license term,
assignments or transfers affecting control are permitted only to assignees or
transferees that meet the eligibility criteria for participation in the
entrepreneur block auction at the time the application for assignment or
transfer of control is filed, or if the proposed assignee or transferee holds
other licenses for C and F Blocks and, at the time of receipt of such licenses,
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. 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 (i) a transition plan to relocate such microwave
operators to other spectrum blocks and (ii) a cost sharing plan so that if the
relocation of an incumbent benefits more than one PCS licensee, the benefiting
PCS licensees will share the cost of the relocation. Initially, this transition
plan allowed 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. The FCC has recently shortened the voluntary
negotiation period by one year (without lengthening the mandatory negotiation
period) for non-public safety PCS licensees in the C, D, E and F Blocks. Parties
unable to reach agreement within these time periods may refer the matter to the
FCC for resolution, but the incumbent microwave user is permitted to continue
its operations until final FCC resolution of the matter. The transition and cost
sharing plans expire on April 4, 2005, at which time remaining incumbents in the
PCS spectrum will be responsible for their costs to relocate to alternate
spectrum locations.
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<PAGE> 56
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-US 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 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-US. 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 AND OTHER RECENT INDUSTRY DEVELOPMENTS
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 terminated its inquiry into the imposition of equal access
requirements on CMRS providers.
On July 26, 1996, the FCC released a Report and Order establishing
timetables for making emergency 911 services available by cellular, PCS and
other mobile service providers, including "enhanced 911" services that provide
the caller's telephone number, location and other useful
56
<PAGE> 57
information. By late 1997, cellular and PCS providers must be able to process
and transmit 911 calls (without call validation), including those from callers
with speech or hearing disabilities. Assuming a cost recovery mechanism is in
place, by mid-1998 such providers must have completed actions enabling them to
relay a caller's automatic number identification and Cell Site, and by 2001 they
must be able to identify the location of a 911 caller within 125 meters in 67%
of all cases. State actions incompatible with the FCC rules are subject to
preemption.
On August 1, 1996, the FCC released a Report and Order expanding the
flexibility of cellular, PCS and other CMRS providers to provide fixed as well
as mobile services. Such fixed services include, but need not be limited to,
"wireless local loop" services, e.g., to apartment and office buildings, and
wireless backup to PBXs and local area networks, to be used in the event of
interruptions due to weather or other emergencies. The FCC has not yet decided
whether such fixed services should be subjected to universal service
obligations, or how they should be regulated, but it has proposed a presumption
that they be regulated as CMRS services.
On August 8, 1996, the FCC released its order implementing the
interconnection provisions of the Telecommunications Act of 1996. The FCC's
decision is lengthy and complex and is subject to petitions for reconsideration
and judicial review (as described below), and its precise impact is difficult to
predict with certainty. However, the FCC's order concludes that CMRS providers
are entitled to reciprocal compensation arrangements with local exchange
carriers ("LECs") and prohibits LECs from charging CMRS providers for
terminating LEC-originated traffic. The FCC's decision gives it broad authority
to regulate on the intrastate level, but states may impose additional
procompetitive rules beyond the minimum federal guidelines. Under these
guidelines, states must set arbitrated rates for interconnection and access to
unbundled elements based upon the LECs' long run incremental costs, plus a
reasonable share of forward-looking joint and common costs. In lieu of such
cost-based rates, the FCC has also established for use by states a benchmark
maximum range of 0.2-0.4 cents per minute for end office termination pending
further cost-based studies, and subject to a possible "true-up" payment later.
The FCC has also permitted states to impose "bill and keep" arrangements, under
which CMRS providers would make no payments for LEC termination of calls where
LECs and CMRS providers have symmetrical termination costs and roughly balanced
traffic flows. However, the FCC has found no evidence that these conditions
presently exist. The relationship of these charges to the payment of access
charges and universal service contributions has not yet been resolved by the
FCC. LECs and state regulators filed appeals of the interconnection order, which
have been consolidated in the US Court of Appeals for the Eighth Circuit. The
Court has temporarily stayed the effective date of the pricing rules (including
the benchmark maximum of 0.2 - 0.4 cents described above) until more permanent
relief can be fashioned.
The FCC recently adopted rules on telephone number portability which will
enable subscribers to migrate their landline and cellular telephone numbers to a
PCS carrier and from a PCS carrier to another service provider.
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 1996 the Company
paid approximately $110,000 and $144,000, in licensing and advertising fees,
respectively, 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
57
<PAGE> 58
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 and VoiceStream are service marks owned by the Company and
registered with the United States Patent and Trademark Office. "Tele-Waves," 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.
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 December 31, 1996, the Company employed a total of
approximately 2,470 people in the following areas:
<TABLE>
<CAPTION>
CATEGORY NUMBER OF EMPLOYEES
----------------------------------------------------------------- -------------------
<S> <C>
Sales and marketing.............................................. 1,300
Engineering...................................................... 440
General and administration, including customer service........... 730
</TABLE>
PROPERTIES
In addition to the direct and attributable interests in cellular, PCS and
paging licenses and other similar assets discussed previously, the Company
leases its principal executive offices (consisting of approximately 116,000
square feet) located primarily in Issaquah, Washington. The Company and its
subsidiaries and affiliates also lease and own locations for inventory storage,
microwave, Cell Site and switching equipment and local sales and administrative
offices. The Company is currently seeking additional space in or near Issaquah
to support the growth of its principal executive offices.
The Company leases a distribution center in Denver, which stores and
distributes handset inventory for all of the Company's cellular and PCS
operations. The facility has adequate space to support the growth of the
Company's distribution network which will grow with the expansion of the
Company's PCS markets.
In February 1997, the Company announced plans to build a customer call
center in Albuquerque, New Mexico. The approximately 65,000 square foot facility
is slated to open during the second half of 1997. This facility, along with the
Company's current customer call center in Issaquah, Washington, is expected to
support the Company's anticipated subscriber growth for the foreseeable future.
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.
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" and "Certain Transactions."
58
<PAGE> 59
MANAGEMENT
DIRECTORS, EXECUTIVE OFFICERS AND KEY PERSONNEL
The names, ages and positions of the executive officers, key personnel 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 five 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.................................... 41 Chairman, Director and Chief
Executive Officer
Donald Guthrie..................................... 41 Vice Chairman and Chief
Financial Officer(1)
Robert R. Stapleton................................ 39 President
Mikal J. Thomsen................................... 40 Chief Operating Officer
Theresa E. Gillespie............................... 44 Senior Vice President(1)
Alan R. Bender..................................... 42 Secretary, Senior Vice
President and General Counsel
Cregg B. Baumbaugh................................. 40 Senior Vice President --
Corporate Development
Timothy R. Wong.................................... 41 Vice President -- Engineering
Robert P. Dotson................................... 36 Vice President -- Marketing
Bradley J. Horwitz................................. 41 Vice President -- International
Nastashia Stoneman Press........................... 36 Principal Accounting Officer
John L. Bunce, Jr.................................. 38 Director
Mitchell R. Cohen.................................. 32 Director
Jonathan M. Nelson................................. 40 Director
Terence M. O'Toole................................. 38 Director
</TABLE>
- ---------------
(1) Ms. Gillespie was the Chief Financial Officer until February 25, 1997, at
which time Mr. Guthrie was appointed the Chief Financial Officer and Ms.
Gillespie was appointed Senior Vice President.
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
59
<PAGE> 60
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 Advanced Digital
Information Corporation and SmarTone (Hong Kong). In addition, Mr. Stanton is a
trustee of Whitman College, a private college. Mr. Stanton is currently Second
Vice Chairman of the CTIA.
Donald Guthrie has been Vice Chairman of the Company since November 1995.
Effective February 25, 1997, Mr. Guthrie was appointed Chief Financial Officer
of the Company. 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 was Chief Financial Officer of the Company since its
formation in July 1994 until February 25, 1997, at which time she was appointed
Senior Vice President. 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.
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 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.
Robert P. Dotson has been Vice President -- Marketing of the Company since
May 1996. Previously, Mr. Dotson held various marketing positions with PepsiCo's
KFC restaurant group, serving as Senior Director of Concept Development from
1994 to 1996, Director of International Marketing from 1993 to 1994, Divisional
Marketing Director from 1991 to 1993 and Manager of New Product Development and
Base Business Marketing from 1989 through 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. Mr. Horowitz is currently a member of the
Board of Directors of SmarTone (Hong Kong).
60
<PAGE> 61
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.
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 Corporation, Falcon Cable TV, Young & Rubicam and
several privately held companies.
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
Corporation and Advanstar Communications.
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. Mr. Nelson has been President and
Chief Executive Officer of Providence Equity Partners, Inc. (investment advisor)
since its inception in 1995 and is a Member of Providence Equity Partners LLC,
which is the general partner of Providence Equity Partners L.P. and Providence
Equity Partners II L.P. 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.,
and Brooks Fiber Properties Inc.
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, a general partner in November 1992
and a Managing Director in 1996. He is currently a director of Insilco
Corporation and AMF Group Inc.
BOARD OF DIRECTORS
The Executive Committee is currently comprised of Messrs. Stanton, Bunce
and O'Toole, and the Compensation Committee is currently comprised of Messrs.
Cohen and Nelson. The Audit Committee is currently comprised of Messrs. Cohen
and Nelson 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 has entered into separate indemnification agreements with
each of its directors and officers to effectuate these provisions, and has
purchased 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 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.
61
<PAGE> 62
EXECUTIVE COMPENSATION
The following table sets forth the compensation paid in 1996 and 1995 to
the Company's Chief Executive Officer and the Company's four 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
FISCAL BONUS OPTIONS/SARS COMPENSATION(1)
NAME AND PRINCIPAL POSITION YEAR SALARY ($) ($) (#) ($)
- ------------------------------------ ------ ---------- -------- ------------ ---------------
<S> <C> <C> <C> <C> <C>
John W. Stanton..................... 1996 $ 180,000 $270,000 0 $ 4,500
Chairman & Chief Executive Officer 1995 120,000 180,000 0 4,500
Robert R. Stapleton................. 1996 150,000 120,000 75,000 4,500
President 1995 139,461 100,000 139,500 4,500
Donald Guthrie...................... 1996 $ 150,000 80,000 145,250 563
Vice Chairman and Chief 1995 18,750 0 93,000 0
Financial Officer
Mikal J. Thomsen.................... 1996 140,000 90,000 60,000 4,500
Chief Operating Officer 1995 134,375 65,000 124,000 4,500
Theresa E. Gillespie................ 1996 130,000 100,000 0 3,095
Senior Vice President 1995 119,167 80,000 100,750 4,500
</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, 1996 to the Named
Executive Officers.
OPTION/SAR GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
--------------------------------------------------------
NUMBER OF
SECURITIES PERCENT OF TOTAL POTENTIAL REALIZABLE VALUE AT
OF OPTIONS/SARS EXERCISE ASSUMED ANNUAL RATES OF STOCK PRICE
UNDERLYING GRANTED TO OR BASE APPRECIATION FOR OPTION TERM(2)
OPTIONS/SARS EMPLOYEES IN PRICE EXPIRATION ------------------------------------
NAME GRANTED(#)(1) FISCAL YEAR ($/SHARE) DATE(1) 0% 5% 10%
- -------------------- ----------- ---------------- --------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
John W. Stanton..... 0 0% $ 0 -- $ 0 $ 0 $ 0
Robert R.
Stapleton......... 75,000(1) 6.6 13.725(1) 12/31/2006 0 666,844 1,665,844
Donald Guthrie...... 85,250(3) 7.5 1.13(3) 2/6/2006 1,086,511 1,831,703 2,967,233
60,000(1) 5.3 13.725(1) 12/31/2006 0 533,475 1,332,675
Mikal J. Thomsen.... 60,000(1) 5.3 13.725(1) 12/31/2006 0 533,475 1,332,675
Theresa E.
Gillespie......... 0 0 0 -- 0 0 0
</TABLE>
- ---------------
(1) These options have terms of ten years from the date of grant, December 31,
1996, 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.
(2) Potential realizable value is based on an assumption that the stock price of
the Common Stock appreciates at the annual rate shown (compounded annually)
from the date of grant until the end of the option term. These numbers are
calculated based on the requirements of the Commission and do not reflect
the Company's estimate of future stock price performance.
(3) These options were granted pursuant to a September 1995 agreement between
the Company and Mr. Guthrie. The options have a term of ten years from the
date of grant, February 6, 1996, and vest in 25% equal annual increments
over a period of four years from the vesting commencement date as specified
in the agreement. Pursuant to the agreement, as a result of
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<PAGE> 63
the Company consummating its public offering on certain agreed upon terms,
the fourth annual vesting increment has been accelerated and has become
fully vested. The Company recorded deferred compensation at the time the
options were granted based upon the difference between the fair market value
of the underlying securities and the exercise price of the options. As the
fair market value of the underlying securities of these options has declined
since the grant date, the Company has reflected the potential realizable
value at assumed annual rates of stock price appreciation for the option
term based upon the closing price of the Company's Class A Common Stock on
December 31, 1996, as quoted on The Nasdaq National Market. Had the Company
based the potential realizable value at assumed annual rates of stock price
appreciation on the fair market value of the underlying securities as of the
date of grant, the amounts disclosed above would have been $1,828,613,
$3,041,328 and $4,889,275, respectively.
