<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER 000-28160
WESTERN WIRELESS CORPORATION
(Exact name of registrant as specified in its charter)
WASHINGTON 91-1638901
(State or other jurisdiction (IRS Employer Identification No.)
of incorporation or organization)
2001 NW SAMMAMISH ROAD
ISSAQUAH, WASHINGTON 98027
(Address of principal executive offices) (Zip Code)
(425) 313-5200
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Class A Common Stock
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
The aggregate market value of the voting stock held by nonaffiliates of the
registrant, computed by reference to the last sale of such stock as of the close
of trading on March 2, 1998, was $517,174,730.
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Title Shares Outstanding as of March 2, 1998
Class A Common Stock, no par value 22,846,192
Class B Common Stock, no par value 52,963,811
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the following documents are incorporated by reference into the
indicated parts of this Form 10-K:
1997 Annual Report - Part II.
1998 Proxy Statement - Part III.
<PAGE> 2
WESTERN WIRELESS CORPORATION
FORM 10-K
FOR THE YEAR ENDED DECEMBER 31, 1997
TABLE OF CONTENTS
PART I
<TABLE>
<S> <C>
Item 1. BUSINESS.................................................................3
Item 2. PROPERTIES..............................................................20
Item 3. LEGAL PROCEEDINGS.......................................................20
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.....................20
EXECUTIVE OFFICERS OF THE REGISTRANT.....................................21
PART II
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS.....................................................23
Item 6. SELECTED FINANCIAL DATA.................................................23
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS...............................................23
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.............................23
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE................................................23
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.....................24
Item 11. EXECUTIVE COMPENSATION.................................................24
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.........24
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.........................24
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS ON FORM 8-K......25
SIGNATURES......................................................................30
</TABLE>
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CAUTIONARY STATEMENT FOR PURPOSES OF THE "SAFE HARBOR" PROVISIONS OF THE
PRIVATE LITIGATION REFORM ACT OF 1995. Statements contained or incorporated by
reference Statements contained or incorporated by reference in this document
that are not based on historical fact are "forward-looking statements" within
the meaning of the Private Securities Reform Act of 1995. Forward-looking
statements may be identified by use of forward-looking terminology such as
"believe," "intends," "may," "will," "expect," "estimate," "anticipate,"
"continue," or similar terms, variations of those terms or the negative of those
terms.
PART I
ITEM 1. BUSINESS
INTRODUCTION
Western Wireless Corporation (the "Company" or "Western Wireless")
provides wireless communications services in the western United States. The
Company owns an aggregate of 199 cellular and personal communications services
("PCS") licenses for a geographic area covering approximately 68.0 million
persons (counting only once those persons that may be served by either cellular
or PCS systems owned by the Company). In addition, Western Wireless is a partner
in ventures owning 21 PCS licenses covering 13.0 million persons, some of which
overlap licenses owned by the Company. Western Wireless' combined cellular and
PCS licenses, together with the ventures in which it is a partner, cover
approximately 59% of the land in the continental United States. In its
consolidated cellular and wholly-owned PCS markets, the Company served 648,600
subscribers at December 31, 1997.
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 72 Rural Service Areas
("RSA") and 16 Metropolitan Statistical Areas ("MSA") with an aggregate
population of approximately 7.3 million persons. The Company holds 7 Major
Trading Area ("MTA") broadband PCS licenses and 104 Basic Trading Area ("BTA")
broadband PCS licenses covering approximately 64.2 million persons. Each of the
Company's operational PCS systems utilizes Global System for Mobile
Communications ("GSM") technology as the network standard. GSM is the leading
digital wireless standard worldwide, with systems operating in approximately 109
countries, including the United States, and serving over 66 million subscribers.
Western Wireless is also engaged in activities related to its principal
wireless communications business. The Company has interests in entities which
own wireless licenses in certain foreign countries, including Ghana, Haiti,
Iceland, and the Republics of Latvia and Georgia. In addition, the Company has
interests in entities which have made wireless license applications in certain
other foreign countries. During 1997, two of these ventures commenced
operations. In addition, since their acquisition in February 1996, the Company
has operated paging systems in eight western states and served 31,900 customers
at December 31, 1997.
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.
YEAR OF 1997
The Company has grown rapidly over the years with an average of 84%
growth in revenues each year from 1994 through 1997. The Company continued its
strong growth in 1997 as evidenced by the following landmarks. In January, the
Company was the high bidder on 100 PCS licenses in the Federal Communication
Commission's ("FCC") D and E Block auctions; all such licenses were granted and
paid for in 1997. In May, Western Wireless commenced operations in Denver, the
last of the Company's MTA licenses from the FCC's A block auction. In June, Cook
Inlet Western Wireless PV/SS PCS, LP ("Cook Inlets PCS"), in which the Company
holds a 49.9% interest, launched VoiceStream service in the Tulsa BTA, thus
becoming the first C Block licensee to become operational in a major market. In
October, Western Wireless acquired the business and assets of another wireless
provider with operations contiguous to that of the Company. The acquisition
added 12 cellular licenses, 8 PCS licenses and 58,500 cellular subscribers. In
November, an affiliate of Hutchison Telecommunications Limited ("HTL") acquired
$74 million of the Company's common stock in a private placement. During the
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fourth quarter, the Company also announced joint ventures that will further
expand the VoiceStream brand name in PCS markets in the western United States.
The Company anticipates continued growth in 1998. In February 1998, the Company
and HTL completed a transaction whereby HTL acquired a 19.9% interest in the
Company's subsidiary which owns and operates its PCS licenses and markets for
approximately $248 million.
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, excluding the effect of licenses acquired
through business acquisitions. 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. "Pops" refers to the number of persons in a licensed area
multiplied by the Company's ownership interest in the license for such licensed
area.
The Company's operating strategy has been to (i) construct and commence
operations with high quality systems and extensive coverage in rural areas with
its cellular systems and in urban areas with its PCS systems; (ii) continue to
expand its operations through increased subscriber growth and usage; (iii)
utilize its centralized management and back office functions to support the
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, offering a
wide range of products and services at competitive prices, continually upgrading
the quality of its network, establishing strong brand recognition, creating a
strong sales and marketing program tailored to local markets and providing a
superior level of customer service.
The Company plans to continue to take advantage of opportunities to
enter new markets at a relatively low cost, including international ventures.
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, PCS and Enhanced Specialized
Mobilized Radio ("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 June 30, 1997, according to Cellular Telecommunications Industry
Association ("CTIA") there were over 48.7 million wireless subscribers in the
United States, representing a penetration rate of 18% and a growth of 10.6% from
December 31, 1996.
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,
---------------------------------------------------------
1993 1994 1995 1996 1997
-------- -------- -------- -------- ---------
<S> <C> <C> <C> <C> <C>
Total Service Revenues (in billions) .... $ 10.9 $ 14.2 $ 19.0 $ 23.6 $ 27.6
Ending Wireless Subscribers
(in millions).......................... 16.0 24.1 33.8 44.0 53.4
Subscriber Growth ....................... 45.1% 50.8% 40.0% 30.4% 21.4%
Average Monthly Service Revenue
per Subscriber ....................... $ 67.13 $ 59.08 $ 54.90 50.61 $ 47.23
Average Monthly Subscriber Revenue
per Subscriber ....................... $ 58.74 $ 51.48 $ 47.59 $ 44.66 $ 42.09
Ending Penetration ...................... 6.2% 9.4% 13.0% 17.0% 19.6%
</TABLE>
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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.
The following chart illustrates the growth in United States wireless
subscribers through December 31, 1997 (subscribers at December 31, 1997 were
derived from the data survey results published semi-annually by the CTIA):
<TABLE>
<CAPTION>
U.S. WIRELESS SUBSCRIBERS
(MILLIONS OF SUBSCRIBERS)
<S> <C>
1984...................... 0.20
1985...................... 0.34
1986...................... 0.68
1987...................... 1.23
1988...................... 2.00
1989...................... 4.00
1990...................... 5.00
1992......................11.00
1993......................16.00
1994......................24.00
1995......................34.00
1996......................44.00
1997......................53.40
</TABLE>
Source: Cellular Telecommunications Industry Association
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 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
concluded simultaneous auctions of the D, E and F Blocks in 1997. This portion
of radio spectrum is to be used by PCS licensees to provide wireless
communications services. PCS competes directly with existing cellular telephone,
paging and specialized mobile radio services. PCS also includes features that
are not generally offered by cellular providers, such as data transmissions to
and from portable computers, advanced paging services and facsimile services. 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.
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OPERATION OF WIRELESS COMMUNICATIONS SYSTEMS
Wireless communications system service areas, whether cellular or PCS,
are divided into multiple cells. Due to the frequencies in which they operate,
cellular cells generally have a wider transmission radius than PCS cells. In
both cellular and PCS systems, each cell contains a transmitter, a receiver and
signaling equipment (the "Cell Site"). The Cell Site is connected by microwave
or landline telephone lines to a switch that uses computers to control the
operation of the cellular communications system for the entire service area. The
system controls the transfer of calls from cell to cell as a subscriber's
handset travels, coordinates calls to and from handsets, allocates calls among
the cells within the system and connects calls to the local landline telephone
system or to a long distance telephone carrier. Wireless communications
providers establish interconnection agreements with local exchange carriers and
interexchange carriers, thereby integrating their system with the existing
landline communications system.
Because the signal strength of a transmission between a handset and a
Cell Site declines as the handset moves away from the Cell Site, the switching
office and the Cell Site monitor the signal strength of calls in progress. When
the signal strength of a call declines to a predetermined level, the switching
office may "hand off" the call to another Cell Site where the signal strength is
stronger. If a handset leaves the service area of a cellular or PCS system, the
call is disconnected unless there is a technical connection with the adjacent
system.
Analog cellular handsets are functionally compatible with cellular
systems in all markets within the United States. As a result, analog cellular
handsets may be used wherever a subscriber is located, as long as a cellular
system is operational in the area. Cellular system operators normally agree to
provide service to subscribers from other cellular systems who are temporarily
located in or traveling through their service areas. Agreements among system
operators provide that the carrier 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 is often 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 is also true for PCS subscribers seeking to roam in a PCS service
area served by operators using different technical standards.
PCS systems 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, Code Division Multiple Access
("CDMA") or Time Division Multiple Access ("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.
CELLULAR OPERATIONS
The Company operates cellular systems in 72 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.
See the financial results of the Company's cellular operations in the
footnotes to the consolidated financial statements located in Part II of the
Form 10-K.
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CELLULAR MARKETS AND SYSTEMS
The Company owns FCC licenses to provide wireless cellular
communications services in 88 separate markets. The Company's pops by cellular
market are as follows:
<TABLE>
<CAPTION>
CELLULAR OWNERSHIP THE COMPANY'S
MARKETS(1) POPULATION(2) PERCENTAGE POPULATION(2)
---------- ------------- ---------- -------------
<S> <C> <C> <C>
California
Mono (CA-6) 29,000 100 29,000
--------- ---------
California
Total 29,000 29,000
--------- ---------
Colorado
Pueblo 134,000 100 134,000
Elbert (CO-5) 34,000 100 34,000
Saguache
(CO-7) 50,000 100 50,000
Kiowa (CO-8) 48,000 100 48,000
Costilla
(CO-9) 30,000 100 30,000
--------- ---------
Colorado
Total 296,000 296,000
--------- ---------
Idaho
Idaho (ID-2)(3) 80,000 100 80,000
--------- ---------
Idaho Total 80,000 80,000
--------- ---------
Iowa
Sioux City 123,000 100 123,000
Monona (IA-8) 55,000 100 55,000
--------- ---------
Iowa Total 178,000 178,000
--------- ---------
Kansas
Jewell (KS-3) 54,000 100 54,000
Marshall (KS-4) 137,000 100 137,000
Ellsworth (KS-8) 131,000 100 131,000
Morris (KS-9) 59,000 100 59,000
Franklin
(KS-10) 110,000 100 110,000
Reno (KS-14) 177,000 100 177,000
--------- ---------
Kansas Total 668,000 668,000
--------- ---------
Minnesota
Kittson (MN-1) 49,000 100 49,000
Lake of the
Woods
(MN-2-A1) 26,000 100 26,000
Chippewa
(MN-7) 172,000 100 172,000
Lac qui Parie
(MN-8) 68,000 100 68,000
Pipestone
(MN-9) 133,000 100 133,000
--------- ---------
Minnesota
Total 448,000 448,000
--------- ---------
Missouri
Bates (MO-9) 81,000 100 81,000
--------- ---------
Missouri
Total 81,000 81,000
--------- ---------
Montana
Billings 131,000 98 128,000
Great Falls 82,000 100 82,000
Lincoln (MT-1) 158,000 100 158,000
Toole (MT-2) 37,000 100 37,000
Malta (MT-3) 16,000 100 16,000
Daniels (MT-4) 41,000 100 41,000
Mineral (MT-5) 194,000 100 194,000
Deer Lodge
(MT-6) 66,000 100 66,000
Fergus (MT-7) 31,000 100 31,000
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 906,000 903,000
--------- ---------
Nevada
Humbolt (NV-1) 44,000 100 44,000
Lander (NV-2) 50,000 100 50,000
Mineral (NV-4) 38,000 100 38,000
White Pine
(NV-5) 14,000 100 14,000
--------- ---------
Nevada Total 146,000 146,000
--------- ---------
New Mexico
Lincoln (NM-6) 255,000 100 255,000
--------- ---------
New Mexico
Total 255,000 255,000
--------- ---------
North Dakota
Bismarck 95,000 100 95,000
Fargo 171,000 100 171,000
Grand Forks 106,000 100 106,000
Divide (ND-1) 106,000 100 106,000
Bottineau
(ND-2) 62,000 100 62,000
McKenzie (ND-4) 63,000 100 63,000
Kidder (ND-5) 48,000 100 48,000
--------- ---------
North Dakota
Total 651,000 651,000
--------- ---------
Oklahoma
Beckham (OK-7) 133,000 100 133,000
Jackson (OK-8) 99,000 100 99,000
--------- ---------
Oklahoma
Total 232,000 232,000
--------- ---------
South Dakota
Rapid City 114,000 100 114,000
Sioux Falls 142,000 99 141,000
Harding (SD-1) 38,000 100 38,000
Corson (SD-2) 23,000 100 23,000
McPherson
(SD-3) 54,000 100 54,000
Marshall (SD-4) 71,000 100 71,000
Custer (SD-5) 27,000 100 27,000
Haakon (SD-6) 41,000 100 41,000
Sully (SD-7) 67,000 100 67,000
Kingsbury
(SD-8) 74,000 100 74,000
Harrison (SD-9) 100,000 100 100,000
--------- ---------
South Dakota
Total 751,000 750,000
--------- ---------
Texas
Abilene 157,000 100 157,000
Lubbock 237,000 100 237,000
Midland 121,000 96 116,000
Odessa 125,000 96 120,000
San Angelo 103,000 100 103,000
Dallam (TX-1) 56,000 100 56,000
Hansford (TX-2) 89,000 100 89,000
Parmer (TX-3) 139,000 100 139,000
Briscoe (TX-4) 40,000 100 40,000
Hardeman (TX-5) 77,000 100 77,000
Gaines (TX-8) 136,000 100 136,000
Hudspeth
(TX-12) 27,000 100 27,000
Reeves (TX-13) 33,000 100 33,000
Loving (TX-14) 45,000 100 45,000
--------- ---------
Texas Total 1,385,000 1,375,000
--------- ---------
</TABLE>
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<TABLE>
<CAPTION>
CELLULAR OWNERSHIP THE COMPANY'S
MARKETS(1) POPULATION(2) PERCENTAGE POPULATION(2)
---------- ------------- ---------- -------------
<S> <C> <C> <C>
Nebraska
Lincoln 237,000 100 237,000
Cherry (NE-2) 31,000 100 31,000
Knox (NE-3) 120,000 100 120,000
Grant (NE-4) 36,000 100 36,000
Columbus
(NE-5) (4) 149,000 100 149,000
Keith (NE-6) 110,000 100 110,000
Hall (NE-7) 94,000 100 94,000
Chase (NE-8) 58,000 100 58,000
Adams (NE-9) 82,000 100 82,000
Cass (NE-10) 88,000 100 88,000
--------- ---------
Nebraska
Total 1,005,000 1,005,000
--------- ---------
Utah
Juab (UT-3) 58,000 100 58,000
Beaver (UT-4) 119,000 100 119,000
Piute (UT-6) 30,000 100 30,000
--------- ---------
Utah Total 207,000 207,000
--------- ---------
Wyoming
Casper 66,000 100 66,000
Sheridan (WY-2) 80,000 100 80,000
Douglas (WY-5) 13,000 49 6,000
--------- ---------
Wyoming Total 159,000 152,000
--------- ---------
Cellular Total 7,477,000 7,456,000
========= =========
</TABLE>
(1) Excludes two markets containing a population of 226,000 in which the
Company operates under an Interim Operating Authority ("IOA").
(2) Estimated 1998 populations are based on 1997 estimates by Equifax adjusted
by the Company by a growth factor based upon Equifax's growth factors from
1995 to 1997.
(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.
(4) The Company has entered into a definitive purchase agreement for this
market. The transaction is expected to close during the third quarter of
1998. The Company previously operated this market under an IOA.
PCS OPERATIONS
The Company owns 111 PCS licenses, covering approximately 64.2 million
persons. The Company operates PCS systems in the Honolulu, Salt Lake City, El
Paso/Albuquerque, Portland, Oklahoma City, Des Moines/Quad Cities and Denver
MTAs, and is constructing the initial phase of its PCS systems in the Seattle,
Phoenix and Tucson BTAs. The Company has not yet finalized its construction
plans for all of the licenses purchased in the D and E Block auctions. Cook
Inlet PCS provides service in the Tulsa, Oklahoma BTA utilizing the VoiceStream
brand name. Through joint ventures, PCS services are offered or will be offered
under the VoiceStream brand name in the Wichita, Kansas BTA and certain BTAs in
Iowa.
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 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.
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 and an open system
architecture that will
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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 66 million
customers in 109 countries.
The Company has entered into roaming agreements or letters of intent
with substantially all of the 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 over 70
reciprocal roaming agreements or letters of intent with a variety of
international carriers who have chosen to deploy the GSM standard. The Company
anticipates entering into similar agreements with other domestic and
international carriers who deploy the GSM standard and with other cellular
carriers.
See the financial results of the Company's PCS operations in the
footnotes to the consolidated financial statements located in Part II of the
Form 10-K.
PCS MARKETS AND SYSTEMS
The Company owns 111 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 1,198,000
Portland 3,561,000
Salt Lake City 3,120,000
St. George 130,000
Denver 4,641,000
El Paso/Albuquerque 2,540,000
Oklahoma City 2,009,000
Enid 87,000
Oklahoma City 1,416,000
Ponca City 47,000
Stillwater 77,000
Des Moines/Quad 3,124,000
Cities (2) (4)
Seattle
Seattle-Tacoma 2,988,000
Olympia-Centralia 323,000
Phoenix
Phoenix 3,013,000
Tucson 812,000
Yuma 142,000
Prescott 149,000
Flagstaff 115,000
Sierra
Vista-Douglas 117,000
Nogales 39,000
San Antonio
San Antonio 1,783,000
Corpus Christi 559,000
McAllen 582,000
Brownsville-
Harlingen 352,000
Laredo 213,000
San Francisco
San Francisco 6,843,000
Spokane
Billings 325,000
Great Falls 167,000
Walla
Walla-Pendleton 168,000
Kennewick-Pasco-
Richland 188,000
Missoula 171,000
Lewiston-Moscow 124,000
Butte 68,000
Bozeman 80,000
Kalispell 75,000
Helena 69,000
Wichita
Wichita 637,000
Salina 147,000
Hutchinson 127,000
Tulsa
Coffeyville 63,000
Omaha
Lincoln 335,000
Grand
Island-Kearney 149,000
Norfolk 115,000
North Platte 86,000
Hastings 74,000
McCook 35,000
Kansas City
Manhattan-Junction
City 124,000
</TABLE>
9
<PAGE> 10
<TABLE>
<CAPTION>
PCS MTA MARKETS PCS BTA MARKETS POPULATION(1)
- --------------- --------------- -------------
<S> <C> <C>
Dallas
Austin 1,171,000
Amarillo 399,000
Abilene 261,000
Odessa (3) 220,000
San Angelo 164,000
Midland (3) 126,000
Paris 92,000
Clovis 81,000
Brownwood 63,000
Hobbs 58,000
Big Spring 35,000
Lubbock 405,000
St. Louis
St. Louis 2,852,000
Carbondale-Marion 218,000
Columbia 208,000
Cape Girardeau-
Sikeston 188,000
Quincy-Hannibal 182,000
Poplar Bluff 154,000
Jefferson City 154,000
Mount Vernon-
Centralia 125,000
Rolla 93,000
West Plains 77,000
Kirksville 57,000
Milwaukee
Milwaukee 1,808,000
Cleveland
Cleveland-Akron 2,968,000
Canton-New
Philadelphia 533,000
Youngstown-Warren 487,000
Erie 280,000
Mansfield 230,000
Sandusky 139,000
Sharon 122,000
East Liverpool-
Salem 113,000
Ashtabula 104,000
Meadville 91,000
Minneapolis
Fargo 314,000
Grand Forks 214,000
Sioux Falls 233,000
Bismarck 131,000
Aberdeen 88,000
Mitchell 85,000
Watertown 78,000
Bemidji 64,000
Huron 55,000
Willmar-Marshall 83,000
Worthington 96,000
Chicago
Jacksonville 71,000
Little Rock
Little Rock 944,000
Fort Smith 315,000
Fayetteville-Spring-
dale-Rogers 292,000
Jonesboro-Paragould 176,000
Pine Bluff 151,000
Hot Springs 136,000
Russellville 96,000
Harrison 90,000
Cincinnati
Dayton-Springfield 1,225,000
Richmond
Norfolk-VA Beach 1,761,000
Richmond-Petersburg 1,179,000
Danville 168,000
Lynchburg 157,000
Staunton-Waynesboro 106,000
Martinsville 88,000
==========
PCS Total(5) 64,204,000
==========
</TABLE>
(1) Estimated 1998 populations are based on 1997 estimates by Equifax adjusted
by the Company by a growth factor based upon Equifax's growth factors from
1995 to 1997.
(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) The Company owns a license for the Des Moines/Quad Cities MTA consisting
of the following: 30 MHz in seven urban counties within the Des Moines
BTA, which is part of the Des Moines/Quad Cities MTA, and 10 MHz in all
the other counties within the Des Moines/Quad Cities MTA. The Company
contributed the other 20 MHz in the Des Moines/Quad Cities MTA to a
joint venture that will operate such markets utilizing the VoiceStream
brand name. The population of the markets to be served by this joint
venture is 2,556,000.
(5) Total PCS pops reflected here are net of the Oklahoma BTA markets which
overlap the Oklahoma MTA markets and the Salt Lake City BTA markets which
overlap the Salt Lake City MTA markets.
10
<PAGE> 11
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.
The Company has a 49.9% partnership interest in Cook Inlet PCS. Cook Inlet PCS
began operations in the Tulsa BTA in June of 1997. Cook Inlet PCS has not yet
finalized its construction plans for the other licenses it owns.
Cook Inlet PCS owns FCC licenses to provide wireless PCS communications
services in 21 separate BTA markets. The licenses owned by Cook Inlet PCS are 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) 2,988,000
Yakima 249,000
Bremerton 239,000
Wenatchee 199,000
Aberdeen 89,000
Port Angeles 89,000
Bellingham (2) 155,000
Spokane
Spokane 729,000
Walla Walla-Pendleton 168,000
Phoenix
Phoenix (2) 3,013,000
Tucson (2) 812,000
Dallas
Temple-Killeen (2) 361,000
Wichita Falls 216,000
Sherman-Denison 162,000
Tulsa
Tulsa 905,000
Muskogee 161,000
Coffeyville 63,000
Bartlesville 47,000
Kansas City
Pittsburg-Parsons (2) 92,000
Minneapolis
Worthington (3) 96,000
Cincinnati
Cincinnati (2) 2,136,000
----------
Total 12,969,000
==========
</TABLE>
(1) Estimated 1998 populations are based on 1997 estimates by Equifax adjusted
by the Company by a growth factor based upon Equifax's growth factors from
1995 to 1997.
(2) Represents a 10 MHz license obtained in the F Block auctions. See
-- "Governmental Regulation -- Licensing of PCS Systems."
(3) Cook Inlet PCS has entered into an agreement to sell this license to a
third party. This transaction is anticipated to close during the second
quarter of 1998.
11
<PAGE> 12
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.
The Company provides extended regional and national service to cellular
subscribers in its markets, through its membership in North American Cellular
Network ("NACN") and other regional networking arrangements, thereby allowing
them to make and receive calls while in other cellular service areas without
dialing special access codes. 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 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 and 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 are 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 the first half of 1998 and it has entered into
agreements with suppliers to acquire dual-mode handsets when available.
12
<PAGE> 13
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.
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
191 million. The national advertising campaign conducted by the Cellular One
Group enhances the Company's advertising exposure at a lesser cost than 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 234 local sales offices
(which also serve as retail sales locations), including 149 under the CELLULAR
ONE brand name, 14 under the CelluarOne Express brand name and 71 under the
VoiceStream brand name, and utilizes a direct sales force of over 1,150 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.
13
<PAGE> 14
The Company opened a customer call center in Albuquerque, New Mexico,
during the second half of 1997. This facility, along with the Company's 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 Telecommunications, Inc.
The Company currently purchases Cell Site and switching equipment primarily from
Northern Telecom, Inc., Lucent Technologies, Inc. and Nokia Telecommunications,
Inc.
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.
Under current FCC rules, there may be up to six PCS licenses 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. The Company has one cellular competitor in each of its cellular
markets including AirTouch Cellular Communications, Inc. ("AirTouch"), Aliant
Communications, Inc., CommNet Cellular Inc., Kansas Cellular, Southwestern Bell
Mobile Systems and United States Cellular Corporation ("US Cellular"), and there
may be as many as six PCS licensees in each of its markets. Currently, the
Company's principal competitors in its PCS business are PCS PrimeCo L.P., Sprint
Spectrum L.P., and AT&T Wireless Services Inc. ("AT&T Wireless"), as well as the
two existing cellular providers in its PCS markets. ESMR systems, including
those operated by Nextel Communications, Inc., are competitive with the
Company's cellular and PCS systems. The Company also competes with paging,
dispatch and conventional mobile telephone companies, resellers and landline
telephone service providers in its cellular and PCS markets. 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 directly competes 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.
In the future, the Company expects to face increased competition from
entities providing similar services using other communications technologies,
including satellite-based telecommunications systems. While some of these
technologies and services are currently operational, others are being developed
or may be developed in the future.
14
<PAGE> 15
The Company recognizes that technological advances and changing
regulations have led to rapid evolution of the wireless telecommunications
industry. At the end of 1996, the FCC, as required by the Omnibus Budget
Reconciliation Act of 1993, transferred 200 MHz of spectrum previously allocated
to Federal Government use to the private sector. In April of 1997, the FCC
auctioned 30 MHz of spectrum for Wireless Communications Services, which can
provide fixed or mobile telecommunications service. In late 1997, the FCC also
auctioned 10 MHz of spectrum for Specialized Mobile Radio service, another
potential competitor with PCS and cellular service. Moreover, in 1998, the FCC
commenced the auction of more than 1000 MHz of spectrum for the Local Multipoint
Distribution Service, in which the Company is participating [OPEN PENDING
POTENTIAL CONCLUSION OF SUCH AUCTION]. It also plans 1998 to auction in 25 MHz
of spectrum for the General Wireless Communications Service, plus additional
spectrum in the 220 MHz and 39 GHz bands. The Company cannot foresee how
technological progress or economic incentive will affect competition from these
new services. In all instances, the FCC reserves the right to amend or repeal
its service regulations and auction schedule.
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 generally issued for a
10-year term beginning on the date of the initial notification of construction
by a cellular carrier. 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. 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. The Company has approximately 35 cellular licenses which
will be subject to renewal in the next three years. While the Company believes
that each of its cellular licenses will be renewed, there can be no assurance
that all of the licenses will be renewed.
Cellular radio service providers must also 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 and roaming practices and the terms under which certain ancillary
services may be provided through cellular facilities.
Cellular and PCS systems are subject to certain FAA regulations
respecting the location, lighting and construction of transmitter towers and
antennae and may be subject to regulation under the National Environmental
Policy Act and the environmental regulations of the FCC. State or local zoning
and land use regulations also apply to the Company's activities. The Company
uses, among other facilities, 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.
15
<PAGE> 16
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"). 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 (proforma transfer of control does not require prior FCC
approval). Subject to FCC approval, a license or permit may be transferred
from a nonwireline entity to a wireline entity, or vice versa. Non-controlling
interests in an entity that holds a cellular license or cellular system
generally may be bought or sold without prior FCC approval. Any acquisition or
sale by the Company of cellular interests may also require the prior approval of
the Federal Trade Commission and the Department of Justice, if over a certain
size, as well as any state or local regulatory authorities having competent
jurisdiction.
In addition, the FCC's rules prohibit the alienation of any ownership
interest in an RSA application, or an entity holding such an application, prior
to the grant of a construction permit. For unserved cellular areas, no change of
control may take place until after the FCC has granted both a construction
permit and a license and the licensee has provided service to the public for at
least one year. These restrictions affect the ability of prospective purchasers,
including the Company, to enter into agreements for RSA and unserved area
acquisitions prior to the lapse of the applicable transfer restriction periods.
The restriction on 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; however, a reauction of certain C Block licenses is currently
scheduled for the second half of 1998.
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 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 and the Oklahoma City MTA, resulting in the
Company exceeding the FCC's current 45 MHz CMRS crossownership restriction
described above. The Company has filed waiver requests with the FCC with respect
to both MTAs, both of which are pending, and has been allowed to delay
compliance with the ownership restriction until the FCC rules on the waiver
requests. In the event that this restriction is not waived or the rule itself
revised, the Company will be obligated to divest sufficient portions of its
Denver and Oklahoma City PCS markets 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 ten year term, 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.
