<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 7, 1998
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
WESTERN WIRELESS CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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<S> <C>
WASHINGTON 91-1638901
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER)
</TABLE>
2001 NW SAMMAMISH ROAD
ISSAQUAH, WASHINGTON 98027
(425) 313-5200
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
ALAN R. BENDER, ESQ.
SENIOR VICE PRESIDENT, GENERAL COUNSEL
WESTERN WIRELESS CORPORATION
2001 NW SAMMAMISH ROAD
ISSAQUAH, WASHINGTON 98027
(425) 313-5200
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
COPIES TO:
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G. SCOTT GREENBURG, ESQ. ALISON S. RESSLER, ESQ.
GARY J. KOCHER, ESQ. SULLIVAN & CROMWELL
PRESTON GATES & ELLIS LLP SUITE 1200
5000 COLUMBIA CENTER 444 SOUTH FLOWER STREET
701 FIFTH AVENUE LOS ANGELES, CALIFORNIA 90071
SEATTLE, WASHINGTON 98104 (213) 955-8000
(206) 623-7580
</TABLE>
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after this Registration Statement becomes effective.
If the only securities being registered on this form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box: [ ]
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, please check the following box: [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
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<TABLE>
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PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS AMOUNT TO BE OFFERING PRICE AGGREGATE OFFERING AMOUNT OF
OF SECURITIES TO BE REGISTERED REGISTERED(1) PER SHARE(2) PRICE(2) REGISTRATION FEE(2)
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<S> <C> <C> <C> <C>
Class A Common Stock,
no par value per share.................. 12,650,000 shares $22.28 $281,842,000 $83,143
</TABLE>
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(1) Includes 1,650,000 shares that the Underwriters have the option to purchase
to cover over-allotments, if any. A portion of the amount to be registered
represents shares that are to be offered outside of the United States but
that may be resold from time to time in the United States. Such shares are
not being registered for the purpose of sales outside the United States.
(2) Estimated pursuant to Rule 457(c) solely for purposes of calculating amount
of registration fee based upon the average of the high and low prices
reported on April 6, 1998, as reported on the Nasdaq Stock Market.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
================================================================================
<PAGE> 2
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED APRIL 7, 1998
11,000,000 SHARES
LOGO
WESTERN WIRELESS CORPORATION
CLASS A COMMON STOCK
(NO PAR VALUE PER SHARE)
---------------------
Of the 11,000,000 shares of Class A Common Stock offered,
shares are being offered hereby in the United States and shares are
being offered in a concurrent international offering outside the United States
(together, the "Offerings"). The public offering price and the aggregate
underwriting discount per share are identical for both Offerings. See
"Underwriting."
All of the shares of Class A Common Stock offered are being sold by the
Selling Shareholders. The Company will not receive any of the proceeds from the
sale of the shares being sold hereby. See "Principal and Selling Shareholders."
The Company has two classes of authorized Common Stock, Class A Common
Stock and Class B Common Stock. The holders of Class A Common Stock have
identical rights to holders of Class B Common Stock, except that holders of
Class A Common Stock are entitled to one vote per share and holders of Class B
Common Stock are entitled to ten votes per share. See "Description of Capital
Stock."
SEE "RISK FACTORS" BEGINNING ON PAGE 11 FOR A DISCUSSION OF CERTAIN
CONSIDERATIONS RELEVANT TO AN INVESTMENT IN THE CLASS A COMMON STOCK OFFERED
HEREBY.
The Class A Common Stock is traded on the Nasdaq Stock Market under the
symbol WWCA. On April 6, 1998 the last reported sale price of the Class A Common
Stock was $21.81 per share. See "Price Range of Class A Common Stock and
Dividend Policy."
---------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
---------------------
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INITIAL PUBLIC UNDERWRITING PROCEEDS TO SELLING
OFFERING PRICE DISCOUNT(1) SHAREHOLDERS(2)
------------------------ ------------------------ ------------------------
<S> <C> <C> <C>
Per Share............................. $ $ $
Total(3).............................. $ $ $
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(1) The Company and the Selling Shareholders have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act of 1933. See "Underwriting."
(2) Before deducting estimated expenses of $ payable by the Selling
Shareholders.
(3) Certain of the Selling Shareholders have granted the U.S. Underwriters an
option for 30 days to purchase up to an additional 1,650,000 shares of Class
A Common Stock at the initial public offering price per share, less the
underwriting discount, solely to cover over-allotments. Additionally, such
Selling Shareholders have granted an over-allotment option with respect to
an additional shares as part of the concurrent international
offering. If such options are exercised in full, the total initial public
offering price, underwriting discount and proceeds to Selling Shareholders
will be $ , $ and $ , respectively. See
"Underwriting."
---------------------
The shares offered hereby are offered severally by the U.S. Underwriters,
as specified herein, subject to receipt and acceptance by them and subject to
their right to reject any order in whole or in part. It is expected that
certificates for the shares will be ready for delivery in New York, New York on
or about May , 1998, against payment therefor in immediately available funds.
GOLDMAN, SACHS & CO.
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
MERRILL LYNCH & CO.
SALOMON SMITH BARNEY
---------------------
The date of this Prospectus is May , 1998.
<PAGE> 3
[WESTERN WIRELESS LOGO TO COME]
AVAILABLE INFORMATION
Western Wireless Corporation (the "Company" or "Western Wireless") is
subject to the reporting requirements of the Securities Exchange Act of 1934
(the "Exchange Act") and files reports and other information with the Securities
and Exchange Commission (the "Commission") in accordance therewith. Such
reports, proxy statements, and other information filed by Western Wireless are
available for inspection and copying at the public reference facilities of the
Commission at 450 Fifth Street, NW, Washington, D.C. 20549, and at the
Commission's Regional Offices located at 7 World Trade Center, Suite 1300, New
York, New York 10048, and at Citicorp Center, 500 West Madison Street, Suite
1400, Chicago, Illinois 60661-2511. Copies of such material may be obtained by
mail from the Public Reference Section of the Commission at 450 Fifth Street,
NW, Washington, D.C. 20549, at prescribed rates. The Commission maintains a
World Wide Web site on the Internet at http://www.sec.gov that contains reports,
proxy and information statements and other information regarding registrants,
including Western Wireless, that file electronically with the Commission. The
Class A Common Stock, no par value per share (the "Class A Common Stock"), is
traded as "National Market Securities" on the Nasdaq Stock Market. Material
filed by Western Wireless can be inspected at the offices of the National
Association of Securities Dealers, Inc., Reports Section, 1735 K Street, NW,
Washington, D.C. 20006.
This Prospectus constitutes a part of a Registration Statement on Form S-3
(together with all amendments and exhibits thereto, the "Registration
Statement") that Western Wireless has filed with the Commission under the
Securities Act of 1933, as amended (the "Securities Act"). This Prospectus does
not contain all of the information set forth in such Registration Statement,
certain parts of which are omitted in accordance with the rules and regulations
of the Commission. Reference is made to the Registration Statement and related
exhibits thereto for further information with respect to Western Wireless and
the securities offered hereby. Any statements contained herein concerning the
provisions of any documents filed as exhibits to the Registration Statement or
otherwise filed with the Commission or incorporated by reference herein are not
necessarily complete, and, in each instance, reference is made to the copy of
such document so filed for a more complete description of the matter involved.
Each such statement is qualified in its entirety by such reference.
Western Wireless(R) and VoiceStream(R) are registered service marks and
"Telewaves" is a trademark of the Company. CELLULAR ONE(R) is a registered
service mark of Cellular One Group.
------------------------
CERTAIN PERSONS PARTICIPATING IN THE OFFERINGS MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE CLASS A COMMON
STOCK, INCLUDING OVER-ALLOTMENT, STABILIZING AND SHORT-COVERING TRANSACTIONS IN
SUCH SECURITIES, AND THE IMPOSITION OF A PENALTY BID, IN CONNECTION WITH THE
OFFERINGS. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."
2
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INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
The following documents filed with the Commission by Western Wireless
(Commission File No. 0-28160) are incorporated by reference in this Prospectus:
1. The Company's Annual Report on Form 10-K for the year ended
December 31, 1997.
2. The Company's Current Reports on Form 8-K, filed February 18, 1998,
February 23, 1998 and April 6, 1998.
3. The Company's Proxy Statement dated April 25, 1997.
4. The description of the Class A Common Stock and the Class B Common
Stock, no par value per share (the "Class B Common Stock" and, together
with the Class A Common Stock, the "Common Stock"), of Western Wireless
which is incorporated by reference in the Form 8-A dated April 8, 1996,
filed by the Company pursuant to the Exchange Act (which incorporates the
description contained in the registration statement of Western Wireless
filed on Form S-1, Commission file No. 333-2432).
All documents filed by Western Wireless pursuant to Sections 13(a), 13(c),
14, or 15(d) of the Exchange Act subsequent to the date of this Prospectus and
prior to the termination of the offering of the securities offered hereby shall
be deemed to be incorporated by reference into this Prospectus and to be a part
hereof from the date of filing of such document. Any statement contained herein
or in a document all or a portion of which is incorporated or deemed
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Prospectus to the extent that a statement contained herein
or in any other subsequently filed document which also is or is deemed to be
incorporated by reference herein modifies or supersedes such statement. Any
statement so modified or superseded shall not be deemed, except as so modified
or superseded, to constitute a part of this Prospectus.
Western Wireless hereby undertakes to provide without charge to each person
to whom this Prospectus has been delivered, upon the written or oral request of
any such person, a copy of any and all of the foregoing documents incorporated
herein by reference (other than exhibits to such documents which are not
specifically incorporated by reference in such documents). Written or telephone
requests should be directed to Investor Relations Department, Western Wireless
Corporation, 2001 NW Sammamish Road, Issaquah, Washington, 98027, at telephone
number (425) 313-5200.
3
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PROSPECTUS SUMMARY
The following summary is qualified in its entirety by, and should be read
in conjunction with, the more detailed information and the consolidated
financial statements and the notes thereto appearing elsewhere in this
Prospectus. All share and per share data in this Prospectus assumes no exercise
of the Underwriters' over-allotment options. Unless otherwise noted, references
to "Western Wireless" or the "Company" include Western Wireless Corporation and
its direct and indirect subsidiaries, including Western PCS Corporation and its
direct and indirect subsidiaries("Western PCS"). In February 1998, Western PCS
issued and sold 19.9% of its outstanding capital stock to a subsidiary of
Hutchison Telecommunications Limited. Unless the context otherwise requires,
when used herein with respect to a licensed area, "persons" and "population" are
interchangeable and refer to the aggregate number of persons located in such
licensed area, and "pops" refers to the number of such persons in a licensed
area multiplied by a company's ownership interest in the license for such
licensed area. Persons, population and pops data are estimated for 1998 based
upon 1997 estimates by Equifax Marketing Decision Systems, Inc. ("Equifax")
adjusted by the Company by applying Equifax's growth factors from 1995 to 1997
to the 1990 U.S. Census Bureau population figures, unless otherwise specified.
THE COMPANY
Western Wireless provides wireless communications services in the western
United States. The Company owns 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 both cellular and PCS systems owned by the Company). In addition,
Western Wireless is a partner in ventures owning 25 PCS licenses for a
geographic area covering approximately 15.5 million persons (some of which
overlap license areas owned by the Company). Western Wireless' combined cellular
and PCS licenses, together with licenses held by the ventures in which it is a
partner, cover approximately 59% of the land in the continental United States.
In its consolidated cellular and PCS markets, the Company served 648,600
subscribers at December 31, 1997.
The Company operates its cellular systems under the CELLULAR ONE brand
name. It holds 88 cellular licenses and operates cellular systems in 72 Rural
Service Areas ("RSAs") and 16 Metropolitan Statistical Areas ("MSAs") with an
aggregate population of approximately 7.3 million persons. The Company's
cellular systems cover over 95% of such population. In its consolidated cellular
markets, the Company served approximately 520,000 subscribers at December 31,
1997.
The Company operates its PCS systems under its proprietary VoiceStream
brand name. Through Western PCS, the Company holds an 80.1% interest in 111
broadband PCS licenses and operates PCS systems in seven Major Trading Areas
("MTAs") -- Honolulu, Salt Lake City, El Paso/Albuquerque, Portland, Oklahoma
City, Des Moines/Quad Cities and Denver -- covering an aggregate population of
approximately 20.2 million persons. The Company obtained 96 of its broadband PCS
licenses for Basic Trading Areas ("BTAs") in the Federal Communications
Commission's ("FCC") 1997 D and E Block auctions and acquired an additional
eight PCS licenses for BTAs through an acquisition; it has not yet commenced
operations in any of such BTA markets. Cook Inlet Western Wireless PV/SS PCS,
L.P. ("Cook Inlet PCS"), a partnership in which the Company holds a 49.9%
limited partnership interest, owns broadband PCS licenses in 21 BTAs, including
seven that were acquired in the FCC's F Block auction in 1997. Cook Inlet PCS
initiated service using the VoiceStream brand name in the Tulsa, Oklahoma BTA in
June 1997. Through a joint venture, PCS service is available under the
VoiceStream brand name in the Wichita, Kansas BTA market. In its PCS markets,
the Company uses the internationally-proven 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
4
<PAGE> 6
United States, and serving over 80 million subscribers. In its consolidated PCS
markets, the Company served approximately 128,600 subscribers at December 31,
1997.
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, Iceland and
the Republics of Latvia and Georgia. During 1997, the ventures in Latvia and
Georgia commenced operations. In addition, the Company has interests in entities
which have made wireless license applications in certain other foreign
countries. Finally, the Company operates paging systems in eight western states
and at December 31, 1997 served 31,900 paging customers.
STRATEGY
The Company's principal focus is on the operation of wireless
communications systems in the western United States. The Company believes that
cellular is the optimum technology for rural, less densely populated areas where
it can provide service on the most cost-effective basis, 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's acquisition of PCS licenses has enabled it to significantly expand
both its customer base and geographic coverage and to offer enhanced wireless
communications services. The Company's 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's operating strategy is 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 subscribers, thereby further improving operating efficiencies and
generating greater economies of scale; and (iv) strategically acquire cellular
and PCS properties. 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 geographic markets, including international ventures. The Company also plans
to offer services as a Competitive Local Exchange Carrier (CLEC) in select
markets.
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 such rural markets, the
Company believes that its cellular systems, which can cover large geographic
areas with relatively few cell sites, provide the optimum cost efficient
wireless service technology. In contrast, PCS technology requires more closely
located cell sites to broadcast over extended geographic areas. Accordingly, PCS
service will be less efficient and more expensive to deploy in rural markets
than cellular service, making it likely that PCS competitors will delay or avoid
entry into such markets.
The Company has experienced rapid growth of its cellular operations during
the last three years. The number of the Company's cellular subscribers grew to
520,000 at December 31, 1997 from 112,800 at December 31, 1994. Service
(subscriber, roamer and other) revenues grew to $290.5 million in 1997 from
$55.6 million in 1994 and operating income from cellular operations before
interest, taxes and depreciation and amortization increased to $103.9 million in
1997 from $2.1 million in 1994. The Company believes these results reflect the
strong demand for wireless services in its markets, the success of its marketing
strategy and its management capabilities. See
5
<PAGE> 7
"Risk Factors," "Selected Consolidated Financial Data" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
The Company believes based upon its experience that several attributes of
RSAs and small MSAs make such markets inherently 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 and less
competition.
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.
The Company provides extended regional and national service to cellular
subscribers in its markets, through its membership in North American Cellular
Network ("NACN"), 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 has roaming arrangements with virtually every cellular carrier
in North America. The Company also has roaming arrangements with certain
cellular carriers in areas adjacent to the Company's markets that provide the
Company's customers attractive rates when roaming in these surrounding areas. In
addition, the Company has roaming arrangements with several PCS service
providers, including Sprint Spectrum L.P. ("Sprint Spectrum"), AT&T Wireless
Services, Inc. ("AT&T Wireless"), AirTouch Cellular Communications, Inc.
("AirTouch"), Southwestern Bell Mobile Systems ("Southwestern Bell") and PCS
PrimeCo. L.P. ("PrimeCo."), that allow their customers to roam in the Company's
cellular markets with dual-mode handsets.
PCS OPERATIONS
Through Western PCS, the Company holds an 80.1% interest in 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-Tacoma, 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, and is in the planning
stage of developing a PCS system in the Spokane BTA. Through joint ventures, PCS
services are offered or will be offered under the VoiceStream brand name in the
Wichita, Kansas BTA with Omnipoint Corp. and certain BTAs in Iowa with Iowa
Network Services.
The Company has experienced rapid growth of its PCS operations since
inception in February 1996. During such period, the number of the Company's PCS
subscribers grew to 128,600 at December 31, 1997 and service (subscriber, roamer
and other) revenues grew to $52.6 million for 1997. The Company believes these
results reflect the strong demand for wireless services in its markets, the
success of its marketing strategy and its management capabilities. See "Risk
Factors," "Selected Consolidated Financial Data" and "Management's Discussion
and Analysis of Financial Condition and Results of Operations."
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 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
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addition, the Company is well-positioned to be a low-cost provider of PCS
services by taking advantage of the existing business infrastructure, including
centralized management, marketing, billing and customer service functions, and
by focusing on efficient customer acquisition and retention.
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 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
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 80 million
customers in 109 countries.
The Company has entered into roaming agreements with substantially all of
the licensees that 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 with
a variety of international carriers who have chosen to deploy the GSM standard.
RECENT DEVELOPMENTS; INVESTMENT IN WESTERN PCS
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 5.1% of the outstanding Common
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 Common Stock were
used to reduce amounts outstanding under the Company's revolving credit
facility.
The Company and Western PCS also entered into an agreement with HTL and
another HTL subsidiary pursuant to which the HTL subsidiary purchased, in
February 1998, newly issued shares of stock of Western PCS constituting 19.9% of
the outstanding capital stock of Western PCS for an aggregate purchase price of
$248.4 million (the "HTL Investment"). Western PCS is the Company's subsidiary
that holds substantially all of the Company's PCS assets. Until the sale of
stock to the subsidiary of HTL, Western PCS had been a 100% owned subsidiary of
the Company. Approximately $135 million of the net 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, in turn, to reduce amounts
outstanding under its revolving credit facility.
Western Wireless is a Washington corporation. Its principal executive
offices are located at 2001 NW Sammamish Road, Issaquah, Washington, 98027, and
its telephone number is (425) 313-5200.
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THE OFFERINGS
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<S> <C>
Class A Common Stock offered by the Selling
Shareholders(1)
U.S. Offering.................................. Shares
International Offering......................... Shares
Total....................................... 11,000,000 Shares
Common Stock to be outstanding after the
Offerings:
Class A Common Stock(2)(3)..................... 33,871,401 Shares
Class B Common Stock(2)(3)..................... 41,946,762 Shares
Total(2)(3)................................. 75,818,163 Shares
Voting Rights.................................... The holders of Class A Common Stock have identical
rights to holders of Class B Common Stock, except
that holders of Class A Common Stock are entitled
to one vote per share and holders of Class B Common
Stock are entitled to ten votes per share. See
"Description of Capital Stock."
Use of Proceeds.................................. The Company will not receive any of the proceeds
from the sale of the shares in the Offerings. See
"Use of Proceeds."
Nasdaq Stock Market Symbol....................... WWCA
</TABLE>
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(1) Assumes no exercise of the Underwriters' over-allotment options to purchase
up to an additional 1,650,000 shares of Class A Common Stock from certain of
the Selling Shareholders. See "Underwriting."
(2) Does not include an aggregate of 3,695,653 shares of Class B Common Stock
issuable upon exercise of stock options and exchange rights outstanding at
March 31, 1998 and an aggregate of 1,252,223 shares of Class A Common Stock
issuable upon exercise of stock options and other rights to purchase Class A
Common Stock outstanding at March 31, 1998.
(3) Shares of Class B Common Stock are convertible at any time into Class A
Common Stock on a one-for-one basis and generally convert automatically into
Class A Common Stock upon a transfer. Thus, if the Underwriters'
over-allotment options are exercised in full, there will be an additional
1,650,000 shares of Class A Common Stock outstanding and 1,650,000 fewer
shares of Class B Common Stock outstanding after the Offerings. See "Risk
Factors -- Control by Management and Existing Shareholders; Anti-Takeover
Effect of Dual Classes of Common Stock; Certain Charter Provisions and
Washington Law" and "Description of Capital Stock."
RISK FACTORS
Certain factors should be considered in connection with an investment in
the Class A Common Stock. See "Risk Factors."
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<PAGE> 10
SUMMARY CONSOLIDATED FINANCIAL DATA
The following tables set forth certain summary consolidated financial data
for the Company for each of the three years in the period ended December 31,
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, as indicated in their report included elsewhere herein. The Company
has experienced rapid growth in its revenues and assets during the periods set
forth below, which rate of growth will not necessarily continue over the next
few years. In addition, the Company has made and expects to make substantial
capital expenditures in connection with its wireless communications systems.
Accordingly, the operating results set forth below will not necessarily be
indicative of future performance.