OPTION EXERCISES AND HOLDINGS
The following table sets forth information with respect to each of the
Named Executive Officers concerning the exercise of stock options and
unexercised stock options held at December 31, 1996.
AGGREGATED OPTION/SAR EXERCISES IN THE LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION/SAR VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
NUMBER OF OPTIONS/SARS AT IN-THE-MONEY OPTIONS/SARS
SHARES FISCAL YEAR-END (#) AT FISCAL YEAR-END($)
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... 100,000 1,247,595 441,209 215,791 3,899,739 433,422
Donald Guthrie........ 0 0 45,338 193,687 341,636 1,004,181
Mikal J. Thomsen...... 0 0 103,334 189,166 383,576 401,121
Theresa E.
Gillespie........... 0 0 83,054 104,496 307,860 316,704
</TABLE>
EMPLOYMENT AGREEMENTS
The Company has entered into employment agreements with each of Messrs.
Stanton, Guthrie, Stapleton, and Thomsen and Ms. Gillespie, pursuant to which
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,
$150,000, $140,000 and $130,000, respectively (which such annual base
compensation has been subsequently adjusted by the Board of Directors to
$190,000, $160,000, $160,000, $150,000 and $140,000, 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%, 70%, 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
63
<PAGE> 64
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 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.
Pursuant to each such employment agreement, the Company has entered into an
indemnification agreement with such executive officer pursuant to which the
Company has agreed 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,
1996, 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 is currently considering compensation arrangements for the
directors.
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<PAGE> 65
PRINCIPAL SHAREHOLDERS
The following table sets forth certain information regarding beneficial
ownership of the Company's Common Stock as of March 31, 1997, by (i) each person
who is known by the Company to own beneficially 5% or more of either class of
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.
<TABLE>
<CAPTION>
PERCENTAGE
SHARES BENEFICIALLY OWNED(1) BENEFICIALLY OWNED
----------------------------------- ---------------------------
NAME AND ADDRESS A SHARES B SHARES TOTAL A SHARES B SHARES TOTAL
- ------------------------------ --------- ---------- ---------- -------- -------- -----
<S> <C> <C> <C> <C> <C> <C>
Hellman & Friedman(2)(5)...... -- 25,163,997 25,163,997 -- 45.6 % 35.9 %
One Maritime Plaza, 12th
Floor
San Francisco, CA 94111
The Goldman Sachs Group, L.P.
and related
investors(3)(5)............. -- 12,099,029 12,099,029 -- 21.9 17.3
85 Broad Street, 19th Floor
New York, NY 10004
John W. Stanton and
Theresa E.
Gillespie(4)(5)(6).......... 65,000 6,290,852 6,355,852 * 11.4 9.1
2001 NW Sammamish Road
Issaquah, WA 98027
Providence Media Partners
L.P.(5)..................... -- 3,886,591 3,886,591 -- 7.0 5.6
c/o Providence Ventures, Inc.
900 Fleet Center
50 Kennedy Plaza
Providence, RI 02903
Wellington Management Co.,
LLP......................... 1,239,980 -- 1,239,980 8.4 -- 1.8
75 State Street
Boston, MA 02109
T. Rowe Price Associates,
Inc......................... 1,075,000 -- 1,075,000 7.3 -- 1.5
100 E. Pratt Street
Baltimore, MD 21202
Strong Capital Management..... 786,600 -- 786,600 5.3 -- 1.1
100 Heritage Reserve
Menomoner Fold, WI 53051
Donald Guthrie(6)............. 15,000 156,768 171,768 * * *
Robert A. Stapleton(6)........ 15,000 451,396 466,396 * * *
Mikal J. Thomsen(6)(7)........ 38,469 453,307 491,776 * * *
John L. Bunce, Jr.(8)......... -- 25,163,997 25,163,997 -- 45.6 35.9
Mitchell R. Cohen(8).......... -- 25,163,997 25,163,997 -- 45.6 35.9
Jonathan M. Nelson(9)......... 6,000 3,866,591 3,872,591 * 7.0 5.6
Terence M. O'Toole(10)........ -- 12,099,029 12,099,029 -- 21.9 17.3
All directors and executive
officers as a group (13
persons)(6)................. 159,969 48,738,201 48,898,170 1.1 86.7 68.8
</TABLE>
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- ---------------
* 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) 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
"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.
(3) 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. Each of such
investment partnerships shares voting and investment power with certain of
its respective affiliates. The amounts in the table do not include (i) 330
shares of Class A Common Stock owned by Goldman, Sachs & Co. as of March
31, 1997 which were acquired in the ordinary course of market-making
transactions or (ii) 178,800 shares of Class A Common Stock held in managed
accounts (the "Managed Accounts") as of March 31, 1997 for which Goldman,
Sachs & Co. exercises voting or investment authority, or both. GS Group
disclaims beneficial ownership of the shares held in the Managed Accounts.
(4) Includes (i) 1,686,069 shares of Class B Common Stock held of record by PN
Cellular, which is substantially 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) 30,000 shares of
Class A Common Stock and 3,087,774 shares of Class B Common Stock held by
Mr. Stanton and Ms. Gillespie, as tenants in common, (iv) 5,000 shares of
Class A Common Stock and 159,437 shares of Class B Common Stock held of
record by The Stanton Family Trust, and (v) 30,000 shares of Class A Common
Stock held of record by Mr. Stanton pursuant to the Company's Executive
Restricted Stock Plan. 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.
(5) 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
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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."
(6) 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.
(7) 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.
(8) 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 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.
(9) 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.
(10) Mr. O'Toole, who is a managing director of Goldman, Sachs & Co., disclaims
beneficial ownership of shares which may be deemed to be beneficially owned
by GS Group.
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CERTAIN TRANSACTIONS
In November 1993, the Hellman & Friedman Entities, 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. As of the date of the Company's public offering in May
1996, the parties to the Stockholders Agreement beneficially owned approximately
68.3% of the Company's outstanding Common Stock. The provisions of the
Stockholders Agreement, other than the provisions relating to registration
rights, terminated at the closing of such 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 Company's public
offerings in May 1996, the Hellman & Friedman Entities, the Stanton Entities,
the Goldman Sachs Entities and Providence entered into the Shareholders
Agreement, which superseded the Voting Agreement and, with respect to election
of directors of the Company, provides 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 Sachs Entities beneficially own at least 7 1/2% of the total
voting power of the Company, one person designated by the Goldman Sachs
Entities, (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
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<PAGE> 69
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 agreed 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
further provides 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 has 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 the Goldman Sachs Entities, terminated and distributed the 3,842,531 shares
of Class B Common Stock registered in its name to its partners, GS Capital and
GS Capital Partners Media Holding I, Inc., both of which are affiliates of the
Goldman Sachs Entities. 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
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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.
An affiliate of the Goldman Sachs Entities is a member of the syndicate of
lenders pursuant to the Credit Facility and has committed to lend to the Company
under the Credit Facility up to the aggregate principal amount of $10.0 million.
Goldman Sachs served as a managing underwriter in the Company's May 1996
equity and debt public offering and as a purchaser in its October 1996 private
debt offering, receiving customary fees therefor.
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), the 2006 Notes Indenture and the 2007 Notes Indenture
contain provisions which limit the terms on which the Company may enter into
transactions with its affiliates.
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,
1997, there were 14,810,157 shares of Class A Common Stock and 55,198,604 shares
of Class B Common Stock issued and outstanding and the Company had 130 and 109
holders of record of its Class A Common Stock and Class B Common Stock,
respectively.
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COMMON STOCK
The Company has two classes of authorized Common Stock, Class A Common
Stock 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 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
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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. The Company has entered into
separate indemnification agreements with each of its directors and executive
officers in order to effectuate such provisions.
REGULATED SHAREHOLDERS
The Articles of Incorporation contain provisions that would effectively
preclude each of Goldman Sachs and its affiliates and certain others from voting
that number of shares of Common Stock which results in such shareholders or
their respective 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
owned ten percent or more of the Company's outstanding voting securities prior
to the Company's public offering of Class A Common Stock in May 1996.
TRANSFER AGENT AND REGISTRAR
The Company's transfer agent and registrar for its Class A Common Stock is
ChaseMellon Shareholder Services, LLC, New York, New York.
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DESCRIPTION OF SENIOR SUBORDINATED NOTES DUE 2006
The 2006 Notes have been issued under the 2006 Notes Indenture, dated as of
May 22, 1996, 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 2006 Notes does not purport to be complete and is subject to
and qualified in its entirety by reference to the 2006 Notes 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 in this
"Description of Senior Subordinated Notes Due 2006" 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 2006 Notes 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 2006 Notes are unsecured obligations of the Company and are limited in
aggregate principal amount to $200,000,000. The 2006 Notes are 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. The 2006 Notes rank pari passu with
$200.0 million aggregate principal amount of the 2007 Notes.
MATURITY, INTEREST AND PRINCIPAL
The 2006 Notes will mature on June 1, 2006. Interest on the 2006 Notes
accrues at a rate of 10 1/2% per annum and is payable semiannually on each June
1 and December 1, commencing on December 1, 1996, to the Holders of record on
the immediately preceding May 15 and November 15. Interest is computed on the
basis of a 360-day year of twelve 30-day months. The 2006 Notes are 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.
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 2006 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 2006 Notes have been and 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 2006 Notes
Indenture and the limitations applicable to Global Securities, 2006 Notes will
be exchangeable for other 2006 Notes of any authorized denomination and of a
like tenor and aggregate principal amount. See "-- Global Securities."
Subject to the terms of the 2006 Notes Indenture and the limitations
applicable to Global Securities, 2006 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 2006 Notes, but the Company may require payment of a sum sufficient
to cover any tax or other governmental
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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 2006 Notes.
If the 2006 Notes are to be redeemed in part, the Company will not be
required to (i) issue, register the transfer of or exchange any 2006 Note during
a period beginning at the opening of business 15 days before the day of mailing
of notice of redemption of any such 2006 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 2006 Note so selected for
redemption, in whole or in part, except the unredeemed portion of any such 2006
Note being redeemed in part.
SUBORDINATION
The payment of the principal of and premium, if any, and interest on the
2006 Notes are, to the extent set forth in the 2006 Notes Indenture,
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 2006 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 Indebtedness 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 December 31, 1996, Senior Indebtedness aggregated approximately $343.0
million. The Company expects from time to time to Incur additional Indebtedness
constituting Senior Indebted-
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ness. The 2006 Notes Indenture does 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 are effectively
senior in right of payment to the 2006 Notes. At December 31, 1996, the total
outstanding Indebtedness of the Company's Subsidiaries not eliminated in the
Company's consolidated financial statements was approximately $143.0 million.
OPTIONAL REDEMPTION
Prior to June 1, 2001, the 2006 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 2006 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 2006
Notes or portion thereof being redeemed.
After June 1, 2001, the 2006 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 June 1 of each of the years
indicated below:
<TABLE>
<CAPTION>
REDEMPTION
YEAR PRICE
---- ----------
<S> <C>
2001............................................. 105.25%
2002............................................. 103.50%
2003............................................. 101.75%
2004 and thereafter.............................. 100.00%.
</TABLE>
Notwithstanding the previous two paragraphs, on or before June 1, 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 110.5% (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 2006 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 2006 Notes are to be redeemed, principal
amounts of the particular 2006 Notes to be redeemed, that on the redemption date
the redemption price will become due and payable upon each 2006 Note to be
redeemed and the place or places where such 2006 Notes are to be surrendered for
payment of the redemption price.
No sinking fund is provided for the 2006 Notes.
CHANGE OF CONTROL
Upon the occurrence of a Change of Control, each Holder of a 2006 Note
shall have the right to have such 2006 Note repurchased by the Company on the
terms and conditions set forth in the 2006 Notes 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 2006 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"
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<PAGE> 76
(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 2006 Notes 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 2006 Notes 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 shareholders 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.
COVENANTS
LIMITATION ON CONSOLIDATED INDEBTEDNESS
The 2006 Notes Indenture prohibits 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 2006 Notes or otherwise arising
under the 2006 Notes 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 2006 Notes
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 June 1, 1999 for the acquisition,
construction or improvement by the Company or any Restricted Subsidiary of
assets in the Wireless Communications Business;
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<PAGE> 77
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 2006 Notes, the
refinancing or refunding Indebtedness is made pari passu or subordinated to
the 2006 Notes and, in the case of any refinancing or refunding of
Indebtedness subordinated to the 2006 Notes, the refinancing or refunding
Indebtedness is made subordinate to the 2006 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 June 1, 1999, other than Indebtedness
permitted pursuant to clauses (i) through (vi) above, that does not exceed
$50 million at any time outstanding or committed.
LIMITATION ON PREFERRED STOCK OF RESTRICTED SUBSIDIARIES
The 2006 Notes Indenture prohibits 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 2006 Notes
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 2006 Notes Indenture described under "-- Limitation on Consolidated
Indebtedness."