16
<PAGE> 17
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 ten 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 ten years after the grant of a PCS license
(subject to extension), a PCS licensee will 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. The FCC has shortened the voluntary negotiation period by one year
(without lengthening the mandatory negotiation period) for PCS licensees in
the C, D, E and F Blocks. For public safety entities dedicating a majority of
their system communications for police, fire or emergency medical services
operations, the voluntary negotiation period is three years, with an additional
two year mandatory negotiation period. Parties unable to reach agreement within
these time periods may refer the matter to the FCC for resolution, but the
incumbent microwave user is permitted to continue its operations until final
FCC resolution of the matter. The 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.
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 (proforma
transfer of control does not require prior FCC approval). 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 the Communications Act, no more than 25% of an FCC licensee's
capital stock may be indirectly owned or voted by non-U.S. citizens or their
representatives, by a foreign government, or by a foreign corporation, absent a
FCC finding that a higher level of alien ownership is not inconsistent with the
public interest. In November 1997, the FCC adopted new rules, effective in
February 1998, in anticipation of implementation of the World Trade Organization
Basic Telecom Agreement ("WTO Agreement"). Formerly, potential licensees had to
demonstrate that their markets offered effective competitive opportunities in
order to obtain authorization to exceed the 25% indirect foreign ownership
threshold. Under the new rules, this showing now only applies to non-WTO
members. Applicants from WTO Agreement signatories have an "open entry"
standard: they are presumed to offer effective competitive opportunities.
However, the FCC reserves the right to attach additional conditions to a grant
of authority, and, in the exceptional case in which an application poses a very
high risk to competition, to deny the application. The limitation on direct
foreign ownership in an FCC licensee remains fixed at 20%, with no opportunity
to increase the percentage, and is unaffected by the FCC's new rules.
The WTO Agreement also obligates signatories to open their domestic
telecommunications markets to foreign investment and foreign corporations. The
WTO Agreement will increase investment and competition in the United States,
potentially leading to lower prices, enhanced innovation and better service.
At the same time, market access commitments from WTO Agreement signatories will
provide U.S. service suppliers opportunities to expand abroad.
17
<PAGE> 18
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 in each others markets. To facilitate the entry of new
carriers into existing markets, the Telecommunications Act imposes certain
interconnection requirements on incumbent carriers. Additionally, all
telecommunications providers are required to make an equitable and
nondiscriminatory contribution to the preservation and advancement of univeral
service. 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 information. 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.
If a cost recovery mechanism is in place, and a Public Service Answering Point
("PSAP") requests and is capable of processing the caller's telephone number
and location information, cellular, PCS, and other mobile service providers
must relay a caller's automatic number identification and Cell Site location,
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 December 1, 1997, the FCC required wireless
carriers to transmit all 911 calls without regard to validation procedures
intended to identify and intercept calls from non-subscribers.
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
how such fixed services 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. 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. Under the rules adopted by the FCC, 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
established proxy rates to be used by states to set interim interconnection
rates pending the establishment of cost-based rates. 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
vacated many of the rules adopted by the FCC, including those rules governing
the pricing of interconnetin services, but specifically affirmed the FCC rules
governing interconnection with CMRS providers. In January 1998, the U.S.
Supreme Court agreed to review the Eighth Circuit decision.
18
<PAGE> 19
In its implementation of the Telecommunications Act, the FCC recently
established new federal universal service rules, under which wireless service
providers for the first time are eligible to receive universal service
subsidies, but also are required to contribute to both federal and state
universal service funds. For the first quarter of 1998, the FCC's universal
service assessments amount to 0.72% of interstate and intrastate
telecommunications revenues for schools, libraries and rural healthcare
support mechanisms and an additional 3.19% of interstate telecommunications
revenues for high cost and low income support mechanisms. Various parties have
challenged the FCC's universal service rules, and the cases have been
consolidated in the U.S. Court of Appeals for the Fifth Circuit. The Company
cannot predict the outcome of this proceeding.
The FCC has 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. Various parties
have challenged the number portability requirements as they apply to CMRS
providers. These challenges are still pending at the FCC and in the courts. The
Company can not predict the outcome of such challenges.
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. The
licensing agreements require the Company to provide high-quality cellular
telephone service to its customers, and to maintain a certain minimum overall
customer satisfaction rating in surveys commissioned by Cellular One Group. The
licensing agreements that the Company has entered into are for original
five-year terms expiring on various dates. Assuming compliance by the Company
with the provisions of the agreements, each of these agreements may be renewed
at the Company's option for three additional five-year terms.
Western Wireless 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, 1997, the Company employed a total of
approximately 3,210 people in the following areas:
<TABLE>
<CAPTION>
Category Number of Employees
-------- -------------------
<S> <C>
Sales and marketing .............................................. 1,670
Engineering ...................................................... 390
General and administration, including customer service ........... 1,150
</TABLE>
19
<PAGE> 20
ITEM 2. 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 located primarily in Issaquah and
Bellevue, 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.
The Company leases from the City of Albuquerque a customer call center
in Albuquerque, New Mexico. This facility is approximately 65,000 square feet
and, 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.
ITEM 3. LEGAL PROCEEDINGS
A subsidiary of the Company received a Civil Investigative Demand (the
"Demand") from the U.S. Department of Justice Antitrust Division (the "Antitrust
Division") requiring the Company to produce certain documents and answer certain
interrogatories in connection with the Antitrust Division's investigation of
possible bid rigging and market allocation for licenses auctioned by the FCC for
broadband PCS frequency blocks. The Company has cooperated with the Antitrust
Division's requests. On March 16, 1998, the same subsidiary of the Company
received a Notice of Apparent Liability for Forfeiture ("NALF") from the FCC in
the amount of $1.2 million. This NALF was issued by the FCC in connection with
its investigation of compliance by auction participants with FCC PCS auction
rules. The Company has thoroughly cooperated with the FCC investigation and will
continue to do so. The Company believes its conduct was consistent with FCC
rules and regulations pertaining to the auction. The Company will promptly file
its opposition to the NALF and believes the Company will prevail. The amount of
the NALF, if upheld, is not material to the financial position of the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
20
<PAGE> 21
EXECUTIVE OFFICERS OF THE REGISTRANT
The names, ages and positions of the executive officers and key
personnel 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. Executive officers of the Company are
appointed by the Board of Directors. No family relationships exist among any of
the executive officers of the Company, except for Mr. Stanton and Ms. Gillespie,
who are married to each other.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
John W. Stanton 42 Chairman, Director and Chief Executive Officer
Donald Guthrie 42 Vice Chairman and Chief Financial Officer
Robert A. Stapleton 39 President
Mikal J. Thomsen 41 Chief Operating Officer
Theresa E. Gillespie 45 Senior Vice President
Alan R. Bender 43 Senior Vice President, General Counsel, and Secretary
Cregg B. Baumbaugh 41 Senior Vice President - Corporate Development
Timothy R. Wong 42 Vice President - Engineering
Robert P. Dotson 37 Vice President - Marketing
Bradley J. Horwitz 42 Vice President - International
Patricia L. Miller 35 Controller and Principal Accounting Officer
</TABLE>
John W. Stanton has been a director, Chairman of the Board and Chief
Executive Officer of the Company since its formation in July 1994. Mr. Stanton
has been Chief Executive Officer of GCC since March 1992, and was Chairman of
the Board of GCC from March 1992 to December 1995. Mr. Stanton has served as
Chairman of the Board and Chief Executive Officer of PN Cellular, Inc. ("PN
Cellular"), the former General Partner of MCLP since its formation in October
1992. Mr. Stanton served as a director of McCaw Cellular Communications, Inc.
("McCaw") from 1986 to 1994, and as a director of LIN Broadcasting Corporation
("LIN Broadcasting") from 1990 to 1994, during which time it was a publicly
traded company. From 1983 to 1991, Mr. Stanton served in various capacities with
McCaw, serving as Vice-Chairman of the Board of McCaw from 1988 to September
1991 and as Chief Operating Officer of McCaw from 1985 to 1988. Mr. Stanton is
also a member of the Board of Directors of Advanced Digital Information
Corporation, Columbia Sportswear, Inc. 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 Cellular Telephone Industry Association
("CTIA").
Donald Guthrie has been Vice Chairman of the Company since November 1995
and Chief Financial Officer of the Company since February 1997. 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 A. Stapleton has been President of the Company since its
formation in July 1994. Effective April 1998, Mr. Stapleton will be responsible
for all PCS operations of the Company. Mr. Stapleton was President of GCC from
November 1992 until the formation of the Company. 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. Effective April 1998, Mr. Thomsen will be
responsible for all cellular operations of the Company. 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.
21
<PAGE> 22
Theresa E. Gillespie has been Senior Vice President of the Company since
February 1997. Prior to that, Ms. Gillespie was Chief Financial Officer of the
Company since its formation in July 1994. Ms. Gillespie was Chief Financial
Officer of MCLP and its predecessor since its inception in 1991 until the
Company's formation in July 1994. Ms. Gillespie has been Chief Financial Officer
of certain entities controlled by Mr. Stanton and Ms. Gillespie since 1988. From
1986 to 1987, Ms. Gillespie was Senior Vice President and Controller of McCaw.
From 1975 to 1986 she was employed by a national public accounting firm.
Alan R. Bender has been Senior Vice President, General Counsel, and
Secretary 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. Horwitz is currently a
member of the Board of Directors of SmarTone (Hong Kong).
Patricia L. Miller has been Controller and Principal Accounting Officer
of the Company since January 1998. From 1993 to 1997, Ms. Miller held various
accounting positions with the Company. Prior to 1993, Ms. Miller held various
accounting positions with a subsidiary of Weyerhaeuser Company.
22
<PAGE> 23
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The information required by this item is incorporated by reference to
the Company's 1997 Annual Report to Stockholders. As of March 2, 1998, there
were approximately 251 and 113 shareholders of record of the Company's Class A
and Class B Common Stock, respectively.
The table below sets forth the sales of unregistered equity securities
made by the registrant in 1997:
<TABLE>
<CAPTION>
Title and Amount of Security Date of Sale Exemption
---------------------------- ------------ -------------
<S> <C> <C>
1,600,000 shares of Class A Common Stock October 1997 Reg D (1)
</TABLE>
(1) Issued to Stockholders of Triad Investment Minnesota, Inc. ("TIM") in
consideration of all of the issued and outstanding stock of TIM.
ITEM 6. SELECTED FINANCIAL DATA
The information required by this item is incorporated by reference to
the information included under the caption "Selected Financial Data" in the
Company's 1997 Annual Report to Stockholders.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The information required by this item is incorporated by reference to
the information included under the caption "Management's Discussion and Analysis
of Financial Condition and Results of Operations" in the Company's 1997 Annual
Report to Stockholders.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required by this item is incorporated by reference to
the information included under the captions "Consolidated Statements of
Operations", "Consolidated Balance Sheets", "Consolidated Statements of Cash
Flows", "Consolidated Statements of Stockholders' Equity", "Notes to
Consolidated Financial Statement", "Schecule I - Condensed Financial
Information - (Parent Company Only)", Schedule II - Valuation and Qualifying
Accounts" and "Report of Independent Auditors" in the Company's 1997 Annual
Report to Stockholders.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
23
<PAGE> 24
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information on directors of the registrant called for by this Item
is incorporated by reference to the section entitled "Election of Directors and
Management Information" in the Company's Proxy Statement for its 1998 annual
shareholders meeting to be filed with the United States Securities and Exchange
Commission. The information on executive officers of the registrant called for
by this Item is included herein in the section entitled "Executive Officers of
the Registrant."
ITEM 11. EXECUTIVE COMPENSATION
The information called for by this Item is incorporated by reference to
the section entitled "Executive Compensation" in the Company's Proxy Statement
for its 1998 annual shareholders meeting to be filed with the United States
Securities and Exchange Commission.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information called for by this Item is incorporated by reference to
the section entitled "Security Ownership of Certain Beneficial Owners and
Management" in the Company's Proxy Statement for its 1998 annual shareholders
meeting to be filed with the United States Securities and Exchange Commission.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information called for by this Item is incorporated by reference to
the section entitled "Certain Relationships and Related Transactions" in the
Company's Proxy Statement for its 1998 annual shareholders meeting to be filed
with the United States Securities and Exchange Commission.
24
<PAGE> 25
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS ON FORM 8-K
(A) Financial Statements and Schedule
The financial statements and schedules are incorporated herein by
reference to the Company's 1997 Annual Report to Stockholders.
The Company's 1997 Annual Report to Stockholders is not deemed filed as
part of this report except for those parts specifically incorporated herein by
reference.
(B) Reports on Form 8-K
A Form 8-K was filed on October 14, 1997, reporting a proposed
investment by Hutchison Telecommunications Limited ("HTL") in the Company and by
a subsidiary of HTL, Hutchison Telecommunications PCS (USA) Limited, in Western
PCS Corporation.
A Form 8-K was filed on December 8, 1997, reporting the close of the
initial investment by HTL in the Company.
(C) Exhibits
<TABLE>
<CAPTION>
Exhibit Description
------- -----------
<S> <C>
3.1(1) Amended and Restated Articles of Incorporation of the Registrant
3.2(1) Bylaws of the Registrant
4.1(2) Indenture between Western Wireless Corporation and Harris Trust
Company of California, dated May 22, 1996
4.2(3) Indenture between Western Wireless Corporation and Harris Trust
Company of California, dated October 24, 1996
4.3(6) Form of Supplemental Indenture to be entered into between Western
Wireless Corporation and Harris Trust Company of California,
relating to the 10 1/2% Senior Subordinated Notes Due 2007
4.4(6) Form of Supplemental Indenture to be entered into between Western
Wireless Corporation and Harris Trust Company of California,
relating to the 10 1/2% Senior Subordinated Notes Due 2006
10.1(1) Loan Agreement between Western PCS II Corporation and Northern
Telecom Inc., dated June 30, 1995
10.2(1) PCS 1900 Project and Supply Agreement between Western PCS
Corporation and Northern Telecom Inc., dated June 30, 1995
10.3(1) Purchase Agreement between Motorola Nortel Communications Co. and
General Cellular Corporation, dated July 29, 1993
10.4(1) Loan Agreement among Western Wireless Corporation and The
Toronto-Dominion Bank, Barclays Bank, PLC, and Morgan Guaranty
Trust Company of New York, as Managing Agents for the Various
Lenders, dated June 30, 1995
10.5(1) First Amendment to Loan Agreement by and among Western Wireless
Corporation, The Toronto-Dominion Bank, Barclays Bank, PLC, and
Morgan Guaranty Trust Company of New York, as Managing Agents for
the Various Lenders, dated January 11, 1996
10.6(1) Supply Contract by and between Western PCS Corporation and Nokia
Telecommunications Inc., dated December 14, 1995
10.7(1) Purchase and Sale Agreement, Nokia Mobile Phones, Inc. and Western
Wireless Corporation, dated November 10, 1995
</TABLE>
25
<PAGE> 26
<TABLE>
<CAPTION>
Exhibit Description
------- -----------
<S> <C>
10.8(1) Western Wireless Corporation, 1994 Management Incentive Stock
Option Plan, approved, as adopted and amended, by Shareholders
November 16, 1995 together with form of Stock Option Agreement for
offers thereunder
10.9(1) Stockholders Agreement by and among Western Wireless Corporation
and certain of its shareholders, dated July 29, 1994
10.10(1) First Amendment to Stockholders Agreement by and among Western
Wireless Corporation and certain of its shareholders, Adding as a
Party Western PCS Corporation, dated November 30, 1994
10.11(1) Waiver Agreement by and among Western Wireless Corporation,
Western PCS Corporation and certain of Western Wireless
Corporation's shareholders, dated November 30, 1994
10.12(1) Waiver Agreement by and among Western Wireless Corporation,
Western PCS Corporation and certain of Western Wireless
Corporation's shareholders, dated February 15, 1996
10.13(1) Voting Agreement by and among Western Wireless Corporation and
certain of its shareholders, dated July 29, 1994
10.14(1) Voting Agreement by and among Western Wireless Corporation and
certain of its shareholders
10.15(1) Lease Agreement by and between WWC Holding Co., Inc., successor in
interest to MARKETS Cellular Limited Partnership, and WRC
Properties, Inc., dated May 1, 1994
10.16(1) Lease Agreement by and between Western Wireless Corporation and
Department of Natural Resources, dated August 25, 1995
10.17(1) First Amendment to Lease Agreement by and between Western Wireless
Corporation and Department of Natural Resources, dated February
28, 1996
10.18(1) Form of Cellular One Group License Agreement
10.19(1) Asset Purchase Agreement between Western PCS III License
Corporation as Buyer and GTE Mobilnet Incorporated as Seller,
dated January 16, 1996
10.20(1) Purchase and Sale Agreement by and between Robert O. Tyler, Esq.,
as Trustee, Seller, and GCC License Corporation, Purchaser, dated
December 22, 1995
10.21(1) Agreement for Purchase and Sale of Autoplex Cellular Equipment,
Software and Services by and among American Telephone and
Telegraph Company, WWC Holding Co., Inc., successor to MARKETS
Cellular Limited Partnership and MCII General Partnership, dated
March 17, 1993
10.22(1) Agreement and Plan of Reorganization by and among Palouse Paging,
Inc., the Shareholders of 100% of the Stock of Palouse Paging,
Inc., Western Paging I Corporation and Western Wireless
Corporation, dated February 5, 1996
10.23(1) First Amendment to Agreement and Plan of Reorganization by and
among Western Paging I Corporation, the former Shareholders of
100% of the Stock of Palouse Paging, Inc. and Western Wireless
Corporation
10.24(1) Agreement and Plan of Reorganization by and among Sawtooth Paging,
Inc., the Shareholders of 52.93% of the Stock of Sawtooth Paging,
Inc., Western Paging II Corporation and Western Wireless
Corporation, dated February 5, 1996
10.25(1) Employment Agreement by and between John W. Stanton and Western
Wireless Corporation, dated March 12, 1996
10.26(1) Employment Agreement by and between Robert A. Stapleton and
Western Wireless Corporation, dated March 12, 1996
10.27(1) Employment Agreement by and between Mikal J. Thomsen and Western
Wireless Corporation, dated March 12, 1996
10.28(1) Employment Agreement by and between Theresa E. Gillespie and
Western Wireless Corporation, dated March 12, 1996
</TABLE>
26
<PAGE> 27
<TABLE>
<CAPTION>
Exhibit Description
------- -----------
<S> <C>
10.29(1) Employment Agreement by and between Alan R. Bender and Western
Wireless Corporation, dated March 12, 1996
10.30(1) Employment Agreement by and between Cregg B. Baumbaugh and Western
Wireless Corporation, dated March 12, 1996
10.31(7) Employment Agreement by and between Donald Guthrie and Western
Wireless Corporation, dated March 12, 1996
10.32(1) Form of Registrant's Restrictive Covenant and Confidentiality
Agreement
10.33(1) Form of Director and Officer Indemnification Agreement
10.34(1) Western PCS Corporation Series A Preferred Stock Purchase
Agreement among Western Wireless Corporation, Western PCS
Corporation and the Purchasers listed therein, dated April 10,
1995
10.35(1) PCS Block "C" Organization and Financing Agreement by and among
Western PCSBTA I Corporation, Western Wireless Corporation, Cook
Inlet PV/SS PCS Partners, L.P., Cook Inlet Telecommunications,
Inc., SSPCS Corporation and Providence Media Partners L.P. dated
as of November 5, 1995
10.36(1) Limited Partnership Agreement by and between Cook Inlet PV/SS PCS
Partners, L.P. and Western PCS BTA I Corporation dated as of
November 5, 1995
10.37(1) First Amendment to Block "C" Organization and Financing Agreement
and Cook Inlet Western Wireless PV/SS PCS, L.P. Limited
Partnership Agreement by and among Western PCS BTA I Corporation,
Western Wireless Corporation, Cook Inlet PV/SS PCS Partners, L.P.,
Cook Inlet Telecommunications, Inc., SSPCS Corporation and
Providence Media Partners L.P. dated as of April 8, 1996
10.38(1) Amended and Restated Loan Agreement among Western Wireless
Corporation and The Toronto-Dominion Bank, Barclays Bank, PLC, and
Morgan Guaranty Trust Company of New York, as Managing Agents for
the Various Lenders, dated May 6, 1996
10.39(3) Second Amendment to Block "C" Organization and Financing Agreement
and Cook Inlet Western Wireless PV/SS PCS, L.P. Limited
Partnership Agreement by and among Western PCS BTA I Corporation,
Western Wireless Corporation, Cook Inlet PV/SS PCS Partners, L.P.,
Cook Inlet Telecommunications, Inc., SSPCS Corporation and
Providence Media Partners L.P. dated as of June 27, 1996
10.40(3) Third Amendment to Block "C" Organization and Financing Agreement
and Cook Inlet Western Wireless PV/SS PCS, L.P. Limited
Partnership Agreement and First Amendment to Technical Services
Agreement by and among Western PCS BTA I Corporation, Western
Wireless Corporation, Cook Inlet PV/SS PCS Partners, L.P., Cook
Inlet Telecommunications, Inc., SSPCS Corporation, Providence
Media Partners L.P. and Cook Inlet Western Wireless PV/SS PCS,
L.P., dated July 30, 1996
10.41(3) General Agreement for Purchase of Cellular Systems between Lucent
Technologies Inc. and Western Wireless Corporation, dated
September 16, 1996
10.42(3) Amendment No. 1 to PCS 1900 Supply Agreement between Western PCS
Corporation and Northern Telecom Inc., dated July 25, 1996
10.43(3) Amendment No. 2 to PCS 1900 Supply Agreement between Western PCS
Corporation and Northern Telecom Inc., dated July 25, 1996
10.44(7) Amendment No. 3 to PCS Supply Agreement between Western PCS
Corporation and Northern Telecom Inc., dated October 14, 1996
10.45(4) Western Wireless Corporation 1996 Employee Stock Purchase Plan
10.46(5) Western Wireless Corporation 1997 Executive Restricted Stock Plan
10.47(5) Form of First Amendment to Amended and Restated Loan Agreement
among Western Wireless Corporation and The Toronto Dominion Bank,
Barclays Bank, PLC, and Morgan Guaranty Trust Company of New York,
as Managing Agents for the various lenders, dated March 27, 1997
10.48(5) Purchase Agreement, dated April 24, 1997, by and among Western
Wireless Corporation, Triad Texas, L.P., Triad Utah, L.P., Triad
Oklahoma, L.P., Triad Cellular Corporation and Triad Cellular L.P.
</TABLE>
27
<PAGE> 28
<TABLE>
<CAPTION>
Exhibit Description
------- -----------
<S> <C>
10.49(5) Purchase Agreement, dated April 24, 1997, by and between Western
Wireless Corporation and Triad Cellular Corporation.
10.50(5) Agreement and Plan of Merger, dated April 24, 1997, by and among
Western Wireless Corporation, Minnesota Cellular Corporation,
Triad Investment Minnesota, Inc., Barry B. Lewis, Craig W.
Viehweg, Terry E. Purvis, Triad Cellular Corporation, Triad
Cellular L.P., and Triad Minnesota, L.P.
10.51(5) Purchase Agreement, dated April 24, 1997, by and between Western
Wireless Corporation and Triad Cellular, L.P.
10.52(8) First Amendment to Loan Agreement, dated as of March 6, 1997,
among Western PCS II Corporation, Northern Telecom Inc., NTFC
Capital Corporation and Export Development Corporation
10.53(8) Second Amendment to Loan Agreement, dated as of April 15, 1997,
among Western PCS II Corporation, Northern Telecom Inc., NTFC
Capital Corporation and Export Development Corporation
10.54(9) Second Amendment to Amended and Restated Loan Agreement by and
among Western Wireless Corporation, various financial
institutions, and The Toronto-Dominion Bank, Barclays Bank PLC and
Morgan Guaranty Trust Company of New York as Managing Agents dated
May 28, 1997.
10.55(10) Stock Subscription Agreement by and among Western Wireless
Corporation, Hutchison Telecommunications Limited and Hutchison
Telecommunications Holdings (USA) Limited dated October 14, 1997.
10.56(10) Purchase Agreement by and among Western PCS Corporation, Western
Wireless Corporation, Hutchison Telecommunications Limited and
Hutchison Telecommunications PCS (USA) Limited dated October 14,
1997.
10.57(10) Form of Cash Management Agreement by and between Western Wireless
Corporation and Western PCS Corporation.
10.58(10) Form of Roaming Agreement by and between Western Wireless
Corporation and Western PCS Corporation.
10.59(10) Form of Services Agreement by and between Western Wireless
Corporation and Western PCS Corporation.
10.60(10) Form of Shareholders Agreement by and among Western Wireless
Corporation, Hutchison Telecommunications PCS (USA) Limited and
Western PCS Corporation.
10.61(10) Form of Tax Sharing Agreement by and between Western Wireless
Corporation and Western PCS Corporation.
10.62(10) Agreement to Form Limited Partnership dated September 30, 1997, by
and among Western PCS I Iowa Corporation, a Delaware corporation,
INS Wireless, Inc., an Iowa corporation, Western PCS I
Corporation, a Delaware corporation, and Iowa Network Services,
Inc., an Iowa corporation.
10.63(10) Iowa Wireless Services, L.P. Limited Partnership Agreement dated
as of September 30, 1997, by and between INS Wireless, Inc., as
General Partner, and Western PCS I Iowa Corporation, as Limited
Partner.
10.64(11) Software License Maintenance and Subscriber Billing Services
Agreement dated June 1997.
10.65(11) First Amendment to Software License, Maintenance and Subscriber
Billing Services Agreement dated December 1997, between CSC
Intelicom, Inc., and Western Wireless Corporation.
10.66(11) Letter agreement dated December 16, 1997 between Western Wireless
Corporation and Intelicom Services Inc. to provide products and
services pursuant to the Software License Maintenance and
Subscriber Billing Services Agreements and First Amendment
thereto.
13.1 Market for Registrant's Common Equity and Related Stockholder
Matters.
13.2 Selected Financial Data
13.3 Management's Discussion and Analysis of Financial Condition and
Results of Operations
13.4 Financial Statements and Supplementary Data
21.1(1) Subsidiaries of the Registrant
23.1 Consent of Arthur Andersen LLP
</TABLE>
28
<PAGE> 29
<TABLE>
<CAPTION>
Exhibit Description
------- -----------
<S> <C>
27.1 Financial Data Schedule
99.1(9) Report on Form 8-K dated June 19, 1997
</TABLE>
- ----------
(1) Incorporated herein by reference to the exhibit filed with the Company's
Registration Statement on Form S-1 (Securities and Exchange Commission
(the "Commission") File No. 333-2432).
(2) Incorporated herein by reference to the exhibit filed with the Company's
Registration Statement on Form S-1 (Commission File No. 333-2688).
(3) Incorporated herein by reference to the exhibit filed with the Company's
Registration Statement on Form S-4 (Commission File No. 333-14859).
(4) Incorporated herein by reference to the exhibit filed with the Company's
Registration Statement on Form S-8 (Commission File No. 333-18137).
(5) Incorporated herein by reference to the exhibit filed with the Company's
Registration Statement on Form S-1 (Commission File No. 333-14859)
(6) Incorporated herein by reference to the exhibit filed with the Company's
Registration Statement on Form S-3 (Commission File No. 333-14859)
(7) Incorporated herein by reference to the exhibit filed with the Company's
Form 10-K for the year ended 12/31/96.
(8) Incorporated herein by reference to the exhibit filed with the Company's
Form 10-Q for the quarter ended 3/31/97.
(9) Incorporated herein by reference to the exhibit filed with the Company's
Form 10-Q for the quarter ended 6/30/97.
(10) Incorporated herein by reference to the exhibit filed with the Company's
Form 10-Q for the quarter ended 9/30/97.
(11) Portions of this exhibit have been omitted and filed separately with the
Secretary of the Commission pursuant to the Registrant's Application
Requesting Confidential Treatment under Rule 246-2 of the Securities
Exchange Act of 1934.
29
<PAGE> 30
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly causes this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
Date: March 27, 1998
WESTERN WIRELESS CORPORATION
By /s/
------------------------------
John W. Stanton
Chairman of the Board and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signatures Title
---------- -----
<S> <C> <C>
Chairman of the Board and Chief
/s/__________________________ Executive Officer Date: March 27, 1998
John W. Stanton (Principal Executive Officer)
/s/ _________________________ Vice Chairman and Chief Financial Officer Date: March 27, 1998
Donald Guthrie (Principal Financial Officer)
/s/__________________________ Controller Date: March 27, 1998
Patricia L. Miller (Principal Accounting Officer)
/s/ _________________________ Director Date: March 27, 1998
John L. Bunce, Jr.