The summary consolidated financial and operating data set forth below
should be read in conjunction with "Selected Consolidated Financial Data,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the Company's consolidated financial statements and notes
thereto and other financial and operating information included elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------
1997 1996 1995
------------- ------------- -------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
CONSOLIDATED STATEMENTS OF OPERATIONS DATA:
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
---------- ---------- ----------
Total operating expenses................. 540,239 329,971 170,490
---------- ---------- ----------
Operating loss..................................... (159,661) (86,886) (23,935)
Interest and financing expense, net................ (98,964) (44,690) (25,428)
Other, net(1)...................................... (6,909) 1,471 (6,591)
---------- ---------- ----------
Net loss................................. $ (265,534) $ (130,105) $ (55,954)
========== ========== ==========
Basic loss per share before extraordinary item..... $ (3.76) $ (2.00) $ (0.87)
Per share effect of extraordinary item............. (0.12)
----------
Basic loss per share............................... $ (3.76) $ (2.00) $ (0.99)
========== ========== ==========
Weighted average common shares used in computing
basic loss per share............................. 70,692,000 65,196,000 56,467,000
========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
1997
------------
(DOLLARS IN
THOUSANDS)
<S> <C>
CONSOLIDATED BALANCE SHEET DATA:
Working capital............................................. $ 8,207
Property and equipment, net................................. 699,129
Licensing costs and other intangible assets, net............ 807,409
Total assets................................................ 1,719,973
Long-term debt.............................................. 1,395,000
Common stock and paid-in capital............................ 675,036
Total shareholders' equity.................................. 194,428
</TABLE>
- ---------------
(1) Includes an extraordinary loss on early extinguishment of debt of $6.6
million for the year ended December 31, 1995.
9
<PAGE> 11
SUMMARY OPERATING DATA
The following table sets forth summary operating data of the Company for
its cellular operations.
<TABLE>
<CAPTION>
AT DECEMBER 31,
--------------------------------------
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
Cellular pops(1)................................... 7,163,000 6,058,000 5,764,000
Cellular subscribers............................... 520,000 324,200 209,500
Cellular penetration level(2)...................... 7.8% 5.4% 3.6%
Average monthly cellular subscriber
revenue per subscriber(3)........................ $ 51.13 $ 54.96 $ 57.25
Cellular EBITDA (thousands)(4)..................... $ 103,875 $ 60,289 $ 28,929
Cellular capital expenditures (thousands).......... $ 54,318 $ 98,953 $ 62,573
</TABLE>
- ---------------
(1) Based upon estimates by Equifax. See "Business -- Cellular Markets and
Systems."
(2) Determined by dividing the aggregate number of cellular subscribers by
cellular pops.
(3) Determined for each of the periods by dividing cellular subscriber revenues
by the average monthly cellular subscribers for the period, and dividing the
result by the number of months in the period.
(4) EBITDA represents operating income (loss) before depreciation and
amortization. EBITDA is a measure commonly used in the industry but is not
prepared in accordance with United States generally accepted accounting
principles ("GAAP") and should not be considered as a measurement of net
cash flows from operating activities. Cellular EBITDA represents EBITDA from
cellular operations.
The following table sets forth summary operating data of the Company for
its PCS operations.
<TABLE>
<CAPTION>
AT DECEMBER 31,
-----------------------------------------
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
PCS licensed pops(1)............................ 62,808,000 19,488,000 14,853,000
PCS covered pops(2)............................. 12,410,000 6,133,000
PCS subscribers................................. 128,600 35,500
PCS penetration level(3)........................ 1.0% 0.6%
Average monthly PCS subscriber revenue per
subscriber(4)................................. $ 57.48 $ 62.85
PCS EBITDA (thousands)(5)....................... $ (130,066) $ (67,434) $ (3,408)
PCS capital expenditures (thousands)............ $ 264,432 $ 234,362 $ 16,891
</TABLE>
- ---------------
(1) Based upon estimates by Equifax. See "Business -- PCS Markets and Systems."
(2) Represents PCS pops that are covered by the Company's consolidated PCS
systems.
(3) Determined by dividing the aggregate number of PCS subscribers by PCS
covered pops.
(4) Determined for each of the periods by dividing PCS subscriber revenues by
the average monthly PCS subscribers for the period, and dividing the result
by the number of months in the period.
(5) EBITDA represents operating income (loss) before depreciation and
amortization. EBITDA is a measure commonly used in the industry but is not
prepared in accordance with GAAP and should not be considered as a
measurement of net cash flows from operating activities. PCS EBITDA
represents EBITDA from PCS operations.
10
<PAGE> 12
RISK FACTORS
In addition to the other information contained in this Prospectus, the
following should be considered carefully in evaluating the Company and its
business before investing in the Class A Common Stock.
HIGH LEVERAGE; DEBT SERVICE; RESTRICTIVE COVENANTS
The Company is, and will continue to be, highly leveraged and subject to
significant financial restrictions and limitations. As of December 31, 1997, the
Company's total indebtedness was $1,395 million or approximately 87.8% of its
total capitalization, and consisted of indebtedness under the Company's credit
facility (the "Credit Facility") with a consortium of lenders providing for $750
million of revolving credit and a $200 million term loan, indebtedness of a
subsidiary of Western PCS under a $300 million credit facility (the "PCS Vendor
Facility" and, together with the Credit Facility, the "Senior Secured
Facilities") and $200 million principal amount of senior subordinated notes due
2006 (the "2006 Notes") and $200 million principal amount of senior subordinated
notes due 2007 (the "2007 Notes"). Substantially all the assets of the Company,
other than the PCS licenses acquired in the FCC's D and E auctions, certain
licenses acquired in the FCC's A and B auctions and certain other assets, are
pledged as security under the Senior Secured Facilities, including the shares of
Western PCS held by the Company.
For the year ended December 31, 1997, the Company had a negative ratio of
earnings to fixed charges and earnings coverage deficiency of approximately
$269.5 million. There can be no assurance that the Company will generate
sufficient cash flow from operating activities to meet its debt service and
working capital requirements. In such event, the Company may need to seek
additional financing. There can be no assurance that any such financing or
refinancing could be obtained on terms that are acceptable to the Company. In
the absence of such financing or refinancing, the Company could be materially
limited in its ability to build out PCS systems in its BTAs or be forced to
dispose of assets in order to make up for any shortfall in the payments due on
its indebtedness under circumstances that might not be favorable to the
realization of the highest price for such assets. Given that a substantial
portion of the Company's assets consists of intangible assets, principally
licenses granted by the FCC, the value of which will depend upon a variety of
factors (including the success of the Company's PCS and cellular businesses and
the wireless communications industry in general), there can be no assurance that
the Company's assets could be sold quickly enough, or for sufficient amounts, to
enable the Company to meet its obligations.
During 1998, the Company anticipates spending approximately $275 million to
complete construction of the build-out of the Seattle-Tacoma, Phoenix and Tucson
BTA systems, to provide funds to Cook Inlet PCS for the build-out of certain BTA
markets and to expand the build-out of the Company's PCS MTA systems. The
Company will utilize $135 million of the net proceeds of the HTL Investment,
other cash on hand, amounts available for borrowing under the Credit Facility,
and, if available, other sources of funding, for such purposes. At December 31,
1997, the amount available for borrowings under the Credit Facility was $239
million and the total unused portion of the Credit Facility was $255 million,
only a portion of which is permitted to be utilized in connection with the
Company's PCS systems. In addition, further funds (which may be significant)
will be required to finance the continued growth of PCS operations, provide for
working capital and service debt. The Company continues to consider and expects
to pursue additional sources of funding to 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 a subsidiary level. To the
extent that the build-out of the PCS systems is faster than expected, the costs
are greater than anticipated or the Company takes advantage of acquisition
opportunities, including those that may arise through the reauction of BTAs by
the FCC, the Company may require additional funding to implement its business
strategy. There can be no assurance that the Company will be able to obtain such
financing on acceptable or favorable terms and in adequate amounts to accomplish
its objectives.
11
<PAGE> 13
The Senior Secured Facilities, the indenture under which the 2006 Notes
were issued (the "2006 Notes Indenture") and the indenture under which the 2007
Notes were issued (the "2007 Notes Indenture") contain, and any additional
financing agreements may contain, certain restrictive covenants. The Senior
Secured Facilities, the 2006 Notes Indenture and the 2007 Notes Indenture
require the Company to comply with certain financial and operational performance
covenants, and, while the Company expects to remain in compliance with such
covenants, there can be no assurance to that effect. The restrictions contained
in the Senior Secured Facilities, the 2006 Notes Indenture and the 2007 Notes
Indenture affect, and in some cases will significantly limit or prohibit, among
other things, the ability of the Company to incur indebtedness, make prepayments
of certain indebtedness, pay dividends, make investments, create liens, sell
assets and engage in mergers and consolidations. In addition to such covenants,
the Senior Secured Facilities require the Company or a subsidiary of Western
PCS, as the case may be, to maintain certain financial ratios, including, among
others, a limitation on the incurrence of indebtedness based on the ratio of the
Company's indebtedness to operating cash flow (as defined in the Credit
Facility), a requirement that the Company's ratio of operating cash flow to cash
interest expense be not less than specified levels, and covenants of a
subsidiary of Western PCS relating to minimum gross revenues and the ratio of
cash coverage to operating cash flow (as such terms are defined in the PCS
Vendor Facility). An event of default under the Senior Secured Facilities, the
2006 Notes Indenture or the 2007 Notes Indenture would allow the acceleration of
the maturities of the indebtedness thereunder. In such event, it is likely that
all of the Company's indebtedness would become immediately due and payable.
PAST AND FUTURE OPERATING LOSSES AND NEGATIVE CASH FLOW
The Company sustained operating losses of approximately $159.7 million
(including $196.9 million of losses attributable to the Company's PCS
operations), $86.9 million (including $81.8 million of losses attributable to
the Company's PCS operations) and $23.9 million (including $3.7 million of
losses attributable to the Company's PCS operations) for the years ended
December 31, 1997, 1996 and 1995, respectively. At December 31, 1997, the
Company had a deficit of $479.8 million. The Company expects to incur
significant operating losses and to generate negative cash flow from operating
activities during the next several years, while it develops and constructs its
PCS systems and continues to build a PCS subscriber base. There can be no
assurance that the Company will achieve or sustain profitability or positive
cash flow from operating activities in the future or that it will generate
sufficient cash flow to service its debt requirements. See "-- High Leverage;
Debt Service; Restrictive Covenants."
COMPETITION
Competition for subscribers among wireless licensees is based principally
upon the services and enhancements offered, the technical quality of the system,
customer service, system coverage, capacity and price. The Company currently
faces and expects to face increased competition from entities providing similar
services using other communications technologies and services. While some of
these technologies and services are currently operational, others are being
developed or may be developed in the future. The Company's PCS business in
markets in which it operates faces competition from providers of cellular
service and from other providers of PCS services as they enter such markets.
Under current FCC rules, there may be up to six PCS licenses granted in each
geographic area in addition to the two existing cellular licenses. The Company
has one cellular competitor in each of its cellular markets, including AirTouch,
Aliant Communications, Inc. ("Aliant"), CommNet Cellular, Inc. ("CommNet"),
Kansas Cellular, Southwestern Bell and United States Cellular Corporation ("US
Cellular"), and there are or will be up to six PCS licensees in each of its
markets. The Company's principal competitors in its PCS business are Sprint
Spectrum, PrimeCo. and AT&T Wireless Services, as well as the two existing
cellular providers in its PCS markets. These cellular competitors include AT&T
Wireless, US Cellular and AirTouch. The Company also competes with paging,
dispatch and conventional mobile telephone companies, resellers
12
<PAGE> 14
and landline telephone service providers. Competition in the markets in which
the Company competes is intense. Given the rapid advances in the wireless
communications industry, there can be no assurance that new technologies will
not evolve that will compete with the Company's products and services. In
addition, a number of the Company's competitors may have substantially greater
financial, technical, marketing, sales, manufacturing and distribution resources
than those of the Company and have significantly greater experience than the
Company in testing new or improved communications products and services and
obtaining regulatory approvals. Some competitors are expected to market other
services, such as landline telephone and cable services, with their wireless
communications service offerings. Several of the Company's competitors are
operating, or planning to operate, through joint ventures and affiliation
arrangements, wireless communications systems that encompass most of the
continental United States. Also, the FCC has licensed Specialized Mobile Radio
("SMR") dispatch system operators to construct digital mobile communications
systems on existing SMR frequencies, referred to as Enhanced Specialized Mobile
Radio ("ESMR"), in many cities throughout the United States, including some of
the markets in which the Company operates. ESMR systems, including those
operated by Nextel Communications, Inc. ("Nextel"), are competitive with the
Company's cellular and PCS systems. See "-- Risks Relating to GSM Technical
Standard."
PCS BUILD-OUT AND CAPITAL EXPENDITURES
Through Western PCS, the Company currently operates PCS systems in the
Honolulu, Salt Lake City, El Paso/Albuquerque, Portland, Oklahoma City, Des
Moines/Quad Cities and Denver MTAs. The Company's 30 MHz PCS licenses are
subject to a requirement that the Company construct network facilities that
offer coverage to at least one-third of the population in the relevant MTA by
June 2000, five years from the grant of the license, and to at least two-thirds
of the population by June 2005, 10 years from the grant of the license (the
"10-Year Build-out Requirement"). The Company anticipates that its build-out in
all of its MTA markets, if completed as currently planned by the end of 1998,
will satisfy the 10-Year Build-out Requirement. The Company's 10 MHz PCS
licenses are subject to a requirement that the Company construct network
facilities that offer coverage to at least one-quarter of the population in
their relevant BTA within five years from the grant of the license, or make a
showing of substantial service in their relevant BTA within five years from the
grant of the license. Should the Company fail to meet these coverage
requirements, it may be subject to forfeiture or nonrenewal of the license or
the imposition of fines by the FCC. The build-out of PCS systems in the
Company's BTAs will require substantial additional capital, which may include
the issuance of equity or debt by Western PCS or its subsidiaries. The PCS
build-out in each of its PCS markets is subject to successful completion of the
network design, site and facility acquisitions, the purchase and installation of
the network equipment, network testing and satisfactory accommodation of
microwave users currently using the spectrum. Delays in any of these areas could
have a material adverse effect on the Company's ability to complete the
build-out in a timely manner.
The successful build-out of additional PCS systems by the Company will
depend to a significant degree upon the Company's ability to lease or acquire
appropriate sites for the location of its base station equipment. The Company
has begun the site selection and acquisition process for certain additional PCS
systems. The site selection process will require the continued successful
negotiation of use agreements for or acquisitions of numerous additional sites,
and may require the Company to obtain zoning variances or other governmental or
local regulatory approvals, which are beyond the Company's control. Delays in
the site selection process, as well as construction delays and other factors,
could adversely affect the timing of the commencement of commercial service in
such additional PCS systems.
During 1998, the Company anticipates spending approximately $275 million to
complete the build-out of the Seattle-Tacoma, Phoenix and Tucson BTA systems, to
provide funds to Cook Inlet PCS for the build-out of its PCS systems and to
expand the build-out of the Company's PCS MTA
13
<PAGE> 15
systems. The Company will utilize $135 million of the net proceeds of the HTL
Investment, other cash on hand, amounts available for borrowing under the Credit
Facility, and, if available, other sources of funding, for such purposes. In
addition, further funds (which may be significant) will be required to finance
the continued growth of its PCS operations, including the build-out of its BTAs,
provide for working capital and service debt. The build-out of additional PCS
systems by the Company will require substantial additional funds (including
borrowing at the Western PCS level) and the capital cost of completing the
project in any particular MTA or BTA and overall could vary materially from
current estimates. If adequate funds are not available from its existing capital
resources, the Company may be required to curtail its service operations or to
obtain additional funds on terms less favorable than those contained in the
Company's current arrangements.
In addition, the implementation of the PCS build-out plan is subject to the
availability from suppliers of the infrastructure equipment and subscriber
equipment the Company plans to use. Accordingly, there are risks associated with
the completion of development, timely manufacture and successful implementation
of newly developed wireless equipment in the build-out of the Company's PCS
systems. The Company has entered into agreements for the supply of
infrastructure equipment with Northern Telecom Inc. ("NORTEL"), Nokia
Telecommunications Inc. (together with its affiliate, Nokia Mobile Phones, Inc.,
"Nokia") and Lucent Technologies Inc. ("Lucent Technologies").
DEPENDENCE UPON KEY PERSONNEL
The Company is dependent to a large degree on the services of Mr. Stanton,
as Chairman of the Board and Chief Executive Officer, and other current members
of management. The Company and Mr. Stanton have entered into an employment
agreement which provides that Mr. Stanton's employment may be terminated at any
time by the Company. Loss of the services of Mr. Stanton or other members of
management could have a material adverse effect on the business of the Company
and qualified replacements may be difficult or impossible to find or retain. An
event of default under the Credit Facility would occur if Mr. Stanton (or a
suitable replacement) ceases, for any reason, to be the Chairman of the
Company's Board of Directors.
RISKS RELATING TO GSM TECHNICAL STANDARD
When the FCC first licensed cellular systems in the United States, it
specified the technical standards of analog cellular system operation to ensure
nationwide compatibility between all analog cellular carriers. In contrast, the
FCC has not mandated the technology standard for digital cellular or PCS
operations, leaving each licensee free to select among several competing
technologies that have sufficient technological differences to preclude their
interoperability. The Company has deployed the GSM technical standard in its PCS
markets and believes that GSM offers the Company significant advantages over the
other competing technologies. There are, however, certain risks with respect to
the deployment of GSM.
The Company, together with the other MTA and BTA PCS licensees who deploy
or who have announced their intent to deploy GSM-based systems, collectively
will cover markets containing approximately 260 million persons, representing
approximately 98% of the U.S. population (based on 1990 U.S. Census Bureau
figures used by the FCC for auction purposes) (including one licensee currently
in bankruptcy). In order for the Company's PCS subscribers to roam in other
markets, and vice versa, at least one PCS licensee in the other market must
utilize the GSM standard, or the subscribers must use dual-mode handsets that
permit the subscriber to use the cellular system in the other market. Dual-mode
GSM handsets which permit such usage, while currently commercially available
from Nokia, may not be available in adequate supply until the third quarter of
1998 and are more expensive than single-mode handsets. The lack of
interoperability, the comparatively higher cost or the potential lack of
consumer acceptance of such handsets may impede the Company's ability to retain
current cellular subscribers or attract potential new wireless communications
subscribers. There can be no assurance that PCS licensees who have announced
their intent to
14
<PAGE> 16
deploy GSM-based systems will build out their respective markets, and,
accordingly, GSM-based systems may cover less than 98% of the U.S. population.
The Company's principal PCS competitors have committed to standards other
than GSM. As a result, without adequate supplies of PCS handsets that can access
both GSM and competing systems, there is a risk that customers of the Company's
PCS services may not be able to conveniently use PCS services while roaming in
certain geographic areas outside the Company's PCS markets. PrimeCo and Sprint
Spectrum have deployed PCS systems based on a Code Division Multiple Access
("CDMA") standard. AT&T Wireless and Southwestern Bell have deployed systems
based on the Time Division Multiple Access ("TDMA") standard. It is estimated
that together, CDMA-based PCS providers, including competitors in several of the
Company's markets, own licenses covering approximately 100% of the U.S.
population (based on 1990 U.S. Census Bureau figures used by the FCC for auction
purposes) and AT&T Wireless and Southwestern Bell, with their TDMA standard, own
PCS licenses which cover approximately 94% of the U.S. population (based on 1990
U.S. Census Bureau figures used by the FCC for auction purposes). Licensees in
the FCC's completed C, D, E & F Block auctions of PCS licenses may or may not
select GSM technology; certain purchasers of licenses in such auctions have
announced their intention not to utilize the GSM standard in such markets.
Accordingly, certain major metropolitan areas may not be served by GSM-based PCS
systems, or there may be delays in deployment of GSM-based PCS systems in some
markets. The Company's ability to continue to build a PCS subscriber base and to
compete successfully in the PCS business with those operators offering greater
roaming capabilities may be adversely affected by the fact that the Company's
PCS subscribers will only be able to roam into regions served by GSM-based PCS
systems until dual-mode handsets permitting them to use the existing cellular
system become widely-available.
GOVERNMENTAL REGULATION
The licensing, construction, operation, acquisition and sale of cellular
and PCS systems, as well as the number of cellular and other wireless licensees
permitted in each market, are regulated by the FCC. Changes in the regulation of
such activities, such as a decision by the FCC to issue new licenses or permit
more than two licenses in each market for cellular communications services,
could have a material adverse effect on the Company's operations. The FCC has
recently completed an auction of spectrum in other frequency bands which could
potentially be used for wireless communications. In addition, all cellular
licenses in the United States, including the Company's licenses, were granted
for an initial 10-year term and are subject to renewal. Licenses may be revoked
by the FCC at any time for cause. 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 based upon
FCC rules establishing a presumption in favor of licensees that have provided
"substantial" service during their past license term and have substantially
complied with their regulatory obligations during the past license period, there
can be no assurance that all of the Company's cellular licenses will be renewed.