LIMITATION ON CERTAIN ASSET DISPOSITIONS
The 2006 Notes Indenture prohibits 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
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<PAGE> 78
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 (or Indebtedness of such Restricted
Subsidiary, as the case may be) then outstanding; (b) second, to make an Offer
to Purchase any outstanding 2006 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 2006 Notes
Indenture will not require the Company to repay Senior Indebtedness (or
Indebtedness of such Restricted Subsidiary) then outstanding, to make an Offer
to Purchase any outstanding 2006 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, 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 2006 Notes Indenture prohibits 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 2006 Notes 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 2006 Notes 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 2006 Notes
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
2006 Notes 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 2006 Notes
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 2006 Notes Indenture.
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<PAGE> 79
LIMITATIONS CONCERNING DISTRIBUTIONS AND TRANSFERS BY RESTRICTED
SUBSIDIARIES
The 2006 Notes Indenture provides 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 2006 Notes Indenture, (ii) pursuant to an agreement
entered into after the date of the 2006 Notes Indenture relating to any
Indebtedness the Incurrence of which is permitted under the 2006 Notes
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.
LIMITATION ON ISSUANCES AND SALES OF CAPITAL STOCK OF WHOLLY OWNED
RESTRICTED SUBSIDIARIES
Subject to the requirements of the provision of the 2006 Notes Indenture
described under "-- Consolidation, Merger, Conveyance, Transfer or Lease," the
2006 Notes Indenture provides 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 2006 Notes Indenture described under "--Limitation on
Certain Asset Dispositions."
LIMITATIONS ON TRANSACTIONS WITH AFFILIATES AND RELATED PERSONS
The 2006 Notes Indenture provides 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 (other than a
Restricted Subsidiary), 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
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<PAGE> 80
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 2006 Notes Indenture provides 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
2006 Notes without making, or causing such Restricted Subsidiary to make,
effective provision for securing the 2006 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 2006 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 2006 Notes 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
2006 Notes 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 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 2006
Notes Indenture described under clause (ii) or (v) of "-- Limitation on
Consolidated Indebtedness."
LIMITATION ON CERTAIN DEBT
The 2006 Notes Indenture provides 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 2006 Notes.
CONSOLIDATION, MERGER, CONVEYANCE, TRANSFER OR LEASE
The 2006 Notes Indenture provides 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 2006 Notes and the 2006 Notes 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 2006 Notes 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.
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<PAGE> 81
EVENTS OF DEFAULT AND REMEDIES
The following are Events of Default under the 2006 Notes Indenture: (i)
failure to pay the principal of or premium, if any, on the 2006 Notes at
Maturity; (ii) failure to pay any interest on the 2006 Notes when it becomes due
and payable continued for 30 days; (iii) failure, on the applicable Purchase
Date, to purchase 2006 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 2006 Notes Indenture
described under "-- Mergers, Consolidations and Certain Sales of Assets"; (v)
failure to perform any other covenant or agreement of the Company under the 2006
Notes 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
2006 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 2006 Notes by notice as provided in the
2006 Notes Indenture, may declare the principal amount of the 2006 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 2006 Notes may, under certain
circumstances, rescind and annul such acceleration if all Events of Default,
other than the non-payment of accelerated principal of the 2006 Notes, have been
cured or waived as provided in the 2006 Notes Indenture. If an Event of Default
described under (viii) above shall occur, the 2006 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 2006 Note will have any right to institute any proceeding
with respect to the 2006 Notes 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 2006 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 2006 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 2006 Note for enforcement of payment of the
principal of and premium, if any, or interest on such 2006 Note on or after the
respective due dates expressed in such 2006 Note. The Holders of a majority in
aggregate principal amount of the 2006 Notes outstanding may waive any existing
Default except a Default in the payment of interest or principal (including
premium) on the 2006 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
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the provisions of the 2006 Notes 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.
"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 2006 Notes 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
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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 2006 Notes 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 2006 Notes 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 the 2006 Notes 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 2006 Notes until a successor
Depositary shall have become such pursuant to the applicable provisions of the
2006 Notes 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 2006 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
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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 2006 Notes Indenture described in clause (v) of
"-- Limitation on Preferred Stock of Restricted Subsidiaries."
"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 2006 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
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payable if such redemption or payment had not been made, over (ii) the aggregate
principal amount of such 2006 Note being redeemed or paid.
"Maturity" means, when used with respect to any 2006 Note, the date on
which the principal of such 2006 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 2006 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 2006 Notes within five Business Days after the
Expiration Date. The Offer shall also state the section of the 2006 Notes
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
2006 Notes offered to be purchased by the Company, the purchase price to be paid
by the Company and the place or places where 2006 Notes are to be surrendered
for tender pursuant to the 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.
"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).
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"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 2006 Notes 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 2006 Notes 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 2006 Notes or is redeemable at the option of the holder
thereof at any time prior to the final Stated Maturity of the 2006 Notes.
"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 2006 Notes.
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"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 2006 Notes 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
2006 Notes Indenture or thereafter Incurred, other than the 2006 Notes, 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 2006 Notes, (C) any Indebtedness Incurred in violation of the
2006 Notes 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 the 2006 Notes
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 2006 Notes or on account of any purchase or other acquisition of 2006
Notes by the Company or any Subsidiary of the Company.
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"Stated Maturity," when used with respect to any 2006 Note or any
installment of interest thereon, means the date specified in such 2006 Note as
the date on which the principal of such 2006 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 2006 Notes 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 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 2006
Notes 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 2006 Notes 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 2006 Notes 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
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outstanding 2006 Notes; provided, however, that no such modification or
amendment may, without the consent of the Holder of each 2006 Note affected
thereby, (i) change the Stated Maturity of the principal of, or any installment
of interest on, any 2006 Note, (ii) reduce the principal amount of or premium,
if any, or interest on any 2006 Note, (iii) change the place or currency of
payment of principal of, or premium or interest on any 2006 Note, (iv) impair
the right to institute suit for the enforcement of any payment on or with
respect to any 2006 Note, (v) reduce the percentage of aggregate principal
amount of 2006 Notes outstanding necessary to amend the 2006 Notes Indenture,
(vi) reduce the percentage of aggregate principal amount of 2006 Notes
outstanding necessary for waiver of compliance with certain provisions of the
2006 Notes 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 2006 Notes or
(ix) following the mailing of an Offer to Purchase, modify the provisions of the
2006 Notes 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
2006 Notes may waive compliance by the Company with certain restrictive
provisions of the 2006 Notes Indenture. The Holders of a majority in aggregate
principal amount of the outstanding 2006 Notes may waive any past default under
the 2006 Notes Indenture, except a default in the payment of principal, premium
or interest and certain covenants and provisions of the 2006 Notes Indenture
which cannot be amended without the consent of the Holder of each outstanding
2006 Note affected.
DEFEASANCE
The 2006 Notes Indenture provides that the Company, at its option, (i) will
be discharged from any and all obligations in respect of outstanding 2006 Notes
(except for certain obligations to register the transfer or exchange of 2006
Notes, to replace mutilated, lost, destroyed or stolen 2006 Notes and to
maintain paying agents and hold moneys for payment in trust), and the provisions
of the 2006 Notes 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 2006 Notes
Indenture and the 2006 Notes, and the provisions of the 2006 Notes 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 2006 Notes in accordance with the terms of the 2006
Notes Indenture and the 2006 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 2006 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 2006 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
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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
The 2006 Notes are represented by one or more global securities (the
"Global Security"). The Global Security representing the 2006 Notes has been
deposited with, or on behalf of, the Depositary and registered in the name of a
nominee of the Depositary. 2006 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 2006 Notes. In addition, the Company
may at any time and in its sole discretion determine not to have the 2006 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 credited, on its
book-entry registration and transfer system, the respective principal amounts of
the 2006 Notes represented by the Global Security to the accounts of
institutions that have accounts with the Depositary ("Participants"). The
accounts to be credited were designated by the underwriters of the 2006 Notes.
Ownership of beneficial interests in the Global Security is limited to
Participants or Persons that may hold interests through Participants. Ownership
of beneficial interests in the Global Security are 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 2006 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
2006 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 2006 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") is the initial
Depositary with respect to the 2006 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, 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
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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 2006 Notes represented by the Global Security
for all purposes under the 2006 Notes Indenture or the Global Security. Except
as set forth above, owners of beneficial interests in the Global Security will
not be entitled to have 2006 Notes represented by the Global Security registered
in their names, will not receive or be entitled to receive physical delivery of
2006 Notes in definitive form and will not be considered the owners or Holders
thereof under the 2006 Notes Indenture governing the 2006 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 Security desires to give any notice or take
any action that a Holder is entitled to give or take under the 2006 Notes
Indenture or the Global Security, DTC would authorize and cooperate with each
Participant to whose account any portion of the 2006 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 2006 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 2006 Note is registered as the absolute owner thereof (whether
or not such 2006 Note may be overdue) for the purpose of making payment and for
all other purposes.
GOVERNING LAW
The 2006 Notes Indenture and the 2006 Notes will be governed by and
construed in accordance with the laws of the State of New York.
THE TRUSTEE
The 2006 Notes 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 2006 Notes 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 2006 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.
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<PAGE> 92
The Company is required to furnish to the Trustee annually a statement as
to the performance by the Company of its obligations under the 2006 Notes
Indenture and as to any default in such performance. The Trustee also serves as
the Trustee under the 2007 Notes Indenture.
DESCRIPTION OF SENIOR SUBORDINATED NOTES DUE 2007
The 2007 Notes were issued under the 2007 Notes Indenture, dated as of
October 24, 1996, 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 2007 Notes and the 2007 Notes Indenture does not
purport to be complete and is subject to and qualified in its entirety by
reference to the 2007 Notes 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 in this "Description of Senior
Subordinated Notes Due 2007" 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 2007 Notes 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 2007 Notes are unsecured obligations of the Company, limited in
aggregate principal amount to $200,000,000. The 2007 Notes are 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 future subordinated
indebtedness of the Company. The 2007 Notes rank pari passu with $200.0 million
aggregate principal amount of the 2006 Notes.
MATURITY, INTEREST AND PRINCIPAL
The 2007 Notes will mature on February 1, 2007. Interest on the 2007 Notes
accrues at a rate of 10 1/2% per annum and will be payable semiannually on each
February 1 and August 1, commencing on February 1, 1997, to the Holders of
record on the immediately preceding January 15 and July 15. Interest is computed
on the basis of a 360-day year of twelve 30-day months. The 2007 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.
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 2007 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 Notes may look only to the Company for payment thereof.
FORM, DENOMINATION, BOOK-ENTRY PROCEDURE AND TRANSFER
The 2007 Notes have been and will be issued only in fully registered form,
without interest coupons, in denomination of $1,000 and integral multiples
thereof. The 2007 Notes were initially issued in the form of a permanent global
certificate in fully registered form (the "Global Note") and deposited with the
Trustee as custodian for The Depository Trust Company ("DTC"), in New York, New
York, and registered in the name of DTC or its nominee, for credit to an account
of a direct or indirect participant in DTC as described below.
So long as DTC, or its nominee, is the registered owner or holder of the
Global Note, DTC or such nominee, as the case may be, will be considered the
sole owner or Holder of the 2007 Notes
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represented by such Global Note for all purposes under the 2007 Notes Indenture
and the 2007 Notes. No beneficial owner of an interest in the Global Note will
be able to transfer that interest except in accordance with DTC's applicable
procedures, in addition to those provided for under the 2007 Notes Indenture.
Except as set forth below, the Global Note may be transferred, in whole and
not in part, only to another nominee of DTC or to a successor of DTC or its
nominee. Beneficial interests in the Global Note may not be exchanged for 2007
Notes in certificated from except in the limited circumstances described below.
See "-- Exchange of Book-Entry Notes for Certificated Notes."
Depository Procedures. DTC has advised the Company that DTC is a
limited-purpose trust company created to hold securities for its participating
organizations (collectively, the "Participants") and to facilitate the clearance
and settlement of transactions in those securities between Participants through
electronic book-entry changes in accounts of its Participants. The Participants
include securities brokers and dealers, banks, trust companies, clearing
corporations and certain other organizations. Access to DTC's system is also
available to other entities such as banks, brokers, dealers and trust companies
that clear through or maintain a custodial relationship with a Participant,
either directly or indirectly (collectively, the "Indirect Participants").
Persons who are not Participants may beneficially own securities held by or on
behalf of DTC only through the Participants or the Indirect Participants. The
ownership interest and transfer of ownership interest of each actual purchaser
of each security held by or on behalf of DTC are recorded on the records of the
Participants and Indirect Participants.
The Company expects that, pursuant to procedures established by DTC, (i)
DTC will credit the respective principal amount of 2007 Notes of the individual
beneficial interests represented by such Global Note to the accounts of
Participants and (ii) ownership of such interests in the Global Note will be
shown on, and the transfer of ownership thereof will be effected only through,
records maintained by DTC (with respect to the Participants) or by the
Participants and the Indirect Participants (with respect to other owners of
beneficial interests in the Global Note).
The laws of some states require that certain persons take physical delivery
in definitive form of securities that they own. Consequently the ability to
transfer beneficial interests in a Global Note to such persons may be limited to
that extent. Because DTC can act only on behalf of Participants, which in turn
act on behalf of Indirect Participants and certain banks, the ability of a
person having beneficial interests in a Global Note to pledge such interests to
persons or entities that do not participate in the DTC system, or otherwise take
actions in respect of such interests, may be affected by the lack of a physical
certificate evidencing such interests. For certain other restrictions on the
transferability of the Notes, see "-- Exchange of Book-Entry Notes for
Certificated Notes."