/s/ _________________________ Director Date: March 27, 1998
Mitchell R. Cohen
/s/ _________________________ Director Date: March 27, 1998
Daniel J. Evans
/s/ _________________________ Director Date: March 27, 1998
Jonathan M. Nelson
/s/ _________________________ Director Date: March 27, 1998
Terence O'Toole
</TABLE>
30
<PAGE> 31
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit Description
------- -----------
<S> <C>
3.1(1) Amended and Restated Articles of Incorporation of the Registrant
3.2(1) Bylaws of the Registrant
4.1(2) Indenture between Western Wireless Corporation and Harris Trust
Company of California, dated May 22, 1996
4.2(3) Indenture between Western Wireless Corporation and Harris Trust
Company of California, dated October 24, 1996
4.3(6) Form of Supplemental Indenture to be entered into between Western
Wireless Corporation and Harris Trust Company of California,
relating to the 10 1/2% Senior Subordinated Notes Due 2007
4.4(6) Form of Supplemental Indenture to be entered into between Western
Wireless Corporation and Harris Trust Company of California,
relating to the 10 1/2% Senior Subordinated Notes Due 2006
10.1(1) Loan Agreement between Western PCS II Corporation and Northern
Telecom Inc., dated June 30, 1995
10.2(1) PCS 1900 Project and Supply Agreement between Western PCS
Corporation and Northern Telecom Inc., dated June 30, 1995
10.3(1) Purchase Agreement between Motorola Nortel Communications Co. and
General Cellular Corporation, dated July 29, 1993
10.4(1) Loan Agreement among Western Wireless Corporation and The
Toronto-Dominion Bank, Barclays Bank, PLC, and Morgan Guaranty
Trust Company of New York, as Managing Agents for the Various
Lenders, dated June 30, 1995
10.5(1) First Amendment to Loan Agreement by and among Western Wireless
Corporation, The Toronto-Dominion Bank, Barclays Bank, PLC, and
Morgan Guaranty Trust Company of New York, as Managing Agents for
the Various Lenders, dated January 11, 1996
10.6(1) Supply Contract by and between Western PCS Corporation and Nokia
Telecommunications Inc., dated December 14, 1995
10.7(1) Purchase and Sale Agreement, Nokia Mobile Phones, Inc. and Western
Wireless Corporation, dated November 10, 1995
10.8(1) Western Wireless Corporation, 1994 Management Incentive Stock
Option Plan, approved, as adopted and amended, by Shareholders
November 16, 1995 together with form of Stock Option Agreement for
offers thereunder
10.9(1) Stockholders Agreement by and among Western Wireless Corporation
and certain of its shareholders, dated July 29, 1994
10.10(1) First Amendment to Stockholders Agreement by and among Western
Wireless Corporation and certain of its shareholders, Adding as a
Party Western PCS Corporation, dated November 30, 1994
10.11(1) Waiver Agreement by and among Western Wireless Corporation,
Western PCS Corporation and certain of Western Wireless
Corporation's shareholders, dated November 30, 1994
10.12(1) Waiver Agreement by and among Western Wireless Corporation,
Western PCS Corporation and certain of Western Wireless
Corporation's shareholders, dated February 15, 1996
10.13(1) Voting Agreement by and among Western Wireless Corporation and
certain of its shareholders, dated July 29, 1994
10.14(1) Voting Agreement by and among Western Wireless Corporation and
certain of its shareholders
10.15(1) Lease Agreement by and between WWC Holding Co., Inc., successor in
interest to MARKETS Cellular Limited Partnership, and WRC
Properties, Inc., dated May 1, 1994
10.16(1) Lease Agreement by and between Western Wireless Corporation and
Department of Natural Resources, dated August 25, 1995
</TABLE>
<PAGE> 32
<TABLE>
<CAPTION>
Exhibit Description
------- -----------
<S> <C>
10.17(1) First Amendment to Lease Agreement by and between Western Wireless
Corporation and Department of Natural Resources, dated February
28, 1996
10.18(1) Form of Cellular One Group License Agreement
10.19(1) Asset Purchase Agreement between Western PCS III License
Corporation as Buyer and GTE Mobilnet Incorporated as Seller,
dated January 16, 1996
10.20(1) Purchase and Sale Agreement by and between Robert O. Tyler, Esq.,
as Trustee, Seller, and GCC License Corporation, Purchaser, dated
December 22, 1995
10.21(1) Agreement for Purchase and Sale of Autoplex Cellular Equipment,
Software and Services by and among American Telephone and
Telegraph Company, WWC Holding Co., Inc., successor to MARKETS
Cellular Limited Partnership and MCII General Partnership, dated
March 17, 1993
10.22(1) Agreement and Plan of Reorganization by and among Palouse Paging,
Inc., the Shareholders of 100% of the Stock of Palouse Paging,
Inc., Western Paging I Corporation and Western Wireless
Corporation, dated February 5, 1996
10.23(1) First Amendment to Agreement and Plan of Reorganization by and
among Western Paging I Corporation, the former Shareholders of
100% of the Stock of Palouse Paging, Inc. and Western Wireless
Corporation
10.24(1) Agreement and Plan of Reorganization by and among Sawtooth Paging,
Inc., the Shareholders of 52.93% of the Stock of Sawtooth Paging,
Inc., Western Paging II Corporation and Western Wireless
Corporation, dated February 5, 1996
10.25(1) Employment Agreement by and between John W. Stanton and Western
Wireless Corporation, dated March 12, 1996
10.26(1) Employment Agreement by and between Robert A. Stapleton and
Western Wireless Corporation, dated March 12, 1996
10.27(1) Employment Agreement by and between Mikal J. Thomsen and Western
Wireless Corporation, dated March 12, 1996
10.28(1) Employment Agreement by and between Theresa E. Gillespie and
Western Wireless Corporation, dated March 12, 1996
10.29(1) Employment Agreement by and between Alan R. Bender and Western
Wireless Corporation, dated March 12, 1996
10.30(1) Employment Agreement by and between Cregg B. Baumbaugh and Western
Wireless Corporation, dated March 12, 1996
10.31(7) Employment Agreement by and between Donald Guthrie and Western
Wireless Corporation, dated March 12, 1996
10.32(1) Form of Registrant's Restrictive Covenant and Confidentiality
Agreement
10.33(1) Form of Director and Officer Indemnification Agreement
10.34(1) Western PCS Corporation Series A Preferred Stock Purchase
Agreement among Western Wireless Corporation, Western PCS
Corporation and the Purchasers listed therein, dated April 10,
1995
10.35(1) PCS Block "C" Organization and Financing Agreement by and among
Western PCSBTA I Corporation, Western Wireless Corporation, Cook
Inlet PV/SS PCS Partners, L.P., Cook Inlet Telecommunications,
Inc., SSPCS Corporation and Providence Media Partners L.P. dated
as of November 5, 1995
10.36(1) Limited Partnership Agreement by and between Cook Inlet PV/SS PCS
Partners, L.P. and Western PCS BTA I Corporation dated as of
November 5, 1995
10.37(1) First Amendment to Block "C" Organization and Financing Agreement
and Cook Inlet Western Wireless PV/SS PCS, L.P. Limited
Partnership Agreement by and among Western PCS BTA I Corporation,
Western Wireless Corporation, Cook Inlet PV/SS PCS Partners, L.P.,
Cook Inlet Telecommunications, Inc., SSPCS Corporation and
Providence Media Partners L.P. dated as of April 8, 1996
</TABLE>
<PAGE> 33
<TABLE>
<CAPTION>
Exhibit Description
------- -----------
<S> <C>
10.38(1) Amended and Restated Loan Agreement among Western Wireless
Corporation and The Toronto-Dominion Bank, Barclays Bank, PLC, and
Morgan Guaranty Trust Company of New York, as Managing Agents for
the Various Lenders, dated May 6, 1996
10.39(3) Second Amendment to Block "C" Organization and Financing Agreement
and Cook Inlet Western Wireless PV/SS PCS, L.P. Limited
Partnership Agreement by and among Western PCS BTA I Corporation,
Western Wireless Corporation, Cook Inlet PV/SS PCS Partners, L.P.,
Cook Inlet Telecommunications, Inc., SSPCS Corporation and
Providence Media Partners L.P. dated as of June 27, 1996
10.40(3) Third Amendment to Block "C" Organization and Financing Agreement
and Cook Inlet Western Wireless PV/SS PCS, L.P. Limited
Partnership Agreement and First Amendment to Technical Services
Agreement by and among Western PCS BTA I Corporation, Western
Wireless Corporation, Cook Inlet PV/SS PCS Partners, L.P., Cook
Inlet Telecommunications, Inc., SSPCS Corporation, Providence
Media Partners L.P. and Cook Inlet Western Wireless PV/SS PCS,
L.P., dated July 30, 1996
10.41(3) General Agreement for Purchase of Cellular Systems between Lucent
Technologies Inc. and Western Wireless Corporation, dated
September 16, 1996
10.42(3) Amendment No. 1 to PCS 1900 Supply Agreement between Western PCS
Corporation and Northern Telecom Inc., dated July 25, 1996
10.43(3) Amendment No. 2 to PCS 1900 Supply Agreement between Western PCS
Corporation and Northern Telecom Inc., dated July 25, 1996
10.44(7) Amendment No. 3 to PCS Supply Agreement between Western PCS
Corporation and Northern Telecom Inc., dated October 14, 1996
10.45(4) Western Wireless Corporation 1996 Employee Stock Purchase Plan
10.46(5) Western Wireless Corporation 1997 Executive Restricted Stock Plan
10.47(5) Form of First Amendment to Amended and Restated Loan Agreement
among Western Wireless Corporation and The Toronto Dominion Bank,
Barclays Bank, PLC, and Morgan Guaranty Trust Company of New York,
as Managing Agents for the various lenders, dated March 27, 1997
10.48(5) Purchase Agreement, dated April 24, 1997, by and among Western
Wireless Corporation, Triad Texas, L.P., Triad Utah, L.P., Triad
Oklahoma, L.P., Triad Cellular Corporation and Triad Cellular L.P.
10.49(5) Purchase Agreement, dated April 24, 1997, by and between Western
Wireless Corporation and Triad Cellular Corporation.
10.50(5) Agreement and Plan of Merger, dated April 24, 1997, by and among
Western Wireless Corporation, Minnesota Cellular Corporation,
Triad Investment Minnesota, Inc., Barry B. Lewis, Craig W.
Viehweg, Terry E. Purvis, Triad Cellular Corporation, Triad
Cellular L.P., and Triad Minnesota, L.P.
10.51(5) Purchase Agreement, dated April 24, 1997, by and between Western
Wireless Corporation and Triad Cellular, L.P.
10.52(8) First Amendment to Loan Agreement, dated as of March 6, 1997,
among Western PCS II Corporation, Northern Telecom Inc., NTFC
Capital Corporation and Export Development Corporation
10.53(8) Second Amendment to Loan Agreement, dated as of April 15, 1997,
among Western PCS II Corporation, Northern Telecom Inc., NTFC
Capital Corporation and Export Development Corporation
10.54(9) Second Amendment to Amended and Restated Loan Agreement by and
among Western Wireless Corporation, various financial
institutions, and The Toronto-Dominion Bank, Barclays Bank PLC and
Morgan Guaranty Trust Company of New York as Managing Agents dated
May 28, 1997.
10.55(10) Stock Subscription Agreement by and among Western Wireless
Corporation, Hutchison Telecommunications Limited and Hutchison
Telecommunications Holdings (USA) Limited dated October 14, 1997.
10.56(10) Purchase Agreement by and among Western PCS Corporation, Western
Wireless Corporation, Hutchison Telecommunications Limited and
Hutchison Telecommunications PCS (USA) Limited dated October 14,
1997.
</TABLE>
<PAGE> 34
<TABLE>
<CAPTION>
Exhibit Description
------- -----------
<S> <C>
10.57(10) Form of Cash Management Agreement by and between Western Wireless
Corporation and Western PCS Corporation.
10.58(10) Form of Roaming Agreement by and between Western Wireless
Corporation and Western PCS Corporation.
10.59(10) Form of Services Agreement by and between Western Wireless
Corporation and Western PCS Corporation.
10.60(10) Form of Shareholders Agreement by and among Western Wireless
Corporation, Hutchison Telecommunications PCS (USA) Limited and
Western PCS Corporation.
10.61(10) Form of Tax Sharing Agreement by and between Western Wireless
Corporation and Western PCS Corporation.
10.62(10) Agreement to Form Limited Partnership dated September 30, 1997, by
and among Western PCS I Iowa Corporation, a Delaware corporation,
INS Wireless, Inc., an Iowa corporation, Western PCS I
Corporation, a Delaware corporation, and Iowa Network Services,
Inc., an Iowa corporation.
10.63(10) Iowa Wireless Services, L.P. Limited Partnership Agreement dated
as of September 30, 1997, by and between INS Wireless, Inc., as
General Partner, and Western PCS I Iowa Corporation, as Limited
Partner.
10.64(11) Software License Maintenance and Subscriber Billing Services
Agreement dated June 1997.
10.65(11) First Amendment to Software License, Maintenance and Subscriber
Billing Services Agreement dated December 1997, between CSC
Intelicom, Inc., and Western Wireless Corporation.
10.66(11) Letter agreement dated December 16, 1997 between Western Wireless
Corporation and Intelicom Services Inc. to provide products and
services pursuant to the Software License Maintenance and
Subscriber Billing Services Agreements and First Amendment
thereto.
13.1 Market for Registrant's Common Equity and Related Stockholder
Matters.
13.2 Selected Financial Data
13.3 Management's Discussion and Analysis of Financial Condition and
Results of Operations
13.4 Financial Statements and Supplementary Data
21.1(1) Subsidiaries of the Registrant
23.1 Consent of Arthur Andersen LLP
27.1 Financial Data Schedule
99.1(9) Report on Form 8-K dated June 19, 1997
</TABLE>
- ----------
(1) Incorporated herein by reference to the exhibit filed with the Company's
Registration Statement on Form S-1 (Securities and Exchange Commission
(the "Commission") File No. 333-2432).
(2) Incorporated herein by reference to the exhibit filed with the Company's
Registration Statement on Form S-1 (Commission File No. 333-2688).
(3) Incorporated herein by reference to the exhibit filed with the Company's
Registration Statement on Form S-4 (Commission File No. 333-14859).
(4) Incorporated herein by reference to the exhibit filed with the Company's
Registration Statement on Form S-8 (Commission File No. 333-18137).
(5) Incorporated herein by reference to the exhibit filed with the Company's
Registration Statement on Form S-1 (Commission File No. 333-14859)
(6) Incorporated herein by reference to the exhibit filed with the Company's
Registration Statement on Form S-3 (Commission File No. 333-14859)
(7) Incorporated herein by reference to the exhibit filed with the Company's
Form 10-K for the year ended 12/31/96.
(8) Incorporated herein by reference to the exhibit filed with the Company's
Form 10-Q for the quarter ended 3/31/97.
(9) Incorporated herein by reference to the exhibit filed with the Company's
Form 10-Q for the quarter ended 6/30/97.
(10) Incorporated herein by reference to the exhibit filed with the Company's
Form 10-Q for the quarter ended 9/30/97.
(11) Portions of this exhibit have been omitted and filed separately with the
Secretary of the Commission pursuant to the Registrant's Application
Requesting Confidential Treatment under Rule 246-2 of the Securities
Exchange Act of 1934.
<PAGE> 1
EXHIBIT 10.64
================================================================================
SOFTWARE LICENSE, MAINTENANCE AND
SUBSCRIBER BILLING SERVICES AGREEMENT
BETWEEN
WESTERN WIRELESS CORPORATION
AND
CSC INTELICOM, INC.
================================================================================
<PAGE> 2
SOFTWARE LICENSE, MAINTENANCE AND
SUBSCRIBER BILLING SERVICES AGREEMENT
THIS SOFTWARE LICENSE, MAINTENANCE AND SUBSCRIBER BILLING SERVICES
AGREEMENT is made this __ day of June, 1997 by and among CSC Intelicom, Inc., a
Delaware corporation, with its principal place of business at 6707 Democracy
Boulevard, Suite 1000, Bethesda, Maryland 20817 (hereinafter "CSC") and Western
Wireless Corporation, a Washington corporation, and its subsidiaries
(hereinafter referred to as "Customer"), with offices located at 2001 NW
Sammamish Rd. #100, Issaquah, WA 98027.
BACKGROUND
Whereas Customer is in the wireless telecommunication services
business and CSC is in the subscriber billing business; and
Whereas CSC has developed and owns certain proprietary software
for use in the wireless telecommunications industry and has
experience in providing third party subscriber billing services;
and
Whereas CSC and Customer are parties to a certain Software
License, Maintenance and Subscriber Billing Services Agreement
dated as of August 1, 1994 ("Prior Agreement"), and
Whereas the parties desire to terminate the Prior Agreement and
execute a new Software License, Maintenance and Subscriber
Billing Services Agreement; and
Whereas Customer desires to obtain a personal, non-exclusive,
nontransferable, non-assignable license to use such software and
purchase subscriber billing services and CSC desires to license
such software and provide subscriber billing services to Customer
on the terms and conditions set forth herein.
IN CONSIDERATION of the foregoing and the mutual covenants set forth herein, and
intending to be legally bound, the parties agree as follows:
1. DEFINITIONS
The following words shall have the following meanings when used in this
Agreement:
1.1 "Account" shall mean an aggregation of Subscribers. See Appendix I
for a schematic diagram of Account and Service relationships within the
Software.
-1-
CONFIDENTIAL: PROPRIETARY CSC/ITDS & WESTERN INFORMATION
<PAGE> 3
1.2 "Affiliate(s)" or "Affiliate Company" shall mean any entity
incorporated or formed in the United States in which Customer owns, directly or
indirectly, a fifty-one percent (51%) or greater ownership interest, or any
entity which owns or controls at least fifty-one percent (51%) of Customer, or
with the written consent of CSC, which shall not be unreasonably withheld, any
entity incorporated or formed in the United States in which Customer owns,
directly or indirectly, less than a fifty-one percent (51%) ownership interest
and which is an FCC licensee for telecommunications services, or with the
written consent of CSC any entity not incorporated or formed in the United
States. Consent is hereby given to include Cook Inlet Western Wireless PV/SS PCS
L.P. as an Affiliate.
1.3 "Business Day" shall mean Monday through Friday, excluding weekends
and CSC holidays, as detailed in Appendix E.
1.4 "Bypass" or "Work Around" shall mean a mutually agreeable procedure
by which a user can avoid a reported problem, defined herein as a problem
experienced by the Customer with a CSC product or service which is subsequently
reported to CSC for analysis and correction, if applicable, by changes to the
procedures followed or data supplied by the user when using the Software.
1.5 "Calendar Day" shall mean Monday through Sunday, excluding CSC
holidays as detailed within Appendix E.
1.6 "Critical Error(s)" shall mean a failure of the Software which
Severely Impacts Customer's ability to provide service or invoice its
Subscribers for services provided and which cannot be temporarily eliminated
through the use of a "Bypass" or "Work Around."
1.7 "Customer Business Hours" shall mean 8:00 A.M. - 8:00 P.M. Pacific
Time Monday through Friday, excluding holidays.
1.8 "Data Receipt Date" shall mean that day as set forth in Appendix K,
other than Sunday or a CSC holiday as detailed in Appendix E, on which CSC
anticipates having received all of Customer's Data required by CSC for the
purpose of beginning the production of Customer's Subscriber Billing Services
statement data images. This date shall be adjusted as described within Section
12.2.e below based upon Customer's ability to provide necessary Data within the
allowed timeframes.
1.9 "Data" shall mean all records, documents and other information,
including but not limited to, all Subscriber-related service order records,
Subscriber call records and payment records, in any form provided to CSC by
Customer or required for CSC's performance of the Subscriber Billing Services to
be provided under this Agreement.
-2-
<PAGE> 4
1.10 "Detailed Bid Proposal" shall mean a detailed written response to
Customer's request for a Software Enhancement. The response will be prepared by
a qualified CSC Software analyst and will outline CSC's understanding of the
Software Enhancement request and provide Customer with an itemized breakdown of
all work efforts required by CSC to complete the Software Enhancement. Detailed
Bid Proposals will be prepared on a time and materials basis.
1.11 "Enhancement(s)" shall mean any improvement to or change in the
Software Licensed by Customer that alters the original functional
characteristics provided to Customer. Unless otherwise agreed in writing by CSC,
all title, ownership, and intellectual property rights to the Enhancement(s)
shall vest solely and exclusively with CSC. Customer's sole interest in the
Enhancement(s) is a limited license to use the Enhancement(s) subject to the
terms and conditions of this Agreement.
1.12 "Error(s)" shall mean a failure of the Software to: (a) comply with
the provisions of the Order; (b) function in accordance with CSC's
specifications (including producing the Subscriber Billing Services statement
data images and reports applicable to the Software or Software Products); (c) be
compatible and conform to user documentation and operating manuals furnished by
CSC; or (d) comply with a mutually agreed upon Software Acceptance Plan which
shall be developed and agreed to in writing by Customer and CSC prior to
installation of the Software for which the Software Acceptance Plan has been
established. Errors other than Critical Errors shall be categorized as:
o "Priority Two Error - High" shall mean (a) a failure of the Software
which Severely Impacts Customer's ability to provide service or
accurately invoice its Subscribers for services provided, but which
can be temporarily eliminated through the use of a "Bypass" or "Work
Around," or (b) a problem is preventing full use of functionality but
is not affecting critical system functionality or other customer data
and a "Bypass" or "Work Around" is not available.
o "Priority Three Error - Medium" shall mean a problem with the
Software that can be tolerated temporarily but must be resolved
before the next billing cycle. For example, a missing tax ID or a
Software Error that prevents exclusion of a charge code. If the
Priority Three Error is not resolved prior to the applicable billing
cycle, then the Error will be reclassified as a Critical Error or a
Priority Two Error as applicable.
o "Priority Four Error - Low" shall mean a problem that interferes
with optimal use of the Software but not with Subscriber Billing
Services statement data images and reports or customer care
operations. For example: error messages that are not user friendly;
function keys that are not consistent with the rest of the
application; spelling errors; and cosmetic improvements.
1.13 "Fix(es)" shall mean a correction of an Error(s).
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1.14 "Implementation Plan" shall mean the mutually agreed upon master
project plan for delivering CSC Customer Care Software, Software Enhancements
defined in Appendix C of this Agreement, and converting Customer's cellular and
PCS markets to version 3.0 of the Software. The Implementation Plan defines the
necessary tasks and responsibilities for both CSC and Customer, and includes the
required delivery and acceptance dates. Those Customer tasks considered on the
critical path for delivery of these items are detailed in Appendix H (PCS
Conversion and Migration from TRIS+ 1.0 to TRIS+ 3.0) of this Agreement. The
Implementation Plan and Customer Milestones may be modified periodically as
mutually agreed upon between CSC and Customer. Customer delays in completing the
Customer Milestones or other relevant tasks defined within the Implementation
Plan will be analyzed by CSC, but CSC shall be given a one (1) day extension in
associated delivery dates for every day of Customer delay to the extent Customer
delay causes a CSC delay.
1.15 "Individual Account" shall mean a standalone Account within the
Software that is not associated with a Master Account. See Appendix I for a
schematic diagram of Account and Service relationships within the Software.
1.16 "License(s)" shall mean any personal, non-exclusive,
nontransferable, non-assignable license or licenses granted by CSC to Customer
to use the Software or Software Products under this Agreement.
1.17 "Master Account" shall mean an aggregation of Subordinate Accounts.
See Appendix I for a schematic diagram of Account and Service relationships
within the Software.
1.18 "Object Code" shall mean the binary machine readable version of the
Software.
1.19 "Order" shall mean a formal written request by Customer to CSC
indicating Customer's desire to License and/or purchase Software (other than
that which is listed in Appendix B), Software Products and/or Subscriber Billing
Services from CSC. This formal written request shall conform in all material
respects to the form detailed as Appendix A, attached hereto, which may be
amended from time to time.
1.20 "Planning Estimate" shall mean a high level written response to a
Customer's request for a Software Enhancement. The response will contain the
estimated time a Software Enhancement requested by the Customer shall take CSC
to complete. The time estimate will be the consensus opinion of CSC's Software
Enhancement Steering Committee and will be derived without any formal detailed
analysis of the Software Enhancement request by a qualified CSC Software
analyst. Planning Estimates will be provided to Customer at no additional charge
and are not offers or quotations from CSC to complete such Software
Enhancements.
1.21 "Service", as described within Appendix I, shall be identified by
the following data elements: a) Market (i.e., SRVA, SLOC); b) Customer ID.
(i.e., account number); c) Service ID. (sequential identifier that together with
the Market and Customer ID uniquely
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identifies the service to the TRIS+ Software); d) Service Type (i.e., identifies
the service type as voice, SMS, voice mail, or other service type); e) Depending
upon the type of service, other identifiers may also be used including: i)
Service Number (e.g., mobile number for voice or voice mail; fleet and fleet
member ID. for dispatch; IP Address for data services, etc.) or ii) Other
identifiers unique to various standards (e.g., International Mobile Subscriber
Identifier). Each service may have charges associated with it as set forth in
Appendix D. See Appendix I for a schematic diagram of Account and Service
relationships within the Software.
1.22 "Severely Impacts" shall mean having a material negative impact on
the Customer's ability to provide services to Customer's Subscribers or having a
material negative impact on Customer's ability to manage or process information
which is critical to the well being of the Customer and/or its operations.
1.23 "Site" shall mean a Customer's computer facility located in one
specific geographic location, or in the case of a client-server configuration,
all computer facilities housing either a client and/or a server computer.
Customer may install the licensed Software at different Sites at no additional
fee, but CSC will only support one version of the Software configuration
installed at a designated primary Site. Customer shall be responsible for
reproducing the Software on other Customer computers, or replicating multiple
versions of the Software on a single Customer computer for training or testing
purposes.
1.24 "Software" shall mean the Object Code version of all programs,
data, routines, etc., known as TRIS+(TM) as identified in Appendix B, and
Enhancements set forth in Appendix C, and future Enhancements.
1.25 "Software Acceptance Plan" shall mean a methodology mutually agreed
upon by both CSC and Customer for determining whether the Software meets the
performance and functionality criteria outlined by CSC, and which clearly
identifies:
o Those tests to be run to demonstrate that the Software meets the
functional and performance requirements represented by CSC in this
Agreement;
o The parties responsible for running the Software tests;
o The time frame in which the tests are to occur;
o The method by which test results are to be classified and reported and
the parties with whom test results are to be shared;
o Procedures and timeframes required for the correction of Errors;
o All criteria required for Software acceptance described in a mutually
acceptable acceptance test plan document;
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o Any payments and payment terms related to the acceptance of Software.
1.26 "Software Maintenance" shall mean the work done by CSC to provide
Fixes and Enhancements to the Software.
1.27 "Software Products" shall mean all physical components, other than
Software, which are offered by CSC, including but not limited to, documentation,
magnetic media, job aids, templates and other similar devices.
1.28 "Source Code" shall mean those statements in a computer language,
which when processed by a compiler, assembler or interpreter become executable
by a computer.
1.29 "Subordinate Account" shall mean an Account that is Subordinate to
a Master Account. See Appendix I for a schematic diagram of Account and Service
relationships within the Software.
1.30 "Subscriber" shall mean an end user of Customer's products and
services.
1.31 "Subscriber Billing Fulfillment Time" shall mean the number of
hours, rounded to the nearest hour, required by CSC or its third party
fulfillment vendor to prepare and deliver Subscriber Billing Services statements
to the United States Postal Service. Measurement of this time shall begin upon
receipt by CSC of Customer written bill release notification to deliver such
statements to the United States Postal Service and shall end based upon the
Average Tray time reported by CSC's third party fulfillment vendor. "Average
Tray" is a weighted average of mail times and number of bills mailed within
those timeframes.
1.32 "Subscriber Billing Processing Time" shall mean the number of
hours, rounded to the nearest hour, required by CSC to process a single Customer
billing cycle and produce Subscriber Billing Services statement dataimages.
Measurement of this time shall begin at noon Central Standard Time on the Data
Receipt Date and shall end when Subscriber Billing Services statement data
images are available for Customer to review on CSC's mainframe computer.
1.33 "Subscriber Billing Services" shall mean the calculation and
creation of data print images of all Subscriber bills and reports as further
detailed in Section 12 of this Agreement and Section 1 of Appendix D.
1.34 "Subscriber Billing Turnaround Time" shall mean the sum of
Subscriber Billing Processing Time plus Subscriber Billing Fulfillment Time.
1.35 "Support Services" shall mean the work done by CSC in support of
its Software and Software Products, including but not limited to, installation
services for Software Enhancements, maintenance, training, consultant support,
telephone support including support of
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CSC's Subscriber Billing Services provided to Customer under this Agreement, and
such other services as may be defined in an accepted Order.
2. ORDERS
Customer's Orders for Software, Software Products, and Subscriber Billing
Services shall be subject to the terms of this Agreement and shall be evidenced
by the execution and submission to CSC of an Order substantially in the form of
Appendix A, attached hereto, which may be amended, upon mutual agreement of both
CSC and Customer, from time to time. CSC will accept Orders only from those
representatives of Customer authorized to place Orders with CSC. Customer has
provided CSC with a written list of all of Customer's representatives empowered
to execute Orders, attached as Appendix G, which listing may be revised by
Customer from time to time. All Orders shall be deemed to incorporate the terms
and conditions of this Agreement and any amendments hereto. However, if there
are any inconsistencies between an Order and the terms of this Agreement, the
terms of the Order shall control. This Agreement shall have control over typed,
stamped, or preprinted portions of CSC's and Customer's Orders or
acknowledgments or other communications unless mutually agreed upon in writing
by a representative of Customer designated in Appendix G and an authorized
representative of CSC. Such mutually agreed upon writings shall have control
over this Agreement for that specific Order only.
3. LICENSE
3.1 Subject to the limitations contained within this Agreement, CSC
grants Customer and its Affiliates a limited, personal, non-exclusive,
nontransferable, non-assignable Object Code license to use and reproduce the
Software and Software Products in the United States only to the extent Ordered
by Customer, and subject to the provisions of this Agreement as well as the
payment of all applicable License fees for the term of such License. Subject to
the terms of this Agreement, licensee may utilize the Software and Software
Products outside the United States solely in connection with its wholly-owned
subsidiaries. CSC agrees to provide Customer with associated Software Products,
Software Maintenance and Support Services subject to the provisions of this
Agreement. There are no restrictions as to the number of users or Sites
associated with this License, provided that CSC has consented to the use of the
Software at any new Sites, and such consent shall not be unreasonably withheld
or delayed. Software may be temporarily transferred to a backup computer while
the Licensed computer is inoperative or for emergency testing purposes without
prior consent from CSC. The backup computer may be at the same Customer Site,
another Customer Site, or an off-site location under emergency conditions with
reasonable notice to CSC of the name and location of the off-site operator. CSC
shall not be obligated to provide Software Maintenance to Customer under this
Agreement for Software transferred for testing and/or for training purposes.