All PCS licenses are granted for a 10-year period, at the end of which
period the licensee must apply for renewal. Licenses may be revoked by the FCC
at any time for cause. All 30 MHz broadband PCS licenses, including those of the
Company, are subject to the 10-Year Build-out Requirement. While the Company
believes that each of its PCS licenses will be renewed based upon FCC rules
establishing a presumption in favor of licensees that have provided
"substantial" service during the past license term and have substantially
complied with their regulatory obligations during the past license period, there
can be no assurance that all of the Company's PCS licenses will be so renewed.
See "-- PCS Build-out and Capital Expenditures."
The Company must also obtain a number of approvals, licenses and permits in
the operation of its business, including authorizations from the Federal
Aviation Administration (the "FAA") in connection with cellular and PCS towers.
Additionally, the wireless communications industry is subject to certain state
and local governmental regulation. Operating costs are also affected by
15
<PAGE> 17
other governmental actions that are beyond the Company's control. There is no
assurance that the various federal, state and local agencies responsible for
granting such licenses, approvals and permits will do so or that, once granted,
will not revoke or fail to renew them. The absence of such licenses, approvals
and permits would adversely affect existing operations and could delay
commencement of or prohibit certain business operations proposed by the Company.
Because the Company has controlling interests in cellular markets that
overlap the Denver MTA and the Oklahoma City MTA, the Company must comply with
FCC rules that limit the aggregate amount of cellular and PCS spectrum that a
single entity may own or control in a given territory. Current rules would
require divestiture of certain cellular or PCS holdings. However, pending
administrative challenges may result in additional compliance options.
The wireless communications industry also is subject to continually
evolving regulation. There are a number of issues on which modification to
existing regulation or new regulation has been or in the future may be
suggested, including the effect of wireless communications equipment on medical
equipment and devices, electromagnetic interference and cancer, as well as
interference between types of wireless systems. As new regulations are
promulgated on these subjects or other subjects, the Company may be required to
modify its business plans or operations in order to comply with any such
regulations. There can be no assurance that the Company will be able to do so in
a cost effective manner, if at all. See "-- Radio Frequency Emission Concerns;
Medical Device Interference."
HOLDING COMPANY STRUCTURE
Substantially all of the Company's assets and operations are held by or
conducted through subsidiaries and, to that extent, the Company is effectively a
holding company. The Company relies on dividends, loan repayments and other
intercompany cash flows from its subsidiaries to generate the funds necessary to
meet its debt service obligations. The payment of dividends and the making and
repayment of loans and advances by the Company to its subsidiaries are subject
to statutory, contractual and other restrictions, are dependent upon the
earnings of such subsidiaries and are subject to various business
considerations. In addition, as a result of the HTL Investment, the Company will
be entitled to receive only 80.1% of dividends declared and other economic or
tax benefits realized by Western PCS, if any. Moreover, claims of creditors of
the Company's subsidiaries, including tax authorities and trade creditors, will
generally have a priority claim to the assets of such subsidiaries over the
claims of the Company and the holders of indebtedness of the Company.
INTELLECTUAL PROPERTY AND BRANDING
The Company currently uses the registered service mark CELLULAR ONE to
market its cellular services. The Company's use of this service mark is governed
by five-year contracts between the Company and Cellular One Group, the owner of
the service mark. Each of these agreements may be renewed at the Company's
option for two additional five-year terms so long as the Company meets operating
and service quality standards for its cellular service areas. If these
agreements were not renewed upon expiration or if the Company were to fail to
meet the applicable operating or service quality standards, and, therefore, were
no longer permitted to use the CELLULAR ONE service mark, the Company's ability
to attract new subscribers and to retain existing subscribers could be
materially impaired. In addition, if for some reason beyond the Company's
control the name CELLULAR ONE were to suffer diminished marketing appeal, the
Company's ability both to attract new subscribers and retain existing
subscribers could be materially impaired. In such circumstances or otherwise,
the Company may explore development or acquisition of a new service mark.
The Company currently uses its VoiceStream registered service mark to
market its PCS services in all of its operational PCS markets. There can be no
assurance that such registration will provide any meaningful benefit to the
Company. Competitors of the Company possess, and others
16
<PAGE> 18
may develop over time, branding with significantly greater name recognition than
that of the Company. A failure by the Company to maintain existing rights to its
current cellular branding, to develop value in its VoiceStream mark or to
develop suitable alternatives thereto would have a material adverse effect on
the Company's ability to market its products and services and could require the
Company to invest significant additional funds to develop such alternatives.
RADIO FREQUENCY EMISSION CONCERNS; MEDICAL DEVICE INTERFERENCE
Media reports have suggested that certain radio frequency ("RF") emissions
from wireless handsets may be linked to various health concerns, including
cancer, and may interfere with various electronic medical devices, including
hearing aids and pacemakers. Concerns over RF emissions may have the effect of
discouraging the use of wireless handsets, which could have an adverse effect
upon the Company's business. On August 25, 1997, the FCC further updated the
guidelines and methods it uses for evaluating RF emissions from radio equipment,
including wireless handsets. While the update imposes more restrictive standards
on RF emissions from lower power devices such as wireless handsets, the Company
believes that all wireless handsets currently marketed by the Company and in use
by the Company's subscribers already comply with the new standards.
Certain interest groups have requested that the FCC investigate claims that
the GSM technology poses health concerns and causes interference with hearing
aids and other medical devices. The Center for the Study of Electromagnetic
Compatibility at the University of Oklahoma, which was founded in 1994 with
funds from the wireless industry, is studying this issue and in 1996 released
its findings with respect to the first phase of its study. Such phase of the
study, which was designed to examine extreme conditions, found that digital
technologies cause interference with hearing aids in certain instances. In
addition, the Personal Communications Industry Association ("PCIA") announced in
July 1995 that it was undertaking an industry-wide study to gather information
on possible PCS interference with medical devices for all PCS standards. There
can be no assurance that the findings of such studies will not have an adverse
effect on the Company's business (including its use of GSM technology) or that
such findings will not lead to governmental regulations that will have an
adverse effect on the Company's business.
FINALITY OF PCS AUCTIONS
All of the MTA PCS licenses, including those of the Company, and most of
the BTA PCS licenses auctioned under the C, D, E and F Blocks, have been awarded
by the FCC and the holders of the licenses are permitted to construct their PCS
systems and commence operations. The Orders granting the Company and Cook Inlet
PCS their respective PCS licenses are final and non-appealable. Nevertheless,
there are certain unresolved actions before the FCC following remand by a
federal court challenging the validity of certain spectrum aggregation limits
which affected eligibility for the auction. As a result of the challenges,
although it currently appears unlikely, the Company could lose its PCS licenses
or have adverse conditions imposed on them which could have a material adverse
effect on the Company.
CONTROL BY MANAGEMENT AND EXISTING SHAREHOLDERS; ANTI-TAKEOVER EFFECT OF DUAL
CLASSES OF COMMON STOCK; CERTAIN CHARTER PROVISIONS AND WASHINGTON LAW
Holders of Class A Common Stock are entitled to one vote per share and
holders of Class B Common Stock are entitled to ten votes per share. Each share
of Class B Common Stock is convertible at any time into one share of Class A
Common Stock. As of March 31, 1998, certain officers of the Company and certain
other holders of shares of Class B Common Stock (including certain Selling
Shareholders) who are parties to an agreement dated May 1996 (the "Voting
Agreement"), beneficially owned 262,174 shares of outstanding Class A Common
Stock and 48,432,853 shares of outstanding Class B Common Stock, which
represented approximately 64.2% of the outstanding shares of Common Stock and
87.7% of the combined voting power of the Common Stock. Of such shares of Class
B Common Stock, 11,000,000 shares will be converted into
17
<PAGE> 19
the shares of Class A Common Stock sold in the Offerings. These shareholders
have agreed to vote their shares for each other's designees, subject to certain
ownership requirements, and are able to control the election of the entire Board
of Directors. Such voting control by such holders of Common Stock, and certain
provisions of Washington law affecting acquisitions and business combinations,
which have been incorporated by the Company into its Articles of Incorporation,
may discourage certain transactions involving an actual or potential change of
control of the Company, including transactions in which the holders of Class A
Common Stock might receive a premium for their shares over the then-prevailing
market price, and may have a depressive effect on the market price for Class A
Common Stock.
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.
POSSIBLE VOLATILITY OF PRICE OF CLASS A COMMON STOCK
The market price of the Class A Common Stock may be extremely volatile.
Factors such as fluctuations in the valuation of wireless licenses, results of
future FCC auctions, acquisitions by the Company, significant announcements by
the Company and its competitors, quarterly fluctuations in the Company's
operating results and general conditions in the communications market may have a
significant impact on the market price of the Class A Common Stock. In addition,
in recent years the stock market has experienced extreme price and volume
fluctuations. These fluctuations have had a substantial effect on the market
prices for many high technology and communications companies, often unrelated to
the operating performance of the specific companies.
SHARES ELIGIBLE FOR FUTURE SALE
Sales of substantial amounts of Class A Common Stock in the public market
could adversely affect prevailing market prices. Shares sold in the public
offerings of Class A Common Stock are freely tradable in the public market.
Shares of Class B Common Stock are convertible at any time into shares of Class
A Common Stock on a one-for-one basis and such shares generally convert
automatically into Class A Common Stock upon a transfer. In addition to the
22,871,401 outstanding shares of Class A Common Stock as of March 31, 1998,
41,946,762 additional outstanding shares of Class A Common Stock (assuming the
conversion of Class B Common Stock into Class A Common Stock on a one-for-one
basis) were eligible for sale in the public market (excluding the shares to be
sold by the Selling Shareholders in the Offerings). Also, up to an aggregate of
4,611,134 shares of Class A Common Stock issuable upon exercise of outstanding
stock options ("Option Shares"), and up to an aggregate of 1,000,000 shares of
Class A Common Stock purchased under the Company's Employee Stock Purchase Plan,
have been registered by the Company and are eligible for resale in the public
market at various times, depending upon when such shares are actually issued, if
at all. The Company is party to additional agreements and management incentive
plans which obligate it to issue additional shares of Class A Common Stock which
may become eligible for resale in the public market at various times. The
Company has registered all of the Option Shares and the shares issuable under
the Employee Stock Purchase Plan for resale in the public market. As of March
31, 1998 options with respect to 2,324,559 of the Option Shares were
exercisable, and 581,246 additional shares of Class A Common Stock were reserved
for issuance pursuant to future option grants under the Company's stock option
plan. The Company, the Selling Shareholders, the Company's executive officers
and directors and certain other shareholders of the Company have agreed during
the period beginning from the date of this Prospectus and continuing to and
including the date 90 days after the date of this Prospectus, subject to certain
exceptions, not to offer, sell,
18
<PAGE> 20
contract to sell or otherwise dispose of any securities of the Company that are
substantially similar to the shares of Class A Common Stock or which are
convertible or exchangeable into securities which are substantially similar to
the shares of Class A Common Stock.
FORWARD-LOOKING STATEMENTS
Statements contained in this Prospectus that are not based on historical
fact, including without limitation statements containing the words "believes,"
"may," "will," "estimate," "continue," "anticipates," "intends," "expects" and
words of similar import, constitute "forward-looking statements" within the
meaning of the Private Securities Litigation Reform Act of 1995. Such
forward-looking statements involve known and unknown risks, uncertainties and
other factors that may cause the actual results, events or developments to be
materially different from any future results, events or developments expressed
or implied by such forward-looking statements. Such factors include, among
others, the following: general economic and business conditions, both nationally
and in the regions in which the Company operates; technology changes;
competition; changes in business strategy or development plans; the high
leverage of the Company; the ability to attract and retain qualified personnel;
existing governmental regulations and changes in, or the failure to comply with,
governmental regulations; liability and other claims asserted against the
Company; and other factors referenced in this Prospectus, including without
limitation under the captions "Prospectus Summary" and "Risk Factors." GIVEN
THESE UNCERTAINTIES, PROSPECTIVE INVESTORS ARE CAUTIONED NOT TO PLACE UNDUE
RELIANCE ON SUCH FORWARD-LOOKING STATEMENTS. The Company disclaims any
obligation to update any such factors or to publicly announce the result of any
revisions to any of the forward-looking statements contained herein to reflect
future results, events or developments.
USE OF PROCEEDS
The Company will not receive any proceeds from the sale of the Class A
Common Stock in the Offerings.
19
<PAGE> 21
CAPITALIZATION
The following table sets forth the capitalization of the Company at
December 31, 1997. The Company will not receive any proceeds from the sale of
shares of Class A Common Stock by the Selling Shareholders. See "Principal and
Selling Shareholders."
<TABLE>
<CAPTION>
DECEMBER 31, 1997
----------------------
(DOLLARS IN THOUSANDS)
<S> <C>
Cash and cash equivalents................................... $ 15,459
==========
Long-term debt:
Credit Facility:
Revolver............................................... $ 495,000
Term................................................... 200,000
PCS Vendor Facility....................................... 300,000
Senior Subordinated Notes................................. 400,000
----------
Total long-term debt.............................. 1,395,000
----------
Shareholders' equity(1):
Preferred Stock, no par value, 50,000,000 shares
authorized; no shares issued and outstanding...........
Common Stock, no par value, 300,000,000 shares authorized:
Class A, 22,201,336 shares issued and outstanding and
Class B, 53,431,163 shares issued and outstanding
(2)................................................... 675,036
Deferred compensation..................................... (845)
Deficit................................................... (479,763)
----------
Total shareholders' equity........................ 194,428
----------
Total capitalization........................................ $1,589,428
==========
</TABLE>
- ---------------
(1) Does not include 3,695,653 shares of Class B Common Stock issuable upon
exercise of options and other rights to purchase Class B Common Stock
outstanding at March 31, 1998 or (ii) 1,252,223 shares of Class A Common
Stock issuable upon exercise of options and other rights to purchase Class A
Common Stock outstanding at March 31, 1998.
(2) Does not reflect the conversion of 11,000,000 shares of Class B Common Stock
into the 11,000,000 shares of Class A Common Stock being sold in the
Offerings.
20
<PAGE> 22
PRICE RANGE OF CLASS A COMMON STOCK AND DIVIDEND POLICY
Since May 22, 1996, 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>
PERIOD HIGH LOW
------ ---- ---
<S> <C> <C>
1996
Second quarter (from May 22, 1996)........................ $25 1/2 $19 7/8
Third quarter............................................. $22 1/8 $13 3/4
Fourth quarter............................................ $18 1/8 $13
1997
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
1998
First quarter............................................. $24 5/8 $16 7/8
Second quarter (through April 6, 1998).................... $23 1/4 $21 3/4
</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, the 2006 Notes Indenture
and the 2007 Notes Indenture contain restrictions on the Company's ability to
declare and pay dividends on its Common Stock.
21
<PAGE> 23
SELECTED CONSOLIDATED FINANCIAL DATA
The following table sets forth certain selected consolidated financial and
operating data for the Company as of and for each of the 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. The Company 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 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' predecessor.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------------------
1997 1996 1995 1994 1993
---------- ---------- ---------- ---------- ----------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENTS OF OPERATIONS DATA:
Revenues:
Subscriber revenues............................... $ 297,724 $ 182,441 $ 105,430 $ 38,838 $ 11,105
Roamer revenues................................... 39,977 34,065 29,660 16,746 7,285
Equipment sales and other revenues................ 42,877 26,579 11,465 7,524 2,344
---------- ---------- ---------- ---------- ----------
Total revenues............................. 380,578 243,085 146,555 63,108 20,734
---------- ---------- ---------- ---------- ----------
Operating expenses:
Cost of service................................... 90,184 53,600 27,686 13,303 4,310
Cost of equipment sales........................... 83,167 46,305 20,705 11,446 3,533
General and administrative........................ 112,543 66,673 31,253 15,226 6,253
Sales and marketing............................... 120,875 83,652 41,390 18,553 6,101
Depreciation and amortization..................... 133,470 79,741 49,456 25,670 5,399
Provision for restructuring costs................. 2,478
---------- ---------- ---------- ---------- ----------
Total 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):
Interest and financing expense, net............... (98,964) (44,690) (25,428) (10,659) (2,242)
Equity in net loss of unconsolidated affiliates... (11,058) (968) (236)
Other, net........................................ 4,149 2,439 290 8,267 10,433
---------- ---------- ---------- ---------- ----------
Total 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 loss on early extinguishment of
debt.............................................. (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 GAAP and should not be considered as a measurement of net
cash flows from operating activities.
22
<PAGE> 24
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------------------------------
1997 1996 1995 1994 1993
---------- ---------- -------- -------- --------
(DOLLARS IN THOUSANDS)
<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:
Ending cellular subscribers.......................... 520,000 324,200 209,500 112,800 30,000
Ending PCS subscribers............................... 128,600 35,500
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------------------
1997 1996 1995 1994 1993
--------- --------- --------- -------- --------
(DOLLARS IN THOUSANDS)
<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>
23
<PAGE> 25
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 RSAs and MSAs 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 PCS licenses in seven MTAs, each of
which has commenced commercial operations. During 1997, the Company was granted
100 additional PCS licenses in the FCC's D and E Block auctions and acquired
eight PCS licenses as part of its acquisition of Triad in October 1997. Cook
Inlet PCS, a partnership in which the Company holds a 49.9% limited partnership
interest, owns broadband PCS licenses in 21 BTAs 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 and PCS 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 revenues.
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 income (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 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.
24
<PAGE> 26
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.
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. Therefore the operating
results of the Company's cellular business for the 12 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>
YEAR ENDED DECEMBER 31,
--------------------------------------------------------
1997 % CHANGE 1996 % CHANGE 1995
-------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS)
<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.
25
<PAGE> 27
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.
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 (subscriber base attrition)
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 1997. Due to the varying dates at which each of the
26
<PAGE> 28
MTAs became operational, the expenses and revenues during any period 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.
The following table sets forth certain financial data as it relates to the
Company's PCS operations:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------------
1997 % CHANGE 1996 % CHANGE 1995
-------- -------- ------- -------- ------
(DOLLARS IN THOUSANDS)
<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 12 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 12 months of
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.
27
<PAGE> 29
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.
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 Credit Facility provides for $750 million of revolving credit and a
$200 million term loan. The PCS Vendor Facility provides 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.
As of December 31, 1997, $239 million were available for borrowing under the
Credit Facility, which availability is limited by certain financial covenants.
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, other than PCS
licenses acquired in the FCC's D and E auctions, certain licenses acquired in
the FCC's A and B auctions and certain other assets, 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 Western PCS.
In October 1997, the Company entered into an agreement with HTL and a
subsidiary of HTL pursuant to which the HTL subsidiary agreed to purchase
approximately 5.1% 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 amounts outstanding
under the Credit Facility. The Company and its subsidiary, Western PCS, also
entered into an agreement with HTL and another HTL subsidiary pursuant to which
the HTL subsidiary agreed to
28
<PAGE> 30
purchase from Western PCS 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. Of such $248.4 million, approximately $113.4 million was paid to
the Company as a repayment of advances made to Western PCS as required by the
HTL Investment agreement which, in turn, was used by the Company to reduce
amounts outstanding under the Credit Facility.
During 1998, the Company anticipates spending approximately $275 million to
complete construction of the build-out of the Seattle-Tacoma, Phoenix and Tuscon
BTA systems, to provide funds to Cook Inlet PCS for the build-out of certain BTA
markets and to expand the build-out of its PCS MTA systems. The Company will
utilize $135 million of the net proceeds of the HTL Investment, other cash on
hand, amounts available for borrowing under the Credit Facility, and if
available, other sources of funding, for such purposes. In addition, further
funds (which may be significant) will be required to finance the continued
growth of its PCS operations, provide for working capital and service debt. 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
(i) an increase of $54.9 million in accrued liabilities, primarily attributable
to an increase in property taxes and interest, (ii) an increase of $23.9 million
in accounts receivable, net, as a result of the increase in total revenues, and
(iii) 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 (i) 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 for which the Company was the
high bidder in the FCC's D and E Block auctions, (ii) purchases of property and
equipment of $318.8 million, of which $264.4 million was attributable to PCS
capital expenditures incurred in relation to the build out and expansion of the
PCS MTAs, and (iii) 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 HTL 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 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
29
<PAGE> 31
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 and licensees 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 disruptions 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.
30
<PAGE> 32
BUSINESS
INTRODUCTION
Western Wireless provides wireless communications services in the western
United States. The Company owns an aggregate of 199 cellular and PCS licenses
for a geographic area covering approximately 68.0 million persons (counting only
once those persons that may be served by both cellular and PCS systems owned by
the Company). In addition, Western Wireless is a partner in ventures owning 25
PCS licenses for a geographic area covering approximately 15.5 million persons
(some of which overlap license areas owned by the Company). Western Wireless'
combined cellular and PCS licenses, together with licenses held by the ventures
in which it is a partner, cover approximately 59% of the land in the continental
United States. In its consolidated cellular and PCS markets, the Company served
648,600 subscribers at December 31, 1997.
The Company operates its cellular systems under the CELLULAR ONE brand
name. It holds 88 cellular licenses and operates cellular systems in 72 RSAs and
16 MSAs with an aggregate population of approximately 7.3 million persons. The
Company's cellular systems cover over 95% of such population. In its
consolidated cellular markets, the Company served approximately 520,000
subscribers at December 31, 1997.