EXCEPT AS DESCRIBED BELOW, OWNERS OF INTERESTS IN THE GLOBAL NOTE WILL NOT
HAVE 2007 NOTES REGISTERED IN THEIR NAMES, WILL NOT RECEIVE PHYSICAL DELIVERY OF
2007 NOTES IN CERTIFICATED FORM AND WILL NOT BE CONSIDERED THE REGISTERED OWNERS
OR HOLDERS THEREOF UNDER THE 2007 NOTES INDENTURE FOR ANY PURPOSE.
Payments in respect of the principal of (and premium, if any) and interest
on a Global Note registered in the name of DTC or its nominee will be payable by
the Trustee to DTC or its nominee in its capacity as the registered holder under
the 2007 Notes Indenture. Under the terms of the 2007 Notes Indenture, the
Company and the Trustee will treat the persons in whose names the 2007 Notes,
including the Global Note, are registered as the owners thereof for the purpose
of receiving such payments and for any and all other purposes whatsoever.
Consequently, none of the Company, the Trustee nor any agent or the Company or
the Trustee has or will have any responsibility or liability for (i) any aspect
of DTC's records or any Participant's or Indirect Participant's records relating
to or payments made on account of beneficial ownership interests in the Global
Note, or for maintaining, supervising or reviewing any of DTC's records or any
Participant's or Indirect Participant's records relating to the beneficial
ownership interests in the
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Global Note, or (ii) any other matter relating to the actions and practices of
DTC or any of its Participants or Indirect Participants.
DTC has advised the Company that its current practice, upon receipt of any
payment in respect of securities such as the 2007 Notes (including principal and
interest), is to credit the accounts of the relevant Participants with the
payment on the payment date, in amounts proportionate to their respective
holdings in principal amount of beneficial interests in the relevant security
such as the Global Note as shown on the records of DTC unless DTC has reason to
believe it will not receive payment on such payment date. Payments by the
Participants and the Indirect Participants to the beneficial owners of 2007
Notes will be governed by standing instructions and customary practices and will
be the responsibility of the Participants or the Indirect Participants and will
not be the responsibility of DTC, the Trustee or the Company. Neither the
Company nor the Trustee will be liable for any delay by DTC or any of its
Participants in identifying the beneficial owners of the 2007 Notes, and the
Company and the Trustee may conclusively rely on and will be protected in
relying on instructions from DTC or its nominee as the registered owner of the
2007 Notes for all purposes.
Interests in the Global Note will trade in DTC's Same-Day Funds Settlement
System and secondary market trading activity in such interests will therefore
settle in immediately available funds, subject to all cases to the rules and
procedures of DTC and is participants.
Transfers between Participants in DTC will be effected in accordance with
DTC's procedures, and will be settled in same-day funds. If a Holder requires
physical delivery of a Certificated Note for any reason, including to sell 2007
Notes to Persons in states which require physical delivery of such 2007 Notes or
to pledge such 2007 Notes, such holder must transfer its interest in the Global
Note in accordance with the normal procedures of DTC and the procedures set
forth in the 2007 Notes Indenture.
DTC has advised the Company that it will take any action permitted to be
taken by a Holder of 2007 Notes only at the direction of one or more
Participants to whose account with DTC interests in the Global Notes are
credited and only in respect of such portion of the aggregate principal amount
of the 2007 Notes as to which such Participant or Participants has or have given
such direction. However, if there is an Event of Default (as defined below)
under the 2007 Notes, DTC reserves the right to exchange the Global Note for
2007 Notes in certificated form, and to distribute such 2007 Notes to its
Participants.
The information in this section concerning DTC and its book-entry systems
has been obtained from sources that the Company believes to be reliable, but the
Company takes no responsibility for the accuracy thereof.
Although DTC has agreed to the foregoing procedures to facilitate transfers
of interests in the 2007 Notes among participants in DTC, it is under no
obligation to perform or to continue to perform such procedures, and such
procedures may be discontinued at any time. Neither the Company nor the Trustee
will have any responsibility for the performance by DTC or its participants or
indirect participants of its obligations under the rules and procedures
governing their operations.
Exchange of Book-Entry Notes for Certificated Notes. A Global Note is
exchangeable for definitive 2007 Notes in registered certificated form if (i)
DTC (x) notifies the Company that it is unwilling or unable to continue as
Depository for the Global Note and the Company thereupon fails to appoint a
successor depository or (y) has ceased to be a clearing agency registered under
the Exchange Act, (ii) the Company at its option, notifies the Trustee in
writing that it elects to cause the issuance of the 2007 Notes in certificated
form of (iii) there shall have occurred and be continuing a Default or an Event
of Default with respect to the 2007 Notes. In addition, beneficial interests in
a Global Note may be exchanged for certificated 2007 Notes upon request but only
upon at least 20 days prior written notice given to the Trustee by or on behalf
of DTC in accordance with its customary procedures. In all cases, certificated
2007 Notes delivered in exchange for any Global Note or beneficial interests
therein will be registered in the names, and issued in any approved
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denominations, requested by or on behalf of the Depositary (in accordance with
its customary procedures).
SUBORDINATION
The payment of the principal of and premium, if any, and interest on the
2007 Notes are, to the extent set forth in the 2007 Notes Indenture,
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 2007 Notes will be entitled to receive any Notes
Payment.
In the event that any Senior Payment Default shall have occurred and be
continuing, then no 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 Indebtedness or, if there is no
outstanding Designated Senior Indebtedness, any holder of Senior Indebtedness,
no 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 2007 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. No Payment Blockage Period shall be in effect if there is no payment
blockage period in effect with respect to any outstanding 2006 Notes. 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 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 December 31, 1996, Senior Indebtedness aggregated approximately $343.0
million. The Company expects from time to time to Incur additional Indebtedness
constituting Senior Indebtedness. See "Capitalization." The 2007 Notes 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 are effectively senior in right of payment to the 2007
Notes. At December 31, 1996, the total outstanding Indebtedness of the Company's
Subsidiaries not eliminated in the Company's consolidated financial statements
was approximately $143.0 million.
OPTIONAL REDEMPTION
Prior to February 1, 2002, the 2007 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 2007 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
2007 Notes or portion thereof being redeemed.
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On or after February 1, 2002, the 2007 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 February 1 of each
of the years indicated below:
<TABLE>
<CAPTION>
REDEMPTION
YEAR PRICE
------------------------------------------------- ----------
<S> <C>
2002............................................. 105.25%
2003............................................. 103.50%
2004............................................. 101.75%
2005 and thereafter.............................. 100.00%
</TABLE>
Notwithstanding the previous two paragraphs, on or before February 1, 1999,
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 2007 Notes at 110.50% (expressed as a percentage of the
stated principal amount thereof), together with accrued interest to but
excluding the date fixed for redemption.
Notice of any optional redemption of any 2007 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 2007 Notes are to be redeemed, principal
amounts of the particular 2007 Notes to be redeemed, that on the redemption date
the redemption price will become due and payable upon each 2007 Note to be
redeemed and the place or places where such 2007 Notes are to be surrendered for
payment of the redemption price.
No sinking fund is provided for the 2007 Notes.
REGISTRATION COVENANT; EXCHANGE OFFER
The Company entered into an Exchange and Registration Rights Agreement (the
"Registration Rights Agreement") pursuant to which the Company, for the benefit
of the Holders of the Original Notes, filed and caused to become effective with
the Commission, a registration statement (the "Exchange Offer Registration
Statement") under the Securities Act relating to the Exchange Offer pursuant to
which the Exchange Notes were exchanged for $199.0 million aggregate principal
amount of Original Notes tendered at the option of the Holders. The closing of
the Exchange Offer resulting in the issuance of the Exchange Notes occurred on
December 11, 1996.
Under existing Commission interpretations, the Exchange Notes are in
general freely transferable after the Exchange Offer without further
registration under the Securities Act, except that broker-dealers
("Participating Broker-Dealers") receiving Exchange Notes in the Exchange Offer
will be subject to a prospectus delivery requirement with respect to resale of
those Exchange Notes. The Commission has taken the position that Participating
Broker-Dealers may fulfill their prospectus delivery requirements with respect
to the Exchange Notes (other than a resale of any unsold allotment from the
original sale of the Senior Subordinated Notes) by delivery of the prospectus
contained in the Exchange Offer Registration Statement. Under the Registration
Rights Agreement, the Company is required to allow Participating Broker-Dealers
and other persons, if any, subject to similar prospectus delivery requirements
to use the prospectus contained in the Exchange Offer Registration Statement in
connection with the resale of such Exchange Notes. Each Holder of the Original
Notes (other than certain specified Holders) who exchanged such Original Notes
for Exchange Notes in the Exchange Offer was required to represent that any
Exchange Notes to be received by it were acquired in the ordinary course of its
business, that at the time of the commencement of the Exchange Offer it had no
arrangement with any person to participate in the distribution (within the
meaning of the Securities Act) of the Exchange Notes and that it was not an
Affiliate of the Company.
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The summary herein of certain provisions of the Registration Rights
Agreement does not purport to be complete and is subject to, and is qualified in
its entirety by reference to, all the provisions of the Registration Rights
Agreement, a copy of which is filed as an exhibit to the Registration Statement
of which this Prospectus is a part.
The Original Notes and the Exchange Notes are considered collectively to be
a single class for all purposes under the 2007 Notes Indenture, including,
without limitation, waivers, amendments, redemptions and Offers to Purchase.
CHANGE OF CONTROL
Upon the occurrence of a Change of Control, each Holder of a 2007 Note
shall have the right to have such 2007 Note repurchased by the Company on the
terms and conditions set forth in the 2007 Notes 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 2007 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 2007 Notes
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 2007 Notes 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 shareholders 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.
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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.
COVENANTS
LIMITATION ON CONSOLIDATED INDEBTEDNESS
The 2007 Notes Indenture prohibits 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 June 30, 2000........................ 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 2007 Notes or otherwise arising
under the 2007 Notes 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 2007 Notes
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 February 1, 2000 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 2007 Notes, the
refinancing or refunding Indebtedness is made pari passu or subordinated to
the 2007 Notes and, in the case of any refinancing or refunding of
Indebtedness subordinated to the 2007 Notes, the refinancing or refunding
Indebtedness is made subordinate to the 2007 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 February 1, 2000, other than Indebtedness
permitted pursuant to clauses (i) through (vi) above, which, together with
any other outstanding indebtedness incurred pursuant to this clause (vii),
does not exceed $50 million at any time outstanding or committed.
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LIMITATION ON PREFERRED STOCK OF RESTRICTED SUBSIDIARIES
The 2007 Notes Indenture prohibits 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 2007 Notes
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 2007 Notes Indenture described under "-- Limitation on Consolidated
Indebtedness."
LIMITATION ON CERTAIN ASSET DISPOSITIONS
The 2007 Notes Indenture prohibits 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 (or Indebtedness of
such Restricted Subsidiary, as the case may be) then outstanding; (b) second, to
make any offer to purchase required under the 2006 Notes Indenture; (c) third,
to make an Offer to Purchase any outstanding 2007 Notes at par value plus
accrued interest and any other offer to purchase required under the terms of
Indebtedness that is pari passu to the 2007 Notes, on a pro rata basis; and (d)
fourth, to the repayment of other Indebtedness of the Company or a Restricted
Subsidiary. The Company will not be able to make an offer to purchase pursuant
to clause (ii)(b) or (c) without obtaining written consents from or repaying the
lenders under the Credit Facility.
Notwithstanding clause (iii) of the preceding paragraph, the 2007 Notes
Indenture will not require the Company to repay Senior Indebtedness (or
Indebtedness of such Restricted Subsidiary) then outstanding, to make an Offer
to Purchase any outstanding 2007 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 2007 Notes Indenture prohibits 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 2007 Notes 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 2007 Notes 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 2007 Notes
Indenture.
The foregoing provision shall not be violated, so long as 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 (other than in the case of
clause (ii)), 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 2007 Notes 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 2007 Notes 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 2007
Notes Indenture.
LIMITATIONS CONCERNING DISTRIBUTIONS AND TRANSFERS BY RESTRICTED
SUBSIDIARIES
The 2007 Notes Indenture provides 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 2007 Notes Indenture, (ii) pursuant to an agreement
entered into after the date of the 2007 Notes Indenture relating to any
Indebtedness the Incurrence of which is permitted under the 2007 Notes
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 or are no more
restrictive in any material respect than those contained in the 2007 Notes
Indenture, (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 encum-
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brance or restriction are no more restrictive in any material respect than the
provisions contained in the agreement the subject thereof.
LIMITATION ON ISSUANCES AND SALES OF CAPITAL STOCK OF WHOLLY OWNED
RESTRICTED SUBSIDIARIES
Subject to the requirements of the provision of the 2007 Notes Indenture
described under "-- Consolidation, Merger, Conveyance, Transfer or Lease," the
2007 Notes Indenture provides 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 2007 Notes Indenture described under "--Limitation on
Certain Asset Dispositions."