3.2 All Software and Software Products used hereunder, in whatever form,
including, without limitation, Source Code, Object Code, microcode and mask
works, including any
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computer programs and any documentation relating to or describing such Software
or Software Products, such as, but not limited to logic manuals and flow charts
provided by CSC, including instructions for use of the Software or Software
Products and formulation of theory upon which the Software or Software Products
are based, are furnished to Customer only under a personal, non-exclusive,
nontransferable, non-assignable license solely for Customer's and its
Affiliates' own use. All of the Software and all computer program
specifications, documentation, procedure manuals, disks and tapes utilized,
processed or developed by CSC in connection with this Agreement or the services
rendered to Customer hereunder shall be and remain the exclusive and
confidential property of CSC or third parties from whom CSC has secured the
right to use the same. The Subscriber Billing Services statements, reports, or
other output created by CSC for Customer under this Agreement are the sole and
exclusive property of CSC and shall remain the sole and exclusive property of
CSC until payment is made in full on the invoice covering the same, at which
time title shall transfer to Customer. However, even in the event of
non-payment, Customer shall retain title to its Subscriber listings and any Data
Customer provides to CSC and CSC shall release all such information to Customer
upon Customer's request.
3.3 Except as provided in this Agreement or an Order, no license under
any patents, copyrights, trademarks, trade secrets or any other intellectual
property rights, express or implied, are granted by CSC to Customer under this
Agreement.
4. TERM OF LICENSES
The term of each individual License granted under this Agreement, as set forth
in Appendices B and C, begins on the date of installation of the Software and
shall be coterminous with this Agreement. The term of each individual License
granted under subsequent Orders begins on the date of installation of the
Software and shall terminate on the date set forth on the Software License and
Software Maintenance Order which requested such License, unless earlier
terminated as provided in this Agreement.
5. LICENSE FEES
The price schedule for the License fees for Software, Software Products,
Software Maintenance and Support Services ordered hereunder, including any
applicable discount and payment schedules, is detailed in Appendix D, attached
hereto.
6. CUSTOMER PREPARATION
If the Software or Software Products are to be installed by CSC, the Customer
shall have all things in readiness for installation, including, but not limited
to, other equipment, connections and facilities for installation at the time the
Software or Software Products are delivered. Unless otherwise agreed to in
writing, CSC will provide to Customer in writing at least sixty (60) calendar
days in advance of the scheduled date for Software installation a list detailing
all other equipment, connections and facilities which CSC requires for
installation. In the event the
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Customer shall fail to have all things in readiness for installation on the
scheduled installation date, the Customer shall reimburse CSC for any and all
reasonable expenses caused by Customer's failure to have things in readiness,
unless Customer has notified CSC at least five (5) Business Days prior to the
scheduled installation date. Customer agrees to provide and bear the cost of a
dedicated communications line of sufficient capacity between Customer's Site(s)
and CSC's Champaign, Illinois offices, including all equipment costs directly
related to or reasonably required by CSC for the purposes of remote access and
support by the CSC consultant or phone support group. CSC shall conform in all
respects to Customer's written procedures for remote access to Customer's
computer hardware, which Customer shall provide to CSC prior to any attempt by
CSC to remotely access Customer's computer hardware for support purposes.
Customer's procedures for remote access by CSC may be amended from time to time,
and CSC must be provided with written notification of any changes in Customer's
remote access procedures at least two (2) Business Days before any amended
procedures are made effective.
7. REPRODUCTION OF MANUALS, DOCUMENTATION AND OBJECT CODE
7.1 Manuals and Documentation. Customer shall have the right, at no
additional charge, to reproduce solely for its own use, all manuals and
documentation, including user documentation and all training manuals, furnished
by CSC pursuant to this Agreement and any Order, regardless of whether such
manual or documentation is copyrighted or otherwise restricted as proprietary
information. All copies of manuals or documentation made by Customer shall
include any proprietary notice or stamp that has been affixed by CSC. CSC shall
furnish for each License obtained by Customer, and at no additional charge to
Customer, two (2) copies of the relevant Software manuals and documentation and
any succeeding changes thereto, sufficient to enable Customer to maintain and
operate the Software.
[Section 8 intentionally omitted]
9. ACCEPTANCE OF SOFTWARE AND SOFTWARE PRODUCTS
9.1 Customer shall conduct Software and Software Products acceptance
tests during the installation process at a Customer designated location(s) in
accordance with the Software Acceptance Plan. The acceptance period will
commence once the Software is operational in the Customer designated
location(s). The Software and Software Products shall: (a) comply with the
provisions of the Order; (b) function in accordance with CSC's specifications
(including producing the Subscriber Billing Services statement data images and
reports applicable to the Software or Software Products); (c) be compatible and
conform to user documentation and operating manuals furnished by CSC; and (d)
comply with a mutually agreed upon Software Acceptance Plan which shall be
developed and agreed to in writing by Customer and CSC at least thirty (30) days
prior to installation of the Software for which the Software Acceptance Plan has
been established. The Software Acceptance Plan shall provide that Customer will
have the
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option to require up to three (3) test billing runs with the Software for at
least two different markets without Critical Errors or Priority Two Errors.
9.2 Unless otherwise detailed to the contrary herein, if, during the
acceptance period, Customer determines that the Software and/or Software
Products do not: (a) comply with the provisions of the Order; (b) function in
accordance with CSC's specifications (including producing the Subscriber Billing
Services statement data images and reports applicable to the Software or
Software Products); (c) demonstrate compatibility and conformity to user
documentation and operating manuals furnished by CSC; or (d) comply with a
mutually agreed upon Software Acceptance Plan which shall be developed and
agreed to in writing by Customer and CSC at least thirty (30) days prior to
installation of the Software for which the Software Acceptance Plan has been
established, Customer shall so notify CSC in writing (which may be by e-mail),
specifying the area of noncompliance. In the event that Customer's notification
to CSC identifies any Critical Errors or any Priority Two Errors, CSC shall use
its best efforts to correct all such conditions within ten (10) Business Days
from the date of receipt of Customer's notification. CSC shall use its good
faith efforts to correct all other conditions reported by Customer which prevent
the Software and/or Software Products from meeting the above requirements within
forty-five (45) Calendar Days following receipt of notice from Customer. If all
Customer reported conditions which prevent the Software and/or Software Products
from substantially complying with the specific acceptance criteria detailed in
the Software Acceptance Plan are not satisfied within this forty-five (45) day
period, the Customer will notify CSC, in writing, within five (5) Business Days
following the end of the forty-five (45) day period, indicating either
Customer's acceptance of the Software and/or Software Products, Customer's
desire to extend the Software acceptance period, or Customer's intent to
terminate this Agreement or any License without penalty or further financial
obligation.
Notwithstanding any reported Errors, Customer's commercial use of any the items
within a payment milestone shall constitute conditional acceptance of all of the
items within the payment milestone. Upon conditional acceptance, Customer shall
pay CSC 50% of any fees specifically withheld for acceptance for the applicable
milestone. However if none of the items within a payment milestone contain
Critical Errors or Priority Two Errors, Customer shall pay CSC 100% of any fees
specifically withheld for acceptance of the payment milestone. If no Errors are
reported to CSC in writing by Customer at the end of the acceptance period, CSC
shall notify Customer that acceptance shall be assumed unless CSC is notified to
the contrary within five (5) Business Days. Failure to notify CSC in writing of
Errors during this five (5) Business Day period shall constitute complete
acceptance of the applicable Software or Software Product.
9.3 As soon as it is feasible after the execution of this Agreement, CSC
and Customer shall conduct tests of the Subscriber Billing Services to be
performed under this Agreement for Customer's billing cycles detailed in
Appendix H. CSC shall produce a reasonable number of test billing statements and
reports at no charge to Customer so that Customer may verify the accuracy and
adequacy of the Subscriber Billing Services.
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10. SOFTWARE MAINTENANCE IMPLEMENTATION
CSC shall be responsible for performing and Customer desires CSC to perform
Software Maintenance beginning with the expiration of the warranty period and
ending with the termination of this Agreement. Such Software Maintenance shall
include providing Customer with Fixes, regardless of how the need for such Fixes
is brought to the attention of CSC. This Software Maintenance shall include
standard software releases which contain Fixes and certain Enhancements that are
generally made available to all CSC clients at no charge. CSC shall determine
solely those Enhancements that are included in standard releases at no charge.
11. FIXES AND ENHANCEMENTS
11.1 Customer will notify CSC verbally of Errors, with written or e-mail
follow-up notification to CSC by Customer in a CSC Problem Notification Form
within five (5) Business Days of Customer's discovery of the Error(s). CSC shall
provide Customer with a telephone number which is answered during the hours
described in Section 2 of Appendix D, and with appropriate e-mail addresses.
Customer shall have access via this telephone number to individuals who shall
accept Error reports and are qualified to assist Customer with the verification
of suspected Errors and who may provide Fixes for said Errors. Customer shall be
provided with a telephone number which is answered by individuals who shall
accept Error reports for all hours outside of those defined in Section 2 of
Appendix D.
11.2 After acceptance or first commercial use, CSC will respond to
Errors according to the priority of the Error as described in the table below.
CSC's response will generally involve correcting the Data that may have been
corrupted. CSC will make every effort to accomplish this according to the
priority and associated timeframe below. CSC will also work to correct the
Software, and the resulting Software modifications will be scheduled for a
future Software release.
- --------------------------------------- --------------------------------------
PRIORITY CSC CORRECTION EFFORTS
- --------------------------------------- --------------------------------------
Critical Error CSC will use best efforts to
promptly correct Critical Errors and
devise and implement a Work Around
or Bypass, and will provide an
estimate of when the Critical Error
will be corrected within twenty four
(24) hours.
- --------------------------------------- --------------------------------------
Priority Two Error- High CSC will use good faith efforts to
correct the Error, will provide
available Bypass or Workarounds within
twenty four (24) hours, and will discuss
plans with Customer for providing a Fix
within seventy two (72) hours.
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- --------------------------------------- --------------------------------------
PRIORITY CSC CORRECTION EFFORTS
- --------------------------------------- --------------------------------------
Priority Three Error- Medium CSC will use good faith efforts to
correct the Error, and within five (5)
Business Days will discuss plans with
Customer for providing a Fix.
- --------------------------------------- --------------------------------------
Priority Four Error- Low Within thirty (30) calendar days, CSC
will discuss plans with Customer for
providing a Fix.
- --------------------------------------- --------------------------------------
11.3 If requested by Customer, CSC agrees to incorporate any Customer
specific or other third party Software in any new versions of CSC's Software, at
CSC's charges to Customer detailed in Appendix D.
11.4 CSC and Customer warrant that each will establish regular and
reasonable internal measures to verify the accuracy of all services performed by
CSC on behalf of Customer. Each party shall notify the other party of all
errors, omissions or inaccuracies in its Data or in any Data, record, statement
or other document processed or delivered by CSC within sixty (60) calendar days
after such work is delivered to or picked up by Customer, or is delivered
according to Customer's instructions to the extent such Errors, omissions or
inaccuracies are discoverable through reasonable diligence. Customer agrees that
in the event of any Errors, omissions or inaccuracies in Subscriber Billing
Services processing, CSC shall be given a reasonable period, not to exceed
fifteen (15) calendar days, in which to run a rebilling to correct such Error.
In the event CSC is unable to rebill the Subscriber, or Customer reasonably
determines that rebilling will generate more costs than benefits to Customer,
then CSC shall reimburse Customer for all charges billed to Customer by CSC,
detailed in Section 1 of Appendix D, for such Subscribers impacted by the Error,
omission or inaccuracy. All charges and expenses so reimbursed or paid to
Customer shall be subject to the limitations set forth in Section 23. CSC agrees
to take all reasonable steps to rebill in the event of any errors in Subscriber
Billing Services processing, and to make best efforts in the event rebilling is
a result of a Critical Error or Error or negligence caused by CSC or its agents,
contractors (including IBS) or consultants. Customer agrees to reimburse CSC at
the rates set forth in Section 1 of Appendix D if rebilling is required through
no fault of CSC or its agents, contractors (including IBS) or consultants. If
other CSC consulting or custom programming services are required to correct an
Error, omission or inaccuracy caused through no fault of CSC or its agents,
contractors (including IBS) or consultants, such services shall be performed in
accordance with the rates set forth in Section 2 of Appendix D. The parties
agree that the sixty (60) calendar day limitation period in this Section shall
apply only to the matters arising under this Section, while all other matters
under this Agreement shall be governed by the limitation periods set out in
Sections 21 and 23.
11.5 CSC and Customer acknowledge the periodic need to change and/or
provide Enhancements to CSC's Software to meet the changing needs of Customer.
CSC and Customer
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hereby agree to the following procedures with regard to changes and Enhancements
requested by Customer to CSC's Software:
a. Changes not Requiring Additional Programming. Many of the
Customer-specific parameters used by CSC in performing Subscriber Billing
Services and other related services for Customer under this Agreement may be
changed by CSC without additional programming through a procedure referred
to as "table maintenance." Customer agrees to notify CSC in writing within
the Required Notification Time as defined in Section 11 of Appendix D. In
the event CSC is given at least this minimum time period to implement the
desired table maintenance, CSC will provide these services at the rates
specified within Sections 2 and 11 of Appendix D, if applicable. In the
event that Customer requests that the change be implemented in less than the
Required Notification Time, CSC will be reimbursed by Customer at CSC's
rates for such premium services as set forth in Section 11 of Appendix D.
b. Changes and Enhancements Requiring Additional Programming. Changes other
than table maintenance and all Enhancements to CSC's Software cannot be
implemented without additional programming on the part of CSC. Such changes
and additional programming shall be performed in accordance with the rates
detailed within Section 2 of Appendix D. Customer's requests for such
changes or Enhancements to CSC's Software must be in writing in the form of
a Client Business Requirements - Assessment Form.
As a part of Customer's written request to CSC, Customer will indicate
whether a Planning Estimate is desired or whether a Detailed Bid Proposal is
required. In the event that Customer seeks only a Planning Estimate, CSC
shall then have seven (7) Business Days from the date of receipt of the
Customer's written request to return the completed Planning Estimate to the
Customer via facsimile or e-mail.
In addition to the Planning Estimate, CSC may provide Customer with a Fax
Acknowledgment Form detailing a suggestion for continued analysis which is
limited in scope, and will generally require less effort than a Detailed Bid
Proposal. If Customer chooses to proceed with the Fax Acknowledgment, CSC
will provide a delivery date for such work within ten (10) business days of
receiving the signed Fax Acknowledgment.
In the event a Detailed Bid Proposal is requested (either through a signed
Client Business Requirements - Assessment Form or a signed Planning Estimate
Form), CSC shall have ten (10) business days to provide a delivery date for
the Detailed Bid Proposal, or indicate that such Enhancement is not feasible
or cannot be incorporated into CSC's Software. CSC's Detailed Bid Proposal
shall describe the following:
(i) A description of the required functionality, along with relevant
assumptions and restrictions;
(ii) The approximate implementation date of such change or Enhancement;
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(iii) The charge for implementation of the change or Enhancement,
including the number of hours required and the contractual rates applied
to such hours. CSC shall have sole discretion as to whether a requested
change or Enhancement is implemented on a chargeable basis or is
implemented at no additional charge to Customer.
In the event the change or Enhancement will be provided at no additional
charge to Customer, CSC also will inform Customer of the estimated
implementation date of the change or Enhancement. If the change or
Enhancement will be implemented by CSC at no additional charge or the
Enhancement is funded by the Customer, but Customer would like it handled on
a higher priority basis, CSC will provide Customer with a quote on the cost
to accomplish the change within Customer's desired time frame.
In the event the request will be charged at CSC's rates detailed in Appendix
D, CSC shall also provide Customer with a Detailed Bid Proposal detailing
the total charges required to implement the requested change or Enhancement.
Customer shall then have fourteen (14) calendar days from the receipt of
CSC's written Detailed Bid Proposal in which to direct CSC to proceed, and
if Customer does not notify CSC within the fourteen (14) calendar day
period, the estimate shall no longer be effective and CSC may requote and/or
revise the estimated completion date. All written estimates by CSC to
Customer shall be deemed rejected if not accepted in writing within the
fourteen (14) calendar day time frame.
11.6 CSC and Customer agree that the initial Software Enhancements to be
provided by CSC to Customer under this Agreement shall be provided to Customer
by CSC in accordance with the terms and conditions detailed in Appendix C,
attached hereto. All future Enhancements to be provided by CSC to Customer under
the terms of this Agreement shall be evidenced by an appendix to be attached to
this Agreement outlining the major terms and conditions pertaining to the future
Enhancements. This appendix will conform in all material respects to Appendix C.
12. SUBSCRIBER BILLING SERVICES
12.1 The parties agree that the geographic areas to be covered by this
Agreement are Customer's cellular and PCS calling regions established for the
geographic areas defined within Appendix K (Geographic Areas and Data Receipt
Dates). However, Customer shall not be obligated to have CSC process all
geographic areas defined within Appendix K if the monthly minimum Subscriber
Bill and Report Computation minimum charges set forth in Section 8 of Appendix D
are paid to CSC by Customer. The parties agree that new geographic areas of
Customer or an Affiliate may be added to the coverage for services to be
provided under this Agreement at the rates set forth in Appendix D, pursuant to
an Order or a separate written agreement between the parties setting forth the
geographic area or areas to be added and detailing
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any additional matters with regard to the conversion for each such area and how
the provision of services for such area will otherwise be accomplished and
compensated under this Agreement.
12.2 Customer shall be responsible for entering Customer's Data into
CSC's Software. Customer shall be responsible for delivering to CSC all Data
reasonably required by CSC to render Subscriber bills on behalf of Customer in a
timely fashion to conform to the processing times required by CSC for each of
Customer's billing cycles detailed below. CSC and Customer agree that Customer
will provide all Data required by CSC for Subscriber Billing Services by 12:00
noon CST of the CSC Data Receipt Dates for each billing cycle defined within
Appendix K.
In the event that any of the CSC Data Receipt Dates falls on a Sunday or a CSC
holiday as set out in Appendix E, then the CSC Data Receipt Date for that
billing cycle shall be the next Calendar Day.
Provided CSC has received all Data required by CSC for Subscriber billing
purposes within one (1) hour after 12:00 noon CST of the CSC Data Receipt Date
as defined within Appendix K, CSC agrees Subscriber Billing Turnaround Time will
be within:
a. Normal Billing Cycle Turnaround
Prior to August 1, 1997 - * hours, excluding the time from 12:01A.M. to
11:59P.M. on Saturday, Sunday, and CSC holidays, as detailed in Appendix E. In
the event CSC is unable to deliver Customer's Subscriber Billing Services
statements to the U.S. Postal Service within this timeframe, CSC shall provide
to Customer a credit as determined in Section 12.2 d.
below.
Beginning August 1, 1997 - * hours, excluding the time from 12:01A.M.to
11:59P.M.on CSC holidays, as detailed in Appendix E. In the event CSC is unable
to deliver Customer's Subscriber Billing Services statements to the U.S. Postal
Service within this time frame, CSC shall provide to Customer a credit as
determined in Section 12.2 d. below.
b. Initial Billing Cycle Turnaround - New SA/SL
Prior to August 1, 1997 - * hours, excluding the time from 12:01A.M.to
11:59P.M.on Saturday, Sunday, and CSC holidays, as detailed in Appendix E. In
the event CSC is unable to deliver Customer's Subscriber Billing Services
statements to the U.S. Postal Service within this time frame, CSC shall provide
to Customer a credit as determined in Section 12.2 d. below.
Beginning August 1, 1997 - * hours, excluding the time from 12:01A.M.to
11:59P.M.on CSC holidays, as detailed in Appendix E. In the event CSC is unable
to deliver Customer's Subscriber
- ----------
* Information omitted and filed separately with the SEC pursuant to request for
confidential treatment under Rule 406 of the Securities Act of 1933, as amended.
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<PAGE> 17
Billing Services statements to the U.S. Postal Service within this time frame,
CSC shall provide to Customer a credit as determined in Section 12.2 d. below.
This Subscriber Billing Turnaround Time requirement as set forth in this Section
12.2.b shall apply to the initial billing cycle for a new service area/service
location.
c. Initial Billing Cycle Turnaround - Initial Billing Cycle
After a Cycle Change or Within an Existing SA/SL
Prior to August 1, 1997 - * hours, excluding the time from 12:01A.M.to
11:59P.M.on Saturday, Sunday, and CSC holidays, as detailed in Appendix E. In
the event CSC is unable to deliver Customer's Subscriber Billing Services
statements to the U.S. Postal Service within this time frame, CSC shall provide
to Customer a credit as determined in Section 12.2 d. below.
Beginning August 1, 1997 - * hours, excluding the time from 12:01A.M.to
11:59P.M.on CSC holidays, as detailed in Appendix E. In the event CSC is unable
to deliver Customer's Subscriber Billing Services statements to the U.S. Postal
Service within this time frame, CSC shall provide to Customer a credit as
determined in Section 12.2 d. below.
This Subscriber Billing Turnaround Time requirement as set forth in this Section
12.2.c shall apply in the following situations:
initial billing cycle after a cycle change; or
initial billing cycle when added to an existing service area/service
location
d. Credit For Late Billings
In the event that Customer's Subscriber Billing Services statements are not
delivered in accordance with the turnaround times as detailed above, CSC shall
provide to Customer a credit determined in the following manner:
- ----------------------------------- --------------------------------------------
Delay Credit as a % of CSC Monthly Charge for
the Applicable Billing Cycle
- ----------------------------------- --------------------------------------------
Credit If Delivered within 24*
hours after the required *
Subscriber Billing Turnaround Time
- ----------------------------------- --------------------------------------------
- ----------
* Information omitted and filed separately with the SEC pursuant to request for
confidential treatment under Rule 406 of the Securities Act of 1933, as amended.
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<PAGE> 18
- ----------------------------------- --------------------------------------------
Delay Credit as a % of CSC Monthly Charge for
the Applicable Billing Cycle
- ----------------------------------- --------------------------------------------
Credit If Delivered between * and
48 hours after the required *
Subscriber Billing Turnaround Time
- ----------------------------------- --------------------------------------------
Credit If Delivered between * and
72 hours after the required *
Subscriber Billing Turnaround Time
- ----------------------------------- --------------------------------------------
Credit If Delivered between * and
96 hours after the required *
Subscriber Billing Turnaround Time
- ----------------------------------- --------------------------------------------
Credit If Delivered After * hours
after the required Subscriber *
Billing Turnaround Time
- ----------------------------------- --------------------------------------------
In the event that the CSC Subscriber Billing Services statement turnaround time
for any given cycle is less than or equal to * hours after the required
Subscriber Billing Turnaround Time, CSC shall not be required to provide
Customer with any credit for late delivery. In the event that the CSC Subscriber
Billing Turnaround Time is greater than 24 hours after the required Subscriber
Billing Turnaround Time, CSC shall be required to provide Customer with a credit
equal to the applicable percentage, as detailed above, of the charges detailed
in Section 1 of Appendix D applying only to those Subscriber Billing Services
statements delivered after the Contractual Turnaround Requirement. For example,
if the Subscriber Billing Turnaround Time for a cycle is * hours after the
required Subscriber Billing Turnaround Time, a credit equal to 25% of the
charges detailed in Section 1 of Appendix D for the billing cycle would be
provided by CSC to Customer.
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<PAGE> 19
In the event all Customer billing cycles are delivered after * hours of the
required Subscriber Billing Turnaround Time for * consecutive months, CSC shall
not be allowed the * hour grace period described above until a billing cycle is
delivered within the required Subscriber Billing Turnaround Time.
e. Late Receipt of Customer Data
In the event that CSC has not received the Data from Customer within * after
12:00 noon CST of the CSC Data Receipt Date as defined within Appendix , then
CSC shall be given * for each day or portion thereof of delay, except where such
delay is caused by CSC. For example, if the Data is received * after noon on the
Data Receipt Date, the required Subscriber Billing Turnaround Time defined above
shall be extended by *. Similarly, if the Data is received * after noon on the
Data Receipt Date, the required Subscriber Billing Turnaround Time shall be
extended by *.
CSC shall have no liability or responsibility for loss or damage due to late
entry or late delivery of Data to CSC or due to any inaccuracy or incompleteness
of the Data furnished by Customer. All costs for employee and equipment time
expended by CSC in locating and correcting errors, omissions or inconsistencies
in the Data submitted by Customer or Customer's agent shall be additional
charges to Customer to be billed at CSC's fee schedules then in effect and added
to Customer's invoice.
12.3 Customer agrees to prepay CSC * as a good faith estimate of the
postage cost to be incurred by CSC in fulfillment of CSC's obligation to mail
Subscriber Billing Services statements for the billing cycles processed by CSC.
It is the intent of the Parties that the postage prepayment by Customer to CSC
will occur monthly, and that the monthly postage prepayment will attempt to
closely approximate the monthly postage expenses incurred by CSC on behalf of
Customer relating to the fulfillment of CSC's obligation to mail Customer's
Subscriber Billing Services statements. CSC and Customer agree to review the
amount of prepaid postage costs semi-annually and to adjust the prepaid postage
amount as required to reflect the actual postage due from Customer each month.
13. THIRD PARTY SOFTWARE
Customer acknowledges and agrees, unless otherwise indicated in Appendix M, that
all third party costs associated with the purchase, license, or ongoing
maintenance of software run-time licenses required in connection with the
operation of the TRIS+ Software shall be borne solely by Customer. If requested
by Customer, CSC shall provide written estimates of all such charges at least
thirty (30) days prior to the installation of the TRIS+ Software. To the extent
credits for late billings or Fixes are required as a direct result of third
party software, CSC shall provide such late billing credits or Fixes as defined
within the Agreement in the event such third party is acting
- ----------
* Information omitted and filed separately with the SEC pursuant to request for
confidential treatment under Rule 406 of the Securities Act of 1933, as amended.
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<PAGE> 20
as a subcontractor for CSC. A listing of third party Software Products is set
forth in Appendix M of this Agreement.
14. RISK OF LOSS
Risk of loss or damage to Software and/or Software Products licensed by Customer
under this Agreement and physically residing at Customer's Sites shall vest in
Customer when the Software and/or Software Products have been accepted by
Customer, or its representative, pursuant to Section 9, provided that such loss
or damage is not caused by CSC, employees or its agents. In the event that CSC
is required to replace Software and/or Software Products licensed by Customer as
a result of loss or damage by Customer, Customer agrees to reimburse CSC for its
out-of-pocket expenses and employee time involved with such replacement at CSC's
charges detailed in Appendix D.
15. TRANSPORTATION OF DATA
Customer shall, at its cost and expense, transport and deliver to and/or pick up
from CSC all Data unless CSC otherwise agrees in writing. Customer agrees that
in either event it shall bear all risk of loss or damage to such Data that may
occur during transportation thereof, unless such damage shall be the result of
CSC's negligent acts or omissions or willful misconduct.
16. SUPPLIES
If CSC, with Customer's written approval, has purchased any specialized or
preprinted forms or documents, which are not considered "Confidential
Information" as defined herein, to be used in providing services solely to
Customer hereunder, and if any of these forms or documents shall remain unused
at the end of the term or at the termination of this Agreement, Customer shall,
within sixty (60) calendar days of such termination or the end of the term,
reimburse CSC on a pro rata basis for CSC's cost of all such unused forms or
documents, including all shipping and handling costs. Within thirty (30)
calendar days of such reimbursement, Customer shall either direct that said
forms or documents be sent to Customer at Customer's expense, or shall abandon
same and thereafter CSC shall destroy such forms or documents.
17. AUDITING
The Subscriber Billing Services provided by CSC hereunder are subject to audit
at the discretion of the Customer or Customer's authorized agent. CSC agrees
that any and all information of Customer maintained by CSC shall be available
for inspection by Customer or its internal auditors, independent public
accountants or other authorized agents during CSC's regular business hours upon
reasonable prior written notice to CSC. Customer agrees to reimburse CSC for its
out-of-pocket expenses and employee time in excess of ten (10) hours involved
with such audits at CSC's charges detailed in Appendix D. CSC agrees to provide
a prior estimate of these charges upon request.
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<PAGE> 21
18. TERM OF AGREEMENT
This Agreement shall become effective upon execution and shall continue in
effect until April 30, 2000 unless earlier terminated in accordance with this
Agreement or renewed in accordance with the terms detailed below.
This Agreement will automatically renew for a one (1) year period beginning May
1, 2000 and ending April 30, 2001 (the "First Year Renewal") unless Customer
notifies CSC in writing as provided herein no later than October 31, 1999 that
Customer does not wish to renew the Agreement for this first one (1) year
period. In the event that Customer elects the First Year Renewal, the Agreement
will again automatically renew for a one (1) year period beginning May 1, 2001
and ending April 30, 2002 (the "Second Year Renewal") unless Customer notifies
CSC in writing as provided herein no later than October 31, 2000 that Customer
does not wish to renew the Agreement for this second one (1) year period. In the
event that Customer has elected the Second Year Renewal, no automatic renewal
option shall be available to Customer after the Second Year Renewal, and the
Agreement as renewed shall terminate on April 30, 2002. Customer shall pay for
all services during the First Renewal Term and the Second Renewal Term, if
applicable, in accordance with Appendix D of the Agreement and shall furthermore
be subject to CPI adjustments as provided in Section 20 of the Agreement during
the First Year Renewal and the Second Year Renewal. Termination during the
initial term of the Agreement or during any subsequent renewal term of the
Agreement shall not in any way relieve Customer of the obligation to pay for all
services previously performed or then in progress by CSC.