The Company operates its PCS systems under its proprietary VoiceStream
brand name. Through Western PCS, the Company holds an 80.1% interest in 111
broadband PCS licenses and operates PCS systems in seven MTAs -- Honolulu, Salt
Lake City, El Paso/Albuquerque, Portland, Oklahoma City, Des Moines/Quad Cities
and Denver -- covering an aggregate population of approximately 20.2 million
persons. The Company obtained 96 of its broadband PCS licenses for BTAs in the
FCC's 1997 D and E Block auctions and acquired an additional eight PCS licenses
for BTAs through an acquisition; it has not yet commenced operations in any of
such BTA markets. Cook Inlet PCS, a partnership in which the Company holds a
49.9% limited partnership interest, owns broadband PCS licenses in 21 BTAs,
including seven that were acquired in the FCC's F Block auction in 1997. Cook
Inlet PCS initiated service using the VoiceStream brand name in the Tulsa,
Oklahoma BTA in June 1997. Through a joint venture, PCS service is available
under the VoiceStream brand name in the Wichita, Kansas BTA market. In its PCS
markets, the Company uses the internationally-proven 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 80 million subscribers. In its consolidated PCS markets, the
Company served approximately 128,600 subscribers at December 31, 1997.
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, Iceland and
the Republics of Latvia and Georgia. During 1997, the ventures in Latvia and
Georgia commenced operations. In addition, the Company has interests in entities
which have made wireless license applications in certain other foreign
countries. Finally, the Company operates paging systems in eight western states
and at December 31, 1997 served 31,900 paging customers.
STRATEGY
The Company's principal focus is on the operation of wireless
communications systems in the western United States. The Company believes that
cellular is the optimum technology for rural, less densely populated areas where
it can provide service on the most cost-effective basis, 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's acquisition of PCS licenses has enabled it to significantly expand
both its customer base and geographic coverage and to offer enhanced wireless
communications services. The Company's 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.
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<PAGE> 33
The Company's operating strategy is 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 subscribers, thereby further improving operating efficiencies and
generating greater economies of scale; and (iv) strategically acquire cellular
and PCS properties. 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 geographic markets, including international ventures. The Company also plans
to offer services as a Competitive Local Exchange Carrier (CLEC) in select
markets.
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 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 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>
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.
32
<PAGE> 34
The following chart illustrates the growth in U.S. wireless subscribers
through December 31, 1997 (subscribers at December 31, 1997, were derived from
the data survey results published semi-annually by CTIA):
<TABLE>
<S> <C>
1984 0.20
1985 0.34
1986 0.68
1987 1.23
1988 2.00
1989 4.00
1990 5.00
1991 8.00
1992 11.00
1993 16.00
1994 24.00
1995 34.00
1996 44.00
1997 53.00
</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.
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<PAGE> 35
The Company, and the wireless communications industry in general, have
historically experienced significant subscriber growth during the fourth
calendar quarter. The Company has historically experienced highest usage and
revenue per subscriber during the summer months. The Company expects these
trends to continue.
OPERATION OF WIRELESS COMMUNICATIONS SYSTEMS
Wireless communications system service areas, whether cellular or PCS, are
divided into multiple cells. Due to the frequencies in which they operate,
cellular cells generally have a wider transmission radius than PCS cells. In
both cellular and PCS systems, each cell contains a transmitter, a receiver and
signaling equipment (the "Cell Site"). The Cell Site is connected by microwave
or landline telephone lines to a switch that uses computers to control the
operation of the cellular communications system for the entire service area. The
system controls the transfer of calls from cell to cell as a subscriber's
handset travels, coordinates calls to and from handsets, allocates calls among
the cells within the system and connects calls to the local landline telephone
system or to a long distance telephone carrier. Wireless communications
providers establish interconnection agreements with local exchange carriers and
interexchange carriers, thereby integrating their system with the existing
landline communications system.
Because the signal strength of a transmission between a handset and a Cell
Site declines as the handset moves away from the Cell Site, the switching office
and the Cell Site monitor the signal strength of calls in progress. When the
signal strength of a call declines to a predetermined level, the switching
office may "hand off" the call to another Cell Site where the signal strength is
stronger. If a handset leaves the service area of a cellular or PCS system, the
call is disconnected unless there is a technical connection with the adjacent
system.
Analog cellular handsets are functionally compatible with cellular systems
in all markets within the United States. As a result, analog cellular handsets
may be used wherever a subscriber is located, as long as a cellular system is
operational in the area. Cellular system operators normally agree to provide
service to subscribers from other cellular systems who are temporarily located
in or 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: CDMA or TDMA. GSM and TDMA are
both "time division-based" standards but are incompatible with each other and
with CDMA. Accordingly, a subscriber of a system that utilizes GSM technology is
unable to use a GSM handset when traveling in an area not served by GSM-based
PCS operators, unless the subscriber carries a dual-mode handset that permits
the subscriber to use the analog cellular system in that area. Such dual-mode
GSM handsets, while currently available from Nokia, may not be available in
adequate supply until the third quarter of 1998 and are more expensive than
single-mode handsets.
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 such rural markets, the
Company believes that its cellular systems, which can cover large geographic
areas with relatively few cell sites, provide the optimum
34
<PAGE> 36
cost efficient wireless service technology. In contrast, PCS technology requires
more closely located cell sites to broadcast over extended geographic areas.
Accordingly, PCS service will be less efficient and more expensive to deploy in
rural markets than cellular service, making it likely that PCS competitors will
delay or avoid entry into such markets.
The Company has experienced rapid growth of its cellular operations during
the last three years. The number of the Company's cellular subscribers grew to
520,000 at December 31, 1997 from 112,800 at December 31, 1994. Service
(subscriber, roamer and other) revenues grew to $290.5 million in 1997 from
$55.6 million in 1994 and operating income from cellular operations before
interest, taxes and depreciation and amortization increased to $103.9 million in
1997 from $2.1 million in 1994. The Company believes these results reflect the
strong demand for wireless services in its markets, the success of its marketing
strategy and its management capabilities. See "Risk Factors," "Selected
Consolidated Financial Data" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
The Company believes based upon its experience that several attributes of
RSAs and small MSAs make such markets inherently 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 and less
competition.
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.
The Company provides extended regional and national service to cellular
subscribers in its markets, through its membership in NACN, 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 has roaming arrangements with virtually every cellular carrier
in North America. The Company also has roaming arrangements with certain
cellular carriers in areas adjacent to the Company's markets that provide the
Company's customers attractive rates when roaming in these surrounding areas. In
addition, the Company has roaming arrangements with several PCS service
providers, including Sprint Spectrum, AT&T Wireless, AirTouch, Southwestern Bell
and PrimeCo., that allow their customers to roam in the Company's cellular
markets with dual-mode handsets.
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>
THE
POPULATION OWNERSHIP COMPANY'S
CELLULAR MARKETS(1) (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
--------- ---------
</TABLE>
35
<PAGE> 37
<TABLE>
<CAPTION>
THE
POPULATION OWNERSHIP COMPANY'S
CELLULAR MARKETS(1) (2) PERCENTAGE POPULATION(2)
------------------- ---------- ---------- -------------
<S> <C> <C> <C>
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
--------- ---------
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
--------- ---------
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
--------- ---------
</TABLE>
36
<PAGE> 38
<TABLE>
<CAPTION>
THE
POPULATION OWNERSHIP COMPANY'S
CELLULAR MARKETS(1) (2) PERCENTAGE POPULATION(2)
------------------- ---------- ---------- -------------
<S> <C> <C> <C>
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
--------- ---------
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 because the
Company has construction permits under its Idaho 2 license to build Cell
Cites to cover such persons.
37
<PAGE> 39
(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
Through Western PCS, the Company holds an 80.1% interest in 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-Tacoma, 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, and is in the planning
stage of developing a PCS system in the Spokane BTA. Through joint ventures, PCS
services are offered or will be offered under the VoiceStream brand name in the
Wichita, Kansas BTA with Omnipoint Corp. and certain BTAs in Iowa with Iowa
Network Services.
The Company has experienced rapid growth of its PCS operations since
inception in February 1996. During such period, the number of the Company's PCS
subscribers grew to 128,600 at December 31, 1997 and service (subscriber, roamer
and other) revenues grew to $52.6 million for 1997. The Company believes these
results reflect the strong demand for wireless services in its markets, the
success of its marketing strategy and its management capabilities. See "Risk
Factors," "Selected Consolidated Financial Data" and "Management's Discussion
and Analysis of Financial Condition and Results of Operations."
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 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 well-positioned to be a low-cost provider of PCS services by taking
advantage of the existing business infrastructure, including centralized
management, marketing, billing and customer service functions, and by focusing
on efficient customer acquisition and retention.
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 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
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 80 million
customers in 109 countries.
The Company has entered into roaming agreements with substantially all of
the licensees that have chosen to deploy the GSM standard in their PCS markets
in the United States which will
38
<PAGE> 40
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 with a variety of international carriers
who have chosen to deploy the GSM standard.
PCS MARKETS AND SYSTEMS
The Company owns 80.1% of Western PCS which holds 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 Cities(2)(4) 3,124,000
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 559,000
Christi McAllen 582,000
Brownsville/Harlingen 352,000
Laredo 213,000
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
</TABLE>
39
<PAGE> 41
<TABLE>
<CAPTION>
PCS MTA MARKETS PCS BTA MARKETS POPULATION(1)
--------------- --------------- -------------
<S> <C> <C>
St. Louis
St. Louis 2,852,000
Carbondale-Marion 218,000
Columbia Cape 208,000
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
San Francisco
San Francisco 6,843,000
Spokane
Billings 325,000
Great Falls 167,000
Walla Walla-Pendelton 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>
40
<PAGE> 42
<TABLE>
<CAPTION>
PCS MTA MARKETS PCS BTA MARKETS POPULATION(1)
--------------- --------------- -------------
<S> <C> <C>
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-Sprindale-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 10MHz licenses in each of 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.
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 1997, and has commenced construction
41
<PAGE> 43
of its system in the Spokane BTA. 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.
PRODUCTS AND SERVICES
The Company provides a variety of wireless products and services designed
to match a range of needs for business and personal use.
CELLULAR
The Company offers its subscribers high quality cellular communications, as
well as several custom calling services, such as call forwarding, call waiting,
conference calling, voice message storage and retrieval and no-answer transfer.
In addition, all subscribers can access local govern-
42
<PAGE> 44
ment emergency services from their cellular handsets (with no air time charge)
by dialing 911 where coverage is available. 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 NACN, 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. Dual-mode handsets
are commercially available from one manufacturer that allow roaming onto
analog cellular systems.
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
43
<PAGE> 45
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 emphasizes the
enhanced features, privacy and competitive pricing of such services. The Company
concentrates its PCS marketing efforts primarily on businesses and individuals
"on-the-go," which benefit from integrated mobile voice, messaging and wireless
data transmission capabilities, and subscribers with substantial needs for
wireless communications, who 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 and expects to continue to do so in
the future.
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.
44
<PAGE> 46
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.
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, supports 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., Mitsubishi Wireless Communications, Inc., NEC of
America, Inc. and Nokia. GSM dual-mode handsets are currently only commercially
available from Nokia. The Company currently purchases Cell Site and switching
equipment primarily from NORTEL, Lucent Technologies and Nokia.
COMPETITION
Competition for subscribers among wireless licensees is based principally
upon the services and features offered, the technical quality of the wireless
system, customer service, system coverage, capacity and price. Such competition
may increase to the extent that licenses are transferred from smaller,
stand-alone operators to larger, better capitalized and more experienced
wireless communications operators who may be able to offer subscribers certain
network advantages similar to those offered by the Company.
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 SMR dispatch system operators to construct digital mobile
communications systems on existing SMR frequencies, referred to as 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, Aliant, CommNet, Kansas Cellular,
Southwestern Bell Mobile Systems and 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 PrimeCo, Sprint Spectrum and AT&T Wireless,
as well as the two existing cellular providers in its PCS markets. ESMR systems,
including those operated by Nextel, 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 may have significantly greater financial and technical resources
than those available to the Company and who
45
<PAGE> 47
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.
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 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 SMR service, another potential competitor with PCS and cellular
service. Moreover, in April 1998, the FCC concluded the auction of more than
1000 MHz of spectrum for the Local Multipoint Distribution Service, in which the
Company was the winning bidder on 51 BTA licenses covering more than 11 million
pops within the geographic areas covered by its existing cellular and PCS
licenses. The FCC also plans in 1998 to auction 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
46
<PAGE> 48
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.
The Communications Act preempts state and local regulation of the entry of,
or the rates charged by, any provider of commercial mobile radio service
("CMRS") or any private mobile radio service ("PMRS"), which CMRS includes
cellular (and PCS) service.
TRANSFERS AND ASSIGNMENTS OF CELLULAR LICENSES
The Communications Act and FCC rules require the FCC's prior approval of
the assignment or transfer of control of a construction permit or license for a
cellular system (pro forma 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.
47
<PAGE> 49
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 has been or 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 10% 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 are 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. All 10 MHz PCS licensees, including the
Company, must construct facilities that offer coverage to one-fourth of the
population of their service area within five years of their initial license
grants or make a showing of substantial service. Licensees that fail to meet the
coverage requirements may be subject to forfeiture of the license.
FCC rules restrict the voluntary assignments or transfers of control of C
and F Block licenses. During the first five years of the license term,
assignments or transfers affecting control are permitted only to assignees or
transferees that meet the eligibility criteria for participation in the
entrepreneur block auction at the time the application for assignment or
transfer of control is filed, or if the proposed assignee or transferee holds
other licenses for C and F Blocks and, at the time of receipt of such licenses,
met the same eligibility criteria. Any transfers or assignments during the
entire ten year initial license term are subject to unjust enrichment penalties,
i.e., forfeiture of any
48
<PAGE> 50
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 10 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 (pro forma
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 the capital stock of an
entity that controls an FCC licensee 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
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<PAGE> 51
on foreign ownership in an FCC licensee itself 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.
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 other's 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 universal
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.
The Telecommunications Act codifies the policy that non-regional Bell
operating company CMRS providers will not be required to provide equal access to
long distance carriers, and relieved such CMRS providers of their existing equal
access obligations. 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
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<PAGE> 52
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 U.S. 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 interconnection 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.
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, 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 two
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.
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<PAGE> 53
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>
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<PAGE> 54
PRINCIPAL AND SELLING SHAREHOLDERS
The following table sets forth certain information regarding beneficial
ownership of the Company's Common Stock as of March 31, 1998, and as adjusted to
reflect the sale of the Class A Common Stock offered in the Offerings, by (i)
each Selling Shareholder, (ii) each person who is known by the Company to own
beneficially 5% or more of the Common Stock; (iii) each director of the Company;
and (iv) all directors and officers as a group. Unless otherwise indicated, all
persons listed have sole voting power and investment power with respect to such
shares, subject to community property laws, where applicable, and the
information contained in the notes to the table. Shares of Class B Common Stock
sold by the Selling Shareholders will convert to Class A Common Stock upon their
sale in the Offerings. Information relating to percentage beneficially owned
following the Offerings is based on shares of Class A Common Stock and Class B
Common Stock collectively. See "Description of Capital Stock." The Company has
been provided such information by its directors and executive officers.
<TABLE>
<CAPTION>
PERCENTAGE
PERCENTAGE TOTAL
SHARES BENEFICIALLY OWNED BENEFICIALLY OWNED SHARES
PRIOR TO THE OFFERINGS(1) PRIOR TO THE OFFERINGS BENEFICIALLY
------------------------------------- --------------------------- SHARES OWNED
TOTAL SHARES SOLD IN FOLLOWING
BENEFICIALLY THE THE
NAME AND ADDRESS A SHARES B SHARES OWNED A SHARES B SHARES TOTAL OFFERINGS OFFERINGS
---------------- --------- ---------- ------------ -------- -------- ----- --------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Hellman & Friedman(2)(5)...... 0 25,163,997 25,163,997 0% 47.5% 33.2% 8,000,000 22.6%
One Maritime Plaza,
12th Floor
San Francisco, CA 94111
The Goldman Sachs Group, L.P.
and related
investors(3)(5)............. 0 12,099,029 12,099,029 0 22.8 16.0 2,000,000 13.3
85 Broad Street, 19th Floor
New York, NY 10004
John W. Stanton and Theresa E.
Gillespie(4)(5)(7).......... 262,174 6,207,799 6,469,973 1.1 11.7 8.5 -- 8.5
2001 NW Sammamish Road
Issaquah, WA 98027
Hutchison Telecommunications
Holdings (USA) Limited...... 3,888,888 0 3,888,888 17 0 5.1 -- 5.1
22nd Floor, Hutchison
10 Harcourt Road
Hong Kong
Providence Media Partners
L.P.(5)(6).................. 0 3,886,591 3,886,591 0 7.3 5.1 500,000 4.5
c/o Providence Ventures,
Inc.
900 Fleet Center
50 Kennedy Plaza
Providence, RI 02903
Franklin Resources, Inc....... 1,781,070 0 1,781,070 7.8 0 2.4 -- 2.4
777 Mariners Island Blvd.
P.O. Box 7777
San Mateo, CA 94403-7777
John L. Bunce, Jr.(8)......... 0 25,163,997 25,163,997 0 47.5 33.2 8,000,000 22.6
Mitchell R. Cohen(8).......... 0 25,163,997 25,163,997 0 47.5 33.2 8,000,000 22.6
Daniel J. Evans(7)............ 1,250 0 1,250 * * * -- *
Jonathan M. Nelson(9)......... 6,000 3,886,591 3,892,591 * 7.3 5.1 500,000 4.5
Terence M. O'Toole(10)........ 0 12,099,029 12,099,029 0 22.8 16.0 2,000,000 13.3
All directors and executive
officers as a group (13
persons).................... 1,670,731 47,636,016 49,307,747 6.9% 90.0% 64.9% 10,500,000 51.2
</TABLE>
- ---------------
* Less than 1% of the outstanding shares of Common Stock.
(1) Computed in accordance with Rule 13d-3(d)(1) of the Exchange Act.
(2) Consists of shares held by Hellman & Friedman Capital Partners II, L.P.
("HFCP"), H&F Orchard Partners, L.P. ("HFOP") and H&F International
Partners, L.P. ("HFIP"), which are in turn beneficially owned by their
respective general partners and Warren Hellman, individually and as a
trustee of The Hellman Family Revocable Trust dated December 17, 1984
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<PAGE> 55
(the "Hellman Trust," and, with HFCP, HFOP and HFIP, the "Hellman Entities").
Prior to the Offerings, HFCP owns of record 22,727,539 shares of Class B Common
Stock, HFOP owns of record 2,033,024 shares of Class B Common Stock and HFIP
owns of record 403,434 shares of Class B Common Stock. If the Underwriters'
over-allotment options were exercised in full, shares sold in the Offerings
and percentage total shares beneficially owned following the Offerings
would be and , respectively. HFCP, HFOP and HFIP are
California limited partnerships, the sole general partners of which are
entities indirectly controlled by the Hellman Trust. The principal business
of each of such partnerships is to make strategic investments in a variety
of special situations, including restructurings, recapitalizations and
buyouts. Hellman is a trustee of the Hellman Trust. Hellman is a citizen of
the United States. Hellman, individually and as a trustee of the trust,
shares voting and investment power with respect to the shares of Class B
Common Stock held by the Hellman & Friedman Entities.
(3) Prior to the Offerings, consists of (i) 11,096,078 shares of Class B Common
Stock held of record by GS Capital Partners, L.P. ("GS Capital"), (ii)
580,813 shares of Class B Common Stock held of record by Stone Street Fund
1992, L.P. ("Stone Street"), (iii) 337,163 shares of Class B Common Stock
held of record by Bridge Street Fund 1992, L.P. ("Bridge Street") and (iv)
84,975 shares of Class B Common Stock held of record by The Goldman Sachs
Group, L.P. ("GS Group," and, with GS Capital, Stone Street and Bridge
Street, the "Goldman Sachs Entities"). Excludes (i) shares of Class A Common
Stock owned by Goldman Sachs that were acquired in the ordinary course of
market-making transactions or (ii) shares of Class A Common Stock held in
client accounts, for which Goldman Sachs exercises voting or investment
authority, or both. GS disclaims beneficial ownership of the shares held in
such client accounts. If the Underwriters' over-allotment options were
exercised in full, shares sold in the Offerings and percentage total shares
beneficially owned following the Offerings would be and
, respectively. Goldman Sachs disclaims beneficial ownership of
the shares held in such client accounts. Each of GS Capital, Stone Street
and Bridge Street is an investment limited partnership, the general partner,
the managing general partner or the managing partner of which is an
affiliate of GS Group. GS Group disclaims beneficial ownership of shares
held by such investment partnerships to the extent partnership interests in
such partnerships are held by persons other than GS Group and its
affiliates. Each of such investment partnerships shares voting and
investment power with certain of its respective affiliates.