LIMITATIONS ON TRANSACTIONS WITH AFFILIATES AND RELATED PERSONS
The 2007 Notes Indenture provides 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 (other than a
Restricted Subsidiary), 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 2007 Notes Indenture provides 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
2007 Notes without making, or causing such Restricted Subsidiary to make,
effective provision for securing the 2007 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 2007 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 2007 Notes 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
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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 2007
Notes 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 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 2007
Notes Indenture described under clause (ii) or (v) of "--Limitation on
Consolidated Indebtedness."
LIMITATION ON CERTAIN DEBT
The 2007 Notes Indenture provides 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 2007 Notes.
CONSOLIDATION, MERGER, CONVEYANCE, TRANSFER OR LEASE
The 2007 Notes Indenture provides 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 2007 Notes and the 2007 Notes 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 2007 Notes 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 2007 Notes Indenture: (i)
failure to pay the principal of or premium, if any, on the 2007 Notes at
Maturity; (ii) failure to pay any interest on the 2007 Notes when it becomes due
and payable continued for 30 days; (iii) failure, on the applicable Purchase
Date, to purchase 2007 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 2007 Notes Indenture
described under "--Mergers, Consolidations and Certain Sales of Assets"; (v)
failure to perform any other covenant or agreement of the Company under the 2007
Notes 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
2007 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
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2007 Notes by notice as provided in the 2007 Notes Indenture, may declare the
principal amount of the 2007 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 2007 Notes may, under certain circumstances, rescind and annul such
acceleration if all Events of Default, other than the non-payment of accelerated
principal of the 2007 Notes, have been cured or waived as provided in the 2007
Notes Indenture. If an Event of Default described under (viii) above shall
occur, the 2007 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 2007 Note will have any right to institute any proceeding
with respect to the 2007 Notes 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 2007 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 2007 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 2007 Note for enforcement of payment of the
principal of and premium, if any, or interest on such 2007 Note on or after the
respective due dates expressed in such Note. The Holders of a majority in
aggregate principal amount of the 2007 Notes outstanding may waive any existing
Default except a Default in the payment of interest or principal (including
premium) on the 2007 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 2007 Notes 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.
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"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.
"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 2007 Notes 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 2007 Notes 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
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the 2007 Notes 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 the 2007 Notes 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 2007 Notes Notes until a successor
Depositary shall have become such pursuant to the applicable provisions of the
2007 Notes Indenture, and thereafter "Depositary" shall mean such successor
Depositary. The Depositary initially is DTC.
"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 2007 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
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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
2007 Notes Indenture described in clause (v) of "-- Limitation on Preferred
Stock of Restricted Subsidiaries."
"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 2007 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 2007
Note being redeemed or paid.
"Maturity" means, when used with respect to any 2007 Note, the date on
which the principal of such 2007 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.
"Notes Payment" means any payment or distribution of any kind or character,
whether in cash, property or securities, or account of principal of (or premium,
if any) or interest on or other obligations in respect of the 2007 Notes or
other Indebtedness of the Company that is pari passu or subordinate in right of
payment to the 2007 Notes or on account of any purchase or other acquisition of
2007 Notes or such other Indebtedness by the Company or any subsidiary of the
Company.
"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 2007 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
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"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 2007 Notes within five Business Days after the
Expiration Date. The Offer shall also state the section of the 2007 Notes
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
2007 Notes offered to be purchased by the Company, the purchase price to be paid
by the Company and the place or places where 2007 Notes are to be surrendered
for tender pursuant to the 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.
"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 2007 Notes 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 2007 Notes Indenture for or into shares of Qualified Capital Stock
of such Person, the liquidation value of the Preferred Stock or the
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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 2007 Notes or is redeemable at the option of the holder
thereof at any time prior to the final Stated Maturity of the 2007 Notes.
"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 and
other than any declaration or payment of a dividend or other distribution by a
Restricted Subsidiary to the Company or another Restricted Subsidiary), (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 or other than any loan, advance, capital contribution to, or
investment in, the Company or another Restricted Subsidiary by a Restricted
Subsidiary, or any payment by any Restricted Subsidiary of any loan, advance or
other Indebtedness or other amount owed by a Restricted Subsidiary to the
Company or another 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 2007 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
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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 2007 Notes 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
2007 Notes Indenture or thereafter Incurred, other than the 2007 Notes, 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 2007 Notes, (C) any Indebtedness Incurred in violation of the
2007 Notes 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 the 2007 Notes
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.
"Stated Maturity," when used with respect to any 2007 Note or any
installment of interest thereon, means the date specified in such 2007 Note as
the date on which the principal of such 2007 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
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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 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 2007
Notes 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 2007 Notes 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 2007 Notes 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 2007 Notes; provided, however,
that no such modification or amendment may, without the consent of the Holder of
each 2007 Note affected thereby, (i) change the Stated Maturity of the principal
of, or any installment of interest on, any 2007 Note, (ii) reduce the principal
amount of or premium, if any, or interest on any 2007 Note, (iii) change the
place or currency of payment of principal of, or premium or interest on any 2007
Note, (iv) impair the right to institute suit for the enforcement of any payment
on or with respect to any 2007 Note, (v) reduce the percentage of aggregate
principal amount of 2007 Notes outstanding necessary to amend the 2007 Notes
Indenture, (vi) reduce the percentage of aggregate principal amount of 2007
Notes outstanding necessary for waiver of compliance with certain provisions of
the 2007 Notes 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 2007 Notes,
(ix) following the mailing of an Offer to Purchase, modify the provisions of the
2007 Notes Indenture
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with respect to such Offer to Purchase in a manner adverse to such Holder or (x)
modify the provision of the 2007 Notes Indenture described under "-- Limitation
on Certain Debt."
The Holders of a majority in aggregate principal amount of the outstanding
2007 Notes may waive compliance by the Company with certain restrictive
provisions of the 2007 Notes Indenture. The Holders of a majority in aggregate
principal amount of the outstanding 2007 Notes may waive any past default under
the 2007 Notes Indenture, except a default in the payment of principal, premium
or interest and certain covenants and provisions of the 2007 Notes Indenture
which cannot be amended without the consent of the Holder of each outstanding
2007 Note affected.
DEFEASANCE
The 2007 Notes Indenture provides that the Company, at its option, (i) will
be discharged from any and all obligations in respect of outstanding 2007 Notes
(except for certain obligations to register the transfer or exchange of 2007
Notes, to replace mutilated, lost, destroyed or stolen 2007 Notes and to
maintain paying agents and hold moneys for payment in trust), and the provisions
of the 2007 Notes 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 2007 Notes
Indenture and the 2007 Notes, and the provisions of the 2007 Notes 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 without the need for
reinvestment, 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 2007 Notes in
accordance with the terms of the 2007 Notes Indenture and the 2007 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 2007 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 2007 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.
NOTICES
Notices to Holders of Exchange Notes will be given by mail to the addresses
of such Holders as they may appear in the Security Register.
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TITLE
The Company, the Trustee and any agent of the Trustee may treat the Person
in whose name a 2007 Note as the absolute owner thereof (whether or not such
2007 Note may be overdue) for the purpose of making payment and for all other
purposes.
GOVERNING LAW
The 2007 Notes Indenture and the 2007 Notes will be governed by and
construed in accordance with the laws of the State of New York.
THE TRUSTEE
The 2007 Notes 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 2007 Notes 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 2007 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 2007 Notes
Indenture and as to any default in such performance. The Trustee also serves as
the Trustee under the 2006 Notes Indenture.
SHARES ELIGIBLE FOR FUTURE SALE
As of March 31, 1997, the Company has outstanding 14,810,157 shares of
Class A Common Stock and 55,198,604 shares of Class B Common Stock. An aggregate
of 5,849,297 shares of Common Stock have been reserved for issuance under the
Company's stock option plan and options to purchase 3,050,548 of such shares of
Class B Common Stock and 922,000 of such shares of Class A Common Stock are
currently outstanding and 1,360,837 shares of Class A Common Stock are reserved
for issuance pursuant to future option grants. Also, up to 327,882 shares of
Class B Common Stock are reserved for issuance upon the exercise of exchange
rights exercisable no sooner than 2001 issued to the Company's partners in Cook
Inlet PCS and 8,860 shares of Class A Common Stock (based on the fair market
value of the stock of Western International on the date hereof) are issuable
under the Horwitz Agreement. In addition, 1,000,000 shares of Class A Common
Stock are reserved for issuance pursuant to the Company's Employee Stock
Purchase Plan, and 500,000 shares of Class A Common Stock are reserved for
issuance pursuant to the Company's Executive Restricted Stock Plan.
The shares of Class A Common Stock sold in the offerings of Class A Common
Stock are freely tradeable without restriction or further registration under the
Securities Act, except for any shares purchased by an "affiliate" (as that term
is defined under the Securities Act) of the Company, which are subject to the
resale limitations of Rule 144 promulgated under the Securities Act. All of such
shares of Class A Common Stock are "restricted securities" within the meaning of
Rule 144 (the "Restricted Shares") and may not be publicly sold unless
registered under the Securities Act or sold in accordance with an applicable
exemption from registration, such as Rule 144.
In general, under Rule 144, as currently in effect, if two years have
elapsed since the later of the date of acquisition of Restricted Shares from the
Company or any affiliate of the Company, the acquirer or subsequent holder
(including an affiliate) is entitled to sell, within any three-month period,
that number of shares that does not exceed the greater of 1% of the then
outstanding shares of Class A Common Stock or the average weekly trading volume
of the shares of Class A Common
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Stock on all exchanges and/or reported through the automated quotation system of
a registered securities association during the four calendar weeks preceding the
date on which notice of the sale is filed with the Commission. Effective April
29, 1997, that holding period will be reduced to one year. Sales under Rule 144
are also subject to certain restrictions relating to manner of sale, notice
requirements and the availability of current public information about the
Company. If three years have elapsed since the later of the date of acquisition
of Restricted Shares from the Company or from any affiliate of the Company, and
the acquirer or subsequent holder thereof is deemed not to have been an
affiliate of the Company at any time during the 90 days preceding a sale, such
person would be entitled to sell such shares in the public market under Rule
144(k) without regard to the volume limitations, manner of sale provisions,
public information requirements or notice requirements. Effective April 29,
1997, that holding period will be reduced to two years. As defined in Rule 144,
an "affiliate" of an issuer is a person that directly, or indirectly through the
use of one or more intermediaries, controls, or is controlled by, or is under
common control with, such issuer. In general, under Rule 701 as currently in
effect, persons who purchase shares upon exercise of options that were granted
pursuant to Rule 701 are entitled to sell such shares in reliance on Rule 144
without regard to the holding period, public information, volume limitations or
notice provisions of Rule 144, if such persons are not affiliates of the
Company, and without regard to the holding period requirements of Rule 144, if
such persons are affiliates of the Company. Restricted Shares properly sold in
reliance on Rule 144 are thereafter freely tradeable without restrictions or
registration under the Securities Act, unless thereafter held by an affiliate of
the Company.
Subject to certain limitations on the aggregate offering price of a
transaction and other conditions, Rule 701 may be relied upon with respect to
the resale of securities originally purchased from the Company by its employees,
directors, officers, consultants or advisors between May 20, 1988, the effective
date of Rule 701, and the date the issuer becomes subject to the reporting
requirements of the Exchange Act, pursuant to written compensatory benefit plans
or written contracts relating to the compensation of such persons. In addition,
the Commission has indicated that Rule 701 will apply to typical stock options
granted by an issuer before it becomes subject to the reporting requirements of
the Exchange Act (including options granted before May 20, 1988, if made in
accordance with the Rule had it been in effect), along with the shares acquired
upon exercise of such options beginning May 20, 1988 (including exercises after
the date of this Prospectus). Securities issued in reliance on Rule 701 are
Restricted Shares and, subject to the contractual restrictions described above,
beginning 90 days after the date of this Prospectus, such securities may be sold
(i) by persons other than affiliates, subject only to the manner of sale
provisions of Rule 144 and (ii) by affiliates under Rule 144 without compliance
with its two-year minimum holding period requirements.
The Company has filed registration statements under the Securities Act
covering 5,849,297 shares of Common Stock issued or issuable under the Company's
stock option plan and 1,000,000 shares of Class A Common Stock issuable under
its Employee Stock Purchase Plan. The Company intends to file a registration
statement under the Securities Act covering 500,000 shares of Class A Common
Stock issuable under its Executive Restricted Stock Plan. Such registration
statement will automatically become effective upon filing. Accordingly, shares
registered under such registration statements are or will be available for sale
in the open market, subject to Rule 144 volume limitations applicable to
affiliates, except to the extent that such shares are subject to vesting
restrictions with the Company or the contractual restrictions described above.
REGISTRATION RIGHTS
Pursuant to the terms of the Stockholders Agreement, certain holders of the
Company's Common Stock have registration rights in defined circumstances and
such rights generally include, subject to certain restrictions, underwriter
cutbacks and pro rata inclusion provisions, the right to
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participate in both demand registrations (i.e., those that are required by
certain of the shareholders pursuant to contract) and "piggyback" rights (i.e.,
the right to join in any registrations undertaken by the Company). See "Certain
Transactions." The Horwitz Agreement contains "piggyback" rights for shares of
Class A Common Stock issuable by the Company thereunder.