19. TERMS OF PAYMENT
In consideration for the Software, Software Products, Software Maintenance, and
Subscriber Billing Services provided by CSC to Customer, Customer agrees to pay
for all such Software, Software Products, Software Maintenance, and Subscriber
Billing Services at the rates set forth in Appendix D. CSC shall provide, in
accordance with its invoicing schedule, however in no event less frequently than
monthly, a complete list of the Software, Software Products, Software
Maintenance, and Subscriber Billing Services provided by CSC, and Customer
agrees to make payment in full for the amount of such invoice within thirty five
(35) calendar days from the date of the invoice. CSC has agreed to provide
services on a credit basis only so long as Customer's bills are promptly paid in
full when due. In the event any amount due CSC based on its invoices shall
remain unpaid more than thirty five (35) calendar days past the date of such
invoice, Customer hereby agrees to pay CSC simple interest on such unpaid
balance at the rate of one percent (1%) per month until paid in full. In no
event shall any interest charged exceed the maximum allowed by law.
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<PAGE> 22
In the event Customer in good faith makes a claim that any amount is due to
Customer from CSC and Customer claims the right of set off with respect to such
amount against any of CSC's invoices, the parties agree the following procedure
shall be followed by both parties:
a. Customer shall, within thirty (30) calendar days of the date of any
invoice against which Customer claims a right of set off, provide written
notice to CSC clearly detailing the facts on which Customer bases its claim
of right of set off and providing documentary evidence thereof. If such
notice is not provided to CSC within the thirty (30) day time period,
Customer shall have no right to claim a set off against any invoice dated
prior to such thirty (30) day period, unless Customer is unable with
reasonable diligence to discover its claimed right.
b. CSC shall provide a detailed written response to Customer within thirty
(30) calendar days of receipt by CSC of the written notice and documentary
evidence from Customer.
c. The parties shall participate in a telephone conference at a time
mutually agreed upon between them, but in no event later than ten (10)
calendar days after delivery by CSC of its response. The purpose of this
telephone conference will be to discuss and in good faith negotiate to
resolve Customer's claim.
d. In the event the parties are unable to reach a mutually agreeable
settlement in writing with respect to any such dispute within ninety (90)
days of the date of the original invoice against which Customer in good
faith disputed a charge, CSC shall have the right to declare Customer in
default for failure to pay the invoice and the parties shall then be free to
exercise all of their respective remedies and defense provided for in this
Agreement or under law. The parties shall otherwise be obligated to continue
fully fulfilling their obligations under this Agreement (including for
example CSC's Software Maintenance, Support Services and Subscriber Billing
Services) during the period of the dispute.
e. Interest provided for in Section 19 that would otherwise accrue on any
amount disputed by Customer pursuant to the procedure set forth herein shall
not accrue during the period during which the procedure set forth herein is
being followed by Customer provided, however, in the event the dispute by
Customer is not resolved by mutual agreement in writing as provided herein
and Customer shall thereafter make payment of all or any portion of such
disputed amount, CSC shall be entitled to interest on such amount in
accordance with the provisions of Section 19 as it would have accrued, but
for the procedure set forth in this Section.
f. Except with respect to the amount for which Customer in good faith
disputes, the procedure set forth above shall not otherwise affect the
rights and liabilities of the parties under this Agreement.
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<PAGE> 23
20. PRICE
*
21. TERMINATION OF AGREEMENT AND/OR LICENSE
21.1.1 CSC shall have the right to terminate this Agreement and, at its
option, take possession of the Software and Software Products, if: (a) Customer
makes an assignment for the benefit of creditors, or a receiver, trustee in
bankruptcy or similar officer is appointed to take charge of all or any part of
Customer's property or business; (b) Customer is adjudicated bankrupt; or (c)
Customer fails to perform or observe any of its material obligations hereunder
and such condition is not remedied within thirty (30) calendar days after
written notice to Customer detailing the alleged breach.
21.1.2 If CSC elects not to terminate the Agreement after a material
default by Customer, it may by written notice to Customer thereafter require
that Customer pay cash, cashier's check or certified funds for the performance
of services by CSC.
21.1.3 Customer shall have the right to terminate this Agreement if: (a)
CSC makes an assignment for the benefit of creditors, or a receiver, trustee in
bankruptcy or similar officer is appointed to take charge of all or any part of
CSC's property or business; (b) CSC is adjudicated bankrupt; (c) CSC fails to
perform or observe any of its obligations hereunder and such condition is not
remedied within thirty (30) calendar days, except as otherwise provided herein,
after written notice is received by CSC; or (d) CSC shall cease to conduct
business as a going concern.
21.2.1 In the event either party shall be in breach or default of any of
the terms, conditions, or covenants of this Agreement or any Orders, and such
breach or default shall continue for a period of thirty (30) calendar days after
the giving of written notice to the party in default, then in addition to all
other rights and remedies of law or equity or otherwise, the injured party shall
have the right to cancel this Agreement or any such Orders placed by Customer
effective within five (5) Business Days of such notification without any charge,
obligation, or liability whatsoever, except as to the payment for Software,
Software Products, Software Maintenance, and/or Subscriber Billing Services
already received and accepted by Customer. NEITHER CUSTOMER NOR CSC SHALL BE
LIABLE FOR ANY SPECIAL, INDIRECT, CONSEQUENTIAL, PUNITIVE, OR SIMILAR DAMAGES
ARISING FROM A BREACH OF THIS AGREEMENT OR OF ANY ORDER HEREUNDER.
21.2.2 Subject to the limitations contained within the Agreement, in the
event of termination by CSC under this Section 21, Customer shall be given a
grace period of ninety (90) days from the effective date of termination in which
to transition its billing services requirements
- ----------
* Information omitted and filed separately with the SEC pursuant to request for
confidential treatment under Rule 406 of the Securities Act of 1933, as amended.
-22-
<PAGE> 24
to another vendor. All services performed by CSC during this grace period shall
be chargeable at the rates set forth in Appendix D.
21.3 Within one hundred twenty (120) days after the effective date of
termination, cancellation or expiration of this Agreement, each party shall,
upon request by the other party, return as soon as is reasonably possible all
papers, materials and property of the other party including any Subscriber
Billing Services statements completed or in progress by CSC and paid for by
Customer, and without regard for whether or not such property is "Confidential
Information" as defined herein. In lieu of the returning party physically
returning the property to the receiving party and at the receiving party's
option, the receiving party may instruct that any of its property which is
"Confidential Information" be immediately shredded by the returning party. In
addition, each party will assist the other in the orderly termination of this
Agreement and in the transfer of all property, tangible and intangible, as may
be necessary for the orderly, non-disrupted business continuation of each party.
The obligation of each party to assist in the orderly termination of this
Agreement shall include Customer's transition to another billing vendor.
21.4 Within one hundred twenty (120) calendar days after the effective
date of termination, cancellation or expiration of this Agreement, Customer
shall, upon CSC's request, certify in writing that to the best of its knowledge
all copies of the Software, in whole or in part, have been removed from its
production libraries. Concurrent with this certification, Customer will return
to CSC all of CSC's "Confidential Information" relating to the Software
License(s), including Software Products, required by CSC to be returned and
Customer will certify to CSC that such Software has been destroyed or deleted
and that all "Confidential Information" of CSC relating to the Software
License(s), including Software Products, have been returned to CSC.
21.5 In the event CSC elects to terminate this Agreement as a result of
a default by Customer, which default remains uncured after the applicable notice
and cure period detailed above, CSC shall be entitled to recover immediately
from Customer all sums due for services provided prior to such termination,
together with liquidated damages in a sum equal to the lesser of: (1) the
product of the average monthly charges to Customer for all services performed
under Section 1 of Appendix D of this Agreement during the prior six (6) month
period times the number of months remaining in the initial term of this
Agreement; or (2) the product of the average monthly charge billed to Customer
for all services performed under Section 1 of Appendix D of this Agreement
during the prior six (6) month period times six (6). If CSC elects not to
terminate the Agreement after a default by Customer, it may by written notice to
Customer thereafter require that Customer pay cash, cashier's check or certified
funds for the performance of services by CSC.
21.6 Upon termination of this Agreement as a result of a default by CSC,
CSC agrees to convert Customer's Data into a machine readable, non-proprietary
format within a reasonable time period at no cost to Customer upon Customer's
request. Upon the expiration of the term of this Agreement or upon termination
of this Agreement as a result of a default by Customer, CSC
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<PAGE> 25
shall convert Customer's Data as described above, and Customer shall reimburse
CSC in accordance with Appendix D for all time and expense involved.
22. INDEMNITY
CSC agrees to indemnify and save harmless Customer, and Customer agrees to
indemnify and save harmless CSC respectively, from any liabilities, lawsuits,
penalties, claims or demands finally awarded or settled (including the costs,
expenses and reasonable attorney's fees on account thereof) that may be made:
(a) by any third party for injuries, including death to persons, or damage to
property, including theft, resulting from the indemnifying party's negligent or
willful acts or omissions or those of persons employed by the indemnifying
party, its agents or subcontractors or as relating solely to CSC's
indemnification of Customer, resulting from use of the Software, Software
Products and/or Subscriber Billing Services furnished hereunder; or (b) by any
employee or former employee of the indemnifying party or any of its
subcontractors for which the indemnifying party or subcontractor's liability to
such employee or former employee would otherwise be subject to payments under
state worker's compensation or similar laws. CSC agrees to defend Customer, at
Customer's request, and Customer agrees to defend CSC, at CSC's request, against
any such liability, claim, or demand. Customer and CSC respectively agree to
notify the other party promptly of any written claims or demands against the
indemnified party for which the indemnifying party is responsible hereunder. The
foregoing indemnity shall be in addition to any other indemnity obligations of
CSC or Customer set forth in this Agreement.
23. LIMITATION OF LIABILITY
23.1 EXCEPT AS PROVIDED IN SECTION 25 OF THIS AGREEMENT, CSC MAKES NO
EXPRESS OR IMPLIED REPRESENTATIONS OR WARRANTIES WITH RESPECT TO THE SOFTWARE,
SOFTWARE PRODUCTS, OR SUBSCRIBER BILLING SERVICES OR THEIR CONDITION,
MERCHANTABILITY, FITNESS FOR ANY PARTICULAR PURPOSE OR USE BY CUSTOMER. CSC
SHALL NOT BE LIABLE FOR ANY: (A) SPECIAL, INDIRECT, INCIDENTAL, PUNITIVE, OR
CONSEQUENTIAL DAMAGES, INCLUDING LOSS OF PROFITS, ARISING FROM OR RELATED TO THE
OPERATION OR USE OF THE SOFTWARE, SOFTWARE PRODUCTS, AND SUBSCRIBER BILLING
SERVICES INCLUDING SUCH DAMAGES, WITHOUT LIMITATION, AS DAMAGES ARISING FROM
LOSS OF DATA OR PROGRAMMING, LOSS OF REVENUE OR PROFITS, FAILURE TO REALIZE
SAVINGS OR OTHER BENEFITS, DAMAGE TO EQUIPMENT, AND CLAIMS AGAINST CUSTOMER BY
ANY THIRD PERSON, EVEN IF CSC HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH
DAMAGES; (B) DAMAGES (REGARDLESS OF THEIR NATURE) FOR ANY DELAY OR FAILURE BY
CSC TO PERFORM ITS OBLIGATIONS UNDER THIS AGREEMENT DUE TO A FORCE MAJEUR EVENT;
OR (C) CLAIMS MADE A SUBJECT OF A LEGAL PROCEEDING AGAINST CSC MORE THAN
TWENTY-FOUR (24) MONTHS AFTER ANY SUCH CAUSE OF ACTION FIRST AROSE.
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<PAGE> 26
NOTWITHSTANDING ANY OTHER PROVISION OF THIS AGREEMENT, EXCEPT FOR THE CREDIT FOR
LATE BILLINGS AS SET FORTH IN SECTION 11 ABOVE, AND EXCEPT FOR CSC'S OBLIGATIONS
UNDER SECTIONS 24 AND 27 AS SET FORTH BELOW, AND CSC'S COMMISSION OF A CRIMINAL
ACT, CSC'S LIABILITIES UNDER THIS AGREEMENT SHALL NOT EXCEED THE LESSER OF: (A)
TWICE THE AVERAGE MONTHLY CHARGE, OR EQUIVALENT THEREOF, TO CUSTOMER FOR THE
SERVICES PERFORMED UNDER THIS AGREEMENT FOR THE ACTUAL NUMBER OF MONTHS DURING
WHICH THE PROBLEM EXISTED, OR (B) THE ACTUAL AMOUNT OF MONEY DAMAGES INCURRED BY
CUSTOMER.
CUSTOMER AGREES IT SHALL TAKE ALL REASONABLE STEPS TO COLLECT ALL AMOUNTS DUE
AFTER ANY REBILLING, SUPPLEMENTAL BILLING OR ANY OTHER ACTION BY CSC TO RESOLVE
ANY ERROR, OMISSION, INTERRUPTION, DELAY OR OTHER PROBLEM. IN THE EVENT SUCH
AMOUNTS CANNOT BE RECOVERED AFTER TAKING SUCH REASONABLE EFFORTS, CSC, SUBJECT
TO THE LIMITATIONS CONTAINED HEREIN, SHALL MAKE PAYMENT TO THE CUSTOMER IN THE
AMOUNT CLAIMED, AND CUSTOMER SHALL PROVIDE CSC WITH ALL DOCUMENTATION REASONABLY
REQUIRED BY CSC TO ESTABLISH THE AMOUNT OF LOSS CLAIMED, INCLUDING RECORDS OF
ALL PAYMENTS RECEIVED BY CUSTOMER AFTER THE REMEDIAL ACTION TAKEN BY CSC AND
SHALL ASSIGN ALL SUCH CLAIMS TO CSC. IN THE EVENT OF ANY PAYMENT OF MONEY
DAMAGES BY CSC HEREUNDER TO CUSTOMER, CUSTOMER AGREES TO EXECUTE AND DELIVER TO
CSC ANY AND ALL DOCUMENTS AS MAY BE REQUIRED TO SUBROGATE CSC TO ALL OF THE
RIGHTS OF CUSTOMER TO COLLECT ANY AND ALL AMOUNTS DUE WHICH CONSTITUTE THE LOSS
FOR WHICH DAMAGES ARE PAID. PROVIDED , HOWEVER, THAT CSC WILL HAVE NO RIGHT OF
SUBROGATION IF CUSTOMER OPTS NOT TO REQUIRE REBILLING PURSUANT TO SECTION 11.4.
THE LIMITATIONS ON THE ACTUAL AMOUNT OF DIRECT DAMAGES INCURRED BY CUSTOMER SET
FORTH HEREIN SHALL NOT APPLY WITH RESPECT TO THE LIABILITY OF CSC TO INDEMNIFY
CUSTOMER PURSUANT TO SECTION 24 (PATENT AND OTHER PROPRIETARY RIGHTS
INDEMNIFICATION) AND SECTION 27 (CONFIDENTIAL INFORMATION).
23.2 Customer shall not be liable for any: (a) special, indirect,
incidental, punitive or consequential damages, including loss of profits,
arising from or related to operation or use of the Software, Software Products,
Software Maintenance, or Subscriber Billing Services, including such damage,
without limitation, as damages arising from loss of data or programming, loss of
revenue or profits, failure to realize savings or other benefits, damage to
equipment, and claims against CSC by any third person, even if Customer has been
advised of the possibility of such damages; (b) damages (regardless of their
nature) for any delay or failure by Customer to perform its obligations under
the Agreement due to any force majeur event; or (c) claims made a subject
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<PAGE> 27
of a legal proceeding against Customer more than twenty-four (24) months after
such cause of action first arose.
24. PATENT AND OTHER PROPRIETARY RIGHTS INDEMNIFICATION
24.1 CSC warrants to Customer that the Software and Software Products do
not infringe on any United States patent, copyright, trade secret or other
proprietary interest of any third party.
24.2 The following terms apply to any infringement or claim of
infringement of any patent, trademark, copyright, trade secret or other
proprietary interest based on the licensing, use, or sale of any Software,
Software Products, Software Maintenance and/or Subscriber Billing Services
furnished to Customer under this Agreement or in contemplation hereof. CSC shall
indemnify Customer, Affiliates, its officers, directors, employees and agents
for any loss, damage, expense or liability finally awarded, including costs and
reasonable attorney's fees in defending or appealing such claims, that may
result by reason of any such infringement or claim, except where such
infringement or claim arises solely from CSC's adherence to Customer's written
instructions or directions which involve the use of merchandise or items other
than: (a) commercial merchandise which is available on the open market or is the
same as such merchandise; or (b) items of CSC's origin, design or selection, and
Customer shall so indemnify CSC in such excepted cases. Each party shall defend
or settle, at its own expense, any action or suit against the other for which it
is responsible hereunder. Each party shall notify the other promptly of any
claim of infringement for which the other is responsible, and shall cooperate
with the other in every reasonable way to facilitate the defense of any such
claim.
24.3 In addition, in the event an injunction or order shall be obtained
against Customer's use of any item by reason of any such infringement allegation
or if, in CSC's sole opinion, the item is likely to become the subject of a
claim of infringement or violation of patent, copyright, trademark, trade
secret, or other proprietary right of a third party, CSC will, without in any
way limiting the foregoing, in CSC's sole discretion and at CSC's expense
either: (a) procure for Customer the right to continue using the item; (b)
replace or modify the item so that it becomes non-infringing, but only if the
modification or replacement does not, in CSC's reasonable opinion, adversely
affect the functional performance or specifications for the item or its use by
Customer; or (c) if neither (a) nor (b) above is financially reasonable, remove
the item from Customer's Site and refund to Customer any charges paid by
Customer for that item, and release Customer from any further liability relating
to the particular item.
24.4 In no event shall Customer be liable to CSC for any charges after
the date that Customer no longer uses the item because of actual or claimed
infringement.
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25. WARRANTY
Except as provided below, CSC warrants
(1) that it owns all rights, title and interest in and to the Software
and Software Products, except for any third party software listed in
Appendix M, and that it has the right to grant the licenses granted
hereunder;
(2) that all Software and Software Products shall: (a) comply with the
provisions of the Order; (b) function in accordance with CSC's
specifications (including producing the Subscriber Billing Services
statements and reports applicable to the Software or Software Products);
(c) be compatible and conform to user documentation and operating
manuals furnished by CSC; and (d) comply with a mutually agreed upon
Software Acceptance Plan which shall be developed and agreed to in
writing by Customer and CSC prior to installation of the Software for
which the Software Acceptance Plan has been established. This warranty
coverage shall include all Software Maintenance performed and any
Enhancements or Fixes to the Software by CSC. Such warranty shall extend
for ninety (90) calendar days from the date of acceptance except for the
warranty of title which shall extend for the duration of this Agreement.
(3) without limiting the foregoing, that system response for all of the
versions of the Software subsequent to version 1.8.3 shall function
equal to or better than version 1.8.3 as further defined within Section
49; and
(4) that any services provided by CSC under this Agreement shall be
performed in a fully workmanlike manner and in accordance with the
prevailing professional standards of the software industry.
CSC's responsibility under the warranties provided under subsections (2), (3)
and (4) shall be to correct or replace, at no additional charge to Customer, any
part of the Software or Software Products found to be defective. This warranty
shall survive inspection, test, acceptance, use and payment. CSC FURNISHES THE
ABOVE WARRANTIES IN LIEU OF ALL OTHER WARRANTIES, EXPRESSED OR IMPLIED,
INCLUDING WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE.
Any and all warranties shall be void as to Software or Software Products damaged
or rendered unserviceable by: (a) the acts or omissions of non-CSC personnel
except when CSC instructs or requires Customer to perform any modifications with
respect to the Software; (b) misuse by Customer, its employees or agents, theft,
vandalism, fire, water, or other peril; (c) moving, relocation, alterations or
additions not performed in accordance with this Agreement.
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<PAGE> 29
26. TAXES
There shall be added to the charges provided for in this Agreement amounts equal
to any taxes, whether federal, state, or local, however designated, which may be
validly levied or based upon this Agreement or upon the Software, Software
Products, Software Maintenance, and Subscriber Billing Services furnished
hereunder, excluding, however, ad valorem personal property taxes, if any, state
and local privilege, excise, or use taxes based on gross revenue, taxes based on
or measured by CSC's net income, and any taxes or amounts in lieu thereof paid
or payable by CSC in respect of the foregoing excluded items. Taxes payable by
Customer shall be billed as separate items on CSC's invoices and shall not be
included in CSC's prices. CSC agrees to notify Customer in advance of any taxes
incurred by CSC for which Customer will be invoiced under this Section, and
Customer shall have the right to have CSC contest with the imposing
jurisdiction, at Customer's expense, any such taxes that Customer deems are
improperly levied.
27. CONFIDENTIAL INFORMATION
Each party acknowledges and agrees that any and all information emanating from
the other's business in any form, including the terms of this Agreement and
Customer's Subscriber listings, is "Confidential Information," and each party
agrees that it will not, during or after the term of this Agreement, permit the
duplication, use, or disclosure of any such Confidential Information to any
person (other than an employee, agent or representative of the other party who
must have such information for the performance of its obligation hereunder),
unless such duplication, use or disclosure is specifically authorized by the
other party in writing. Each party shall: (a) not disclose any Confidential
Information to any third person without the express written consent of the
disclosing party; (b) not use, directly, indirectly or in concert with any other
person, any Confidential Information for any purpose other than the performance
of their obligations under this Agreement; (c) use reasonable diligence, and in
no event less than that degree of care which such party uses in respect to its
own confidential information of like nature, to prevent the unauthorized
disclosure or reproduction of such information. Without limiting the generality
of the foregoing, to the extent that this Agreement permits the copying of
Confidential Information, all such copies shall bear the same confidentiality
notices, legends, and intellectual property rights designations that appear in
the original versions.
For the purposes of this Section, the term "Confidential Information" shall not
include: information which is in the public domain; information known to the
recipient party as of the date of this Agreement as indicated by the recipient's
written records, unless the recipient party agreed to keep such information in
confidence at the time of its receipt; and information properly obtained
hereafter from a source who is not under an obligation of confidentiality with
respect to such information; is independently developed by the receiving party
through persons who have not had, either directly or indirectly, access or
knowledge of such Confidential Information which can be verified by independent
evidence; or is obligated to be produced under a court order of competent
jurisdiction or a valid administrative or congressional subpoena.
-28-
<PAGE> 30
Apart from CSC's obligations to Customer under this Section 27 concerning
confidentiality, CSC shall have no obligation to delete or destroy Customer's
information, including Customer's Subscriber listings, from its computer systems
or backup and archival libraries until such time as CSC's regular procedures for
elimination of such data would normally delete or destroy such information.
CSC's procedure for the elimination of data from its backup and archival
libraries is detailed in Appendix F. Customer shall have the right to require
the elimination of its Data maintained within CSC's backup and archival
libraries prior to the time the Data would normally be deleted or destroyed by
CSC, and Customer shall pay for all expenses associated with the early deletion
or destruction of all such Data in accordance with Appendix D.
Any logo, program names, trademarks, service marks, programs, manuals,
documentation, and other support materials which are covered under this
Agreement or otherwise provided by one party to the other are either
copyrighted, trademarked, or are held as proprietary by the providing party. The
receiving party agrees not to remove any such notices and product identification
and additionally agrees to take all action necessary to protect the providing
party's rights thereto.
28. SECURITY, ACCESS AND SAFETY REQUIREMENTS
Customer shall provide to CSC in writing Customer's security, access, and safety
requirements for the protection of the Software and Customer's software, data,
facilities, and employees and CSC agrees to instruct its employees, agents and
subcontractors concerning all such requirements.
29. NOTICES
With the exception of invoices, insurance papers, shipping papers, reports, and
correspondence in the normal course of business, all notices, demands, or other
communications herein provided to be given or which may be given by any party to
the other shall be deemed to have been duly given when made in writing and
delivered in person, or upon receipt, if deposited in the United States mail,
postage prepaid, certified mail, return receipt requested or via overnight
courier, as follows:
Notices to CSC: Notices to Customer:
Michael P. McCray, Vice President Bob Stapleton, President
CSC Intelicom, Inc. Western Wireless Corporation
2109 S. Fox Drive 2001 NW Sammamish Rd. #100
Champaign, Illinois 61824-0770 Issaquah, WA 98027
Fax # - 217.351.8256 Fax # - 425.313.7731
-29-
<PAGE> 31
With a required copy to:
H. Ward Classen, Esquire Alan Bender, General Counsel
General Counsel Western Wireless Corporation
CSC Intelicom, Inc. 2001 NW Sammamish Rd. #100
Two Democracy Plaza Issaquah, WA 98027
6707 Democracy Boulevard Fax # - 425.313.7960
Suite 1000
Bethesda, Maryland 20817 Jim Medick, Executive Dir. of IT
Fax # - 301.897.1169 Western Wireless Corporation
2001 NW Sammamish Rd. #100
Issaquah, WA 98027
Fax # - 425.313.7731
or to such address as the parties may provide to each other in writing from time
to time.
30. ASSIGNMENT
Customer may not assign or transfer its interests, rights or obligations under
this Agreement by written agreement, merger, consolidation, operation of law or
otherwise, without the prior written consent of an authorized executive officer
of CSC, which consent may not be unreasonably withheld.
31. FORCE MAJEURE
Neither party shall be responsible for any delay or failure in performance of
any part of this Agreement to the extent that such delay or failure is caused by
fire, flood, explosion, war, embargo, government requirement, civil or military
authority, act of God, act or omission of common carriers or other similar
causes beyond its control. If any such event of force majeure occurs, the party
delayed or unable to perform shall give immediate notice to the other party, and
the party affected by the other's delay or inability to perform may elect at its
sole discretion to: (a) terminate this Agreement or the affected Order; (b)
suspend such Order for the duration of the condition and obtain or sell
elsewhere Software, Software Products, or Subscriber Billing Services comparable
to the Software, Software Products, or Subscriber Billing Services that have
been obtained under the Order; or (c) resume performance of such Order once the
condition ceases with an option in the affected party to extend the period of
this Agreement up to the length of time the condition endured. Unless written
notice is given within thirty (30) calendar days after the affected party is
notified of the condition, this option (c) shall be deemed selected.
32. PUBLICITY
Each party agrees to submit to the other all advertising, sales promotions,
press releases and other publicity matters relating to the Software, Software
Products, or Subscriber Billing Services
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<PAGE> 32
provided under this Agreement wherein the other party's corporate or trade names
or trademarks are mentioned or language from which the connection of said names
or trademarks therewith may be inferred or implied. Each party further agrees
not to publish or use such advertising, sales promotions, press releases or
publicity matters without the other party's prior written approval, which
approval may be unreasonably withheld. Unless specifically permitted within this
Agreement, neither party to this Agreement shall disclose the terms, conditions,
or provisions of this Agreement without the prior written consent of the other
party.
33. INDEPENDENT CONTRACTOR
All work performed by CSC in connection with the Software, Software Products,
Software Maintenance, and/or Subscriber Billing Services described in this
Agreement shall be performed by CSC as an independent contractor and not as the
agent or employee of Customer. All persons furnished by CSC shall be for all
purposes solely CSC's employees or agents and shall not be deemed to be
employees of Customer for any purpose whatsoever. CSC shall furnish, employ and
have exclusive control of all persons to be engaged in performing services under
this Agreement and shall prescribe and control the means and methods of
performing such services by providing adequate and proper supervision. CSC shall
be solely responsible for compliance with all rules, laws and regulations
relating to employment of labor, hours of labor, working conditions, payment of
wages, and payment of taxes, such as employment, Social Security, and other
payroll taxes including applicable contributions from such persons when required
by law.
34. NON-HIRING OF EMPLOYEES
Unless agreed to in writing in advance by both CSC and Customer, neither party
to this Agreement shall solicit or hire employees of the other party during the
term of this Agreement and for a period of one (1) year after termination
hereof.
35. CONFLICT OF INTEREST
CSC stipulates no officer or employee of Customer has been employed, retained,
induced or directed by CSC to solicit or secure this Agreement with Customer
upon agreement, offer, understanding or implication involving any form of
remuneration whatsoever. CSC agrees, in the event of an allegation of substance
that there has been a violation hereof, CSC will cooperate in every reasonable
manner with Customer in establishing whether the allegation is true.
Notwithstanding any provisions of this Agreement to the contrary, if a violation
of this provision is found to have occurred and is deemed material by Customer,
Customer may request that CSC take the appropriate legal action to discipline
the responsible party.
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<PAGE> 33
36. WAIVER OF BREACH
No waiver of breach or failure to exercise any option, right or privilege under
the terms of this Agreement by either party on any occasion or occasions shall
be construed to be a waiver of the same or any other option, right or privilege
on any other occasion.
37. RELEASES VOID
Neither party shall require waivers or releases of any personal rights from
representatives of the other in connection with visits to CSC's and Customer's
respective premises. No such releases or waivers shall be pleaded by CSC or
Customer or third persons in any action or proceeding against an employee.
[Section 38 intentionally deleted]
39. GOVERNING LAW
The validity, construction, interpretation and performance of this Agreement
shall be governed by and construed in accordance with the domestic laws of the
State of Maryland except as to its principals of conflicts of laws. This
governing law provision shall have no weight in determining the proper venue for
any action arising out of this Agreement.
40. COMPLIANCE WITH LAWS
CSC and Customer each shall comply with the provision of all applicable federal,
state, county and local laws, ordinances, regulations, and codes, including, but
not limited to, CSC's and Customer's obligations as an employer with regard to
the health, safety and payment of its employees, and identification and
procurement of required permits, certificates, approvals, and inspections in
CSC's and Customer's performance of this Agreement.
41. OBLIGATIONS WHICH SURVIVE TERMINATION
Each party recognizes and agrees that its obligations under Sections 5, 6, 17,
19, 21.4, 22, 23, 24, 27,39 and 50 of this Agreement survive the cancellation,
termination or expiration of this Agreement for any reason. These same Sections
shall apply for the duration of Customer's use of Software licensed under the
License granted in Section 3 hereof.