(4) Includes (i) 1,686,069 shares of Class B Common Stock held of record by PN
Cellular, Inc. ("PN Cellular"), which is substantially owned and controlled
by Mr. Stanton and Ms. Gillespie, (ii) 1,274,520 shares of Class B Common
Stock held of record by Stanton Communications Corporation ("SCC"), which is
substantially owned and controlled by Mr. Stanton and Ms. Gillespie, (iii)
55,000 shares of Class A Common Stock and 3,087,774 shares of Class B Common
Stock held by Mr. Stanton and Ms. Gillespie, as tenants in common, (iv)
5,000 shares of Class A Common stock and 159,437 shares of Class B Common
Stock held of record by The Stanton Family Trust; and (v) 60,000 shares and
5,000 shares of Class A Common Stock held by record by each of Mr. Stanton
and Ms. Gillespie, respectively, pursuant to the Company's 1997 Executive
Restricted Stock Plan. Mr. Stanton and Ms. Gillespie are married and share
voting and investment power with respect to the shares jointly owned by
them, as well as the shares held of record of PN Cellular, SCC and The
Stanton Family Trust. Mr. Stanton, Ms. Gillespie, PN Cellular, SCC and The
Stanton Family Trust are referred to collectively as the "Stanton Entities."
(5) Parties or affiliates of parties to the Voting Agreement, which provides
that the parties thereto will vote their shares of Common Stock in favor of
the election as directors of the Company the Chief Executive Officer of the
Company, one person designated by Stanton and Providence Media Partners L.P.
("Providence"), one person designated by Goldman, Sachs & Co. ("Goldman
Sachs"), two persons designated by the Hellman & Friedman Entities and one
54
<PAGE> 56
person selected by a majority of such designated persons, subject to the
ownership requirements set forth therein.
(6) If the Underwriters' over-allotment options were exercised in full, shares
sold in the Offerings and percentage total shares beneficially owned
following the Offerings for Providence Media Partners L.P. would be
and , respectively.
(7) Includes options exercisable within 60 days of the date hereof, to purchase
Class A Common Stock; does not include unexercisable options. May include
stock jointly or separately owned with or by spouse.
(8) Mr. Bunce and Mr. Cohen may each be deemed to be the owner of the shares of
Class B Common Stock owned by the Hellman & Friedman Entities as they are
officers of the corporate general partners of the Hellman & Friedman
Entities. Each of Mr. Bunce and Mr. Cohen disclaim beneficial ownership of
shares held by the Hellman & Friedman Entities to the extent interests in
such entities are held by persons other than such individual. Shares
reflected as offered by Mr. Bunce and Mr. Cohen are those offered by the
Hellman & Friedman Entities.
(9) Mr. Nelson may be deemed to be the owner of the shares of Class B Common
Stock owned by Providence, as he is a managing general partner of
Providence Ventures, L.P., the general partner of the general partner of
Providence. Mr. Nelson disclaims beneficial ownership of shares held by
Providence to the extent interests in Providence are held by persons other
than Mr. Nelson. Shares reflected as offered by Mr. Nelson are those
offered by Providence.
(10) Mr. O'Toole, who is a managing director of Goldman Sachs, disclaims
beneficial ownership of shares which may be deemed to be beneficially owned
by GS Group. Mr. O'Toole has been a director of the Company since its
formation. Mr. O'Toole has been elected to the Board of Directors as the
nominee of Goldman Sachs pursuant to the Voting Agreement. Shares reflected
as offered by Mr. O'Toole are those offered by Goldman Sachs.
55
<PAGE> 57
DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of the Company consists of 300,000,000 shares
of Class A Common Stock and Class B Common Stock, no par value, and 50,000,000
shares of preferred stock, no par value (the "Preferred Stock"). As of March 31,
1998, there were 52,946,762 shares of Class B Common Stock and 22,871,401 shares
of Class A Common Stock issued and outstanding and the Company had 113 holders
of record of its Class B Common Stock and 251 holders of record of its Class A
Common Stock.
COMMON STOCK
The Company has two classes of authorized Common Stock, Class A Common
Stock, which is being offered in the Offerings, and Class B Common Stock. Other
than with respect to voting rights, the Class A and Class B have identical
rights. The Class A Common Stock has one vote per share and the Class B Common
Stock has ten votes per share. Shares of Class B Common Stock generally convert
automatically into shares of Class A Common Stock on a share-for-share basis
immediately upon any transfer of the Class B Common Stock other than a transfer
from an original holder of Class B Common Stock to certain affiliates of such
holder.
Holders of Common Stock have no cumulative voting rights and no preemptive,
subscription or sinking fund rights. Subject to preferences that may be
applicable to any then outstanding Preferred Stock, holders of Common Stock will
be entitled to receive ratably such dividends as may be declared by the Board of
Directors out of funds legally available therefor. See "Price Range of Class A
Common Stock and Dividend Policy." In the event of a liquidation, dissolution or
winding up of the Company, holders of Common Stock will be entitled to share
ratably in all assets remaining after payment of liabilities and the liquidation
preference to any then outstanding Preferred Stock.
The Company's Articles of Incorporation permit the redemption of the
Company's Common Stock from shareholders where necessary to protect the
Company's regulatory licenses.
PREFERRED STOCK
Pursuant to its Articles of Incorporation, the Company is authorized to
issue 50,000,000 shares of Preferred Stock, which may be issued from time to
time in one or more classes or series or both upon authorization by the
Company's Board of Directors. The Board of Directors, without further approval
of the shareholders, is authorized to fix the dividend rights and terms,
conversion rights, voting rights, redemption rights and terms, liquidation
preferences and any other rights, preferences, privileges and restrictions
applicable to each class or series of Preferred Stock. The issuance of Preferred
Stock, while providing flexibility in connection with possible acquisitions and
other corporate purposes, could, among other things, adversely affect the voting
power of the holders of Common Stock and, under certain circumstances, make it
more difficult for a third party to gain control of the Company, discourage bids
for the Company's Common Stock at a premium or otherwise adversely affect the
market price of the Class A Common Stock.
The Company has no current plans to issue any Preferred Stock.
CERTAIN ARTICLES OF INCORPORATION, BYLAWS AND STATUTORY PROVISIONS AFFECTING
SHAREHOLDERS
SPECIAL MEETINGS OF SHAREHOLDERS; SHAREHOLDER ACTION BY WRITTEN CONSENT
The Company's Bylaws provide that any action required or permitted to be
taken by the Company's shareholders may be effected at a duly called annual or
special meeting of shareholders or by unanimous consent in writing.
Additionally, the Articles of Incorporation and Bylaws provide that special
meetings of the shareholders of the Company may be called only by a majority of
the Board of Directors or an authorized committee thereof.
56
<PAGE> 58
ADVANCE NOTICE REQUIREMENTS FOR SHAREHOLDER PROPOSALS AND DIRECTOR NOMINATIONS
The Company's Bylaws provide that shareholders seeking to bring business
before or to nominate directors at any meeting of shareholders must provide
timely notice thereof in writing. To be timely, a shareholder's notice must be
delivered to, or mailed and received at, the principal executive offices of the
Company not less than (i) with respect to an annual meeting, 120 calendar days
in advance of the one-year anniversary of the date that the Company's proxy
statement was released to shareholders in connection with the previous year's
annual meeting, except that if no annual meeting was held in the previous year
or if the date of the annual meeting has been changed by more than 30 calendar
days from the date contemplated at the time of the previous year's proxy
statement, such notice must be received by the Company a reasonable time before
the Company's proxy statement is to be released and (ii) with respect to a
special meeting of shareholders, a reasonable time before the Company's proxy
statement is to be released. The Bylaws also specify certain requirements for a
shareholder's notice to be in proper written form. These provisions may preclude
some shareholders from bringing matters before the shareholders or from making
nominations for directors.
DIRECTOR AND OFFICER INDEMNIFICATION
The Washington Business Act provides that a Washington corporation may
include provisions in its articles of incorporation relieving each of its
directors of monetary liability arising out of his or her conduct as a director
for breach of his or her fiduciary duty except liability for (i) acts or
omissions of a director that involve intentional misconduct or a knowing
violation of law, (ii) conduct in violation of Section 23B.08.310 of the
Washington Business Act (which section relates to unlawful distributions) or
(iii) any transaction from which a director personally received a benefit in
money, property or services to which the director was not legally entitled. The
Company's Articles of Incorporation include such provisions.
The Company's Articles of Incorporation and Bylaws provide that the Company
shall, to the fullest extent permitted by the Washington Business Act, as
amended from time to time, indemnify and advance expenses to each of its
currently acting and former directors and officers, and may so indemnify and
advance expenses to each of its current and former employees and agents. The
Company believes the foregoing provisions are necessary to attract and retain
qualified persons as directors and officers. Prior to the consummation of the
Offerings, the Company intends to enter into separate indemnification agreements
with each of its directors and executive officers in order to effectuate such
provisions, which agreements will supersede prior indemnification agreements
entered into by the Company with each of its directors and executive officers.
REGULATED SHAREHOLDERS
The Articles of Incorporation contain provisions that would effectively
preclude each of Goldman Sachs and its affiliates from voting that number of
shares of Common Stock which results in such shareholder or its affiliates
having the right to vote more than 24.9% of the Company's total voting power.
PROVISIONS AFFECTING ACQUISITIONS AND BUSINESS COMBINATIONS
The Washington Business Act, Section 23B.19 of the Revised Code of
Washington, prohibits a "target corporation," with certain exceptions, from
engaging in certain "significant business transactions" (such as a merger or
sale of assets) with an "acquiring person" who acquires more than 10% of the
voting securities of the target corporation for a period of five years after
such acquisition, unless the transaction is approved by a majority of the
members of the target corporation's board of directors prior to the date of the
transaction or unless the aggregate amount of the cash and the market value of
non-cash consideration received by holders of outstanding shares of any class or
series of stock of the target corporation is equal to certain minimum amounts.
57
<PAGE> 59
The Company's Articles of Incorporation provide that it will be subject to such
prohibitions and shall remain subject to such prohibitions even if they are ever
repealed. Such prohibitions do not apply to any shareholders who beneficially
own ten percent or more of the Company's outstanding voting securities prior to
the Offerings.
TRANSFER AGENT AND REGISTRAR
The Company's transfer agent and registrar for its Class A Common Stock is
ChaseMellon Shareholder Services, New York, New York.
VALIDITY OF CLASS A COMMON STOCK
The validity of the shares of Class A Common Stock offered hereby will be
passed upon for the Selling Shareholders by Preston Gates & Ellis LLP, Seattle,
Washington. As of the date hereof, attorneys in Preston Gates & Ellis LLP who
have worked on substantive matters for Western Wireless own less than 50,000
shares of Class A Common Stock. The validity of the shares of Class A Common
Stock offered hereby will be passed upon for the Underwriters by Sullivan &
Cromwell, Los Angeles, California. Sullivan & Cromwell has represented and
continues to represent Goldman Sachs in connection with its investment in the
Company.
EXPERTS
The consolidated financial statements and schedules of Western Wireless for
each of the three years in the period ended December 31, 1997, included in this
Prospectus from Western Wireless's Annual Report on Form 10-K, have been audited
by Arthur Andersen LLP, independent public accountants, as indicated in their
report with respect thereto, and have been so incorporated in reliance upon the
authority of said firm as experts in accounting and auditing in giving said
reports.
58
<PAGE> 60
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.................... F-2
Consolidated Balance Sheets as of December 31, 1997 and
1996...................................................... F-3
Consolidated Statements of Operations for the years ended
December 31, 1997,
1996 and 1995............................................. F-4
Consolidated Statements of Shareholders' Equity for the
years ended December 31, 1997,
1996 and 1995............................................. F-5
Consolidated Statements of Cash Flows for the years ended
December 31, 1997, 1996 and 1995.......................... F-6
Notes to Consolidated Financial Statements.................. F-7
Schedule I -- Condensed Financial Information -- (Parent
Company Only)............................................. F-21
Schedule II -- Valuation and Qualifying Accounts............ F-25
</TABLE>
F-1
<PAGE> 61
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
F-2
<PAGE> 62
WESTERN WIRELESS CORPORATION
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
ASSETS
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
------------------------
1997 1996
---------- ----------
<S> <C> <C>
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
F-3
<PAGE> 63
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
F-4
<PAGE> 64
WESTERN WIRELESS CORPORATION
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON STOCK
-----------------------------------
PAR VALUE
AND TOTAL
CLASS A CLASS B PAID-IN DEFERRED SHAREHOLDERS'
SHARES SHARES CAPITAL COMPENSATION DEFICIT EQUITY
---------- ---------- --------- ------------ --------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1995............... 42,983,360 $155,187 $ (28,170) $ 127,017
Shares issued:
For cash, net of costs............. 12,665,905 143,002 143,002
In exchange for shareholder loans
plus accrued interest............ 1,245,998 14,068 14,068
For minority interests in GCC,
net.............................. 896,210 9,944 9,944
In exchange for wireless
properties....................... 217,000 2,450 2,450
Upon exercise of stock options..... 38,762 78 78
Net loss........................... (55,954) (55,954)
---------- ---------- -------- ----- --------- ---------
Balance, December 31, 1995............. 58,047,235 324,729 (84,124) 240,605
Shares issued:
For cash, net of costs............. 10,664,800 88,567 234,724 234,724
Upon exercise of stock options..... 383,937 879 879
In exchange for wireless
properties....................... 595,309 7,117 7,117
Class B shares exchanged for Class
A shares......................... 3,491,954 (3,491,954)
Deferred compensation................ 1,829 $(800) 1,029
Net loss............................. (130,105) (130,105)
---------- ---------- -------- ----- --------- ---------
Balance, December 31, 1996............. 14,540,691 55,239,157 569,278 (800) (214,229) 354,249
Shares issued:
Upon exercise of stock options..... 268,763 1,077 1,077
In exchange for wireless
properties....................... 1,600,000 28,600 28,600
Private placement.................. 3,888,888 74,300 74,300
Class B shares exchanged for Class
A shares......................... 1,807,994 (1,807,994)
Deferred compensation................ 95,000 1,781 (45) 1,736
Net loss............................. (265,534) (265,534)
---------- ---------- -------- ----- --------- ---------
Balance, December 31, 1997............. 22,201,336 53,431,163 $675,036 $(845) $(479,763) $ 194,428
========== ========== ======== ===== ========= =========
</TABLE>
See accompanying notes to consolidated financial statements
F-5
<PAGE> 65
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
F-6
<PAGE> 66
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.
F-7
<PAGE> 67
WESTERN WIRELESS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Property and equipment and depreciation
Property and equipment are stated at cost. Depreciation commences once the
assets have been placed in service and is computed using the straight-line
method over the estimated useful lives of the assets which primarily range from
three to ten years.
Licensing costs and other intangible assets and amortization
Licensing costs primarily represent costs incurred to 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."
F-8
<PAGE> 68
WESTERN WIRELESS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Financial instruments
As required under the Credit Facility (as defined in Note 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.
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>
YEAR ENDED DECEMBER 31,
------------------------------
1997 1996 1995
------- -------- -------
(DOLLARS IN THOUSANDS)
<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.
F-9
<PAGE> 69
WESTERN WIRELESS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. PROPERTY AND EQUIPMENT
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1997 1996
--------- ---------
(DOLLARS IN THOUSANDS)
<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.
4. LICENSING COSTS AND OTHER INTANGIBLE ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1997 1996
--------- ---------
(DOLLARS IN THOUSANDS)
<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
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1997 1996
--------- ---------
(DOLLARS IN THOUSANDS)
<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.
F-10
<PAGE> 70
WESTERN WIRELESS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6. ACCRUED LIABILITIES
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1997 1996
---------- --------
(DOLLARS IN THOUSANDS)
<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>
7. LONG-TERM DEBT
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1997 1996
---------- --------
(DOLLARS IN THOUSANDS)
<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.
F-11
<PAGE> 71
WESTERN WIRELESS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. LONG-TERM DEBT (CONTINUED)
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.
(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
F-12
<PAGE> 72
WESTERN WIRELESS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. LONG-TERM DEBT (CONTINUED)
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):
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31,
------------------------
<S> <C>
1998............................................ $ 0
1999............................................ 0
2000............................................ 30,000
2001............................................ 123,000
2002............................................ 170,270
Thereafter...................................... 1,071,730
----------
$1,395,000
==========
</TABLE>
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):
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31,
------------------------
<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.
F-13
<PAGE> 73
WESTERN WIRELESS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. COMMITMENTS (CONTINUED)
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,
-----------------------
1997 1996
---------- ---------
(DOLLARS IN THOUSANDS)
<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>
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.
F-14
<PAGE> 74
WESTERN WIRELESS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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 Executive 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.
In January 1997, the Company issued 95,000 shares of its Class A Common
Stock to certain key executives pursuant to an Executive 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
F-15
<PAGE> 75
WESTERN WIRELESS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
10. SHAREHOLDERS' EQUITY (CONTINUED)
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.
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,
----------------------------------------------
1997 1996 1995
------------- ------------- ------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<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>
F-16
<PAGE> 76
WESTERN WIRELESS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
11. STOCK-BASED COMPENSATION PLANS (CONTINUED)
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 :
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------------------
1997 1996 1995
------------------ ------------------ ------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
SHARES PRICE SHARES PRICE SHARES PRICE
------ -------- ------ -------- ------ --------
(IN THOUSANDS, EXCEPT PRICING INFORMATION)
<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.
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.
F-17
<PAGE> 77
WESTERN WIRELESS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
12. ACQUISITIONS (CONTINUED)
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.
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.
F-18
<PAGE> 78
WESTERN WIRELESS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
13. SEGMENT INFORMATION (CONTINUED)
<TABLE>
<CAPTION>
CELLULAR PCS OTHER
OPERATIONS OPERATIONS OPERATIONS CONSOLIDATED
---------- ---------- ---------- ------------
(DOLLARS IN THOUSANDS)
<S> <C> <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>
BASIC LOSS
TOTAL OPERATING PER COMMON
QUARTER ENDED REVENUES LOSS NET LOSS SHARE
------------- -------- --------- -------- ----------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<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>
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
F-19
<PAGE> 79
WESTERN WIRELESS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
15. RELATED PARTY TRANSACTIONS (CONTINUED)
$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.
F-20
<PAGE> 80
WESTERN WIRELESS CORPORATION
SCHEDULE I -- CONDENSED FINANCIAL INFORMATION
(PARENT COMPANY ONLY)
BALANCE SHEETS
(DOLLARS IN THOUSANDS)
ASSETS
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
------------------------
1997 1996
---------- ----------
<S> <C> <C>
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
F-21
<PAGE> 81
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
F-22
<PAGE> 82
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
F-23
<PAGE> 83
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>
F-24
<PAGE> 84
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 COSTS AND TO OTHER BALANCE AT
DESCRIPTION OF PERIOD EXPENSES ACCOUNTS(1) DEDUCTIONS(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.
F-25
<PAGE> 85
UNDERWRITING
Subject to the terms and conditions of the U.S. Underwriting Agreement, the
Selling Shareholders have agreed to sell to each of the U.S. Underwriters named
below, and each of such U.S. Underwriters, for whom Goldman, Sachs & Co.,
Donaldson, Lufkin & Jenrette Securities Corporation, Merrill Lynch, Pierce,
Fenner & Smith Incorporated and Smith Barney Inc. are acting as representatives,
has severally agreed to purchase from the Selling Shareholders, the respective
number of shares of Class A Common Stock set forth opposite its name below:
<TABLE>
<CAPTION>
NUMBER OF SHARES OF
U.S. UNDERWRITER CLASS A COMMON STOCK
---------------- --------------------
<S> <C>
Goldman, Sachs & Co.....................................
Donaldson, Lufkin & Jenrette Securities Corporation.....
Merrill Lynch, Pierce, Fenner & Smith Incorporated......
Smith Barney Inc. ......................................
--------
Total.........................................
========
</TABLE>
Under the terms and conditions of the U.S. Underwriting Agreement, the U.S.
Underwriters are committed to take and pay for all of the shares offered hereby,
if any are taken.
The U.S. Underwriters propose to offer the shares of Class A Common Stock
in part directly to the public at the initial public offering price set forth on
the cover page of this Prospectus, and in part to certain securities dealers at
such price less a concession of $ per share. The U.S. Underwriters may
allow, and such dealers may reallow, a concession not in excess of $ per
share to certain brokers and dealers. After the shares of Class A Common Stock
are released for sale to the public, the offering price and other selling terms
may from time to time be varied by the representatives.
The Company has and the Selling Shareholders have entered into an
underwriting agreement (the "International Underwriting Agreement") with the
underwriters of the international offering (the "International Underwriters")
providing for the concurrent offer and sale of shares of Class A Common
Stock in the international offering outside the United States. The initial
public offering price and aggregate underwriting discounts and commissions per
share for the Offerings are identical. The closing of the offering made hereby
is a condition to the closing of the international offering, and vice versa. The
representatives of the International Underwriters are Goldman Sachs
International, Donaldson, Lufkin & Jenrette International, Merrill Lynch
International and Salomon Smith Barney International.