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.
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 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 certain long-term interest rate swap and cap agreements with a total
notional amount of $205 million. For the year ended December 31, 1996, the
weighted average interest rate including the applicable margin under these
agreements was approximately 7.79%.
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
114
<PAGE> 115
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 $233.9 million, cash proceeds from equity issuances by the Company after
May 6, 1996 and $14 million.
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
1,550,000 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 the consortium of lenders pursuant to the NORTEL Facility. Western
PCS II currently holds the Company's PCS licenses for the Honolulu, Salt Lake
City, El Paso/Albuquerque and Denver MTAs as well as certain related PCS assets.
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
Corporation and NORTEL, Western PCS II entered into a $200 million NORTEL
Facility with Northern Telecom Inc. ("NORTEL"), which recently has been amended
to include a consortium of lenders and to increase the amount of the facility to
$300 million. 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.
Pursuant to the NORTEL Facility, the lenders have agreed to make loans to
Western PCS II (the "NORTEL Loans"), on a revolving credit basis, in an
aggregate principal amount not to exceed $300 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 a formula related to the amount of all capital expenditures (as defined in
the NORTEL Facility) of Western PCS II Corporation.
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
115
<PAGE> 116
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.
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 the lenders.
VALIDITY OF SECURITIES
The validity of the shares of Class A Common Stock, the 2006 Notes and the
Exchange Notes, each as offered hereby, have been passed upon for the Company by
Preston Gates & Ellis LLP, Seattle, Washington. Partners in that firm hold an
aggregate of not more than 20,000 shares of the Company's Common Stock. The
validity of the shares of Class A Common Stock and the 2006 Notes, each as
offered hereby, have been passed upon for the underwriters of the Company's
public offerings of the Class A Common Stock and 2006 Notes 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 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.
PLAN OF DISTRIBUTION
This Prospectus may be used by Goldman Sachs in connection with offers and
sales related to market-making transactions in the shares of Class A Common
Stock, the 2006 Notes and the Exchange Notes effected from time to time. Goldman
Sachs may act as principal or agent in such transactions, including as agent for
the counterparty when acting as principal or 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.
116
<PAGE> 117
For a description of certain relationships 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
shares of Class A Common Stock, the 2006 Notes and the Exchange Notes. However,
they are not obligated to do so and any market-making may be interrupted or
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 be
developed or sustained. See "Risk Factors -- No Assurance of Public Market for
the Class A Common Stock; Possible Volatility of Price of Class A Common Stock"
and "-- No Assurance of Public Market for the Senior Subordinated Notes;
Possible Volatility of Price of 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.
The Class A Common Stock is quoted on the Nasdaq National Market under the
symbol "WWCA."
Settlement for the Class A Common Stock, the 2006 Notes and the Exchange
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 Act.
117
<PAGE> 118
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 December 31, 1996 and 1995......................... F-3
Consolidated Statements of Operations for the years ended December 31, 1996, 1995 and
1994............................................................................... F-4
Consolidated Statements of Shareholders' Equity for the years ended December 31,
1996, 1995 and 1994................................................................ F-5
Consolidated Statements of Cash Flows for the years ended December 31, 1996, 1995 and
1994............................................................................... F-6
Notes to Consolidated Financial Statements........................................... F-7
Schedule II -- Valuation and Qualifying Accounts..................................... F-23
</TABLE>
F-1
<PAGE> 119
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, 1996 and 1995, and the
related consolidated statements of operations, shareholders' equity and cash
flows for each of the three years in the period ended December 31, 1996. These
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 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 Western Wireless Corporation
and subsidiaries as of December 31, 1996 and 1995, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1996 in conformity with generally accepted accounting principles.
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 a required part of the basic financial
statements. This schedule has been subjected to the auditing procedures applied
in our audits of the basic financial statements and, in our opinion, is fairly
stated in all material respects in relation to the basic financial statements
taken as a whole.
ARTHUR ANDERSEN LLP
Seattle, Washington
February 18, 1997
F-2
<PAGE> 120
WESTERN WIRELESS CORPORATION
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 1996 AND 1995
(Dollars in thousands)
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1996 1995
---------- --------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.......................................... $ 54,885 $ 8,572
Accounts receivable, net of allowance for doubtful accounts of
$4,266 and $2,800, respectively................................. 28,958 18,074
Inventory.......................................................... 26,138 5,361
Prepaid expenses and other current assets.......................... 14,809 4,001
Deposit held by FCC................................................ 25,000 1,500
---------- --------
Total current assets....................................... 149,790 37,508
Property and equipment, net of accumulated depreciation of $107,685
and $53,423 respectively........................................... 538,617 193,692
Licensing costs and other intangible assets, net of accumulated
amortization of $55,363 and $28,364, respectively.................. 540,482 417,971
Investments in and advances to unconsolidated affiliates............. 12,655 8,388
Other assets......................................................... 159 1,469
---------- --------
$1,241,703 $659,028
========== =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable................................................... $ 14,122 $ 7,568
Accrued liabilities................................................ 36,652 16,659
Construction accounts payable...................................... 89,583 28,408
Unearned revenue and customer deposits............................. 4,097 3,301
---------- --------
Total current liabilities.................................. 144,454 55,936
---------- --------
Long-term debt....................................................... 743,000 362,487
---------- --------
Commitments (Notes 7)
Shareholders' equity:
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,
14,540,691 shares issued and outstanding at December 31, 1996;
Class B, 56,239,157 and 58,047,235 shares issued and
outstanding, respectively....................................... 569,278 324,729
Deferred compensation.............................................. (800)
Deficit............................................................ (214,229) (84,124)
---------- --------
Total shareholders' equity................................. 354,249 240,605
---------- --------
$1,241,703 $659,028
========== =========
</TABLE>
See accompanying notes to consolidated financial statements
F-3
<PAGE> 121
WESTERN WIRELESS CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
AS OF DECEMBER 31, 1996, 1995 AND 1994
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
Revenues:
Subscriber revenues........................... $ 182,441 $ 105,430 $ 38,838
Roamer revenues............................... 34,065 29,660 16,746
Equipment sales and other revenue............. 26,579 11,465 7,524
----------- ----------- -----------
Total revenues........................ 243,085 146,555 63,108
----------- ----------- -----------
Operating expenses:
Cost of service............................... 53,600 27,686 13,303
Cost of equipment sales....................... 46,305 20,705 11,446
General and administrative ................... 66,673 31,253 15,226
Sales and marketing........................... 83,652 41,390 18,553
Depreciation and amortization................. 79,741 49,456 25,670
Provision for restructuring costs............. 2,478
----------- ----------- -----------
Total operating expenses.............. 329,971 170,490 86,676
----------- ----------- -----------
Operating loss.................................. (86,886) (23,935) (23,568)
----------- ----------- -----------
Other income (expense):
Interest and financing expense, net........... (44,690) (25,428) (10,659)
Gain (loss) on dispositions, net.............. (573) 6,202
Other, net.................................... 1,471 627 2,065
----------- ----------- -----------
Total other income (expense).......... (43,219) (25,374) (2,392)
----------- ----------- -----------
Loss before extraordinary item.................. (130,105) (49,309) (25,960)
Extraordinary loss on early extinguishment
of debt....................................... (6,645)
----------- ----------- -----------
Net loss.............................. $ (130,105) $ (55,954) $ (25,960)
============ ============ ============
Loss per common share before extraordinary
item.......................................... $ (2.00) $ (0.87) $ (0.59)
Per common share effect of extraordinary item... $ (0.12)
----------- ----------- -----------
Net loss per common share....................... $ (2.00) $ (0.99) $ (0.59)
============ ============ ============
Weighted average common shares and common
equivalent shares outstanding................. 65,196,000 56,470,000 43,949,000
============ ============ ============
</TABLE>
See accompanying notes to consolidated financial statements
F-4
<PAGE> 122
WESTERN WIRELESS CORPORATION
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(Dollars in thousands)
<TABLE>
<CAPTION>
COMMON STOCK
----------------------------------------- TOTAL
CLASS A CLASS B PAR VALUE AND DEFERRED SHAREHOLDERS'
SHARES SHARES PAID-IN CAPITAL COMPENSATION DEFICIT EQUITY
---------- ---------- --------------- ------------ --------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1994................ 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.............................. (55,594) (55,954)
---------- -------- ----- --------- --------
Balance, December 31, 1995.............. 58,047,235 324,729 (84,124) 240,605
Shares issued:
For cash, net of costs ............. 10,664,800 88,567 234,724 234,724
Upon exercise of stock options...... 383,937 879 879
In exchange for wireless assets..... 595,309 7,117 7,117
Class B shares exchanged for Class A
Shares............................ 3,491,954 (3,491,954)
Deferred compensation................. 1,829 (800) 1,029
Net loss.............................. (130,105) (130,105)
---------- ---------- -------- ----- --------- --------
Balance, December 31, 1996.............. 14,540,691 55,239,157 $ 569,278 $ (800) $(214,229) $ 354,249
========== ========== ======== ===== ========= ========
</TABLE>
See accompanying notes to consolidated financial statements
F-5
<PAGE> 123
WESTERN WIRELESS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(Dollars in thousands)
<TABLE>
<CAPTION>
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
Operating activities:
Net loss..................................................... $(130,105) $ (55,954) $ (25,960)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization........................... 81,716 49,456 25,670
Extraordinary loss on early extinguishment of debt...... 6,645
(Gain) loss on dispositions, net........................ 573 (6,202)
Deferred compensation................................... 1,029 285
Other, net.............................................. 2,081 527 163
Changes in operating assets and liabilities, net of
effects from consolidating acquired interests:
Accounts receivable, net........................... (10,309) (5,748) (2,249)
Inventory.......................................... (20,493) (239) (3,454)
Prepaid expenses and other current assets.......... (10,979) (1,284) 4,843
Accounts payable................................... 5,771 (272) (1,465)
Accrued liabilities................................ 19,646 6,421 5,082
Unearned revenue and customer deposits............. 310 (870) 2,299
--------- --------- ---------
Net cash used in operating activities................... (61,333) (745) (988)
--------- --------- ---------
Investing activities:
Purchase of property and equipment........................... (333,315) (79,464) (47,423)
Purchase of wireless licenses and other...................... (86,097) (137,805)
Acquisition of wireless properties, net of cash acquired..... (40,180) (60,700) (30,566)
Proceeds from disposition of assets, net..................... 10,163
Investments in and advances to unconsolidated affiliates..... (5,994) (8,268) (2,364)
Purchase of subsidiary stock, including fees................. (5,842)
Deposit held by FCC, net..................................... (23,500) (1,500)
--------- --------- ---------
Net cash used in investing activities................... (489,086) (293,579) (70,190)
--------- --------- ---------
Financing activities:
Proceeds from issuance of common stock, net.................. 235,603 143,080
Additions to long-term debt.................................. 893,000 438,000 214,729
Payment of debt.............................................. (512,722) (277,015) (135,264)
Deferred financing costs..................................... (19,149) (12,798) (8,688)
Loans from shareholders...................................... 3,842
--------- --------- ---------
Net cash provided by financing activities............... 596,732 295,109 70,777
--------- --------- ---------
Change in cash and cash equivalents............................ 46,313 785 (401)
Cash and cash equivalents, beginning of year................... 8,572 7,787 8,188
--------- --------- ---------
Cash and cash equivalents, end of year......................... $ 54,885 $ 8,572 $ 7,787
========= ========= =========
</TABLE>
See accompanying notes to consolidated financial statements
F-6
<PAGE> 124
WESTERN WIRELESS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND BASIS OF PRESENTATION:
Western Wireless Corporation (the "Company") provides wireless
communications services in the western United States principally through the
ownership and operation of cellular and personal communications systems ("PCS").
In addition to the cellular communications systems, the Company has acquired
seven PCS licenses covering seven Metropolitan Trading Areas ("MTAs"). Between
February and December 1996, the Company initiated service in the Honolulu, Salt
Lake City, Albuquerque, Portland, Oklahoma City and Des Moines MTAs. The Company
intends to initiate wireless services in the one remaining MTA, Denver, during
the first half of 1997.
The Company was formed in July 1994, as a result of 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 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.
In January 1997, a wholly owned subsidiary of the Company was the high
bidder on 100 PCS Licenses in the D and E Block auctions conducted by the FCC.
The purchase price of the licenses will be approximately $80.9 million.
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.
Cash and cash equivalents:
Cash and cash equivalents generally consist of cash, time deposits,
commercial paper and money market instruments. The Company invests its excess
cash in deposits with major banks and money market securities of investment
grade companies from a variety of industries and, therefore, bears minimal risk.
These investments have original maturity dates which do not exceed three months.
Such investments are stated at cost, which 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 to the customer.
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.
F-7
<PAGE> 125
WESTERN WIRELESS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED):
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
Federal Communication Commission ("FCC") wireless licenses, including cellular
licenses obtained by the Company, principally through acquisitions, and PCS
licenses which were primarily purchased from the FCC.
Amortization of cellular licenses is computed using the straight-line
method. During 1996 the Company amortized its cellular licensing costs over 15
years. Effective January 1, 1997, the Company prospectively changed its
amortization period for cellular licensing costs from 15 years to 40 years to
conform more closely with industry practices. Amortization of PCS licenses
begins with the commencement of service to customers and is computed using the
straight-line method over 40 years. As of December 31, 1996, the Company had
initiated commercial operations in six of its PCS markets. At December 31, 1995,
operations had not commenced in any of the Company's PCS markets.