42. SEVERABILITY
If any of the provisions of this Agreement shall be invalid or unenforceable
under the laws of the State of Maryland applicable to the entire Agreement, such
invalidity or unenforceability shall not invalidate or render unenforceable the
entire Agreement but rather the entire Agreement shall
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<PAGE> 34
be construed as if not containing the particular invalid or unenforceable
provision or provisions, and the rights and obligations of CSC and Customer
shall be construed and enforced accordingly.
43. INCORPORATION OF APPENDICES
Appendices A through M, referred to in this Agreement and attached hereto, are
integral parts of this Agreement and are incorporated herein by this reference.
44. ENUMERATIONS, BACKGROUND AND HEADINGS
The enumerations, "Background" and headings contained in this Agreement are
inserted for convenience only and are not intended to have any substantive
significance in interpreting this Agreement.
45. AMENDMENTS, MODIFICATIONS OR SUPPLEMENTS
Amendments, modifications or supplements to this Agreement shall be permitted,
provided: (a) changes shall be in writing signed by the authorized
representatives of both parties; (b) changes shall reference this Agreement and
identify the specific articles or sections contained herein which are amended,
modified or supplemented; (c) changes shall not adversely affect vested rights
or causes of action which have accrued prior to the effective date of such
change.
46. AUTHORITY AND NO CONFLICTING AGREEMENT
The officers signing on behalf of the parties to this Agreement acknowledge that
they have read and understand this Agreement and hereby warrant that each has
full power and authority to execute this Agreement and bind the respective
parties hereto. Each party further represents that it is not bound by any other
contract or agreement that would prevent full performance of this Agreement.
47. ENTIRE AGREEMENT
This Agreement, the Orders, appendices, and subordinate documents referenced in
such Orders constitute the entire agreement between the parties with respect to
the subject matter contained herein, superseding all previous agreements
pertaining to such subject matter, and may be modified only by an amendment
executed in writing by authorized representatives of both parties hereto. All
prior agreements, representations, statements, negotiations, understandings and
undertakings are superseded hereby. Both parties hereto represent that they have
read this Agreement, understand it, agree to be bound by all terms and
conditions stated herein, and acknowledge receipt of a signed, true and exact
copy of this Agreement.
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<PAGE> 35
49. SOFTWARE PERFORMANCE MEASUREMENTS
CSC warrants that system response within release 3.1 of the Software will be
better than the performance Customer has experienced with release 1.8.3 of the
Software. CSC has performed benchmarks of various processes with release 3.1 of
the Software. A summary of the results of those benchmarks is listed in Appendix
J along with hardware and operational commitments required of Customer to ensure
Customer will achieve comparable system performance to that which was observed
during the benchmark test. CSC agrees to perform additional benchmarks with each
major release of the Software and will share the results of those benchmarks
with Customer.
50. TERMINATION
CSC and Customer are parties to a certain Software License, Maintenance and
Subscriber Billing Services Agreement dated as of August 1, 1994 ("Prior
Agreement"). This Agreement supersedes the Prior Agreement to the extent this
Agreement is inconsistent with the Prior Agreement.
In the event Customer elects not to convert its existing PCS MTA markets as set
forth in Appendix K to TRIS+, or in the event Customer shall unreasonably delay
the start of the PCS conversion and related Software Enhancements beyond April
1, 1998, Customer shall pay CSC the $1,500,000 allocated to PCS items within
Appendix L as compensation for efforts expended by CSC to modify the Software
and convert Customer PCS data, less the 1st, 2nd, 3rd, or 4th payments set forth
in Appendix L, to the extent such payments have been made by Customer to CSC.
In the event Customer elects not to convert its cellular markets as set forth in
Appendix K to TRIS+, Customer shall pay CSC a pro-rata portion of the $1,100,000
allocated to cellular items within Appendix L on a percentage completion basis
as compensation for efforts expended by CSC to modify the Software and convert
Customer cellular data, less any progress or delivery payments made by Customer
specifically allocated to cellular items.
IN WITNESS WHEREOF, the parties have executed this Agreement under seal as of
the day and year first written above.
WESTERN WIRELESS CORPORATION CSC INTELICOM, INC.
BY: /s/ Bob Stapleton BY: /s/ Michael P. McCray
--------------------------- -------------------------------
TITLE: President TITLE: Vice President
------------------------ ----------------------------
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<PAGE> 1
EXHIBIT 10.65
FIRST AMENDMENT TO SOFTWARE LICENSE, MAINTENANCE AND SUBSCRIBER BILLING SERVICES
AGREEMENT
THIS FIRST AMENDMENT TO SOFTWARE LICENSE, MAINTENANCE AND SUBSCRIBER
BILLING SERVICES AGREEMENT is made effective this __ day of December, 1997 by
and between CSC Intelicom, Inc., a Delaware corporation, having its address at
6707 Democracy Boulevard, Suite 1000, Bethesda, Maryland 20817 ("CSC") and
Western Wireless Corporation, a Washington corporation having its address at
2001 N.W. Sammamish Road, Suite 100, Issaquah, Washington 98027 ("Customer").
BACKGROUND
The parties hereto have executed that certain Software License,
Maintenance and Subscriber Billing Services Agreement dated June
1997 (the "Agreement"). The parties now desire to amend the
Agreement to clarify certain existing provisions as set
forth below.
NOW, THEREFORE, in consideration of the mutual promises of the
parties hereinafter set forth, and for good and valuable consideration, the
receipt and sufficiency of which is hereby acknowledged, the parties, subject to
the terms and conditions hereof, agree as follows:
1. A new Section 8 is inserted as follows:
8.1 Late Delivery Credits. CSC will provide delivery guarantees
to Customer in the form of credits which may be applied first against
the scheduled delivery payment and then against the final scheduled
acceptance payment as defined in Sections 8 and 51 herein for the
applicable deliverable. These credits shall be calculated on the
following basis as a percentage of the total fees of the deliverable,
for each month or prorated portion thereof of delay:
PENALTY (PERCENTAGE OF TOTAL FEES
OF DELIVERABLE) MONTH
* month 1
* month 2
* month 3
* month 4
* month 5
* month 6
- --------
* Information omitted and filed separately with the SEC pursuant to request for
confidential treatment under Rule 406 of the Securities Act of 1933, as amended.
<PAGE> 2
The total of all credits provided by CSC under this Section 8 and
Section 11.5(b) shall not exceed * of the fees for the associated
deliverable. This credit shall be in full satisfaction of any liability
CSC may have to Customer for late delivery.
8.2Correction of Software Errors or Enhancement Errors. CSC
shall provide to Customer a credit which may be applied
against the total fees of the deliverable for the failure of
CSC to correct any Critical or Priority Two-High Errors within
the time frames set forth below. These credits shall be
calculated on the following basis as a percentage of the total
fees of the deliverable for each month or prorated portion
thereof of during which the Error(s) is not corrected:
<TABLE>
<CAPTION>
PENALTY (PERCENTAGE OF TOTAL FEES
OF DELIVERABLE) MONTH
<S> <C>
* month 1
* month 2
* month 3
* month 4
* month 5
* month 6
</TABLE>
Customer shall have 30 days after delivery to complete user
acceptance testing, and will report all Critical or Priority Two-High
Errors discovered during this period to CSC. CSC shall have 30 days from
the end of this acceptance test period ("UAT period") to correct such
Errors. Software quality credits shall begin to accrue 30 days after the
end of the UAT period if Critical or Priority Two-High Errors continue
to exist.
Upon correction of such Critical or Priority Two-High Errors (or
if no such Errors are discovered during the UAT period), Customer shall
use the software within their production environment for an additional
30 days and will report all Critical or Priority Two-High Errors
discovered during this period to CSC. CSC shall have 30 days from the
end of this production test period to correct such Errors. If no
Critical or Priority Two-High Errors are discovered during the 30 day
production testing period, Customer shall be deemed to have accepted
such Software. Software quality credits shall begin to accrue 30 days
after the production testing period if Critical or Priority Two-High
Errors continue to exist.
In no event shall the aggregate credits under this Section 8 and
Section 11.5(b) exceed * of the fees associated with any deliverable.
The credits provided under this Section 8.s shall be in full
satisfaction of any liability that CSC may have to Customer for the
failure to timely correct any Error (except as such Errors may affect
the timeliness of bill cycle turnaround as provided in Section 12.)
- --------
* Information omitted and filed separately with the SEC pursuant to request for
confidential treatment under Rule 406 of the Securities Act of 1933, as amended.
- 2 -
<PAGE> 3
The foregoing procedures replace those set forth in Section 9.2
of the Agreement. There is no payment associated with "conditional
acceptance," as set forth therein.
8.3 Limitation and Applicability of Credits. The total of all
credits provided by CSC under Sections 8 and 11.5(b) shall not exceed *
of the fee for the associated deliverable. Credits shall apply to the
following deliverables and delivery dates:
Software Enhancements. Delivery of software enhancements
shall be deemed to have occurred when CSC makes such software available
to Customer's test environment, and such software has passed CSC's
internal testing and quality assurance process. Late delivery credits
shall begin to accrue on a daily basis the day after the software
enhancement delivery date provided by CSC, to the extent such delay is
caused by CSC or any of its agents or contractors.
Detailed Bid Documents. Delivery of Detailed Bid Documents
shall be deemed to have occurred upon submission of a completed Detailed
Bid Document to Customer representatives.
Implementation and Conversion Services. Delivery of
implementation and conversion services shall be deemed to have occurred
when CSC makes final conversion or implementation information available
for Customer review. Late delivery credits shall begin to accrue on a
daily basis after the delivery date, to the extent such delay is caused
by CSC or any of its agents or contractors.
2. Section 11.5(b) is hereby amended by inserting the following
language:
"CSC shall provide Customer a * which will be applied against
the Detailed Bid Document preparation fees if a Detailed Bid
Document delivery date is not provided to Customer within 10
business days of CSC's receipt of Customer's request (assuming
all necessary information is provided by Customer at the time
of Customer's request to evaluate the enhancement request and
such delay is caused by CSC). The total of all credits
provided by CSC to Customer shall not exceed 100% of the fees
for detailed bid preparation. This credit shall be in full
satisfaction of any liability CSC may have to Customer for
such delay."
3. Section 12.2(b) is hereby amended by deleting "*" in the first and
second paragraphs and inserting "*".
4. Section 12.2(b) is hereby amended by inserting the following
language:
"CSC's meeting this time period is contingent upon:
- --------
* Information omitted and filed separately with the SEC pursuant to request for
confidential treatment under Rule 406 of the Securities Act of 1933, as amended.
- 3 -
<PAGE> 4
1. All necessary data required to perform the requested
function as requested by CSC is provided to CSC at the
beginning of the time period.
2. Any necessary data or information provided to CSC per
CSC's request by Customer or a vendor of Customer found to
be incomplete or erroneous (CSC will respond within 48
hours if data is incomplete or erroneous) will reset the
agreed-upon beginning date to the date that the correct
data or information is provided to CSC.
3. Any necessary test data provided to CSC by Customer or a
vendor of Customer that is incomplete or does not agree
with documentation provided to CSC by Customer or
Customer's vendors (CSC will respond within 48 hours if
data is incomplete or erroneous) will reset the
agreed-upon beginning date. The new beginning date will be
the date the correct data is provided.
4. Any necessary system or TRIS+ function or actions required
to be performed by Customer and agreed to by Customer must
be completed by the mutually agreed-upon date. Failure by
Customer to perform by the agreed-upon date will reset the
beginning date to the date the function or action is
actually completed.
5. Customer and CSC will each furnish a dedicated point of
contact to the other to insure accurate and timely
involvement by Customer in the process."
5. Section 12.2(c) is hereby amended by deleting "*" in the first and
second paragraphs and inserting "*".
6. Section 12.2(c) is hereby amended by inserting the following
language:
"CSC's meeting this time period is contingent upon:
1. All necessary data required to perform the requested
function as requested by CSC is provided to CSC at the
beginning of the time period.
2. Any necessary data or information provided to CSC per
CSC's request by Customer or a vendor of Customer found to
be incomplete or erroneous (CSC will respond within 48
hours if data is incomplete or erroneous) will reset the
agreed-upon beginning date to the date that the correct
data or information is provided to CSC.
- --------
* Information omitted and filed separately with the SEC pursuant to request for
confidential treatment under Rule 406 of the Securities Act of 1933, as amended.
- 4 -
<PAGE> 5
3. Any necessary test data provided to CSC by Customer or a
vendor of Customer that is incomplete or does not agree
with documentation provided to CSC by Customer or
Customer's vendors (CSC will respond within 48 hours if
data is incomplete or erroneous) will reset the
agreed-upon beginning date. The new beginning date will be
the date the correct date is provided.
4. Any necessary system or TRIS+ function or actions required
to be performed by Customer and agreed to by Customer must
be completed by the mutually agreed-upon date. Failure by
Customer to perform by the agreed-upon date will reset the
beginning date to the date the function or action is
actually completed.
5. Customer and CSC will furnish a dedicated point of
contract to insure accurate and timely involvement by
Customer in the process."
7. Section 12.2 is hereby amended by deleting "In the event that the CSC
Subscriber Billing Services statement turnaround time for any given cycle is
less than or equal to * after the required Subscriber Billing Turnaround Time,
CSC shall not be required to provide Customer with any credit for late
delivery." and inserting "In the event that the CSC Subscriber Billing Services
statement turnaround time for any normal billing cycle (as defined in Section
12.2.a) is less than or equal to * after the required Subscriber Billing
Turnaround Time, CSC shall not be required to provide Customer with any credit
for late delivery. Credit for late delivery of initial billing cycles as defined
within Sections 12.2.b and 12.2.c shall be calculated as set forth above without
such * grace period."
8. Section 21.2.2 is hereby deleted in its entirety and a new Section
21.2.2 is hereby inserted as follows:
"21.2.2 Subject to the limitations contained within the
Agreement, in the event of termination by CSC under this Section
21, Customer shall be given a period of * days from the effective
date of termination in which to transition its billing services
requirements to another vendor, provided Customer and CSC, using
good faith, can agree on mutually-acceptable terms for the
provision of such services. All services performed by CSC during
this period shall be chargeable at the rates set forth in
Appendix D."
9. Section 25 is amended by adding the following provision as Section
25(5):
(5) that all databases, operating systems, and voicemail and switch
interfaces now or in the future supported by the Software will be
maintained with all new third party vendor's releases within 180-360
days after such release is made commercially available, unless
- --------
* Information omitted and filed separately with the SEC pursuant to request for
confidential treatment under Rule 406 of the Securities Act of 1933, as amended.
- 5 -
<PAGE> 6
CSC and Customer mutually agree that such release of third party
software is not desirable.
10. The second and third paragraphs of Section 50 are hereby deleted in
their entirety.
11. A new Section 51 is inserted as follows:
"51. Payment
51.1.1 Customer shall pay * to CSC for the TRIS+ Software
and services under Appendix L of the Agreement, in
lieu of the payments set forth therein, as follows:
*, to be wired within the second business day
following the date of execution of this First
Amendment.
*, spread evenly upon acceptance of the 5
deliverables listed in section 51.1.3, below.
Customer acknowledges that fees associated with the
TRIAD conversion are not included within the *
detailed above.
51.1.2 CSC shall provide, without charge, SIM re-use
functionality, zone rating (up to 100 hours of
programming), and its Point of Sale Interface to
Customer and will waive the Right to Use license
fees and maintenance fees associated with such
Software. Customer shall pay for any customization
or implementation costs necessary to implement such
Software in accordance with a separately executed
statement of work.
51.1.3 For the purposes of payment of penalties under
Section 8, the price for the different releases and
activities shall be allocated as follows:
<TABLE>
<CAPTION>
AMOUNT
SUBJECT
DELIVERABLE TO PENALTY DELIVERY DATE
<S> <C> <C>
(1) Book Bill Format * *
(2) Release 3.1.1 * *
(3) Cellular Conversion * *
(4) Release 3.1.2 * *
(5) Release 3.2 * *
</TABLE>
- --------
* Information omitted and filed separately with the SEC pursuant to request for
confidential treatment under Rule 406 of the Securities Act of 1933, as amended.
- 6-
<PAGE> 7
*
(1) Book Bill Format includes the functionality defined
within the Book Bill functional requirements
document.
(2) Release 3.1.1 will include, at a minimum, Selective
Messaging and corrections for all Software Errors
that have been coded and unit tested by *.
(3) Cellular Conversion will include conversion of all
cellular billing cycles from Release 1.x to Release
3.x.
(4) Release 3.1.2 will include, at a minimum, SIM
re-use functionality and corrections for all
Software Errors that have been coded and unit
tested by *.
(5) Release 3.2 will include, at a minimum, Cross
Market Billing and corrections for all Software
Errors that have been coded and unit tested by *.
51.2 Payment for all future enhancements and other conversions
provided by CSC at the request of Customer shall be made
as follows:
* upon delivery (30 day invoice)
* upon final scheduled acceptance of the deliverable (30
day invoice)
12. Appendix D, Section 11(e) is amended by inserting the following
language:
"CSC shall provide a late delivery penalty equal in amount
to the current CSC "Premium Charge," to the extent CSC is
unable to implement changes within the specified time
periods, provided that:
1. All necessary data required to perform the requested
function as requested by CSC is provided to CSC at the
beginning of the time period.
2. Any necessary data or information provided to CSC per
CSC's request by Customer or a vendor of Customer found to
be incomplete or erroneous (CSC will respond within 48
hours if date is incomplete or erroneous) will reset the
agreed upon beginning date to the date that the correct
data or information is provided to CSC.
3. Any necessary test data provided to CSC by Customer or a
vendor of Customer that is incomplete or does not agree
with documentation provided to CSC by Customer or its
vendors (CSC will respond within 45 hours if date is
incomplete or erroneous) will reset the agreed upon
- --------
* Information omitted and filed separately with the SEC pursuant to request for
confidential treatment under Rule 406 of the Securities Act of 1933, as amended.
- 7 -
<PAGE> 8
beginning date. The new beginning date will be the date
that the correct data is provided to CSC.
4. Any necessary system or TRIS+ functions or actions
required to be performed by Customer and agreed to by
Customer must be completed by the mutually-agreed upon
date. Failure by Customer to perform by the agreed-upon
date will reset the beginning date to the date the
function or action is actually completed.
5. Customer and CSC will each furnish a dedicated point of
contact to the other to insure accurate and timely
involvement by Customer in the process.
6. The number and scope of the requested changes are
reasonable to be completed within the agreed time and
within parameters that limit the number and scope of the
changes. The maximum numbers and scope of the changes
allowable are as follows:
RATE PLAN CHANGES - no programming: (max 10 unique plans within 5
days)
RATE PLAN CHANGES - programming required: (not greater than 80
hours of programming within 1 month)
FE OR BE TABLE CHANGES: (20 unique FE Additions/changes within 5
days) and (15 unique BE Additions/changes within 5 days)
UNBILLABLE UPDATE FORMS: (5000 customers within 5 days)
SWITCH SOFTWARE MODIFICATIONS - Software Upgrade/change: (2
switches within 30 days)
SWITCH SOFTWARE MODIFICATIONS - Hardware Upgrade/change: (2
switches within 30 days)
SWITCH SOFTWARE MODIFICATIONS - Trunk records/cell sites: (max 20
unique cell sites/trunks within 5 days)
TRIS+ FE FILE/DIRECTORY STRUCTURE CHANGES: (15 unique directory
changes within 2 weeks)
BILL STATEMENT MESSAGE PAGE: (20 different message pages
-combination of markets or messages- within 3 days)"
13. Section 2(c) of Appendix D is hereby modified by inserting the
following language:
- 8 -
<PAGE> 9
"Effective March 8, 1998, CSC shall provide Customer a
point of contact for resolving technical production issues
twenty-four hours a day, seven days a week (excluding CSC
Holidays)."
14. Appendix J is hereby modified by adding the attached "Addendum to
Appendix J -- Performance Penalties".
15. A new Section 52 is inserted as follows:
"52. Software Release Schedule
CSC shall provide Customer, at a minimum, two (2) maintenance
Software releases intended to correct Errors and two (2) feature
Software releases intended to provide new features and
functionality."
16. The Production conversions for the TRIAD conversion shall start on
*, and the production conversions shall all be complete by *. All other
scheduling to the contrary in the Agreement is hereby superceded. Triad
conversion will include conversion of all TRIAD bill cycles to release 3.x.
17. All other provisions contained in the Agreement are hereby
reaffirmed and shall remain in full force and effect.
IN WITNESS WHEREOF, the parties hereto have caused this 1st
Amendment to Software License, Maintenance and Subscriber Billing Services
Agreement to be duly executed on the day and year first above written.
ATTEST: CSC INTELICOM, INC.
/s/ By: /s/ Errol James (SEAL)
- -------------------------------- ----------------------------
Errol James, Senior Vice President
ATTEST: WESTERN WIRELESS CORPORATION
/s/ Angela Schwab By: /s/ Bob Stapleton (SEAL)
- -------------------------------- ----------------------------
[12.4.97]
- --------
* Information omitted and filed separately with the SEC pursuant to request for
confidential treatment under Rule 406 of the Securities Act of 1933, as amended.
- 9 -
<PAGE> 1
EXHIBIT 10.66
225 High Ridge Road
Stamford, Connecticut 06905
[ITDS Logo]
International
Telecommunication 203/329/3300 Telephone
Data Systems 203/323/1314 FAX
December 16, 1997
Mr. Bob Stapleton VIA FAX @ 1-425-313-7731
President
Western Wireless Corporation
2001 NW Sammamish Road, #100
Issaquah, WA 98027
Dear Bob:
Thank you for your letter that I received this morning dated December
15, 1997. The following is my understanding of the agreement between Western
Wireless Corporation ("WWC") and ITDS Intelicom Services, Inc. ("ITDS") to
provide products and services pursuant to the Software License, Maintenance and
Subscriber Billing Services Agreement and First Amendment thereto (collectively,
the "Agreement") between WWC and ITDS.
1.*
2.*
3. ITDS represents and warrants that any billing system to which WWC
converts will be at least as functional as the TRIS product at the time of the
conversion.
4. WWC commits to providing its input to ITDS to assist in the design of
ITDS's next generation billing and customer care systems.
5. The Agreement between CSC and WWC will continue to apply, except to
the extent any provision therein is inconsistent with the terms of this letter.
Very truly yours,
ITDS INTELICOM SERVICES, INC.
s/ Lewis D. Bakes
Lewis D. Bakes
COO
AGREED AND ACCEPTED THIS
- ----------
* Information omitted and filed separately with the SEC pursuant to request for
confidential treatment under Rule 406 of the Securities Act of 1933, as
amended.
<PAGE> 2
Mr. Bob Stapleton
December 16, 1997
Page 2
_18th_ DAY OF DECEMBER, 1997;
WESTERN WIRELESS CORPORATION
By /s/ Bob Stapleton
Bob Stapleton
President
<PAGE> 1
EXHIBIT 13.1 MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The Company commenced its initial public offering on May 22, 1996, at a
price to the public of $23.50 per share. Since that date, the Company's Class A
Common Stock has been traded on the NASDAQ Stock Market under the symbol
WWCA. There currently is no established public trading market for the Company's
Class B Common Stock. The following table sets forth the quarterly high and low
bid quotations for the Class A Common Stock on the NASDAQ Stock Market. These
quotations reflect the inter-dealer prices, without retail mark-up, mark-down
or commission and may not necessarily represent actual transactions.
<TABLE>
<CAPTION>
1997 High Low
- ---- ---- ---
<S> <C> <C>
First quarter .......................... $16 1/8 $12
Second quarter ......................... $16 7/8 $10
Third quarter .......................... $19 1/8 $13 5/8
Fourth quarter ......................... $22 1/4 $16 1/2
</TABLE>
The Company has never declared or paid dividends on its Common Stock and
does not anticipate paying dividends in the foreseeable future. In addition,
certain provisions of the Senior Secured Facilities (as described in
"Management's Discussion and Analysis of Results of Operations and Financial
Condition-Liquidity and Capital Resources") and the indentures of its public
debt offerings contain restrictions on the Company's ability to declare and pay
dividends on its Common Stock.
<PAGE> 1
EXHIBIT 13.2 SELECTED FINANCIAL DATA
The following table sets forth certain selected consolidated financial
and operating data for the Company as of and for each of the five years in the
period ended December 31, 1997, which was derived from the Company's
consolidated financial statements and notes thereto that have been audited by
Arthur Andersen LLP, independent public accountants. All of 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>
(Dollars in thousands, except YEAR ENDED DECEMBER 31,
per share data) ------------------------------------------------------------------------------------
1997 1996 1995 1994 1993
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENTS OF
OPERATIONS DATA:
Revenues .............................. $ 380,578 $ 243,085 $ 146,555 $ 63,108 $ 20,734
Operating Expenses .................... 540,239 329,971 170,490 86,676 25,596
------------ ------------ ------------ ------------ ------------
Operating loss ........................ (159,661) (86,886) (23,935) (23,568) (4,862)
Other income (expense) ................ (105,873) (43,219) (25,374) (2,392) 8,191
------------ ------------ ------------ ------------ ------------
Income (loss) before extraordinary
item .................................. (265,534) (130,105) (49,309) (25,960) 3,329
Extraordinary item .................... (6,645)
------------ ------------ ------------ ------------ ------------
Net income (loss) .................. $ (265,534) $ (130,105) $ (55,954) $ (25,960) $ 3,329
============ ============ ============ ============ ============
Share data (1):
Basic income (loss) per common
share before extraordinary item ..... $ (3.76) $ (2.00) $ (0.87) $ (0.59) $ 0.10
Per common share effect of
extraordinary item ................ (0.12)
------------ ------------ ------------ ------------ ------------
Basic income (loss) per common share .. $ (3.76) $ (2.00) $ (0.99) $ (0.59) $ 0.10
============ ============ ============ ============ ============
Weighted average common shares used
in computing basic income/loss per
common share ........................ 70,692,000 65,196,000 56,470,000 43,949,000 32,253,000
============ ============ ============ ============ ============
OTHER DATA:
EBITDA (2) ............................ $ (26,191) $ (7,145) $ 25,521 $ 2,102 $ 537
</TABLE>
(1) The number of shares outstanding has been calculated based on the
requirements of Statement of Financial Accounting Standards No.128.
(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 United States generally accepted accounting principals
("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.
<PAGE> 2
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------------------------------------------
(Dollars in thousands) 1997 1996 1995 1994 1993
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEETS DATA:
Current assets ................................... $ 138,752 $ 149,790 $ 37,508 $ 36,769 $ 14,686
Property and equipment, net ...................... 699,129 538,617 193,692 120,648 48,591
Licensing costs and other intangible assets, net.. 807,409 540,482 417,971 211,309 86,270
Other assets ..................................... 74,683 12,814 9,857 1,468 6,219
---------- ---------- ---------- ---------- ----------
Total assets ................................... $1,719,973 $1,241,703 $ 659,028 $ 370,194 $ 155,766
========== ========== ========== ========== ==========
Current liabilities .............................. $ 130,545 $ 144,454 $ 55,936 $ 39,214 $ 16,447
Total long-term debt and other
liabilities, net of current portion .............. 1,395,000 743,000 362,487 200,587 53,430
Minority interests in equity of
consolidated subsidiary ........................ 3,376
Shareholders' equity ............................. 194,428 354,249 240,605 127,017 85,889
---------- ---------- ---------- ---------- ----------
Total liabilities and shareholders' equity ..... $1,719,973 $1,241,703 $ 659,028 $ 370,194 $ 155,766
========== ========== ========== ========== ==========
OTHER DATA:
Cellular subscribers ............................. 520,000 324,200 209,500 112,800 30,000
PCS subscribers .................................. 128,600 35,500
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------------------------------
(Dollars in thousands) 1997 1996 1995 1994 1993
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENTS OF CASH FLOWS
DATA:
Cash flows provided by (used in)
Operating activities ............... $(114,498) $ (61,333) $ (745) $ (998) $ (255)
Investing activities ............... $(652,304) $(489,086) $(293,579) $ (70,190) $ (32,535)
Financing activities ............... $ 727,376 $ 596,732 $ 295,109 $ (70,777) $ 36,212
</TABLE>
<PAGE> 1
EXHIBIT 13.3 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 88 Rural Service Areas ("RSA") and Metropolitan Statistical Areas
including 12 RSAs acquired from Triad Cellular Corporation, Triad Cellular L.P.
and certain of their affiliates (collectively "Triad") in October 1997. The
Company owns broadband personal communications services ("PCS") licenses in
seven Major Trading Areas ("MTA"), each of which has commenced commercial
operations. During 1997, the Company was granted 100 additional PCS licenses in
the Federal Communication Commission's ("FCC") D and E Block auctions and
acquired eight PCS licenses as part of its acquisition of Triad in October 1997.
Cook Inlet Western Wireless PV/SS PCS, LP ("Cook Inlet PCS"), a partnership in
which the Company holds a 49.9% limited partnership interest, owns broadband PCS
licenses in 21 Basic Trading Areas ("BTA") including seven that were acquired in
the FCC F Block auction during the first quarter of 1997. The first of these
BTAs commenced commercial operations in June 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. 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.
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 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 United States generally accepted accounting principles,"GAAP"),
as an alternative to cash flows from operating activities (as determined in
accordance with GAAP), or as a measure of liquidity. Cellular EBITDA represents
EBITDA from the Company's cellular operations and PCS EBITDA represents EBITDA
from the Company's PCS operations.
In the comparisons that follow, the Company has separately set forth
certain information relating to cellular operations (including paging) and PCS
operations. The Company believes that this is appropriate because its cellular
systems have been operating for a number of years and operate in rural markets
while its PCS systems did not commence operations until 1996 and operate in
urban markets.