Pursuant to an Agreement between the U.S. and International Underwriting
Syndicates (the "Agreement Between Syndicates") relating to the Offerings, each
of the U.S. Underwriters named herein has agreed that, as a part of the
distribution of the shares offered hereby and subject to certain exceptions, it
will offer, sell or deliver the shares offered hereby, directly or indirectly,
only in the United States of America (including the States and the District of
Columbia), its territories, its possessions and other areas subject to its
jurisdiction (the "United States") and to U.S. persons, which term shall mean,
for purposes of this paragraph: (a) any individual who is a resident of the
United States or (b) any corporation, partnership or other entity organized in
or under the laws of the United States or any political subdivision thereof and
whose office most directly involved with the purchase is located in the United
States. Each of the International Underwriters has agreed pursuant to the
Agreement Between Syndicates that, as a part of the distribution of the shares
offered as a part of the international offering, and subject to certain
exceptions, it will (i) not, directly or
U-1
<PAGE> 86
indirectly, offer, sell or deliver shares of Class A Common Stock (a) in the
United States or to any U.S. persons or (b) to any persons whom it believes
intends to reoffer, resell or deliver the shares in the United States or to any
U.S. persons, and (ii) cause any dealer to whom it may sell such shares at any
concession to agree to observe a similar restriction.
Pursuant to the Agreement Between Syndicates, sales may be made between the
U.S. Underwriters and the International Underwriters of such number of shares of
Class A Common Stock as may be mutually agreed. The price of any shares so sold
shall be the initial public offering price, less an amount not greater than the
selling concession.
Certain Selling Shareholders have granted the U.S. Underwriters an option
exercisable for 30 days after the date of this Prospectus to purchase up to an
aggregate of additional shares of Class A Common Stock solely to cover
over-allotments, if any, at the initial public offering price less the
underwriting discount, as set forth on the cover page of this Prospectus. If the
U.S. Underwriters exercise their over-allotment option, the U.S. Underwriters
have severally agreed, subject to certain conditions, to purchase approximately
the same percentage thereof that the number of shares to be purchased by each of
them, as shown in the foregoing table, bears to the shares of Class A
Common Stock offered hereby. The U.S. Underwriters may exercise such option only
to cover over-allotments in connection with the sale of the shares of
Class A Common Stock offered hereby. Certain Selling Shareholders have granted
the International Underwriters a similar option to purchase up to an aggregate
of additional shares of Class A Common Stock.
The Company, the Selling Shareholders, the Company's executive officers and
directors and certain other shareholders of the Company have agreed that, during
the period beginning from the date of this Prospectus and continuing to and
including the date 90 days after the date of this Prospectus, they will not
offer, sell, contract to sell or otherwise dispose of any securities of the
Company (other than, with respect to the Company, pursuant to employee stock
option plans existing on, or upon the conversion of exchange of convertible or
exchangeable securities outstanding as of, the date of this Prospectus) that are
substantially similar to the shares of Class A Common Stock or which are
convertible or exchangeable into securities which are substantially similar to
the shares of Class A Common Stock, without the prior written consent of the
representatives of the U.S. Underwriters, except for the shares of Class A
Common Stock offered in connection with the concurrent U.S. and international
offerings and certain gift transactions.
This Prospectus may be used by underwriters and dealers in connection with
offers and sales of the Class A Common Stock to persons located in the United
States.
The Class A Common Stock is listed on the Nasdaq Stock Market under the
symbol "WWCA."
Settlement for the Class A Common Stock will be made in immediately
available funds, and all secondary trading will settle in immediately available
funds.
In connection with the Offerings, the Underwriters may purchase and sell
the Class A Common Stock in the open market. These transactions may include
over-allotment and stablizing transactions and purchases to cover syndicate
short positions created in connection with the Offerings. Stablizing
transactions consist of certain bids or purchases for the purpose of preventing
or retarding a decline in the market price of the Class A Common Stock; and
syndicate short positions involve the sale by the Underwriters of a greater
number of shares than they are required to purchase from the Selling
Shareholders in the Offerings. The Underwriters also may impose a penalty bid,
whereby selling concessions allowed to syndicate members or other broker-dealers
in respect of the Class A Common Stock sold in the Offerings for their account
may be reclaimed by the syndicate if such shares are repurchased by the
syndicate in stablizing or covering transactions. These activities may
stabilize, maintain or otherwise affect the market price of the Class A Common
Stock, which may be higher than the price that might otherwise prevail in the
open market; and these
U-2
<PAGE> 87
activities, if commenced, may be discontinued at any time. These transactions
may be effected on the Nasdaq National Market, in the over-the-counter market or
otherwise.
Under Rule 2720 of the Conduct Rules of the National Association of
Securities Dealers, Inc. (the "NASD"), the Company may be deemed to be an
affiliate of Goldman Sachs. The Offerings are being conducted in accordance with
the requirements of Rule 2720. The Underwriters may not confirm sales to any
accounts over which they exercise discretionary authority without the prior
specific written approval of the customer.
The Company and the Selling Shareholders have agreed to indemnify the
several Underwriters against certain liabilities, including liabilities under
the Securities Act.
U-3
<PAGE> 88
======================================================
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THE SECURITIES TO
WHICH IT RELATES OR ANY OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY
SUCH SECURITIES IN ANY CIRCUMSTANCES IN WHICH SUCH OFFER OR SOLICITATION IS
UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER
SHALL, UNDER ANY CIRCUMSTANCES, CREATE AN IMPLICATION THAT THERE HAS BEEN NO
CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT THE
INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Available Information................. 2
Incorporation of Certain Information
by Reference........................ 3
Prospectus Summary.................... 4
Risk Factors.......................... 11
Use of Proceeds....................... 19
Capitalization........................ 20
Price Range of Class A Common Stock
and Dividend Policy................. 21
Selected Consolidated Financial
Data................................ 22
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 24
Business.............................. 31
Principal and Selling Shareholders.... 53
Description of Capital Stock.......... 56
Validity of Class A Common Stock...... 58
Experts............................... 58
Financial Statements.................. F-1
Underwriting.......................... U-1
</TABLE>
======================================================
======================================================
11,000,000 SHARES
WESTERN WIRELESS
CORPORATION
CLASS A COMMON STOCK
(NO PAR VALUE PER SHARE)
------------------------
LOGO
------------------------
GOLDMAN, SACHS & CO.
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
MERRILL LYNCH & CO.
SALOMON SMITH BARNEY
REPRESENTATIVES OF THE UNDERWRITERS
======================================================
<PAGE> 89
PART II. INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The expenses relating to the registration of Shares will be borne by the
registrant. Such expenses are estimated to be as follows:
<TABLE>
<S> <C>
Registration Fee -- Securities and Exchange Commission...... $ 83,143
Accountants' Fees........................................... $ 10,000
Legal Fees.................................................. $ 50,000
Miscellaneous............................................... $ 16,857
--------
Total............................................. $160,000
========
</TABLE>
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 23B.08.510 of the Revised Code of Washington authorizes Washington
corporations to indemnify their officers and directors under certain
circumstances against expenses and liabilities incurred in legal proceedings
involving such persons because of their being or having been an officer or
director. The Company's Articles of Incorporation and Bylaws require
indemnification of the Company's officers and directors to the fullest extent
permitted by Washington law. The Company also maintains directors' and officers'
liability insurance.
The Company's By-laws and Articles of Incorporation provide that the
Company shall, to the full extent permitted by the Washington Business
Corporation Act (the "Washington Business Act") of the State of Washington, as
amended from time to time, indemnify all directors and officers of the Company.
In addition, the Company's Articles of Incorporation contains a provision
eliminating the personal liability of directors to the Company or its
shareholders for monetary damages arising out of a breach of fiduciary duty.
Under Washington law, this provision eliminates the liability of a director for
breach of fiduciary duty but does not eliminate the personal liability of any
director for (i) acts or omissions of a director that involve intentional
misconduct or a knowing violation of law, (ii) conduct in violation of Section
23B.08.310 of the Revised Code of Washington (which section relates to unlawful
distributions) or (iii) any transaction from which a director personally
received a benefit in money, property or services to which the director was not
legally entitled.
The Company has entered into separate indemnification agreements with each
of its directors and executive officers.
ITEM 16. LIST OF EXHIBITS
The Exhibits to this registration statement are listed in the Index to
Exhibits on page II-4.
ITEM 17. UNDERTAKINGS
The undersigned registrant hereby undertakes:
(1) For purposes of determining any liability under the 1933 Act, each
filing of the registrant's annual report pursuant to Section 13(a) or
Section 15(d) of the Exchange Act (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to Section 15(d) of the
Exchange Act) that is incorporated by reference in the registration
statement shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
(2) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 Act may be permitted to directors, officers and
controlling persons of the registrant pursuant to the foregoing provisions,
or otherwise, the registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as
II-1
<PAGE> 90
expressed in the 1933 Act and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the registrant of expenses incurred or paid by a director,
officer or controlling person of the registrant in the successful defense
of any action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against
public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
II-2
<PAGE> 91
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized on this 7th day of April, 1998.
WESTERN WIRELESS CORPORATION
By: /s/ ALAN R. BENDER
------------------------------------
Alan R. Bender
Senior Vice President, General
Counsel
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints jointly and severally, John W. Stanton and Alan
R. Bender or any of them, with full power to act alone, his true and lawful
attorneys-in-fact, with full power of substitution, and resubstitution, for him
and in his name, place and stead, in any and all capacities, to sign any and all
amendments (including post-effective amendments) to the Registration Statement,
and file the same, with all exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact full power and authority to do and perform each and every act
and thing requisite and necessary to be done as fully to all intents and
purposes as he might or could do in person, hereby ratifying and confirming all
that said attorneys-in-fact or any of them may lawfully do or cause to be done
by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below on April 7, 1998 by the following
persons in the capacities indicated.
<TABLE>
<CAPTION>
SIGNATURES TITLE
---------- -----
<C> <S>
/s/ JOHN W. STANTON Chairman, Chief Executive Officer and
- -------------------------------------------- Director (Principal Executive Officer)
John W. Stanton
/s/ DONALD GUTHRIE Vice Chairman and Chief Financial Officer
- -------------------------------------------- (Principal Financial Officer)
Donald Guthrie
/s/ PATRICIA MILLER Controller and Principal Accounting Officer
- --------------------------------------------
Patricia Miller
/s/ JOHN L BUNCE, JR. Director
- --------------------------------------------
John L Bunce, Jr.
/s/ MITCHELL R. COHEN Director
- --------------------------------------------
Mitchell R. Cohen
/s/ DANIEL J. EVANS Director
- --------------------------------------------
Daniel J. Evans
/s/ JONATHAN M. NELSON Director
- --------------------------------------------
Jonathan M. Nelson
/s/ TERENCE M. O'TOOLE Director
- --------------------------------------------
Terence M. O'Toole
</TABLE>
II-3
<PAGE> 92
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <S>
1.1 Form of U.S. Underwriting Agreement
4.1(1) Amended and Restated Articles of Incorporation of Western
Wireless Corporation
4.2(1) Bylaws of Western Wireless Corporation
5.1 Opinion of Preston Gates & Ellis LLP regarding legality of
shares
23.1 Consent of Arthur Andersen LLP
23.2 Consent of Preston Gates & Ellis LLP (contained in Exhibit
5.1)
</TABLE>
- ---------------
(1) Incorporated herein by reference to the exhibit filed with the Company's
Registration Statement on Form S-1 (Commission File No. 333-2432).
II-4
<PAGE> 1
S&C Draft of April 1, 1998
WESTERN WIRELESS CORPORATION
CLASS A COMMON STOCK, NO PAR VALUE
UNDERWRITING AGREEMENT (U.S. VERSION)
April __, 1998
Goldman, Sachs & Co.,
[Name(s) of Co-Representative(s)]
As representatives of the several Underwriters
named in Schedule I hereto,
c/o Goldman, Sachs & Co.,
85 Broad Street,
New York, New York 10004.
Ladies and Gentlemen:
Certain shareholders named in Schedule II hereto (the "Selling
Shareholders") of Western Wireless Corporation, a Washington corporation (the
"Company"), propose, subject to the terms and conditions stated herein, to sell
to the Underwriters named in Schedule I hereto (the "Underwriters") an aggregate
of ____ shares (the "Firm Shares") and, at the election of the Underwriters, up
to ___ additional shares (the "Optional Shares") of Class A Common Stock, no par
value per share ("Stock"), of the Company (the Firm Shares and the Optional
Shares that the Underwriters elect to purchase pursuant to Section 2 hereof are
herein collectively called the "Shares").
It is understood and agreed to by all parties that the Company and the
Selling Shareholders are concurrently entering into an agreement (the
"International Underwriting Agreement") providing for the sale by the Selling
Shareholders of up to a total of _______ shares of Stock (the "International
Shares"), including the overallotment option thereunder, through arrangements
with certain underwriters outside the United States (the "International
Underwriters"), for whom Goldman Sachs International,
____________________________ , and _________________________________ are acting
as lead managers. Anything herein or therein to the contrary notwithstanding,
the respective closings under this Agreement and the International Underwriting
Agreement are hereby expressly made conditional on one another. The Underwriters
hereunder and the International Underwriters are simultaneously entering into an
Agreement between U.S. and International Underwriting Syndicates (the "Agreement
between Syndicates") which provides, among other things, for the transfer of
shares of Stock between the two syndicates. Two forms of prospectus are to be
used in connection with the offering and sale of shares of Stock contemplated by
the foregoing, one relating to the Shares hereunder and the other relating to
the International Shares. The latter form of prospectus will be identical to the
former except for certain substitute pages. Except as used in Sections 2, 3, 4,
9 and 11 herein, and except as the context may otherwise require, references
hereinafter to the Shares shall include all the shares of Stock which may be
sold pursuant to either this Agreement or the International Underwriting
Agreement, and references herein to any
<PAGE> 2
prospectus whether in preliminary or final form, and whether as amended or
supplemented, shall include both the U.S. and international versions thereof.
1. (a) The Company represents and warrants to, and agrees with, each of
the Underwriters that:
(i) A registration statement on Form S-3 (File No. 333-____) (the
"Initial Registration Statement") in respect of the Shares has been filed
with the Securities and Exchange Commission (the "Commission"); the
Initial Registration Statement and any post-effective amendment thereto,
each in the form heretofore delivered to you, and, excluding exhibits
thereto but including all documents incorporated by reference in the
prospectus contained therein, to you for each of the other Underwriters,
have been declared effective by the Commission in such form; other than a
registration statement, if any, increasing the size of the offering (a
"Rule 462(b) Registration Statement"), filed pursuant to Rule 462(b)
under the Securities Act of 1933, as amended (the "Act"), which became
effective upon filing, no other document with respect to the Initial
Registration Statement or document incorporated by reference therein has
heretofore been filed with the Commission; and no stop order suspending
the effectiveness of the Initial Registration Statement, any
post-effective amendment thereto or the Rule 462(b) Registration
Statement, if any, has been issued and no proceeding for that purpose has
been initiated or threatened by the Commission (any preliminary
prospectus included in the Initial Registration Statement or filed with
the Commission pursuant to Rule 424(a) of the rules and regulations of
the Commission under the Act is hereinafter called a "Preliminary
Prospectus"; the various parts of the Initial Registration Statement and
the Rule 462(b) Registration Statement, if any, including all exhibits
thereto and including (i) the information contained in the form of final
prospectus filed with the Commission pursuant to Rule 424(b) under the
Act in accordance with Section 5(a) hereof and deemed by virtue of Rule
430A under the Act to be part of the Initial Registration Statement at
the time it was declared effective or such part of the Rule 462(b)
Registration Statement, if any, became or hereafter becomes effective and
(ii) the documents incorporated by reference in the prospectus contained
in the Initial Registration Statement at the time such part of the
Initial Registration Statement became effective, in each of clause (i)
and (ii) each as amended at the time such part of the Initial
Registration Statement became effective, are hereinafter collectively
called the "Registration Statement"; such final prospectus in the form
first filed pursuant to Rule 424(b) under the Act, is hereafter called
the "Prospectus"); and any reference herein to any Preliminary Prospectus
or the Prospectus shall be deemed to refer to and include the documents
incorporated by reference therein pursuant to Item 12 of Form S-3 under
the Act, as of the date of such Preliminary Prospectus or Prospectus, as
the case may be; any reference to any amendment or supplement to any
Preliminary Prospectus or the Prospectus shall be deemed to refer to and
include any documents filed after the date of such Preliminary Prospectus
or Prospectus, as the case may be, under the Securities Exchange Act of
1934, as amended (the "Exchange Act"), and incorporated by reference in
such Preliminary Prospectus or Prospectus, as the case may be; and any
reference to any amendment to the Registration Statement shall be deemed
to refer to and include any annual report of the Company filed pursuant
to Section 13(a) or 15(d) of the Exchange Act after the effective date of
the Initial Registration Statement that is incorporated by reference in
the Registration Statement);
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<PAGE> 3
(ii) No order preventing or suspending the use of any Preliminary
Prospectus has been issued by the Commission, and each Preliminary
Prospectus, at the time of filing thereof, conformed in all material
respects to the requirements of the Act and the rules and regulations of
the Commission thereunder, and did not contain an untrue statement of a
material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading; provided,
however, that this representation and warranty shall not apply to any
statements or omissions made in reliance upon and in conformity with
information furnished in writing to the Company by an Underwriter through
Goldman, Sachs & Co. expressly for use therein or by a Selling
Shareholder expressly for use in the preparation of the answers therein
to Item 7 of Form S-3;
(iii) The documents incorporated by reference in the Prospectus, when
they became effective or were filed with the Commission, as the case may
be, conformed in all material respects to the requirements of the Act or
the Exchange Act, as applicable, and the rules and regulations of the
Commission thereunder, and none of such documents contained an untrue
statement of a material fact or omitted to state a material fact required
to be stated therein or necessary to make the statements therein not
misleading; and any further documents so filed and incorporated by
reference in the Prospectus or any further amendment or supplement
thereto, when such documents become effective or are filed with the
Commission, as the case may be, will conform in all material respects to
the requirements of the Act or the Exchange Act, as applicable, and the
rules and regulations of the Commission thereunder and will not contain
an untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein
not misleading; provided, however, that this representation and warranty
shall not apply to any statements or omissions made in reliance upon and
in conformity with information furnished in writing to the Company by an
Underwriter through Goldman, Sachs & Co. expressly for use therein;
(iv) The Registration Statement conforms, and the Prospectus and any
further amendments or supplements to the Registration Statement or the
Prospectus will conform, in all material respects to the requirements of
the Act and the rules and regulations of the Commission thereunder and do
not and will not, as of the applicable effective date as to the
Registration Statement and any amendment thereto and as of the applicable
filing date as to the Prospectus and any amendment or supplement thereto,
contain an untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the
statements therein not misleading; provided, however, that this
representation and warranty shall not apply to any statements or
omissions made in reliance upon and in conformity with information
furnished in writing to the Company by an Underwriter through Goldman,
Sachs & Co. expressly for use therein or by a Selling Shareholder
expressly for use in the preparation of the answers therein to Item 7 of
Form S-3;
(v) Neither the Company nor any of its subsidiaries has sustained
since the date of the latest audited financial statements included or
incorporated by reference in the Prospectus any material loss or
interference with its business from fire, explosion, flood or other
calamity, whether or not covered by insurance, or from any labor dispute
or court or governmental action, order or decree, otherwise than as set
forth or
3
<PAGE> 4
contemplated in the Prospectus; and, since the respective dates as of
which information is given in the Registration Statement and the
Prospectus, there has not been any change in the capital stock or
partnership interests and there has not been any increase in the
short-term debt or long-term debt of the Company or any of its
subsidiaries, or any material adverse change, or any development
involving a prospective material adverse change, in or affecting the
general affairs, management, financial position, shareholders' equity or
results of operations of the Company and its subsidiaries (a "Material
Adverse Effect"), otherwise than as set forth or contemplated in the
Prospectus;
(vi) The Company and its subsidiaries have valid title in fee simple
to all real property and valid title to all personal property owned by
them, in each case free and clear of all liens, encumbrances and defects
except those that are described in the Prospectus, those that could not
reasonably be expected to have a Material Adverse Effect and those that
do not interfere with the use made and proposed to be made of such
property by the Company and its subsidiaries; and any real property and
buildings held under lease by the Company and its subsidiaries are held
by them under valid, subsisting and enforceable leases with such
exceptions as could not reasonably be expected to have a Material Adverse
Effect, and do not interfere with the use made and proposed to be made of
such property and buildings by the Company and its subsidiaries;
(vii) The Company has been duly incorporated and is validly existing
as a corporation under the laws of the State of Washington, with power
and authority (corporate and other) to own its properties and conduct its
business as described in the Prospectus, and has been duly qualified as a
foreign corporation for the transaction of business and is in good
standing under the laws of each other jurisdiction in which it owns or
leases properties or conducts any business so as to require such
qualification, or is subject to no material liability or disability by
reason of the failure to be so qualified in any such jurisdiction; and
each subsidiary of the Company listed on Exhibit 21 to the Company's
Annual Report on Form 10-K for the year ended December 31, 1997 (the
"Significant Subsidiaries," or the "Significant Subsidiary," as the case
may be) has been duly incorporated and is validly existing as a
corporation in good standing under the laws of its jurisdiction of
incorporation;
(viii) The Company has an authorized capitalization as set forth in the
Prospectus, and all of the issued shares of capital stock of the Company
have been duly and validly authorized and issued, are fully paid and
non-assessable and conform to the description of the capital stock
contained in the Prospectus; and all of the issued shares of capital
stock or partnership interests of each Significant Subsidiary of the
Company have been duly and validly authorized and issued, are fully paid
and non-assessable and (except for minority interests representing less
than 10% of such Significant Subsidiary) are owned directly or indirectly
by the Company, free and clear of all liens, encumbrances, equities or
claims other than liens granted pursuant to the Loan Agreement, dated May
6, 1996, with The Toronto-Dominion Bank, Barclays Bank, PLC, and Morgan
Guaranty Trust Company of New York, as Managing Agents (the "Credit
Facility") or the Loan Agreement, dated June 30, 1995, with Northern
Telecom Inc. (the "NORTEL Facility" and, together with the Credit
Facility, the "Senior Secured Facilities");
4
<PAGE> 5
(ix) The compliance by the Company with all of the provisions of this
Agreement and the International Underwriting Agreement and the
consummation of the transactions herein and therein contemplated will not
conflict with or result in a breach or violation of any of the terms or
provisions of, or constitute a default under, any indenture, mortgage,
deed of trust, loan agreement, shareholders agreement, registration
rights agreement or other material agreement or instrument to which the
Company or any of its subsidiaries is a party or by which the Company or
any of its subsidiaries is bound or to which any of the property or
assets of the Company or any of its subsidiaries is subject, nor will
such action result in any violation of the provisions of the Articles of
Incorporation or By-laws of the Company or any statute or any order, rule
or regulation of any court or governmental agency or body having
jurisdiction over the Company or any of its subsidiaries or any of their
properties; and no consent, approval, authorization, order, registration
or qualification of or with any such court or governmental agency or body
is required for the sale of the Shares or the consummation by the Company
of the transactions contemplated by this Agreement and the International
Underwriting Agreement, except the registration under the Act of the
Shares and such consents, approvals, authorizations, registrations or
qualifications as may be required under state or foreign securities or
Blue Sky laws in connection with the purchase and distribution of the
Shares by the Underwriters and the International Underwriters;
(x) Neither the Company nor any of its Significant Subsidiaries is
(a) in violation of its Articles or Certificate of Incorporation, as the
case may be, or By-laws or (b) in default in the performance or
observance of any material obligation, agreement, covenant or condition
contained in any indenture, mortgage, deed of trust, loan agreement,
lease, shareholders agreement, registration rights agreement or other
agreement or instrument to which it is a party or by which it or any of
its properties may be bound, except, in the case of this clause (b), for
defaults that individually or in the aggregate would not have a Material
Adverse Effect;
(xi) The statements set forth in the Prospectus under the caption
"Description of Capital Stock," insofar as they purport to constitute a
summary of the terms of the Stock and the Class B Common Stock, and under
the captions "Underwriting," "Risk Factors--Competition," "--Intellectual
Property and Branding," "--Governmental Regulation," "Description of
Indebtedness," "Business--Competition" and "Business--Governmental
Regulation" insofar as they purport to describe the provisions of the
laws and documents to which the Company or any subsidiary is a party
referred to therein are accurate, complete and fair in all material
respects;
(xii) Other than as set forth or contemplated in the Prospectus, there
are no legal or governmental proceedings pending to which the Company or
any of its subsidiaries is a party or of which any property of the
Company or any of its subsidiaries is the subject which, if determined
adversely to the Company or any of its subsidiaries, would individually
or in the aggregate have a material adverse effect on the current or
future consolidated financial position, shareholders' equity or results
of operations of the Company and its subsidiaries taken as a whole; and,
to the best of the Company's knowledge, no such proceedings are
threatened or contemplated by governmental authorities or threatened by
others;
5
<PAGE> 6
(xiii) The Company is not and, after giving effect to the offering and
sale of the Shares, will not be an "investment company" or an entity
"controlled" by an "investment company," as such terms are defined in the
Investment Company Act of 1940, as amended (the "Investment Company
Act");
(xiv) Arthur Andersen LLP, who have certified certain financial
statements of the Company and its subsidiaries, are independent public
accountants as required by the Act and the rules and regulations of the
Commission thereunder;
(xv) Except as otherwise disclosed or contemplated by the Prospectus,
the Company and its subsidiaries have such certificates of convenience or
necessity, easements, rights-of-way, operating rights, permits, licenses,
franchises and authorizations of governmental or regulatory authorities
("Permits"), including Permits issued by the Federal Communications
Commission (the "FCC"), as are necessary to own their respective
properties and to conduct their respective businesses substantially in
the manner described in the Prospectus, except for any such Permits the
absence of which could not reasonably be expected to result in a Material
Adverse Effect; the Company and its subsidiaries have fulfilled all their
material obligations with respect to such Permits and no event has
occurred which allows (or after notice or lapse of time would allow)
revocation or termination thereof or results in any other material
impairment of the rights of the holder of any such Permit, in each case
which could reasonably be expected to result in a Material Adverse
Effect; and, except as described in the Prospectus, none of such Permits
contains any restriction that is burdensome to the Company or any of its
subsidiaries, except for restrictions that could not reasonably be
expected to have a Material Adverse Effect; and
(xvi) Except as otherwise disclosed or contemplated by the Prospectus,
the Company and its subsidiaries own or possess all trademarks, trademark
registrations, service marks, service mark registrations, trade names,
licenses relating to intellectual property, trade secrets and rights
("Intellectual Property") described in the Prospectus as being owned or
possessed by them or any of them, and the Company is not aware of any
claim to the contrary or any challenge by any other person to the rights
of the Company or any of its subsidiaries with respect to the foregoing,
which claim or challenge could reasonably be expected to have a Material
Adverse Effect.