The Company's PCS licenses represent qualified assets pursuant to Statement
of Financial Accounting Standards ("SFAS") No. 34, "Capitalization of Interest
Cost." During the years ended December 31, 1996 and 1995, the Company
capitalized interest in the amount of $5.2 million and $0.4 million,
respectively, pertaining to the build out of its PCS markets.
Other intangible assets consist primarily of deferred financing costs.
Deferred financing costs are amortized using the effective interest method over
the terms of the respective loans.
Income taxes:
The Company accounts for deferred taxes using the asset and liability
method.
Net loss per common share:
Net 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 the Securities and Exchange Commission (the "SEC"),
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 loss per share as if they had been outstanding for all
periods presented, the effect of which is anti-dilutive. The number of shares
outstanding for periods subsequent to May 22, 1996 has been calculated based on
the requirements of Accounting Principles Board ("APB") Opinion No. 15,
"Earnings Per Share." Due to the net loss incurred during the period subsequent
to May 22, 1996, through December 31, 1996, all options and warrants are
anti-dilutive, thus primary and fully diluted loss per share are equal.
Stock-based compensation plans:
The Company accounts for its stock-based compensation plans under APB
Opinion No. 25, "Accounting for Stock Issued to Employees." See Note 10 for
discussion of the effect on net income and other related disclosures had the
Company accounted for these plans under the SFAS No. 123, "Accounting for
Stock-Based Compensation."
F-8
<PAGE> 126
WESTERN WIRELESS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED):
Financial instruments:
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. The Company has only limited involvement
with these financial instruments, and does not use them for trading purposes.
Interest rate swaps are accounted for on an accrual basis, the income or expense
of which is included in interest expense. Premiums paid to purchase interest
rate cap agreements are classified as an asset and amortized to interest expense
over the terms of the agreements. 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.
The Company's carrying value of financial instruments approximates fair
value. The estimated fair value of the Company's financial instruments has been
determined using available market quotes and appropriate valuation
methodologies.
Supplemental cash flow disclosure:
Cash paid for interest (net of amounts capitalized) was $36.2 million,
$21.7 million, and $10.9 million for the years ended December 31, 1996, 1995 and
1994, respectively.
Non-cash investing and financing activities were as follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER, 31
--------------------------------
1996 1995 1994
-------- ------- -------
<S> <C> <C> <C>
Conversion of FCC deposit to wireless license...... $10,000
Conversion of revolving debt to term debt.......... $200,000
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
</TABLE>
The Business Combination described in Notes 1, 9 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 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 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
F-9
<PAGE> 127
WESTERN WIRELESS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED):
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.
3. PROPERTY AND EQUIPMENT:
Property and equipment consists of (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1996 1995
--------- --------
<S> <C> <C>
Land, buildings and improvements............................ $ 8,433 $ 2,879
Wireless communications systems............................. 370,628 165,825
Furniture and equipment..................................... 49,351 16,273
--------- --------
428,412 184,977
Less accumulated depreciation............................... (107,685) (53,423)
--------- --------
320,727 131,554
Construction in progress.................................... 217,890 62,138
--------- --------
$ 538,617 $193,692
========= ========
</TABLE>
Depreciation expense was $54.9 million, $30.2 million and $17.0 million for
the years ended December 31, 1996, 1995 and 1994, respectively.
4. INVESTMENTS IN AND ADVANCES TO UNCONSOLIDATED AFFILIATES:
At December 31, 1996, the Company's investments in and advances to
unconsolidated affiliates consisted of an interest in Cook Inlet Western
Wireless PV/SS PCS, L.P. ("Cook Inlet PCS"), and an interest in Latcom Wireless
Telephone Co. ("Latcom"). At December 31, 1995, the Company's investments in
unconsolidated affiliates consisted of a 47% interest in Sawtooth Paging, Inc.
("Sawtooth") and an interest in Cook Inlet PCS. During 1996, the Company
purchased the remaining unowned portion of Sawtooth (See Note 9).
In the first quarter of 1996, a wholly owned subsidiary of the Company
entered into a joint venture to form Latcom. Latcom is a 49% partner in BALTEL
SIA, which owns and operates a cellular license in the Republic of Latvia. The
Company has approximately a 47.9% ownership interest and a $4.7 million
investment in Latcom at December 31, 1996.
In the fourth quarter of 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 auctions of PCS licenses. A shareholder of the Company is also a limited
partner of the General Partner. The Company has a 49.9% ownership interest in
Cook Inlet PCS. During 1996, Cook Inlet PCS was successful in acquiring 14
licenses in the FCC's C Block auction. In January 1997, Cook Inlet PCS was the
high bidder in 7 PCS licenses in the F Block auction conducted by the FCC. The
purchase price of the licenses will be approximately $50.5 million. At December
31, 1996 and 1995, the Company's investment in and advances to Cook Inlet PCS
was approximately $8.1 million and $7.6 million, respectively.
The assets, liabilities and results of operations of Sawtooth, Cook Inlet
PCS, and Latcom are not material to the Company during 1996 and 1995.
F-10
<PAGE> 128
WESTERN WIRELESS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
5. ACCRUED LIABILITIES:
Accrued liabilities consist of (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1996 1995
-------- --------
<S> <C> <C>
Accrued payroll and benefits................................. $11,192 $5,551
Accrued interest expense..................................... 10,265 4,471
Accrued taxes, other than income............................. 5,096 3,236
Other........................................................ 10,099 3,401
------- -------
$36,652 $16,659
======= =======
</TABLE>
6. LONG-TERM DEBT:
Long-term debt consists of (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1996 1995
-------- --------
<S> <C> <C>
Credit Facility (a):
Revolver................................................... $347,000
Term Loan.................................................. $200,000
10 1/2% Senior Subordinated Notes due 2006 (b)............... 200,000
10 1/2% Senior Subordinated Notes due 2007 (c)............... 200,000
NORTEL Facility (d).......................................... 143,000 13,000
Other........................................................ 2,487
-------- --------
$743,000 $362,487
======== ========
</TABLE>
(a) Credit Facility
On June 30, 1995, the Company entered into a credit facility with a group
of banks (the "Credit Facility"). Pursuant to the Credit Facility, the banks
agreed to make loans to the Company, on a revolving-credit basis, in an
aggregate principal amount not to exceed $750 million (the "Revolving Loans").
On May 6, 1996, the Company amended the Credit Facility to increase the
Company's borrowing capacity in the form of a $200 million term loan (the "Term
Loan"). On December 31, 1999, the Revolving Loans expire, thus, loans are
restricted to the principal amount outstanding on that date. Beginning March 31,
2000, and June 30, 2000, the Company is required to make quarterly payments on
the outstanding principal of the Revolving Loans and Term Loan, respectively.
These payments increase each year, on the anniversary date of the initial
payment, until paid in full on December 31, 2004, for the Revolving Loans and
March 31, 2005, for the Term Loan. The Credit Facility also contains certain
financial covenants, the most restrictive of which impose limitations on the
incurrence of indebtedness.
Any loan shall, at the option of the Company, be made as a Base Rate
Advance, Eurodollar Advance or CD Rate Advance. Under the Credit Facility,
interest is payable at an applicable margin in excess of the prevailing base
rate. The applicable margin on the Revolving Loans is determined quarterly based
on the leverage ratio of the Company, excluding certain of its subsidiaries. The
applicable margin on the Term Loan is 2.75%. During 1996 and 1995, all loans
under the Credit Facility had been borrowed using the Eurodollar option. The
weighted average interest rate, including the appropriate applicable margin, for
the years ended December 31, 1996 and 1995, were 7.79% and 7.41%, respectively.
The Credit Facility also provides for an annual fee of 0.5% of the
F-11
<PAGE> 129
WESTERN WIRELESS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
6. LONG-TERM DEBT -- (CONTINUED)
unused commitment, payable quarterly. As of December 31, 1996 and 1995, the
unused portion of the commitment under the Credit Facility was $750 million and
$403 million, respectively.
The Credit Facility requires the Company to enter into interest rate swap
and cap agreements to manage the interest rate exposure pertaining to borrowings
under the Credit Facility. At December 31, 1996 and 1995, the Company had
entered into interest rate caps and swaps with a total notional amount of $205
million and $375 million, respectively. Generally these instruments had initial
terms ranging from three to 3 1/2 years and effectively converted variable rate
debt to fixed rate. The weighted average interest rate under these agreements
was approximately 6.76% at December 31, 1996 and 1995. The amount of unrealized
loss attributable to changing interest rates at December 31, 1996 and 1995, was
immaterial.
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 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) 10 1/2% Senior Subordinated Notes Due 2006
In May 1996, the Company issued $200 million principal amount of 10 1/2%
Senior Subordinated Notes Due 2006 (the "2006 Notes") at par. The 2006 Notes
mature on June 1, 2006. Interest is payable semi-annually commencing on December
1, 1996. The 2006 Notes may be redeemed at any time at the option of the
Company, in whole or from time to time in part, at varying redemption prices.
The Credit Facility prohibits the repayment of all or any portion of the
principal amount of the 2006 Notes prior to the repayment of all indebtedness
under the Credit Facility.
The 2006 Notes contain 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, issuance of preferred stock of subsidiaries, and
certain investments and acquisitions. The 2006 Notes are subordinate in right of
payment to the Credit Facility and the NORTEL Facility (see item (d) below).
(c) 10 1/2% Senior Subordinated Notes Due 2007
In October 1996, the Company issued $200 million principal amount of
10 1/2% Senior Subordinated Notes, which will mature on February 1, 2007 (the
"2007 Notes") at par. Interest is payable semi-annually commencing February 1,
1997. The 2007 Notes were issued pari passu to the 2006 Notes. As such, the 2007
Notes may be redeemed at any time at the option of the Company, in whole or from
time to time in part, at varying redemption prices. The Credit Facility
prohibits the repayment of all or any portion of the principal amount of the
2007 Notes prior to the repayment of all indebtedness under the Credit Facility.
F-12
<PAGE> 130
WESTERN WIRELESS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
6. LONG-TERM DEBT -- (CONTINUED)
The 2007 Notes contain certain restrictive covenants which are consistent
with that of the 2006 Notes. The 2007 Notes are subordinate in right of payment
to the Credit Facility and the NORTEL Facility.
(d) 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 a rate approximating the prime rate plus a margin of 1.5%, or
the London Interbank Offered Rate ("LIBOR") plus a margin of 2.5%. As of
December 31, 1996, all outstanding borrowings were drawn under the LIBOR rate
option. The weighted average interest rate, including margin, for the years
ended December 31, 1996 and 1995, were 8.06% and 8.43%, respectively. At
December 31, 1996 and 1995, the unused portion of the NORTEL Facility was $57
million and $187 million, respectively. The NORTEL Facility contains certain
financial covenants, the most restrictive of which impose a minimum cash
coverage and is collateralized by substantially all of the subsidiary's assets
and the stock of such subsidiary.
Interest only payments are required through September 30, 2000. 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.
During the first quarter of 1997, the Company has been negotiating to amend
the terms of the NORTEL Facility and the Credit Facility. The proposed
amendments will increase the NORTEL Facility to $300 million and change certain
financial covenants of the Credit Facility and to allow for an increase in the
NORTEL Facility.
The aggregate amounts of principal maturities as of December 31, 1996, of
the Company's debt are as follows (in thousands):
<TABLE>
<S> <C>
Year ending December 31,
1997................................................................ $ 0
1998................................................................ 0
1999................................................................ 0
2000................................................................ 15,050
2001................................................................ 35,320
Thereafter.......................................................... 692,630
--------
$743,000
========
</TABLE>
7. 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 2036. Some leases have options to renew for additional periods up
to 25 years. Certain leases require the Company to pay property taxes, insurance
and normal maintenance costs. Substantially all of the Company's leases have
fixed minimum lease payments. The Company has no significant capital lease
liabilities.
F-13
<PAGE> 131
WESTERN WIRELESS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
7. COMMITMENTS -- (CONTINUED)
Future minimum payments required under operating leases and agreements that
have initial or remaining noncancellable terms in excess of one year as of
December 31, 1996, are summarized below (in thousands):
<TABLE>
<S> <C>
Year ending December 31,
1997................................................................. $16,550
1998................................................................. 15,242
1999................................................................. 13,876
2000................................................................. 12,752
2001................................................................. 8,531
Thereafter........................................................... 11,529
--------
$78,480
========
</TABLE>
Aggregate rental expense for all operating leases was approximately $14.2
million, $4.8 million and $2.2 million for the years ended December 31, 1996,
1995 and 1994, respectively.
In order to ensure adequate supply and availability of certain inventory
requirements and service needs, the Company has committed to purchase from
various suppliers wireless communications equipment, handsets, and services.
These agreements expire at various dates through December 2005. The aggregate
amount of these commitments total approximately $401.3 million. At December 31,
1996, the Company has ordered approximately $219.7 million under all of these
agreements, of which approximately $48.5 million is outstanding.