<PAGE> 2
RESULTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 1997, 1996, AND 1995
CELLULAR OPERATIONS
The Company had 520,000 cellular subscribers at December 31, 1997,
representing an increase of 195,800 or 60.4% during 1997. At December 31, 1996
and 1995, the Company had 324,200 and 209,500 cellular subscribers,
respectively, representing an increase of 54.7% during 1996 and 85.7% during
1995. In 1997, 1996, and 1995 the net number of subscribers added through system
acquisitions was approximately 58,500, 4,900 and 3,300, respectively. Removing
the effect of the Triad subscribers acquired in October 1997, the subscriber
growth would have been 42.4% during 1997.
During the fourth quarter of 1997, the Company purchased from Triad the
cellular business and assets of 12 RSAs in Texas, Utah, Oklahoma and Minnesota.
This purchase was consummated on October 31, 1997, thus the operating results of
the Company's cellular business for the twelve months ended December 31, 1997,
may not be indicative of future performance.
The following table sets forth certain financial data as it relates to
the Company's cellular operations:
<TABLE>
<CAPTION>
(Dollars in thousands) YEAR ENDED DECEMBER 31,
------------------------------------------------------------------
1997 % CHANGE 1996 % CHANGE 1995
--------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Cellular revenues:
Subscriber revenues ............ $245,364 40.5% $174,647 65.7% $105,430
Roamer revenues ................ 39,750 16.7% 34,065 14.9% 29,660
Equipment sales and other
revenues ..................... 17,734 5.3% 16,834 46.8% 11,465
-------- -------- --------
Total revenues ............. $302,848 $225,546 $146,555
Cellular operating expenses:
Cost of service ................ $ 47,001 14.3% $ 41,130 48.6% $ 27,686
Cost of equipment sales ........ 29,698 16.4% 25,516 23.2% 20,705
General and administrative ..... 60,865 31.0% 46,464 64.9% 28,184
Sales and marketing ............ 61,409 17.8% 52,147 27.0% 41,051
Depreciation and amortization .. 66,595 1.9% 65,346 32.9% 49,187
-------- -------- --------
Total operating expenses ... $265,568 $230,603 $166,813
</TABLE>
CELLULAR REVENUES
Subscriber revenues have increased over the past three years due to the
growth in the number of subscribers offset slightly by a decrease in the average
monthly cellular subscriber revenue per subscriber. Average monthly cellular
subscriber revenue per subscriber was $51.13 in 1997, a 7.0% decline from $54.96
in 1996, which was a 4.0% decline from $57.25 in 1995. The Company anticipates
this downward trend will continue in 1998. 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. Removing the effect of the Triad subscribers
acquired in October 1997, the average monthly cellular subscriber revenue per
subscriber was $51.38 in 1997.
The increase in roamer revenues over the past three years was caused by
an increase in roaming traffic and partially offset by decreases in the rates
charged between carriers. While the Company expects total roamer minutes to
continue to increase, the decline in the rates charged between carriers will
limit the growth of roamer revenues.
Cellular equipment sales, which consist primarily of handset sales,
decreased in 1997 primarily due to the decrease in the average cellular handset
sales price despite the increase in net subscriber additions.
<PAGE> 3
CELLULAR OPERATING EXPENSES
The increase in cost of service is primarily attributable to the
increased number of subscribers. While cost of service increased in total
dollars, it decreased as a percentage of service revenues to 16.2% in 1997 from
19.3% in 1996 and 20.5% in 1995 due primarily to efficiencies gained from the
growing subscriber base.
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 increases in total dollars are primarily attributable to the
increase in costs associated with supporting the increased subscriber base.
However, the general and administrative cost per average subscriber continues to
decrease as a result of efficiencies gained from the growing subscriber base.
The general and administrative cost per average subscriber decreased to $12.60
in 1997 from $14.58 in 1996 and $15.08 in 1995. 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.
Increases in sales and marketing costs are primarily due to the increase
in net subscriber additions over the past three years. Although sales and
marketing costs have increased, sales and marketing cost per net subscriber
added, including the loss on equipment sales, declined to $574 in 1997 from $593
in 1996. This decrease is a result of strategically reduced advertising costs
and is partially offset by an increase in the churn rate. Sales and marketing
cost per net subscriber added increased to $593 in 1996 from $546 in 1995
largely due to an increase in the number of disconnected subscribers relative to
the number of gross subscriber additions. Removing the effect of the Triad
properties acquired in October 1997, sales and marketing costs would have been
approximately $59.8 million in 1997 and the cost per net subscriber added,
including the loss on equipment sales, would have been $578.
Cost of equipment sales increased primarily due to the increase in the
number of handsets sold in 1997 as compared to 1996 and 1995. Offsetting this
increase is a decrease caused by the decline in the average cost of handsets
sold.
Increases in depreciation and amortization expense over the past three
years are primarily due to the purchase of additional wireless communications
system assets by the Company. In 1997, the increase in depreciation and
amortization expense caused by the purchase of additional assets, including the
acquisition of the Triad properties, was offset by the change in the life by
which cellular licenses are amortized. 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. The effect
of this change in 1997 was to decrease net loss by approximately $15 million and
decrease the basic loss per share by $0.21.
PCS OPERATIONS
The Company's PCS business did not commence operations in any of its
markets until February 1996. From that date through the end of 1996 six of the
original seven MTA licenses purchased by the Company launched service at various
times. The last of the original seven MTA licenses, Denver, became operational
in May of 1997. Due to the varying dates at which each of the MTAs became
operational, the expenses and revenues incurred may not be representative of
future operations. Additionally, during each period being discussed a portion of
the operating expenses incurred in the Company's PCS operations were related to
start-up costs incurred prior to the commencement of operations in each of the
systems. Exclusive of depreciation and amortization expense, which was not
material, approximately $5.4 million and $17.0 million of start-up costs were
incurred in 1997 and 1996, respectively.
The Company had 128,600 PCS subscribers at December 31, 1997,
representing an increase of 262.3% during 1997. At December 31, 1996, the
Company had 35,500 PCS subscribers.
<PAGE> 4
The following table sets forth certain financial data as it relates to
the Company's PCS operations:
<TABLE>
<CAPTION>
(Dollars in thousands) YEAR ENDED DECEMBER 31,
-------------------------------------------------------------
1997 % CHANGE 1996 % CHANGE 1995
-------- -------- --------- -------- -------
<S> <C> <C> <C> <C> <C>
PCS revenues:
Service revenues ............... $ 52,587 574.7% $ 7,794
Equipment revenues ............. 25,143 158.0% 9,745
-------- --------
Total revenues ............. $ 77,730 $ 17,539
PCS operating expenses:
Cost of service ................ $ 43,183 246.3% $ 12,470
Cost of equipment sales ........ 53,469 157.2% 20,789
General and administrative ..... 51,678 155.7% 20,209 N.M. $ 3,069
Sales and marketing ............ 59,466 88.8% 31,505 N.M. 339
Depreciation and amortization .. 66,875 364.6% 14,395 N.M. 269
-------- -------- --------
Total operating expenses ... $274,671 $ 99,368 $ 3,677
</TABLE>
PCS REVENUES
PCS service revenues grew in 1997 primarily because all seven of the
original MTAs were operational during the majority of 1997 while these same MTAs
were only operational during a portion of 1996. Average monthly PCS subscriber
revenue per subscriber was $57.48 for 1997 as compared to $62.85 for 1996. As
the Company's PCS operations only began generating revenue during 1996, the year
over year trend is not necessarily representative of future trends.
PCS equipment sales increased as a result of commercial operations in
six of the Company's PCS MTAs during the entire twelve months of 1997 and the
Denver MTA for eight months of 1997 as compared to only six MTAs having
operations of various lengths throughout 1996. The Company anticipates continued
growth in equipment sales as a result of increases in PCS subscriber additions
and the commencement of commercial operations in other PCS markets.
PCS OPERATING EXPENSES
Cost of service expenses, cost of equipment sales, and depreciation and
amortization expenses largely represent the expenses incurred by the operational
PCS systems. Six of the PCS MTAs were operational during the entire twelve
months in 1997 and the Denver MTA was operational for eight months of that
period. Six of the PCS MTAs became operational during various times throughout
1996. Accordingly, cost of service expenses, cost of equipment sales, and
depreciation and amortization expenses increased in 1997 over 1996. Similarly,
general and administrative costs increased due to the costs associated with
supporting the additional markets in which the Company has operations and sales
and marketing costs increased as a result of the effort to increase net
subscriber additions and promote the Company's PCS brand name. As the Company's
PCS systems only commenced operations during 1996, the year over year trend is
not necessarily representative of future trends.
OTHER INCOME (EXPENSE); EXTRAORDINARY LOSS; NET OPERATING LOSS CARRYFORWARDS
Interest and financing expense, net of capitalized interest, increased
in 1997 from 1996 and 1995 due to the increase in long-term debt. Long-term debt
was incurred primarily to fund the Company's capital expenditures associated
with the build-out of the Company's PCS systems. Interest expense will continue
to increase in 1998 as a result of increased borrowings the Company has
incurred, and will continue to incur, to fund this expansion. The weighted
average interest rate, before the effect of capitalized interest, was 10.2%,
9.8% and 9.2% in 1997, 1996 and 1995, respectively.
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.
<PAGE> 5
The Company had available at December 31, 1997, net operating loss
carryforwards ("NOLs") of approximately $640 million which will expire in the
years 2002 through 2012. 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 that formed the Company in July 1994. Approximately $17
million of such NOLs are subject to such limitations. Any amount of NOLs subject
to such limitation that the Company is not able to use in any one year may be
used in subsequent years prior to the expiration thereof. There is currently no
limitation on the remaining NOLs of $623 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 9 of the Company's Notes to
the consolidated financial statements.
EBITDA
Consolidated EBITDA declined to negative $26.2 million in 1997 from
negative $7.1 million in 1996 and $25.5 million in 1995 primarily due to the
negative $130.1 million and negative $67.4 million EBITDA in 1997 and 1996,
respectively, attributable to PCS operations offset by an increase in cellular
EBITDA. Cellular EBITDA increased to $103.9 million in 1997 from $60.3 million
in 1996 and $28.9 million in 1995, primarily as a result of increased revenues
due to the increased subscriber base and the related cost efficiencies gained.
As a result, cellular operating margin (cellular EBITDA as a percentage of
cellular service revenues) increased to 35.8% in 1997 from 28.3% in 1996 and
21.4% in 1995.
LIQUIDITY AND CAPITAL RESOURCES
The Company has a credit facility (the "Credit Facility") with a
consortium of lenders providing for $750 million of revolving credit and a $200
million term loan. A subsidiary of the Company also has a credit facility (the
"PCS Vendor Facility" and, together with the Credit Facility, the "Senior
Secured Facilities") with a consortium of lenders providing for $300 million of
revolving credit. As of December 31, 1997, $695 million and $300 million were
outstanding under the Credit Facility and the PCS Vendor Facility, respectively.
Amounts available for borrowing under the Credit Facility, which is limited by
certain financial covenants, was $239 million. Indebtedness under the Credit
Facility and the PCS Vendor Facility matures on March 31, 2006, 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 terms
of the PCS Vendor Facility restrict, among other things, the sale of assets,
distribution of dividends or other distributions and loans by the subsidiary of
the Company.
In October 1997, the Company entered into an agreement with Hutchison
Telecommunications Limited ("HTL") and a subsidiary of HTL pursuant to which
the HTL subsidiary agreed to purchase approximately 5% of the outstanding
capital stock of the Company for a purchase price of $74.3 million. This
transaction closed in November 1997. The proceeds from the sale of the stock
were used to reduce the revolving Credit Facility. The Company and its
subsidiary, Western PCS Corporation ("Western PCS") also entered into an
agreement with HTL and another HTL subsidiary pursuant to which the HTL
subsidiary agreed to purchase 19.9% of the outstanding capital stock of
Western PCS for an aggregate purchase price of $248.4 million. This
transaction closed in February 1998. Approximately $135 million of the
proceeds will be used by Western PCS for the continued build-out of its PCS
systems during 1998. The remainder of the proceeds was paid to the Company as
a repayment of advances made to Western PCS and was used by the Company to
reduce the revolving Credit Facility.
The Company currently anticipates that it will require approximately
$260 million for the continued build-out of its PCS systems during 1998. 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. Part of the funds needed to finance the PCS build-out
and operations will come from the investment by HTL. The Company will utilize
cash on hand, including the proceeds of the HTL investments described above,
and amounts available for borrowing under the Credit Facility for such
purposes. The Company believes such sources will be sufficient for the
operations of the business. The Company continues to consider and expects to
pursue additional sources of funding to enable the further development of the
PCS business. Such sources may include the issuance of additional indebtedness
and/or the sale of additional equity at the parent or subsidiary level. 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 was $114.5 million in 1997.
Adjustments to the $265.5 million net loss to reconcile to net cash used in
operating activities primarily included $133.5 million of depreciation and
amortization. Other adjustments included changes in operating assets and
liabilities, net of effects from consolidating acquired interests, consisting of
an increase of $54.9 million in accrued liabilities, primarily attributable to
an increase in property taxes and
<PAGE> 6
interest, an increase of $23.9 million in accounts receivable, net, as a result
of the increase in total revenues, and an increase of $16.9 million in prepaid
expenses and other current assets, primarily due to $15 million in escrow for
the final payment to Triad which was released in January 1998. Net cash used in
operating activities was $61.3 million and $0.7 million in 1996 and 1995,
respectively.
Net cash used in investing activities was $652.3 million in 1997.
Investing activities for such period consisted primarily of purchases of
wireless licenses and other intangible assets of $71.9 million of which $71.6
was attributable to the purchase of the PCS licenses that the Company was the
high bidder on in the FCC's D and E Block auctions, purchases of property and
equipment of $318.8 million of which $264.4 was attributable to PCS capital
expenditures incurred in relation to the build out and expansion of the PCS
MTAs, and acquisitions of wireless properties, net of cash acquired, of $195.8
million primarily attributable to the purchase of the Triad licenses and
properties during the fourth quarter of 1997. Net cash used in investing
activities was $489.1 million and $293.6 million in 1996 and 1995, respectively.
Net cash provided by financing activities was $727.4 million in 1997.
Financing activities for such period consisted of $652 million of net additions
to long-term debt and the issuance of 3,888,888 shares of Class A Common stock
to Hutchison in November in consideration for $74.3 million. Net cash provided
by financing activities was $596.7 million and $295.1 million in 1996 and 1995,
respectively.
In the ordinary course of business, the Company continues to evaluate
acquisition opportunities, joint ventures and other potential business
transactions. Such acquisitions, joint ventures and business transactions may be
material. Such transactions may also require the Company to seek additional
sources of funding, either through the issuance of additional debt and/or
additional equity at the parent or subsidiary level. There can be no assurance
that such funds will be available to the Company on acceptable or favorable
terms.
As previously mentioned, the Company holds a 49.9% interest in Cook
Inlet PCS. 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 and F
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. To date, the Company has funded the
operations of Cook Inlet PCS through the issuance of promissory notes. At
December 31, 1997, the Company had advanced funds totaling $36.0 million to Cook
Inlet PCS under such promissory notes.
YEAR 2000 ISSUES
The Company, like most owners of computer software, will be required to
modify significant portions of its software so that it will function properly in
the year 2000. Any of the Company's computer programs that have date-sensitive
software may recognize a date using "00" as the year 1900 rather than the year
2000. This could result in a system failure or miscalculations causing disrupti
ons of operations, including, among other things, a temporary inability to
process transactions, send invoices, or engage in similar normal business
activities. The Company is in the planning phase of its year 2000 compliance
project and does not, as of yet, have a determinable estimate of the costs to
be incurred. The Company expects to incur internal staff costs as well as
consulting and other expenses related to infrastructure and facilities
enhancements necessary to prepare the systems for the year 2000. The Company
expects its year 2000 compliance project to be completed on a timely basis.
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.
<PAGE> 1
EXHIBIT 13.4 FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
WESTERN WIRELESS CORPORATION CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Report of Independent Public Accountants ............................. 2
Consolidated Balance Sheets as of December 31, 1997 and 1996 ......... 3
Consolidated Statements of Operations for the years ended
December 31, 1997, 1996 and 1995 ..................................... 4
Consolidated Statements of Shareholders' Equity for the years ended
December 31, 1997, 1996 and 1995 ..................................... 5
Consolidated Statements of Cash Flows for the years ended
December 31, 1997, 1996 and 1995 ..................................... 6
Notes to Consolidated Financial Statements ........................... 7
Schedule I - Condensed Financial Information - (Parent Company Only).. 20
Schedule II - Valuation and Qualifying Accounts ...................... 24
</TABLE>
<PAGE> 2
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, 1997 and 1996, and the related
consolidated statements of operations, shareholders' equity and cash flows for
each of the three years in the period ended December 31, 1997. These financial
statements and schedules 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, 1997 and 1996, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1997, in conformity with generally accepted accounting principles.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedules listed in the index of
consolidated financial statements are presented for purposes of complying with
the Securities and Exchange Commission rules and are not a required part of
the basic financial statements. These schedules have been subjected to the
auditing procedures applied in our audits of the basic financial statements
and, in our opinion, are fairly stated in all material respects in relation to
the basic financial statements taken as a whole.
Arthur Andersen LLP
Seattle, Washington
February 17, 1998
<PAGE> 3
WESTERN WIRELESS CORPORATION
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
<TABLE>
<CAPTION>
As of December 31,
----------------------------
1997 1996
----------- -----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents ................................................. $ 15,459 $ 54,885
Accounts receivable, net of allowance for doubtful accounts of
$9,931 and $4,266, respectively .................................... 55,652 28,958
Inventory ................................................................. 36,425 26,138
Prepaid expenses and other current assets ................................. 31,216 14,809
Deposit held by FCC ....................................................... 25,000
----------- -----------
Total current assets ................................................. 138,752 149,790
Property and equipment, net of accumulated depreciation
of $221,031 and $107,685, respectively .................................... 699,129 538,617
Licensing costs and other intangible assets, net of accumulated
amortization of $73,049 and $55,363, respectively ......................... 807,409 540,482
Investments in and advances to unconsolidated affiliates ..................... 64,156 12,655
Other assets ................................................................. 10,527 159
----------- -----------
$ 1,719,973 $ 1,241,703
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable .......................................................... $ 11,519 $ 14,122
Accrued liabilities ....................................................... 104,595 40,749
Construction accounts payable ............................................. 14,431 89,583
----------- -----------
Total current liabilities ............................................ 130,545 144,454
----------- -----------
Long-term debt ............................................................... 1,395,000 743,000
----------- -----------
Commitments (Note 8)
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,
22,201,336 and 14,540,691 shares issued and outstanding, respectively,
and; Class B, 53,431,163 and 55,239,157 shares issued
and outstanding, respectively ........................................ 675,036 569,278
Deferred compensation ..................................................... (845) (800)
Deficit ................................................................... (479,763) (214,229)
----------- -----------
Total shareholders' equity ........................................... 194,428 354,249
----------- -----------
$ 1,719,973 $ 1,241,703
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements
3
<PAGE> 4
WESTERN WIRELESS CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
For the year ended December 31,
------------------------------------------------
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
Revenues:
Subscriber revenues ............................. $ 297,724 $ 182,441 $ 105,430
Roamer revenues ................................. 39,977 34,065 29,660
Equipment sales and other revenues .............. 42,877 26,579 11,465
------------ ------------ ------------
Total revenues ...................... 380,578 243,085 146,555
------------ ------------ ------------
Operating expenses:
Cost of service ................................. 90,184 53,600 27,686
Cost of equipment sales ......................... 83,167 46,305 20,705
General and administrative ...................... 112,543 66,673 31,253
Sales and marketing ............................. 120,875 83,652 41,390
Depreciation and amortization ................... 133,470 79,741 49,456
------------ ------------ ------------
540,239 329,971 170,490
------------ ------------ ------------
Operating loss .............................................. (159,661) (86,886) (23,935)
------------ ------------ ------------
Other income (expense):
Interest and financing expense, net ............. (98,964) (44,690) (25,428)
Equity in net loss of unconsolidated affiliates.. (11,058) (968) (236)
Other, net ...................................... 4,149 2,439 290
------------ ------------ ------------
Total other income (expense) ........ (105,873) (43,219) (25,374)
------------ ------------ ------------
Loss before extraordinary item .............................. (265,534) (130,105) (49,309)
Extraordinary loss on early extinguishment of debt .......... (6,645)
------------ ------------ ------------
Net loss ............................ (265,534) (130,105) (55,954)
============ ============ ============
Basic loss per common share before extraordinary item ....... $ (3.76) $ (2.00) $ (0.87)
Per common share effect of extraordinary item ............... (0.12)
------------ ------------ ------------
Basic loss per common share ................................. $ (3.76) $ (2.00) $ (0.99)
============ ============ ============
Weighted average common shares used in computing
basic loss per common share .................... 70,692,000 65,196,000 56,470,000
============ ============ ============
</TABLE>
See accompanying notes to consolidated financial statements
4
<PAGE> 5
WESTERN WIRELESS CORPORATION
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(Dollars in thousands)
<TABLE>
<CAPTION>
Common Stock
-----------------------------------------------
Class A Class B Par value and Deferred
shares shares paid-in capital compensation Deficit
------------ -------------- --------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Balance, January 1, 1995 .................. 42,983,360 $ 155,187 $ (28,170)
Shares issued:
For cash, net of costs .............. 12,665,905 143,002
In exchange for shareholder loans
plus accrued interest .......... 1,245,998 14,068
For minority interests in GCC, net.. 896,210 9,944
In exchange for wireless properties.. 217,000 2,450
Upon exercise of stock options ...... 38,762 78
Net loss ............................... (55,954)
------------ ------------ ------------ ------------ ------------
Balance, December 31, 1995 .............. 58,047,235 324,729 (84,124)
Shares issued:
For cash, net of costs .............. 10,664,800 88,567 234,724
Upon exercise of stock options ...... 383,937 879
In exchange for wireless properties.. 595,309 7,117
Class B shares exchanged for
Class A shares .................. 3,491,954 (3,491,954)
Deferred compensation .................. 1,829 $ (800)
Net loss ............................... (130,105)
------------ ------------ ------------ ------------ ------------
Balance, December 31, 1996 .............. 14,540,691 55,239,157 569,278 (800) (214,229)
Shares issued:
Upon exercise of stock options ...... 268,763 1,077
In exchange for wireless properties.. 1,600,000 28,600
Private placement ................... 3,888,888 74,300
Class B shares exchanged for
Class A shares .................. 1,807,994 (1,807,994)
Deferred compensation .................. 95,000 1,781 (45)
Net loss ............................... (265,534)
------------ ------------ ------------ ------------ ------------
Balance, December 31, 1997 .............. 22,201,336 53,431,163 $ 675,036 $ (845) $ (479,763)
============ ============ ============ ============ ============
</TABLE>
<TABLE>
<CAPTION>
Total
shareholders'
equity
-------------
<S> <C>
Balance, January 1, 1995 .................. $ 127,017
Shares issued:
For cash, net of costs .............. 143,002
In exchange for shareholder loans....
plus accrued interest .......... 14,068
For minority interests in GCC, net.. 9,944
In exchange for wireless properties.. 2,450
Upon exercise of stock options ...... 78
Net loss ............................... (55,954)
------------
Balance, December 31, 1995 .............. 240,605
Shares issued:
For cash, net of costs .............. 234,724
Upon exercise of stock options ...... 879
In exchange for wireless properties.. 7,117
Class B shares exchanged for
Class A shares ..................
Deferred compensation .................. 1,029
Net loss ............................... (130,105)
------------
Balance, December 31, 1996 .............. 354,249
Shares issued:
Upon exercise of stock options ...... 1,077
In exchange for wireless properties.. 28,600
Private placement ................... 74,300
Class B shares exchanged for
Class A shares ..................
Deferred compensation .................. 1,736
Net loss ............................... (265,534)
------------
Balance, December 31, 1997 ............. $ 194,428
============
</TABLE>
See accompanying notes to consolidated financial statements
5
<PAGE> 6
WESTERN WIRELESS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
<TABLE>
<CAPTION>
For the year ended December 31,
---------------------------------------
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Operating Activities:
Net loss: ........................................................... $(265,534) $(130,105) $ (55,954)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization .................................. 133,470 79,741 49,456
Extraordinary loss on early extinguishment of debt............. 6,645
Employee equity compensation ................................... 1,835 1,029
Equity in net loss of unconsolidated affiliates ................ 11,058 968 236
Other, net ..................................................... 5,157 3,088 864
Changes in operating assets and liabilities, net of effects from
consolidating acquired interests:
Accounts receivable, net ................................ (23,871) (10,309) (5,748)
Inventory ............................................... (9,481) (20,493) (239)
Prepaid expenses and other current assets ............... (16,913) (10,979) (1,284)
Accounts payable ........................................ (4,807) 5,771 (272)
Accrued liabilities ..................................... 54,911 19,956 5,551
Other assets ............................................ (323)
--------- --------- ---------
Net cash used in operating activities .......................... (114,498) (61,333) (745)
--------- --------- ---------
Investing activities:
Purchase of property and equipment .................................. (318,750) (333,315) (79,464)
Additions to licensing costs and other intangible assets ............ (71,917) (86,097) (137,805)
Acquisition of wireless properties, net of cash acquired ............ (195,790) (40,180) (60,700)
Investments in and advances to unconsolidated affiliates ............ (63,402) (5,994) (8,268)
Purchase of subsidiary stock, including fees ........................ (5,842)
Deposit held by FCC, net ............................................ 7,749 (23,500) (1,500)
Other assets ........................................................ (10,194)
--------- --------- ---------
Net cash used in investing activities .......................... (652,304) (489,086) (293,579)
--------- --------- ---------
Financing activities:
Proceeds from issuance of common stock, net ......................... 75,376 235,603 143,080
Additions to long term debt ......................................... 722,000 893,000 438,000
Payment of debt ..................................................... (70,000) (512,722) (277,015)
Deferred financing costs ............................................ (19,149) (12,798)
Loans from shareholders ............................................. 3,842
--------- --------- ---------
Net cash provided by financing activities ...................... 727,376 596,732 295,109
--------- --------- ---------
Change in cash and cash equivalents .................................... (39,426) 46,313 785
Cash and cash equivalents, beginning of year ........................... 54,885 8,572 7,787
--------- --------- ---------
Cash and cash equivalents, end of year ................................. 15,459 54,885 8,572
========= ========= =========
</TABLE>
See accompanying notes to consolidated financial statements
6
<PAGE> 7
WESTERN WIRELESS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION:
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 services ("PCS")
systems. The cellular operations are primarily in rural areas and the PCS
operations are primarily in urban areas due to the Company's belief that there
are certain strategic advantages to operating each technology in these
respective areas. As of December 31, 1997, the Company provides cellular
services in 72 Rural Service Areas ("RSA") and 16 Metropolitan Statistical Areas
("MSA") and PCS services in nine metropolitan markets in seven Metropolitan
Trading Areas ("MTA").
The Company expanded its cellular footprint in 1997 by acquiring 12
RSAs from Triad Corporation, Triad Cellular L.P. and certain of their affiliates
(collectively "Triad") (see Note 12). Also during 1997 the Company acquired 100
additional PCS licenses in the Federal Communication Commission's ("FCC") D and
E Block auctions and acquired eight more PCS licenses as part of its acquisition
of Triad. Cook Inlet Western Wireless PV/SS PCS, LP ("Cook Inlet PCS"), a
partnership in which the Company holds a 49.9% limited partnership interest,
owns broadband PCS licenses in 21 Basic Trading Areas ("BTA") including seven
that were acquired in the FCC F Block auction during the first quarter of 1997.
The first of these BTAs commenced commercial operations in June 1997 .
The Company expects to incur significant operating losses and to
generate negative cash flows from operating activities during the next several
years while it develops and constructs its PCS systems and builds a PCS customer
base.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Principles of consolidation:
The consolidated financial statements include the accounts of the
Company, its wholly owned subsidiaries and its affiliate investments in which
the Company has a greater than 50% interest that is not temporary. All affiliate
investments in which the Company has between a 20% and 50% interest and those
that are temporarily greater than 50% 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 and marketable
securities that have original maturity dates not exceeding three months. Such
investments are stated at cost, which approximates fair 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.
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.
7
<PAGE> 8
WESTERN WIRELESS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):
Licensing costs and other intangible assets and amortization:
Licensing costs primarily represent costs incurred to acquire 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. The effect of this change
in 1997 was to decrease net loss by approximately $15 million and decrease the
loss per share by $0.21. Amortization of PCS licenses begins with the
commencement of service to customers and is computed using the straight-line
method over 40 years.
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 which have terms ranging from 9 to
10 years.
Capitalized Interest:
The Company's PCS licenses represent qualified assets pursuant to
Statement of Financial Accounting Standards ("SFAS") No. 34, "Capitalization of
Interest Cost." For the years ended December 31, 1997, 1996, and 1995, the
Company had interest expense of $99.0 million, $44.7 million and $25.4 million,
respectively, net of capitalized interest in the amount of $4.0 million, $5.2
million and $0.4 million, respectively, pertaining to the build out of its PCS
markets.
Income taxes:
The Company accounts for deferred taxes using the asset and
liability method.
Loss per common share:
Loss per common share is calculated using the weighted average
number of shares of outstanding common stock during the period. The number of
shares outstanding has been calculated based on the requirements of SFAS No.
128, "Earnings Per Share." Due to the net loss incurred during the periods
presented, all options outstanding are anti-dilutive, thus basic and 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 11 for
discussion of the effect on net loss and other related disclosures had the
Company accounted for these plans under SFAS No. 123, "Accounting for
Stock-Based Compensation."
Financial instruments:
As required under the Credit Facility (as defined in Note 7), 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. In addition, the Company has historically held derivative financial
instruments to maturity and has never recognized a gain or loss on disposal. It
is the Company's intent to hold existing derivatives to maturity. 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 carrying value of the Company's short-term financial instruments
approximates fair value due to the short maturity of these instruments. The fair
value of long-term debt is based on incremental borrowing rates currently
available on loans with similar term and maturities. The Company does not hold
or issue any financial instruments for trading purposes.