(b) Each of the Selling Shareholders severally and not jointly
represents and warrants to, and agrees with, each of the Underwriters and the
Company that:
(i) All consents, approvals, authorizations and orders necessary for
the execution and delivery by such Selling Shareholder of this Agreement,
the International Underwriting Agreement, the Custody Agreement and Power
of Attorney hereinafter referred to, and for the sale and delivery of the
Shares to be sold by such Selling Shareholder hereunder and under the
International Underwriting Agreement, have been obtained; and such
Selling Shareholder has full right, power and authority to enter into
this Agreement, the International Underwriting Agreement, the Custody
Agreement and Power of Attorney and to sell, assign, transfer and deliver
the Shares to be sold by such Selling Shareholder hereunder and under the
International Underwriting Agreement;
6
<PAGE> 7
(ii) The sale of the Shares to be sold by such Selling Shareholder
hereunder and under the International Underwriting Agreement and the
compliance by such Selling Shareholder with all of the provisions of this
Agreement, the International Underwriting Agreement, the Custody
Agreement and Power of Attorney and the consummation of the transactions
herein and therein contemplated will not conflict with or result in a
breach or violation of any of the terms or provisions of, or constitute a
default under any indenture, mortgage, deed of trust, loan agreement,
shareholders agreement, registration rights agreement or other material
agreement or instrument to which such Selling Shareholder is a party or
by which such Selling Shareholder is bound, or to which any of the
property or assets of such Selling Shareholder is subject, nor will such
action result in any violation of the provisions of the Articles or
Certificate of Incorporation, as the case may be, or By-laws of such
Selling Shareholder if such Selling Shareholder is a corporation, the
Partnership Agreement of such Selling Shareholder if such Selling
Shareholder is a partnership, or any statute or any order, rule or
regulation of any court or governmental agency or body having
jurisdiction over such Selling Shareholder or the property of such
Selling Shareholder;
(iii) Such Selling Shareholder has, and immediately prior to each Time
of Delivery (as defined in Section 4 hereof) such Selling Shareholder
will have, valid title to the Shares to be sold by such Selling
Shareholder hereunder and under the International Underwriting Agreement,
free and clear of all liens, encumbrances, equities or claims; and, upon
delivery of such Shares and payment therefor pursuant hereto and thereto,
valid title to such Shares, free and clear of all liens, encumbrances,
equities or claims, will pass to the several Underwriters or the
International Underwriters, as the case may be;
(iv) During the period beginning from the date hereof and continuing
to and including the date 90 days after the date of the Prospectus, not
to offer, sell, contract to sell or otherwise dispose of, except as
provided hereunder or under the International Underwriting Agreement, any
securities of the Company that are substantially similar to the Shares,
including but not limited to any securities that are convertible into or
exchangeable for, or that represent the right to receive, Stock or any
such substantially similar securities (other than pursuant to employee
stock option plans existing on, or upon the conversion or exchange of
convertible or exchangeable securities outstanding as of, the date of
this Agreement), except (a) as a gift or gifts, provided the donee or
donees thereof agree to be bound by this restriction, or (b) with the
prior written consent of the representatives of the Underwriters;
(v) Such Selling Shareholder has not taken and will not take,
directly or indirectly, any action which is designed to or which has
constituted or which might reasonably be expected to cause or result in
stabilization or manipulation of the price of any security of the Company
to facilitate the sale or resale of the Shares;
(vi) To the extent that any statements or omissions made in the
Registration Statement, any Preliminary Prospectus, the Prospectus or any
amendment or supplement thereto are made in reliance upon and in
conformity with written information furnished to the Company by such
Selling Shareholder expressly for use therein, such Preliminary
Prospectus and the Registration Statement did, and the Prospectus and any
further amendments or supplements to the Registration Statement
7
<PAGE> 8
and the Prospectus, when they become effective or are filed with the
Commission, as the case may be, will conform in all material respects to
the requirements of the Act and the rules and regulations of the
Commission thereunder and will not contain any untrue statement of a
material fact or omit to state any material fact required to be stated
therein or necessary to make the statements therein not misleading;
(vii) In order to document the Underwriters' compliance with the
reporting and withholding provisions of the Tax Equity and Fiscal
Responsibility Act of 1982 with respect to the transactions herein
contemplated, such Selling Shareholder will deliver to you prior to or at
the First Time of Delivery (as hereinafter defined) a properly completed
and executed United States Treasury Department Form W-9 (or other
applicable form or statement specified by Treasury Department regulations
in lieu thereof);
(viii) Certificates in negotiable form representing all of the Shares
to be sold by such Selling Shareholder hereunder and under the
International Underwriting Agreement have been placed in custody under a
Custody Agreement and Power of Attorney, in the form heretofore furnished
to you (the "Custody Agreement and Power of Attorney"), duly executed and
delivered by such Selling Shareholder to Preston Gates & Ellis, as
custodian (the "Custodian"). The persons indicated in Schedule II hereto,
and each of them, have been appointed pursuant to the Custody Agreement
and Power of Attorney as such Selling Shareholder's attorneys-in-fact
(the "Attorneys-in-Fact") with authority to execute and deliver this
Agreement and the International Underwriting Agreement on behalf of such
Selling Shareholder to determine as provided in the Custody Agreement and
Power of Attorney the purchase price to be paid by the Underwriters and
the International Underwriters to the Selling Shareholders as provided in
Section 2 hereof, to authorize the delivery of the Shares to be sold by
such Selling Shareholder hereunder and otherwise to act on behalf of such
Selling Shareholder in connection with the transactions contemplated by
this Agreement, the International Underwriting Agreement and the Custody
Agreement and Power of Attorney; and
(ix) The Shares represented by the certificates held in custody for
such Selling Shareholder under the Custody Agreement and Power of
Attorney are subject to the interests of the Underwriters hereunder and
the International Underwriters under the International Underwriting
Agreement; the arrangements made by such Selling Shareholder for such
custody, and the appointment by such Selling Shareholder of the
Attorneys-in-Fact by the Custody Agreement and Power of Attorney, to the
extent set forth therein are irrevocable; the obligations of the Selling
Shareholders hereunder shall not be terminated by operation of law,
whether by the death or incapacity of any individual Selling Shareholder
or, in the case of an estate or trust, by the death or incapacity of any
executor or trustee or the termination of such estate or trust, or in the
case of a partnership or corporation, by the dissolution of such
partnership or corporation, or by the occurrence of any other event; if
any individual Selling Shareholder or any such executor or trustee should
die or become incapacitated, or if any such estate or trust should be
terminated, or if any such partnership or corporation should be
dissolved, or if any other such event should occur, before the delivery
of the Shares hereunder, certificates representing the Shares shall be
delivered by or on behalf of the Selling Shareholders in accordance with
the terms and conditions of this Agreement, of the International
Underwriting Agreement and of the Custody Agreement
8
<PAGE> 9
and Power of Attorney; and actions taken by the Attorneys-in-Fact
pursuant to the Custody Agreement and Power of Attorney shall be as valid
as if such death, incapacity, termination, dissolution or other event had
not occurred, regardless of whether or not the Custodian, the
Attorneys-in-Fact, or any of them, shall have received notice of such
death, incapacity, termination, dissolution or other event.
2. Subject to the terms and conditions herein set forth, (a) each of the
Selling Shareholders agrees, severally and not jointly, to sell to each of the
Underwriters, and each of the Underwriters agrees, severally and not jointly, to
purchase from each of the Selling Shareholders, at a purchase price per share of
$___________, the number of Firm Shares (to be adjusted by you so as to
eliminate fractional shares) determined by multiplying the aggregate number of
Firm Shares to be sold by each of the Selling Shareholders as set forth opposite
their respective names in Schedule II hereto by a fraction, the numerator of
which is the aggregate number of Firm Shares to be purchased by such Underwriter
as set forth opposite the name of such Underwriter in Schedule I hereto and the
denominator of which is the aggregate number of Firm Shares to be purchased by
all of the Underwriters from all of the Selling Shareholders hereunder and (b)
in the event and to the extent that the Underwriters shall exercise the election
to purchase Optional Shares as provided below, each of the Selling Shareholders
agrees, severally and not jointly, to sell to each of the Underwriters, and each
of the Underwriters agrees, severally and not jointly, to purchase from each of
the Selling Shareholders, at the purchase price per share set forth in clause
(a) of this Section 2, that portion of the number of Optional Shares as to which
such election shall have been exercised (to be adjusted by you so as to
eliminate fractional shares) determined by multiplying such number of Optional
Shares by a fraction, the numerator of which is the maximum number of Optional
Shares which such Underwriter is entitled to purchase as set forth opposite the
name of such Underwriter in Schedule I hereto and the denominator of which is
the maximum number of Optional Shares that all of the Underwriters are entitled
to purchase hereunder.
The Selling Shareholders, as and to the extent indicated in Schedule II
hereto, hereby grant, severally and not jointly, to the Underwriters the right
to purchase at their election up to _________ Optional Shares, at the purchase
price per share set forth in the paragraph above, for the sole purpose of
covering overallotments in the sale of the Firm Shares. Any such election to
purchase Optional Shares shall be made in proportion to the number of Optional
Shares to be sold by each Selling Shareholder. Any such election to purchase
Optional Shares may be exercised by written notice from you to the
Attorneys-in-Fact, given within a period of 30 calendar days after the date of
this Agreement and setting forth the aggregate number of Optional Shares to be
purchased and the date on which such Optional Shares are to be delivered, as
determined by you but in no event earlier than the First Time of Delivery (as
defined in Section 4 hereof) or, unless you and the Attorneys-in-Fact otherwise
agree in writing, earlier than two or later than ten business days after the
date of such notice.
3. Upon the authorization by you of the release of the Firm Shares, the
several Underwriters propose to offer the Firm Shares for sale upon the terms
and conditions set forth in the Prospectus.
4. (a) The Shares to be purchased by each Underwriter hereunder, in
definitive form, and in such authorized denominations and registered in such
names as Goldman, Sachs & Co. may request upon at least forty-eight hours' prior
notice to the Selling Shareholders, shall be delivered by or on behalf of the
Selling Shareholders to Goldman, Sachs & Co., through the
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<PAGE> 10
facilities of The Depository Trust Company ("DTC") for the account of such
Underwriter, against payment by or on behalf of such Underwriter of the purchase
price therefor by wire transfer of Federal (same-day) funds to the account
specified by each of the Selling Shareholders, as their interests may appear, to
Goldman, Sachs & Co. at least forty-eight hours in advance. The Company will
cause the certificates representing the Shares to be made available for checking
and packaging at least twenty-four hours prior to the Time of Delivery (as
defined below) with respect thereto at the office of DTC or its designated
custodian (the "Designated Office"). The time and date of such delivery and
payment shall be, with respect to the Firm Shares, 9:30 a.m., New York City
time, on April __, 1998 or such other time and date as Goldman, Sachs & Co. and
the Selling Shareholders may agree upon in writing, and, with respect to the
Optional Shares, 9:30 a.m., New York time, on the date specified by Goldman,
Sachs & Co. in the written notice given by Goldman, Sachs & Co. of the
Underwriters' election to purchase such Optional Shares, or such other time and
date as Goldman, Sachs & Co. and the Selling Shareholders may agree upon in
writing. Such time and date for delivery of the Firm Shares is herein called the
"First Time of Delivery," such time and date for delivery of the Optional
Shares, if not the First Time of Delivery, is herein called the "Second Time of
Delivery," and each such time and date for delivery is herein called a "Time of
Delivery".
(b) The documents to be delivered at each Time of Delivery by or on
behalf of the parties hereto pursuant to Section 7 hereof, including the cross
receipt for the Shares and any additional documents requested by the
Underwriters pursuant to Section 7(n) hereof, will be delivered at the offices
of Preston Gates & Ellis, 701 Fifth Avenue, Seattle, Washington 98104-7078 (the
"Closing Location"), and the Shares will be delivered at the Designated Office,
all at such Time of Delivery. A meeting will be held at the Closing Location at
1:00 p.m., Seattle time, on the New York Business Day next preceding such Time
of Delivery, at which meeting the final drafts of the documents to be delivered
pursuant to the preceding sentence will be available for review by the parties
hereto. For the purposes of this Section 4, "New York Business Day" shall mean
each Monday, Tuesday, Wednesday, Thursday and Friday which is not a day on which
banking institutions in New York are generally authorized or obligated by law or
executive order to close.