The Company has various other purchase commitments for materials, supplies
and other items incident to the ordinary course of business which are neither
significant individually nor in the aggregate. Such commitments are not at
prices in excess of current market value.
During the first quarter of 1997, the Company entered into various new
purchase commitments for equipment, services, and handsets totaling an estimated
$45.4 million. These agreements expire between 1998 and 2001 .
8. INCOME TAXES:
Significant components of deferred income tax assets and liabilities are as
follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1996 1995
-------- --------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards........................... $100,000 $ 38,000
Other temporary differences................................ 12,000 5,000
-------- --------
Total deferred tax assets.................................... 112,000 43,000
Valuation allowance.......................................... (90,000) (34,000)
-------- --------
22,000 9,000
Deferred tax liabilities:
Property and wireless licenses basis differences........... (22,000) (9,000)
-------- --------
$ 0 $ 0
======== ========
</TABLE>
F-14
<PAGE> 132
WESTERN WIRELESS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
8. INCOME TAXES -- (CONTINUED)
For tax purposes, the Company had available at December 31, 1996, net
operating loss carryforwards for regular tax purposes of approximately $250
million which will expire in 2002 through 2011. 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 approximately $56 million and $16 million in 1996 and 1995,
respectively and a decrease of approximately $5 million in 1994.
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.
9. SHAREHOLDERS' EQUITY:
(a) Business combinations
On December 29, 1995, the shareholders of the Company, Palouse Paging Inc.
("Palouse"), and Sawtooth approved the merger of Palouse and Sawtooth into
wholly owned subsidiaries of the Company. 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. During 1996,
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 Sawtooth were also officers and non-controlling shareholders of
the Company. The Company accounted for the transaction as a stock purchase and
paid approximately $3.1 million and $0.3 million of outstanding debt, including
the debt to shareholders noted above, of Palouse and Sawtooth, respectively.
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 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.
F-15
<PAGE> 133
WESTERN WIRELESS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
9. SHAREHOLDERS' EQUITY -- (CONTINUED)
(b) GCC minority interest
During 1995 and 1994, subsequent to the Business Combination of GCC and
MCLP, 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 issuances
During 1996, 10,664,800 shares of common stock were issued and
approximately $233.9 million in net proceeds were received by the Company under
a registration statement of the Company's Class A Common Stock filed with the
SEC. Prior to this, 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.
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 of 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.
10. STOCK-BASED COMPENSATION PLANS:
On September 20, 1994, the Board of Directors of the Company established
the 1994 Management Incentive Stock Option Plan (the "MISOP") which was later
amended and approved, as amended, by the shareholders of the Company on November
16, 1995. The MISOP, 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 which are at the discretion of the Administrator of
the MISOP. The MISOP 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.
During 1996, the Board of Directors of the Company approved the 1996
Employee Stock Purchase Plan (the "ESPP") which became effective January 1, 1997
which provides for the issuance of up to 1,000,000 shares of Class A Common
Stock to eligible employees participating in
F-16
<PAGE> 134
WESTERN WIRELESS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
10. STOCK-BASED COMPENSATION PLANS: -- (CONTINUED)
the plan. The terms and conditions of eligibility under the ESPP require that an
employee must have been employed by the Company or its subsidiaries for at least
three months prior to participation.
A participant may contribute up to 10% of her or his total annual
compensation toward the ESPP, not to exceed the IRS contribution limit each
calendar year. Shares will be offered under this ESPP at 85% of market value at
each offer date. Participants are fully vested at all times.
At December 31, 1996, the Company has accounted for the above described
MISOP and ESPP following the guidelines of APB Opinion No. 25 and related
interpretations. Had compensation cost for the MISOP and the ESPP been
determined based upon the fair value at the grant dates for awards under these
plans consistent with the method of SFAS No. 123, the Company's net loss and
loss per share would have been increased to the pro forma amounts indicated
below (in thousands except per share data):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------
1996 1995
--------- --------
<S> <C> <C>
Net loss:
As reported........................................... $(130,105) $(55,954)
Pro forma............................................. $(134,255) $(57,388)
Primary and fully diluted loss per share:
As reported........................................... $ (2.00) $ (0.99)
Pro forma............................................. $ (2.06) $ (1.02)
</TABLE>
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option pricing model using the following weighted-average
assumptions:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------
1996 1995
---- ----
<S> <C> <C>
Weighted average risk free interest rates................. 6.33% 6.30%
Expected dividend yield................................... 0% 0%
Expected volatility....................................... 50% 0%
Expected lives (in years)................................. 7.5 7.5
</TABLE>
The Black-Scholes option pricing model requires the input of highly
subjective assumptions and does not necessarily provide a reliable measure of
fair value.
F-17
<PAGE> 135
WESTERN WIRELESS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
10. STOCK-BASED COMPENSATION PLANS: -- (CONTINUED)
Options granted, exercised and canceled under the above MISOP are
summarized as follows (in thousands, except pricing information):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------------------
1996 1995 1994
----------------- ----------------- -----------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
SHARES PRICE SHARES PRICE SHARES PRICE
------ -------- ------ -------- ------ --------
<S> <C> <C> <C> <C> <C> <C>
Outstanding, beginning of period.......... 3,538 $ 8.02 2,182 $ 5.15 760 $ 2.51
Options granted........................... 1,139 12.54 1,453 12.15 1,113 8.08
Options issued for conversion of unvested
MCLP B units............................ 322 1.10
Options exercised......................... (384) 2.28 (39) 2.02
Options canceled.......................... (128) 12.06 (58) 7.73 (13) 1.82
----- ------ ----- ------ ----- -----
Outstanding, end of the period............ 4,165 $ 9.65 3,538 $ 8.02 2,182 $ 5.15
===== ====== ===== ====== ===== =====
Exercisable, end of period................ 1,877 $ 6.36 1,582 $ 3.69 1,383 $ 2.54
</TABLE>
The weighted average fair value price per option outstanding at December
31, 1996 was $9.79.
The following table summarizes information about fixed price stock options
outstanding at December 31, 1996:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
--------------------------------------------------- ------------------------
WEIGHTED WEIGHTED
AVERAGE WEIGHTED AVERAGE
RANGE OF NUMBER REMAINING AVERAGE NUMBER EXERCISE
EXERCISE PRICES OUTSTANDING CONTRACTUAL LIFE EXERCISE PRICE EXERCISABLE PRICE
- ---------------- ----------- ---------------- -------------- ----------- --------
<S> <C> <C> <C> <C> <C>
$ 1.10 - $ 4.03 1,094 6 years $ 2.67 1,030 $ 2.77
$ 9.68 - $11.29 1,393 8 years $10.47 654 $10.11
$12.90 - $12.90 684 9 years $12.90 193 $12.90
$13.88 - $16.13 994 10 years $13.98
------ -------- ------ ----- ------
$ 1.10 - $16.13 4,165 8 years $ 9.65 1,877 $ 6.36
------ -------- ------ ----- ------
</TABLE>
During the first quarter of 1997, the Company's Board of Directors approved
a restricted stock plan for certain executives of the Company. The Board
approved the reservation of 500,000 shares for this plan which is effective
January 1, 1997. During the month of January 1997, 95,000 shares were granted.
F-18
<PAGE> 136
WESTERN WIRELESS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
11. ACQUISITIONS AND DISPOSITIONS:
The following table summarizes the cellular market acquisitions of the
Company for each of the three years ended December 31, 1996 (in thousands):
<TABLE>
<CAPTION>
MARKET 1996 1995 1994
------ --------- --------- ---------
<S> <C> <C> <C>
Fargo, ND MSA............................. January
North Dakota 3 RSA........................ January
Kansas 3 RSA.............................. June
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
Purchase price including cash and
liabilities assumed:
Cash paid................................. $35,600 $38,600 $40,800
========= ========= =========
Liabilities assumed....................... $ 0 $ 500 $ 2,500
========= ========= =========
</TABLE>
- ---------------
(a) 217,000 shares of common stock were issued at $11.29 per share as part of
the South Dakota 1 RSA acquisition.
With the exception of the South Dakota 1 RSA and the South Dakota 8 RSA
acquisitions which were stock purchases, the above transactions were asset
purchases. All of these transactions were accounted for using the purchase
method. Significantly all 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 June 1996, the Company purchased a Denver MTA PCS wireless license for
$66.1 million. This transaction was accounted for as an asset purchase.
Exchanges:
In July 1995, the Company exchanged its cellular assets in certain
Minnesota markets, and its ownership interests in three other 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,
F-19
<PAGE> 137
WESTERN WIRELESS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
11. ACQUISITIONS AND DISPOSITIONS: -- (CONTINUED)
a gain of approximately $2.9 million was recognized.
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.
The following table reflects the operating results of the above 1995 and
1994 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 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.
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
========
</TABLE>
F-20
<PAGE> 138
WESTERN WIRELESS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
12. ACQUISITION OF MARKETS CELLULAR LIMITED PARTNERSHIP: -- (CONTINUED)
The purchase price was allocated as follows (in thousands):
<TABLE>
<S> <C>
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,
1994. 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 been attained if the Business Combination had been in effect
at the beginning of 1994 or which may be attained in the future (in thousands,
except per share data):
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
------------
1994
------------
(UNAUDITED)
<S> <C>
Revenues:
Subscriber revenues.................................................. $ 47,410
Roamer revenues...................................................... 19,985
Equipment sales...................................................... 9,207
--------
Total revenues............................................... 76,602
--------
Operating expenses:
Cost of service...................................................... 15,961
Cost of equipment sales.............................................. 13,758
General and administrative........................................... 18,600
Sales and marketing.................................................. 23,099
Depreciation and amortization........................................ 33,389
--------
Total operating expenses..................................... 104,807
--------
Operating loss......................................................... (28,205)
Other income (expense):
Interest and financing expense....................................... (13,113)
Gain on dispositions, net............................................ 6,202
Other income (expense)............................................... 657
--------
Net loss..................................................... $(34,459)
========
Net loss per common share.............................................. $ (0.66)
========
</TABLE>
F-21
<PAGE> 139
WESTERN WIRELESS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
13. SELECTED QUARTERLY CONSOLIDATED FINANCIAL INFORMATION (UNAUDITED):
Selected quarterly consolidated financial information for the years ended
December 31, 1996 and 1995 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 REVENUES LOSS ITEM NET LOSS COMMON SHARE SHARE
- ------------------------- -------- --------- ------------- -------- ------------ ----------
<S> <C> <C> <C> <C> <C> <C>
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)
March 31, 1996........... $ 46,035 $ (10,505) $ (18,574) $(18,574) $(0.31) $(0.31)
June 30, 1996............ $ 58,569 $ (13,158) $ (21,596) $(21,596) $(0.35) $(0.35)
September 30, 1996....... $ 67,339 $ (27,489) $ (38,605) $(38,605) $(0.56) $(0.56)
December 31, 1996........ $ 71,142 $ (35,734) $ (51,330) $(51,330) $(0.74) $(0.74)
</TABLE>
14. RELATED PARTY TRANSACTIONS:
In connection with the 2006 Notes and equity offerings during the second
quarter of 1996, the Company paid total underwriting fees of approximately $23.3
million. In connection with the 2007 Notes during the third quarter of 1996, the
Company paid total underwriting fees of approximately $5.5 million. Goldman,
Sachs & Co., an affiliate of a shareholder of the Company, was the lead
underwriter on each offering.
F-22
<PAGE> 140
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
BEGINNING OF COSTS AND OTHER DEDUCTIONS BALANCE AT
DESCRIPTION PERIOD EXPENSES ACCOUNTS(1) (2) END OF PERIOD
- ----------------------------------- ------------ ---------- ----------- ---------- -------------
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1996....... $2,800 $9,091 $(624) $ (7,001) $ 4,266
====== ====== ====== ======= ======
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
====== ====== ====== ======= ======
</TABLE>
- ---------------
(1) Represents market acquisitions and dispositions, late fees and net fraud
credits given to customers.
(2) Write-offs, net bad debt recovery.
F-23
<PAGE> 141
======================================================
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 AN 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>
Available Information...................... 2
Prospectus Summary......................... 3
Risk Factors............................... 13
The Company................................ 25
Use of Proceeds............................ 25
Dividend Policy............................ 25
Selected Consolidated Financial Data....... 26
Market Prices.............................. 28
Management's Discussion and
Analysis of Financial Condition and
Results of Operations.................... 29
Business................................... 38
Management................................. 59
Principal Shareholders..................... 65
Certain Transactions....................... 68
Description of Capital Stock............... 70
Description of Senior Subordinated Notes
Due 2006................................. 73
Description of Senior Subordinated Notes
Due 2007................................. 92
Shares Eligible for Future Sale............ 112
Description of Indebtedness................ 114
Validity of Securities..................... 116
Experts.................................... 116
Plan of Distribution....................... 116
Index to Consolidated Financial
Statements............................... F-1
</TABLE>
======================================================
======================================================
WESTERN WIRELESS CORPORATION
CLASS A COMMON STOCK
(NO PAR VALUE PER SHARE)
10 1/2% SENIOR SUBORDINATED NOTES DUE 2006
10 1/2% SENIOR SUBORDINATED NOTES DUE 2007
------------------
LOGO
------------------
GOLDMAN, SACHS & CO.
======================================================