8
<PAGE> 9
WESTERN WIRELESS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):
Supplemental cash flow disclosure:
Cash paid for interest (net of amounts capitalized) was $87.4
million, $36.2 million, and $21.7 million for the years ended December 31, 1997,
1996 and 1995, respectively.
Non-cash investing and financing activities were as follows:
<TABLE>
<CAPTION>
(Dollars in thousands) YEAR ENDED DECEMBER, 31
----------------------------------
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Conversion of FCC deposit to wireless license ............ $ 17,251 $ 10,000
Conversion of revolving debt to term debt ................ $200,000
Issuance of common stock in exchange for wireless assets.. $ 28,600 $ 7,117 $ 2,450
Exchange of shareholder loans and accrued interest
for common stock ......................................... $ 14,068
</TABLE>
Estimates used in preparation of financial statements:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting periods. Actual results could differ from those estimates.
Reclassifications:
Certain amounts in prior year's financial statements have been
reclassified to conform to the 1997 presentation.
3. PROPERTY AND EQUIPMENT:
(Dollars in thousands)
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1997 1996
--------- ----------
<S> <C> <C>
Land, buildings and improvements.. $ 20,406 $ 8,433
Wireless communications systems.. 697,319 370,628
Furniture and equipment .......... 74,768 49,351
--------- ---------
792,493 428,412
Less accumulated depreciation .... (221,031) (107,685)
--------- ---------
571,462 320,727
Construction in progress ......... 127,667 217,890
--------- ---------
$ 699,129 $ 538,617
========= =========
</TABLE>
Depreciation expense was $119.1 million, $54.9 million and $30.2
million for the years ended December 31, 1997, 1996 and 1995, respectively.
9
<PAGE> 10
WESTERN WIRELESS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4. LICENSING COSTS AND OTHER INTANGIBLE ASSETS:
(Dollars in thousands)
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------
1997 1996
--------- ---------
<S> <C> <C>
License costs .......................... $ 846,466 $ 560,232
Other intangible assets ................ 33,992 35,613
--------- ---------
880,458 595,845
Accumulated amortization ............... (73,049) (55,363)
--------- ---------
$ 807,409 $ 540,482
========= =========
</TABLE>
5. INVESTMENTS IN AND ADVANCES TO UNCONSOLIDATED AFFILIATES:
(Dollars in thousands)
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1997 1996
-------- --------
<S> <C> <C>
Cook Inlet PCS .................................. $ 36,055 $ 8,142
Latcom Wireless Telephone Co. ("Latcom") ........ 11,791 4,663
ACG Telesystems Ghana, LLC ("Ghana") ............ 8,706
Icesco. Ltd ("Iceland") ......................... 4,002
Telcell Wireless LLC ("Georgia") ................ 3,261
Other ........................................... 341 (150)
-------- --------
$ 64,156 $ 12,655
======== ========
</TABLE>
The Company's ownership interest in these unconsolidated
affiliates range from 30% to 75%. Those ownership interests greater than 50% are
temporary, therefore the entities are not consolidated. The assets, liabilities
and results of operations of Cook Inlet PCS and other unconsolidated affiliates
were not material to the Company during 1997 and 1996.
6. ACCRUED LIABILITIES:
(Dollars in thousands)
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1997 1996
-------- --------
<S> <C> <C>
Accrued payroll and benefits ................. $ 15,111 $ 11,192
Accrued interest expense ..................... 17,831 10,265
Accrued taxes, other than income ............. 19,398 5,096
Final payment for acquisition ................ 15,000
Accrued interconnect charges ................. 8,149 5,261
Other ........................................ 29,106 8,935
-------- --------
$104,595 $ 40,749
======== ========
</TABLE>
10
<PAGE> 11
WESTERN WIRELESS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
7. LONG-TERM DEBT:
(Dollars in thousands)
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1997 1996
---------- ----------
<S> <C> <C>
Credit Facility (a):
Revolver ................................... $ 495,000
Term Loan .................................. 200,000 $ 200,000
10-1/2% Senior Subordinated Notes Due 2006 (b) ... 200,000 200,000
10-1/2% Senior Subordinated Notes Due 2007 (c) ... 200,000 200,000
PCS Vendor Facility (d) .......................... 300,000 143,000
---------- ----------
$1,395,000 $ 743,000
========== ==========
</TABLE>
(a) Credit Facility
The Company has a credit facility with a group of banks (the "Credit
Facility") pursuant to which 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") and a term loan (the "Term Loan") of $200
million. The Revolving Loans are limited to the principal amount outstanding on
December 31, 2000. The Company is required to make quarterly payments on the
outstanding principal of the Revolving Loans and Term Loan beginning March 31,
2001, and June 30, 2001, respectively. These payments increase each year on the
anniversary date of the initial payment, until paid in full on December 31,
2005, for the Revolving Loans and March 31, 2006, 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 2.5%. During 1997 and 1996, 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, 1997 and 1996, was 8.22% and 7.79%, respectively.
The Credit Facility also provides for an annual fee ranging from 0.25% to 0.375%
on the unused commitment, payable quarterly. As of December 31, 1997 and 1996,
the unused portion of the commitment under the Credit Facility was $239 million
and $750 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, 1997 and 1996, the Company
had entered into interest rate caps and swaps with a total notional amount of
$365 million and $205 million, respectively. Generally these instruments have
initial terms ranging from three to 3-1/2 years and effectively convert variable
rate debt to fixed rate. The weighted average interest rate under these
agreements was approximately 7.40% and 6.76% at December 31, 1997 and 1996,
respectively. The amount of unrealized loss attributable to changing interest
rates at December 31, 1997 and 1996, 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
PCS subsidiaries.
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"). 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.
11
<PAGE> 12
WESTERN WIRELESS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
7. LONG-TERM DEBT (CONTINUED):
(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. 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 PCS Vendor 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 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. 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 PCS Vendor Facility.
(d) PCS Vendor Facility
A subsidiary of the Company has a credit facility (the "PCS Vendor
Facility" formerly known as the "NORTEL Facility") with a consortium of lenders
which expires on December 31, 2003. In the first quarter of 1997 this agreement
was amended to increase the credit facility from $200 million to $300 million.
The PCS Vendor 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, 1997, all outstanding borrowings were drawn
under the LIBOR rate option. The weighted average interest rate, including
margin, for the years ended December 31, 1997 and 1996, was 8.20% and 8.06%,
respectively. The PCS Vendor 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. The terms of this agreement restrict, among other things, the sale
of assets, distribution of dividends or other distributions and loans by the
subsidiary of the Company. 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 PCS Vendor Facility in increasing quarterly installments.
The aggregate amounts of principal maturities as of December 31,
1997, of the Company's debt are as follows (dollars in thousands):
Year ending December 31,
<TABLE>
<S> <C>
1998............................................................... $ 0
1999............................................................... 0
2000............................................................... 30,000
2001............................................................... 123,000
2002............................................................... 170,270
Thereafter......................................................... 1,071,730
-----------
$ 1,395,000
===========
</TABLE>
12
<PAGE> 13
WESTERN WIRELESS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
8. COMMITMENTS:
The Company leases various facilities, cell site locations,
rights-of-way and equipment under operating lease agreements. The leases expire
at various dates through the year 2027. 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.
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, 1997, are summarized below (dollars in thousands):
Year ending December 31,
<TABLE>
<S> <C>
1998...................................... $ 23,758
1999...................................... 22,063
2000...................................... 20,206
2001...................................... 15,237
2002...................................... 7,580
Thereafter................................ 26,179
-----------
$ 115,023
===========
</TABLE>
Aggregate rental expense for all operating leases was approximately
$28.0 million, $14.2 million and $4.8 million for the years ended December 31,
1997, 1996 and 1995, 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 million. At
December 31, 1997, the Company has ordered approximately $246 million under all
of these agreements, of which approximately $16 million is outstanding.
In March 1998, a subsidiary of the Company entered into an agreement
with a vendor to purchase $150 million of PCS equipment and services in relation
to the buildout of its Seattle and Phoenix BTAs.
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.
9. INCOME TAXES:
Significant components of deferred income tax assets and liabilities
are as follows :
<TABLE>
<CAPTION>
DECEMBER 31,
(Dollars in thousands) ------------------------
1997 1996
--------- ---------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards .................. $ 228,800 $ 100,000
Other temporary differences ....................... 17,200 12,000
--------- ---------
Total deferred tax assets ............................. 246,000 112,000
Valuation allowance ................................... (195,600) (90,000)
--------- ---------
50,400 22,000
Deferred tax liabilities:
Property and wireless licenses basis differences.. (50,400) (22,000)
--------- ---------
$ 0 $ 0
========= =========
</TABLE>
13
<PAGE> 14
WESTERN WIRELESS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
9. INCOME TAXES (CONTINUED):
For tax purposes, the Company had available at December 31, 1997,
net operating loss carryforwards for regular tax purposes of approximately $640
million which will expire in 2002 through 2012. 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 that formed the Company in July 1994. The
change in the valuation allowance was an increase of approximately $107 million,
$56 million and $16 million in 1997, 1996 and 1995, respectively.
Management believes that, based on a number of factors, the
available objective evidence creates sufficient uncertainty regarding the
realization of the net deferred tax assets. Such factors include recurring
operating losses resulting primarily from the development of the Company's PCS
business and expected increased competition from new entrants into the Company's
existing markets. Accordingly, a valuation allowance has been provided for the
net deferred tax assets of the Company.
The difference between the statutory tax rate of approximately 40%
(35% federal and 5% state, net of federal benefits) and the tax benefit of zero
recorded by the Company is primarily due to the Company's full valuation
allowance against its net deferred tax assets.
10. SHAREHOLDERS' EQUITY:
(a) Business combinations
On October 31, 1997, the Company issued 1,600,000 shares of its'
Class A Common Stock as a portion of the consideration given to purchase the
cellular business and assets of Triad (see Note 12).
On December 29, 1995, the shareholders of the Company, Palouse
Paging Inc. ("Palouse"), and Sawtooth Paging Inc. ("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.
(b) General Cellular Corporation minority interest
During 1995 the Company completed a cash redemption of the remaining
common stock shares (the "Redemption") of General Cellular Corporation's
("GCC'"), the Company's predecessor company, common stock. As part of this
Redemption, the Company issued 896,210 shares of the Company's common stock for
GCC common stock in a one-for-one exchange. This redemption 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 during 1995.
(c) Stock issuances
In January 1998, the Company issued 100,000 shares of its Class A
Common Stock pursuant to an Executives Restricted Stock Plan to certain key
executives. The vesting of these shares are subject to certain performance
thresholds as determined by the Board of Directors.
In November 1997, the Company issued 3,888,888 shares of its Class A
common stock (approximately 5% of the outstanding capital stock of the Company)
to a subsidiary of Hutchison Telecommunications Limited ("HTL") for a purchase
price of approximately $74 million.
14
<PAGE> 15
WESTERN WIRELESS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
10. SHAREHOLDERS' EQUITY (CONTINUED):
In January 1997, the Company issued 95,000 shares of its Class A
Common Stock to certain key executives pursuant to an Executives Restricted
Stock Plan. The vesting of these shares are subject to certain performance
thresholds as determined by the Board of Directors.
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.
11. 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.
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 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 their 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.
15
<PAGE> 16
WESTERN WIRELESS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
11. STOCK-BASED COMPENSATION PLANS (CONTINUED):
At December 31, 1997, 1996, and 1995 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 defined in SFAS No. 123,
the Company's net loss and basic loss per share would have increased to the
pro forma amounts indicated below:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
(Dollars in thousands, ---------------------------------------------
except per share data) 1997 1996 1995
------------ ----------- -----------
<S> <C> <C> <C>
Net loss:
As reported .................... $ (265,534) $ (130,105) $ (55,954)
Pro forma ...................... $ (271,745) $ (134,255) $ (57,388)
Basic and diluted loss per share:
As reported .................... $ (3.76) $ (2.00) $ (0.99)
Pro forma ...................... $ (3.84) $ (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>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Weighted average risk free interest rates.. 6.28% 6.33% 6.30%
Expected dividend yield ................... 0% 0% 0%
Expected volatility ....................... 50% 50% 0%
Expected lives (in years) ................. 7.5 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.
Options granted, exercised and canceled under the above MISOP are
summarized as follows :
(In thousands, except
pricing information)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
(in thousands, except --------------------------------------------------------------------------
pricing information) 1997 1996 1995
---------------------- --------------------- ---------------------
Weighted Weighted Weighted
average average average
Shares price Shares price Shares price
------ --------- ----- --------- ----- ---------
<S> <C> <C> <C> <C> <C> <C>
Outstanding, beginning of period .. 4,165 $ 9.66 3,538 $ 8.02 2,182 $ 5.15
Options granted .................. 18 $ 14.65 1,139 $ 12.54 1,453 $ 12.15
Options exercised ................ (269) $ 4.85 (384) $ 2.28 (39) $ 2.02
Options canceled ................. (203) $ 13.12 (128) $ 12.06 (58) $ 7.73
----- ----- -----
Outstanding, end of the period ... 3,711 $ 9.79 4,165 $ 9.65 3,538 $ 8.02
===== ===== =====
Exercisable, end of period ....... 2,384 $ 8.23 1,877 $ 6.36 1,582 $ 3.69
</TABLE>
The weighted average fair value of stock options granted for the
years ended 1997 and 1996 was $9.34 and $9.79, respectively.
16
<PAGE> 17
WESTERN WIRELESS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
11. STOCK-BASED COMPENSATION PLANS (CONTINUED):
The following table summarizes information about fixed price stock
options outstanding at December 31, 1997:
(In thousands, except
pricing information)
<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 - $ 4.03 891 5 years $ 2.61 849 $ 2.69
$ 9.68 - $ 9.68 660 7 years $ 9.68 660 $ 9.68
$ 11.29 - $ 12.90 1,263 8 years $ 12.04 653 $ 12.06
$ 13.73 - $ 16.13 897 9 years $ 13.84 222 $ 13.83
- -------------------- ----- -----
$ 1.10 - $ 16.13 3,711 7 years $ 9.79 2,384 $ 8.23
===== =====
</TABLE>
12. ACQUISITIONS:
On October 31, 1997, the Company consummated the purchase of the
cellular business 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 $194.5 million, plus (ii)
1,600,000 shares of the Company's Class A Common Stock. The transaction was
accounted for using the purchase method of accounting. In accordance with its
agreement with Triad, the Company filed a shelf Registration Statement on Form
S-3 covering future resales of such shares. The Company also acquired from Triad
certain D and E Block PCS licenses for an aggregate purchase price of
approximately $4.6 million, such amount being the aggregate amount Triad paid
the FCC in its successful bids for such licenses in the FCC's auction of such
licenses.
During 1996 and 1995 the Company acquired six cellular RSAs and one
cellular MSA throughout the western United States, respectively. The aggregate
cash paid for these transactions was $35.6 million and $38.6 million, in 1996
and 1995, respectively. All of these transactions were accounted for using the
purchase method of accounting. Six of the transactions were asset purchases
while one was a stock purchase in which the Company issued 217,000 shares of
common stock at $11.29 per share. Substantially all of the purchase price of
each acquisition was allocated to licensing costs.
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, its ownership interests in three other markets and $3.0
million in cash for the cellular assets and license of the Lubbock, TX MSA
market. There was no gain or loss recognized on the transaction.
17
<PAGE> 18
WESTERN WIRELESS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
13. SEGMENT INFORMATION:
The company's operations are classified into two principal
reportable segments: cellular and PCS. The Company provides cellular services in
rural markets and provides PCS services in urban markets, both in the western
United States. The type of service provided in each segment is similar, although
PCS generally offers more features. Certain centralized costs and assets benefit
all of the Company's operations. These items are allocated to the segments in a
manner which reflects management's judgment as to the nature of the activity
causing those items to be incurred.
<TABLE>
<CAPTION>
CELLULAR PCS OTHER
(Dollars in thousands) OPERATIONS OPERATIONS OPERATIONS CONSOLIDATED
---------- ---------- ---------- -----------
<S> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1997
Total revenues ........................ $ 302,848 $ 77,730 $ 380,578
Interest expense ...................... $ 41,406 $ 57,558 $ 98,964
Depreciation and amortization expense.. $ 66,595 $ 66,875 $ 133,470
Operating income (loss) ............... $ 37,280 $ (196,941) $ (159,661)
Total capital expenditures ............ $ 54,318 $ 264,432 $ 318,750
Total assets .......................... $ 866,805 $ 822,291 $ 30,877 $1,719,973
YEAR ENDED DECEMBER 31, 1996
Total revenues ........................ $ 225,546 $ 17,539 $ 243,085
Interest expense ...................... $ 41,083 $ 3,607 $ 44,690
Depreciation and amortization expense.. $ 65,346 $ 14,395 $ 79,741
Operating income (loss) ............... $ (5,057) $ (81,829) $ (86,886)
Total capital expenditures ............ $ 98,953 $ 234,362 $ 333,315
Total assets .......................... $ 622,197 $ 614,127 $ 5,379 $1,241,703
YEAR ENDED DECEMBER 31, 1995
Total revenues ........................ $ 146,555 $ 146,555
Interest expense ...................... $ 25,388 $ 40 $ 25,428
Depreciation and amortization expense.. $ 49,187 $ 269 $ 49,456
Operating income (loss) ............... $ (20,258) $ (3,677) $ (23,935)
Total capital expenditures ............ $ 62,573 $ 16,891 $ 79,464
Total assets .......................... $ 465,193 $ 193,810 $ 25 $ 659,028
</TABLE>
14. SELECTED QUARTERLY CONSOLIDATED FINANCIAL INFORMATION (UNAUDITED):
Selected quarterly consolidated financial information for the years
ended December 31, 1997 and 1996 is as follows:
<TABLE>
<CAPTION>
(Dollars in thousands, except per share data)
BASIC LOSS
TOTAL OPERATING PER COMMON
QUARTER ENDED REVENUES LOSS NET LOSS SHARE
------------- -------- --------- -------- -----------
<S> <C> <C> <C> <C>
March 31, 1997 $ 71,560 $(37,391) $(55,173) $ (0.79)
June 30, 1997 $ 90,642 $(45,269) $(70,025) $ (1.00)
September 30, 1997 $104,994 $(38,233) $(68,043) $ (0.97)
December 31, 1997 $113,382 $(38,768) $(72,293) $ (0.99)
March 31, 1996 $ 46,035 $(10,505) $(18,574) $ (0.31)
June 30, 1996 $ 58,569 $(13,158) $(21,596) $ (0.35)
September 30, 1996 $ 67,339 $(27,489) $(38,605) $ (0.56)
December 31, 1996 $ 71,142 $(35,734) $(51,330) $ (0.74)
</TABLE>
18
<PAGE> 19
WESTERN WIRELESS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
15. 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.
16. HUTCHISON TRANSACTION:
In addition to the shares issued by the Company to a subsidiary of
HTL (as discussed in Note 10) during the fourth quarter of 1997, the Company and
its subsidiary, Western PCS Corporation ("Western PCS"), entered into an
agreement with HTL and another subsidiary of HTL (the "HTL Sub") pursuant to
which the HTL Sub agreed to purchase 19.9% of Western PCS for an aggregate
purchase price of $248.4 million. In the first quarter of 1998, this purchase
received a favorable declaratory ruling by the FCC granting a waiver from the
indirect foreign ownership restrictions under the Communications Act of 1934, as
amended; and the expiration or early termination of all applicable waiting
periods under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended has passed. The Company and Western PCS have amended certain outstanding
financing agreements to which they are subject, and unless otherwise agreed to
by HTL Sub and the Company, neither the Company nor Western PCS shall have any
liability regarding any indebtedness of the other. The HTL Sub has designated
two directors to a ten person Board of Directors of Western PCS who have
certain rights with respect to certain transactions and actions of Western PCS.
Western PCS and the Company received $248.4 million in February 1998 upon
closing of this transaction.
19
<PAGE> 20
WESTERN WIRELESS CORPORATION
SCHEDULE I - CONDENSED FINANCIAL INFORMATION
(PARENT COMPANY ONLY)
BALANCE SHEETS
(Dollars in thousands)
<TABLE>
<CAPTION>
As of December 31,
----------------------------
1997 1996
----------- -----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents .................................... $ 15,177 $ 49,762
Accounts receivable, net of allowance for doubtful accounts of
$8,725 and $3,580, respectively ............................ 47,082 24,356
Inventory .................................................... 19,794 14,324
Prepaid expenses and other current assets .................... 26,264 11,907
Deposit held by FCC .......................................... 25,000
----------- -----------
Total current assets ................................... 108,317 125,349
Property and equipment, net of accumulated depreciation
of $175,753 and $98,974, respectively ............................ 471,646 367,668
Licensing costs and other intangible assets, net of accumulated
amortization of $68,086 and $53,951, respectively ............... 651,538 386,163
Investments in and advances to affiliates .......................... 157,320 162,986
Other assets ....................................................... 10,527 159
----------- -----------
$ 1,399,348 $ 1,042,325
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable ................................................. $ 9,973 $ 4,238
Accrued liabilities .............................................. 88,227 35,448
Construction accounts payable .................................... 11,720 48,390
----------- -----------
Total current liabilities .............................. 109,920 88,076
----------- -----------
Long-term debt ..................................................... 1,095,000 600,000
----------- -----------
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, 22,201,336 and 14,540,691 shares
issued and outstanding and; Class B,
53,431,163 and 55,239,157 shares issued
and outstanding, respectively .................................. 675,036 569,278
Deferred compensation .............................................. (845) (800)
Deficit ............................................................ (479,763) (214,229)
----------- -----------
Total shareholders' equity ............................. 194,428 354,249
----------- -----------
$ 1,399,348 $ 1,042,325
=========== ===========
</TABLE>
See notes to condensed financial information
20
<PAGE> 21
WESTERN WIRELESS CORPORATION
SCHEDULE I - CONDENSED FINANCIAL INFORMATION
(PARENT COMPANY ONLY)
STATEMENTS OF OPERATIONS
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
For the year ended December 31,
------------------------------------------------
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
Revenues:
Subscriber revenues ............................ $ 257,397 $ 175,354 $ 105,430
Roamer revenues ................................ 39,793 34,065 29,660
Equipment sales and other revenues ............. 23,569 18,674 11,465
------------ ------------ ------------
Total revenues .............................. 320,759 228,093 146,555
------------ ------------ ------------
Operating expenses:
Cost of service ................................ 62,384 43,914 27,686
Cost of equipment sales ........................ 42,596 29,414 20,705
General and administrative ..................... 79,893 53,355 29,057
Sales and marketing ............................ 80,267 60,394 41,053
Depreciation and amortization .................. 93,207 69,869 49,311
------------ ------------ ------------
Total operating expenses .................... 358,347 256,946 167,812
------------ ------------ ------------
Operating loss ................................... (37,588) (28,853) (21,257)
------------ ------------ ------------
Other income (expense):
Interest and financing expense, net ............ (71,999) (42,786) (25,388)
Equity in net loss of affiliates ............... (160,092) (60,841) (2,954)
Other, net ..................................... 4,145 2,375 290
------------ ------------ ------------
Total other income (expense) ................ (227,946) (101,252) (28,052)
------------ ------------ ------------
Loss before extraordinary item ................... (265,534) (130,105) (49,309)
Extraordinary loss on early extinguishment
of debt......................................... (6,645)
------------ ------------ ------------
Net loss .................................... $ (265,534) $ (130,105) $ (55,954)
============ ============ ============
Basic loss per common share before extraordinary
item ............................................. $ (3.76) $ (2.00) $ (0.87)
Per common share effect of extraordinary item .... (0.12)
------------ ------------ ------------
Basic loss per common share ...................... $ (3.76) $ (2.00) $ (0.99)
============ ============ ============
Weighted average common shares used in
computing basic loss per common share ......... 70,692,000 65,196,000 56,470,000
============ ============ ============
</TABLE>
See notes to condensed financial information
21
<PAGE> 22
WESTERN WIRELESS CORPORATION
SCHEDULE I - CONDENSED FINANCIAL INFORMATION
(PARENT COMPANY ONLY)
STATEMENTS OF CASH FLOWS
(Dollars in thousands)
<TABLE>
<CAPTION>
For the year ended December 31,
---------------------------------------
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Operating activities:
Net loss ..................................................... $(265,534) $(130,105) $ (55,954)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization ............................. 93,207 69,869 49,311
Extraordinary loss on early extinguishment of debt ........ 6,645
Employee equity compensation .............................. 1,835 1,029
Equity in net loss of unconsolidated affiliates ........... 160,092 60,841 2,954
Other, net ................................................ 4,476 3,049 864
Changes in operating assets and liabilities, net of effects
from consolidating acquired interests:
Accounts receivable, net ............................. (19,903) (5,707) (5,748)
Inventory ............................................ (4,664) (8,679) (239)
Prepaid expenses and other current assets ............ (14,863) (9,668) 307
Accounts payable ..................................... 3,531 (3,448) (937)
Accrued liabilities .................................. 43,844 14,655 5,551
Other assets ......................................... (323)
--------- --------- ---------
Net cash provided by(used in) operating activities ........ 1,698 (8,164) 2,754
--------- --------- ---------
Investing activities:
Purchase of property and equipment ........................... (169,184) (208,087) (66,292)
Additions to licensing costs and other intangible assets ..... (66,771) (8,210) (60,304)
Acquisition of wireless properties, net of cash acquired ..... (195,790) (40,180) (60,700)
Investments in and advances to unconsolidated affiliates ..... (172,469) (136,514) (13,826)
Purchase of subsidiary stock, including fees ................. (5,842)
Deposit held by FCC .......................................... (23,500) (1,500)
Refund of deposit held by FCC ................................ 7,749
Other assets ................................................. (10,194) (880) 880
--------- --------- ---------
Net cash used in investing activities ..................... (606,659) (417,371) (207,584)
--------- --------- ---------
Financing activities:
Proceeds from issuance of common stock,
net ....................................................... 75,376 235,603 66,236
Additions to long-term debt .................................. 565,000 763,000 425,000
Payment of debt .............................................. (70,000) (512,722) (277,015)
Deferred financing costs ..................................... (19,149) (12,455)
Loans from shareholders ...................................... 3,842
--------- --------- ---------
Net cash provided by financing activities ................. 570,376 466,732 205,608
--------- --------- ---------
Change in cash and cash equivalents ............................ (34,585) 41,197 778
Cash and cash equivalents, beginning of year ................... 49,762 8,565 7,787
--------- --------- ---------
Cash and cash equivalents, end of year ......................... $ 15,177 $ 49,762 $ 8,565
========= ========= =========
</TABLE>
See notes to condensed financial information
22
<PAGE> 23
WESTERN WIRELESS CORPORATION
SCHEDULE I - CONDENSED FINANCIAL INFORMATION
(PARENT COMPANY ONLY)
NOTES TO CONDENSED FINANCIAL INFORMATION
This Schedule I and the related notes should be read in conjunction with the
Consolidated Financial Statements and Notes thereto.
1. BASIS OF PRESENTATION:
The condensed financial information presented in Schedule I
represents the balance sheet, statements of operations and cash flows of the
Company as if the subsidiary that is restricted under the PCS Vendor Facility
was an unconsolidated entity. The Company less this subsidiary is referred to as
"Parent Company Only" in Schedule I. The Company's ownership in such subsidiary
has been reflected in this condensed financial information as if the investment
was accounted for using the equity method.
2. LONG TERM DEBT MATURITIES:
The aggregate amounts of principal maturities as of December 31,
1997, of the Company's debt excluding the PCS Vendor Facility are as follows
(dollars in thousands):
<TABLE>
<CAPTION>
Year ending December 31,
<S> <C>
1998.................................. $ 0
1999.................................. 0
2000.................................. 0
2001.................................. 51,000
2002.................................. 76,250
Thereafter............................ 967,750
----------
$1,095,000
==========
</TABLE>
23
<PAGE> 24
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
beginning of costs and to other Deductions Balance at
Description period expenses accounts (1) (2) end of period
----------- ------------ ---------- ------------ ---------- --------------
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1997 $ 4,266 $ 16,442 $ 1,121 $(11,898) $ 9,931
======== ======== ======== ======== ========
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
======== ======== ======== ======== ========
</TABLE>
(1) Represents market acquisitions and dispositions, late fees and net fraud
credits given to customers.
(2) Write-offs, net of bad debt recovery.
24
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent pulic accountants, we hereby consent to the incorporation of our
report incorporated by reference in this Form 10-K, into the Company's
previously filed Registration Statements, File Numbers 333-28959, 333-14859,
333-10421, 333-39721 and 333-18137.
ARTHUR ANDERSEN LLP
Seattle, Washington
March 26, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM WESTERN
WIRELESS CONSOLIDATED BALANCE SHEET AND STATEMENT OF OPERATIONS AS OF AND FOR
THE YEAR ENDED DECEMBER 31, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH 10K.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 15,459
<SECURITIES> 0
<RECEIVABLES> 65,583
<ALLOWANCES> 9,931
<INVENTORY> 36,425
<CURRENT-ASSETS> 138,752
<PP&E> 920,160
<DEPRECIATION> 221,031
<TOTAL-ASSETS> 1,719,973
<CURRENT-LIABILITIES> 130,545
<BONDS> 1,395,000
0
0
<COMMON> 675,036
<OTHER-SE> (480,608)
<TOTAL-LIABILITY-AND-EQUITY> 1,719,973
<SALES> 37,496
<TOTAL-REVENUES> 380,578
<CGS> 83,167
<TOTAL-COSTS> 540,239
<OTHER-EXPENSES> 105,873
<LOSS-PROVISION> 15,206
<INTEREST-EXPENSE> 98,964
<INCOME-PRETAX> (265,534)
<INCOME-TAX> 0
<INCOME-CONTINUING> (265,534)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (265,534)
<EPS-PRIMARY> (3.76)<F1>
<EPS-DILUTED> 0
<FN>
<F1>For Purposes of This Exhibit, Primary means Basic.
</FN>
</TABLE>