5. The Company agrees with each of the Underwriters:
(a) To prepare the Prospectus in a form approved by you and to file the
Prospectus pursuant to Rule 424(b) under the Act not later than the Commission's
close of business on the second business day following the execution and
delivery of this Agreement, or, if applicable, such earlier time as may be
required by Rule 430A(a)(3) under the Act; to make no further amendment or any
supplement to the Registration Statement or Prospectus which shall be
disapproved by you promptly after reasonable notice thereof; to advise you,
promptly after it receives notice thereof, of the time when any amendment to the
Registration Statement has been filed or becomes effective or any supplement to
the Prospectus or any amended Prospectus has been filed and to furnish you
copies thereof; to file promptly all reports and any definitive proxy or
information statements required to be filed by the Company with the Commission
pursuant to Section 13(a), 13(c), 14 or 15(d) of the Exchange Act subsequent to
the date of the Prospectus and for so long as the delivery of a prospectus is
required in connection with the offering or sale of the Shares; to advise you,
promptly after it receives notice thereof, of the issuance by the Commission of
any stop order or of any order preventing or suspending the use of any
Preliminary Prospectus or prospectus, of the suspension of the
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qualification of the Shares for offering or sale in any jurisdiction, of the
initiation or threatening of any proceeding for any such purpose, or of any
request by the Commission for the amending or supplementing of the Registration
Statement or Prospectus or for additional information; and, in the event of the
issuance of any stop order or of any order preventing or suspending the use of
any Preliminary Prospectus or prospectus or suspending any such qualification,
promptly to use its best efforts to obtain the withdrawal of such order;
(b) Promptly from time to time to take such action as you may reasonably
request to qualify the Shares for offering and sale under the securities laws of
such jurisdictions as you may request and to comply with such laws so as to
permit the continuance of sales and dealings therein in such jurisdictions for
as long as may be necessary to complete the distribution of the Shares, provided
that in connection therewith the Company shall not be required to qualify as a
foreign corporation or to file a general consent to service of process in any
jurisdiction;
(c) Prior to 10:00 a.m., New York City time, on the New York Business
Day next succeeding the date of this Agreement and from time to time, to furnish
the Underwriters with copies of the Prospectus in New York City in such
quantities as you may reasonably request, and, if the delivery of a prospectus
is required at any time in connection with the offering or sale of the Shares
and if at such time any events shall have occurred as a result of which the
Prospectus as then amended or supplemented would include an untrue statement of
a material fact or omit to state any material fact necessary in order to make
the statements therein, in the light of the circumstances under which they were
made when such Prospectus is delivered, not misleading, or, if for any other
reason it shall be necessary to amend or supplement the Prospectus or to file
under the Exchange Act any document incorporated by reference in the Prospectus
in order to comply with the Act or the Exchange Act, to notify you and upon your
request to file such document and to prepare and furnish without charge to each
Underwriter and to any dealer in securities as many copies as you may reasonably
request of an amended Prospectus or a supplement to the Prospectus which will
correct such statement or omission or effect such compliance, and in case any
Underwriter is required to deliver a prospectus in connection with sales of any
of the Shares at any time nine months or more after the time of issue of the
Prospectus, upon your request but at the expense of such Underwriter, to prepare
and deliver to such Underwriter as many copies as you may from time to time
reasonably request of an amended or supplemented Prospectus complying with
Section 10(a)(3) of the Act;
(d) To make generally available to its securityholders as soon as
practicable, but in any event not later than eighteen months after the effective
date of the Registration Statement (as defined in Rule 158(c) under the Act), an
earnings statement of the Company and its subsidiaries (which need not be
audited) complying with Section 11(a) of the Act and the rules and regulations
of the Commission thereunder (including, at the option of the Company, Rule
158);
(e) During the period beginning from the date hereof and continuing to
and including the date 90 days after the date of the Prospectus, not to offer,
sell, contract to sell or otherwise dispose of, except as provided hereunder and
under the International Underwriting Agreement, any securities of the Company
that are substantially similar to the Shares, including but not limited to any
securities that are convertible into or exchangeable for, or that represent the
right to receive, Stock or any such substantially similar securities (other than
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<PAGE> 12
pursuant to employee stock option plans existing on, or upon the conversion or
exchange of convertible or exchangeable securities outstanding as of, the date
of this Agreement), without your prior written consent;
(f) To furnish to its shareholders as soon as practicable after the end
of each fiscal year an annual report (including a balance sheet and statements
of income, shareholders' equity and cash flows of the Company and its
consolidated subsidiaries certified by independent public accountants) and, as
soon as practicable after the end of each of the first three quarters of each
fiscal year (beginning with the fiscal quarter ending after the effective date
of the Registration Statement), consolidated summary financial information of
the Company and its subsidiaries for such quarter in reasonable detail;
(g) During a period of five years from the effective date of the
Registration Statement, to furnish to you copies of all reports or other
communications (financial or other) furnished to shareholders, and to deliver to
you (i) as soon as they are available, copies of any reports and financial
statements furnished to or filed with the Commission or any inter-dealer
quotation system or national securities exchange on which any class of
securities of the Company is listed; and (ii) such additional information
concerning the business and financial condition of the Company as you may from
time to time reasonably request (such financial statements to be on a
consolidated basis to the extent the accounts of the Company and its
subsidiaries are consolidated in reports furnished to its shareholders generally
or to the Commission);
(h) To use the net proceeds received by it from the sale of the Shares
pursuant to this Agreement and the International Underwriting Agreement in the
manner specified in the Prospectus under the caption "Use of Proceeds";
(i) To use its best efforts to list for quotation the Shares on the
National Association of Securities Dealers Automated Quotations National Market
System ("NASDAQ"); and
(j) If the Company elects to rely upon Rule 462(b), the Company shall
file a Rule 462(b) Registration Statement with the Commission in compliance with
Rule 462(b) by 10:00 p.m., Washington, D.C. time, on the date of this Agreement,
and the Company shall at the time of filing either pay to the Commission the
filing fee for the Rule 462(b) Registration Statement or give irrevocable
instructions for the payment of such fee pursuant to Rule 111(b) under the Act.
6. The Company covenants and agrees with the several Underwriters that
the Company will pay or cause to be paid the following: (i) the fees,
disbursements and expenses of the Company's counsel and accountants in
connection with the registration of the Shares under the Act and all other
expenses in connection with the preparation, printing and filing of the
Registration Statement, any Preliminary Prospectus and the Prospectus and
amendments and supplements thereto and the mailing and delivering of copies
thereof to the Underwriters and dealers; (ii) the cost of printing or producing
any Agreement among Underwriters, this Agreement, the International Underwriting
Agreement, the Agreement between Syndicates, the Selling Agreement, the Blue Sky
Memorandum, closing documents (including compilations thereof) and any other
documents in connection with the offering, purchase, sale and delivery of the
Shares; (iii) all expenses in connection with the qualification of the Shares
for offering and sale under state securities laws as provided in Section 5(b)
hereof, including the reasonable fees and disbursements of counsel for the
Underwriters in connection with such
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qualification and in connection with the Blue Sky survey; (iv) all fees and
expenses in connection with listing the Shares on NASDAQ; (v) the filing fees
incident to, and the fees and disbursements of counsel for the Underwriters in
connection with, securing any required review by the NASD of the terms of the
sale of the Shares; (vi) the cost of preparing stock certificates; (vii) the
cost and charges of any transfer agent or registrar; and (viii) all other costs
and expenses incident to the performance of its obligations hereunder which are
not otherwise specifically provided for in this Section. Each Selling
Shareholder will pay or cause to be paid all costs and expenses incident to the
performance of such Selling Shareholder's obligations hereunder which are not
otherwise specifically provided for in this Section, including (i) any fees and
expense of counsel for such Selling Shareholder, (ii) such Selling Shareholder's
pro rata share of the fees and expenses of the Attorneys-in-Fact and the
Custodian and (iii) all expenses and taxes incident to the sale and delivery of
the Shares to be sold by such Selling Shareholder to the Underwriters hereunder.
In connection with clause (ii) of the preceding sentence, Goldman, Sachs & Co.
agrees to pay New York State stock transfer tax, and the Selling Shareholder
agrees to reimburse Goldman, Sachs & Co. for associated carrying costs if such
tax payment is not rebated on the day of payment and for any portion of such tax
payment not rebated. It is understood, however, that the Company shall bear, and
the Selling Shareholders shall not be required to pay or to reimburse the
Company for, except as provided in this Section, and Sections 8 and 11 hereof,
the cost of any other matters not directly relating to the sale and purchase of
the Shares pursuant to this Agreement and that the Underwriters will pay all of
their own costs and expenses, including the fees of their counsel, stock
transfer taxes on resale of any of the Shares by them, and any advertising
expenses connected with any offers they may make.
7. The obligations of the Underwriters hereunder, as to the Shares to be
delivered at each Time of Delivery, shall be subject, in their discretion, to
the condition that all representations and warranties and other statements of
the Company and of the Selling Shareholders herein are, at and as of such Time
of Delivery, true and correct, the condition that the Company and the Selling
Shareholders shall have performed all of their respective obligations hereunder
theretofore to be performed, and the following additional conditions:
(a) The U.S. Prospectus shall have been filed with the Commission
pursuant to Rule 424(b) within the applicable time period prescribed for such
filing by the rules and regulations under the Act and in accordance with Section
5(a) hereof; if the Company has elected to rely upon Rule 462(b), the Rule
462(b) Registration Statement shall have become effective by 10:00 p.m.,
Washington, D.C. time, on the date of this Agreement; no stop order suspending
the effectiveness of the Registration Statement or any part thereof shall have
been issued and no proceeding for that purpose shall have been initiated or
threatened by the Commission; and all requests for additional information on the
part of the Commission shall have been complied with to your reasonable
satisfaction;
(b) Sullivan & Cromwell, counsel for the Underwriters, shall have
furnished to you such opinion or opinions (a draft of each such opinion is
attached as Annex II(a) hereto), dated such Time of Delivery, with respect to
the matters covered in paragraphs (i), (ii), (vi) and (xiii) of subsection (c)
below as well as such other related matters as you may reasonably request, and
such counsel shall have received such papers and information as they may
reasonably request to enable them to pass upon such matters;
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(c) Preston Gates & Ellis, counsel for the Company, shall have furnished
to you their written opinion (a draft of such opinion is attached as Annex II(b)
hereto), dated such Time of Delivery, in form and substance satisfactory to you,
to the effect that:
(i) The Company has been duly incorporated and is validly existing
as a corporation under the laws of the State of Washington, with
corporate power and authority to own its properties and conduct its
business as described in the Prospectus;
(ii) The Company has an authorized capitalization as set forth in the
Prospectus, and all of the issued shares of capital stock of the
Company (including the Shares being delivered at such Time of Delivery)
have been duly and validly authorized and issued and are fully paid and
nonassessable; and the Shares conform to the description of the Stock
contained in the Prospectus;
(iii) The Company has been duly qualified as a foreign corporation for
the transaction of business and is in good standing under the laws of
each jurisdiction in which it owns or leases properties or conducts any
business so as to require such qualification, other than such
jurisdictions in which the failure to be so qualified would not result
in a Material Adverse Effect (such counsel being entitled to rely in
respect of the opinion in this clause upon opinions of local counsel
and in respect of matters of fact upon certificates of officers of the
Company, provided that such counsel shall state that they believe that
both you and they are justified in relying upon such opinions and
certificates);
(iv) Each Significant Subsidiary of the Company has been duly
incorporated and is validly existing as a corporation in good standing
under the laws of its jurisdiction of incorporation; and all of the
issued shares of capital stock or partnership interests of each
Significant Subsidiary have been duly and validly authorized and
issued, are fully paid and non-assessable, and (except for minority
interests representing less than 10% of such Significant Subsidiary)
are owned directly or indirectly by the Company, free and clear of all
liens, encumbrances, equities or claims other than liens granted
pursuant to the Senior Secured Facilities (such counsel being entitled
to rely in respect of the opinion in this clause upon opinions of local
counsel and in respect to matters of fact upon certificates of officers
of the Company or its Significant Subsidiaries, provided that such
counsel shall state that they believe that both you and they are
justified in relying upon such opinions and certificates);
(v) To the best of such counsel's knowledge and other than as set
forth in the Prospectus, there are no legal or governmental proceedings
pending to which the Company or any of its subsidiaries is a party or
of which any property of the Company or any of its subsidiaries is the
subject which, if determined adversely to the Company or any of its
subsidiaries, would individually or in the aggregate have a Material
Adverse Effect; and, to the best of such counsel's knowledge and other
than as set forth in the Prospectus, no such proceedings are threatened
or contemplated by governmental authorities or threatened by others;
(vi) This Agreement and the International Underwriting Agreement have
been duly authorized, executed and delivered by the Company;
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<PAGE> 15
(vii) The compliance by the Company with all of the provisions of this
Agreement and the International Underwriting Agreement and the
consummation of the transactions herein and therein contemplated will
not conflict with or result in a breach or violation of any of the
terms or provisions of, or constitute a default under, any indenture,
mortgage, deed of trust, loan agreement, shareholders agreement,
registration rights agreement or other material agreement or instrument
known to such counsel to which the Company or any of its subsidiaries
is a party or by which the Company or any of its subsidiaries is bound
or to which any of the property or assets of the Company or any of its
subsidiaries is subject, nor will such action result in any violation
of the provisions of the Articles of Incorporation or By-laws of the
Company or any statute or any order, rule or regulation known to such
counsel of any court or governmental agency or body having jurisdiction
over the Company or any of its subsidiaries or any of their properties;
(viii) No consent, approval, authorization, order, registration or
qualification of or with any court or governmental agency or body
having jurisdiction over the Company or any of its subsidiaries and, in
the case of any court, known to such counsel is required for sale of
the Shares or the consummation by the Company of the transactions
contemplated by this Agreement and the International Underwriting
Agreement, except the registration under the Act of the Shares, and
such consents, approvals, authorizations, registrations or
qualifications as may be required under state or foreign securities or
Blue Sky laws in connection with the purchase and distribution of the
Shares by the Underwriters and the International Underwriters;
(ix) Neither the Company nor any of its Significant Subsidiaries is
(a) in violation of its Articles or Certificate of Incorporation, as
the case may be, or By-laws or (b) in default in the performance or
observance of any material obligation, agreement, covenant or condition
contained in any indenture, mortgage, deed of trust, loan agreement,
lease, shareholders agreement, registration rights agreement or other
agreement or instrument, which such agreement or instrument is known to
such counsel, to which it is a party or by which it or any of its
properties may be bound, except, in the case of this clause (b), for
defaults that individually or in the aggregate would not have a
Material Adverse Effect;
(x) The statements set forth in the Prospectus under the caption
"Description of Capital Stock," insofar as they purport to constitute a
summary of the terms of the Stock and the Class B Common Stock, and
under the captions "Description of Indebtedness" and "Underwriting,"
insofar as they purport to describe the provisions of the laws and
documents to which the Company or a subsidiary of the Company is a
party referred to therein are accurate, complete and fair in all
material respects;
(xi) The Company is not an "investment company" or an entity
"controlled" by an "investment company," as such terms are defined in
the Investment Company Act;
(xii) The documents incorporated by reference in the Prospectus or any
further amendment or supplement thereto made by the Company prior to
the Time of Delivery (other than the financial statements and related
schedules therein, as to which such counsel need express no opinion),
when they became effective or were filed with the Commission, as the
case may be, complied as to form in all material respects with the
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<PAGE> 16
requirements of the Act or the Exchange Act, as applicable, and the
rules and regulations of the Commission thereunder; and they have no
reason to believe that any of such documents, when such documents
became effective or were so filed, as the case may be, contained, in
the case of a registration statement which became effective under the
Act, an untrue statement of a material fact or omitted to state a
material fact required to be stated therein or necessary to make the
statements therein not misleading, or, in the case of other documents
which were filed under the Exchange Act with the Commission, an untrue
statement of a material fact or omitted to state a material fact
necessary in order to make the statements therein, in the light of the
circumstances under which they were made when such documents were so
filed, not misleading; and
(xiii) The Registration Statement and the Prospectus and any further
amendments and supplements thereto made by the Company prior to such
Time of Delivery (other than the financial statements and related
schedules or other financial data therein, as to which such counsel
need express no opinion) comply as to form in all material respects
with the requirements of the Act and the rules and regulations
thereunder, although they do not assume any responsibility for the
accuracy, completeness or fairness of the statements contained in the
Registration Statement or the Prospectus, except for those referred to
in the opinion in subsection (x) of this Section 7(c).
In addition, such counsel shall state that nothing has come to
their attention that would cause them to believe that, as of its
effective date, the Registration Statement or any further amendment
thereto made by the Company prior to such Time of Delivery (other than
the financial statements and related schedules or other financial data
therein, as to which such counsel need express no belief) contained an
untrue statement of a material fact or omitted to state a material fact
required to be stated therein or necessary to make the statements
therein not misleading or that, as of its date, the Prospectus or any
further amendment or supplement thereto made by the Company prior to
such Time of Delivery (other than the financial statements and related
schedules or other financial data therein, as to which such counsel
need express no belief) contained an untrue statement of a material
fact or omitted to state a material fact necessary to make the
statements therein, in the light of the circumstances under which they
were made, not misleading or that, as of such Time of Delivery, either
the Registration Statement or the Prospectus or any further amendment
or supplement thereto made by the Company prior to such Time of
Delivery (other than the financial statements and related schedules or
other financial data therein, as to which such counsel need express no
belief) contains an untrue statement of a material fact or omits to
state a material fact necessary to make the statements therein, in the
light of the circumstances under which they were made, not misleading;
and they do not know of any amendment to the Registration Statement
required to be filed or of any contracts or other documents of a
character required to be filed as an exhibit to the Registration
Statement or required to be incorporated by reference into the
Prospectus or required to be described in the Registration Statement or
the Prospectus which are not filed or incorporated by reference or
described as required.
(d) A Senior Vice President of the Company responsible for real estate
matters shall furnish to you a certificate on behalf of the Company, dated such
Time of Delivery, in form and
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substance satisfactory to you, stating that to the best of his knowledge and
without any independent investigation (i) the Company and its subsidiaries have
valid title in fee simple to all real property owned by them, in each case free
and clear of all liens, encumbrances and defects except those that are described
in the Prospectus and those that could not reasonably be expected to have a
Material Adverse Effect; and (ii) any real property and buildings held under
lease by the Company and its subsidiaries are held by them under valid,
subsisting and enforceable leases with such exceptions as could not reasonably
be expected to have a Material Adverse Effect;
(e) Gurman, Blask & Freedman Chartered, regulatory counsel for the Company,
shall have furnished to you their written opinion (a draft of such opinion is
attached as Annex II(c) hereto), dated such Time of Delivery, in form and
substance satisfactory to you, to the effect that:
(i) None of the Company or any of its subsidiaries has failed to
obtain any Permit from the FCC which is material to the conduct of the
Company's or such subsidiary's business. The Company and its
subsidiaries have all Permits from the FCC necessary to own their
respective properties and to conduct their respective
telecommunications businesses in the manner described in the
Prospectus, which Permits are material to the conduct of the Company's
or such subsidiary's business;
(ii) The compliance by the Company with all of the provisions of this
Agreement and the International Underwriting Agreement and the
consummation of the transactions herein and therein contemplated will
not result in any conflict with or result in a breach or violation of
the Communications Act or the Commission's Rules or any Permit issued
to the Company or any of its subsidiaries, as the case may be, under or
pursuant to authority granted under the Communications Act;
(iii) No consent, approval, authorization, order, registration or
qualification under the Communications Act or the Commission's Rules is
required for the sale of the Shares as described in the Prospectus or
the consummation by the Company of the transactions contemplated by
this Agreement and the International Underwriting Agreement;
(iv) Other than as set forth or contemplated in the Prospectus, such
counsel does not know of any legal or governmental proceedings pending
before the FCC to which the Company or any of its subsidiaries is a
party or of which any property of the Company or any of its
subsidiaries is the subject which, if determined adversely to the
Company or any of its subsidiaries, would individually or in the
aggregate have a material adverse effect on the current or future
consolidated financial position, shareholders' equity or results of
operations of the Company and its subsidiaries taken as a whole; and
such counsel does not know of any such proceedings that are threatened
or contemplated by the FCC; and
(v) The statements set forth in the Prospectus under the captions
"Risk Factors--Governmental Regulation," "Business--Competition" and
"Business--Governmental Regulation," insofar as they purport to
describe the provisions of the Communications Act and the Commission's
Rules and documents to which the
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<PAGE> 18
Company or a subsidiary of the Company is a party referred to therein
are accurate, complete and fair in all material respects;
(f) The respective counsel for each of the Selling Shareholders, as indicated
in Schedule II hereto, each shall have furnished to you their written opinion
with respect to each of the Selling Shareholders for whom they are acting as
counsel, dated such Time of Delivery, in form and substance satisfactory to you,
to the effect that:
(i) A Custody Agreement and Power of Attorney has been duly executed
and delivered by such Selling Shareholder and constitutes a valid and
binding agreement of such Selling Shareholder in accordance with its
terms;
(ii) This Agreement and the International Underwriting Agreement have
been duly executed and delivered by or on behalf of such Selling
Shareholder; and the sale of the Shares to be sold by such Selling
Shareholder hereunder and thereunder and the compliance by such Selling
Shareholder with all of the provisions of this Agreement and the
International Underwriting Agreement and the Custody Agreement and
Power of Attorney and the consummation of the transactions herein and
therein contemplated will not conflict with or result in a breach or
violation of any terms or provisions of, or constitute a default under,
any indenture, mortgage, deed of trust, loan agreement or other
material agreement or instrument known to such counsel to which such
Selling Shareholder is a party or by which such Selling Shareholder is
bound, or to which any of the property or assets of such Selling
Shareholder is subject, nor will such action result in any violation of
the provisions of the Articles or Certificate of Incorporation, as the
case may be, or By-laws of such Selling Shareholder if such Selling
Shareholder is a corporation, the partnership agreement of such Selling
Shareholder if such Selling Shareholder is a partnership or any order,
rule or regulation known to such counsel of any court or governmental
agency or body having jurisdiction over such Selling Shareholder or the
property of such Selling Shareholder;
(iii) No consent, approval, authorization, order, registration or
qualification of or with any court or governmental agency or body is
required for the sale of the Shares or the consummation of the
transactions contemplated by this Agreement and the International
Underwriting Agreement in connection with the Shares to be sold by such
Selling Shareholder hereunder or thereunder, except which have been
duly obtained and are in full force and effect, such as have been
obtained under the Act and such as may be required under state or
foreign securities or Blue Sky laws in connection with the purchase and
distribution of such Shares by the Underwriters and the International
Underwriters;
(iv) Immediately prior to such Time of Delivery such Selling
Shareholder had valid title to the Shares to be sold at such Time of
Delivery by such Selling Shareholder under this Agreement and the
International Underwriting Agreement, free and clear of all liens,
encumbrances, equities or claims, and full right, power and authority
to sell, assign, transfer and deliver the Shares to be sold by such
Selling Shareholder hereunder and thereunder; and
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(v) Valid title to such Shares, free and clear of all liens,
encumbrances, equities or claims, has been transferred to each of the
several Underwriters or International Underwriters, as the case may be.
In rendering such opinion, such counsel may state that they express no
opinion as to the laws of any jurisdiction outside the United States and in
rendering the opinion in subparagraph (iv) and (v) such counsel may rely
upon a certificate of such Selling Shareholder in respect of matters of
fact as to ownership of, and liens, encumbrances, equities or claims on the
Shares sold by such Selling Shareholder, provided that such counsel shall
state that they believe that both you and they are justified in relying
upon such certificate;
(g) On the date of the Prospectus at a time prior to the execution of this
Agreement, at 9:30 a.m., New York City time, on the effective date of any
post-effective amendment to the Registration Statement filed subsequent to the
date of this Agreement and also at each Time of Delivery, Arthur Andersen LLP
shall have furnished to you a letter or letters, dated the respective dates of
delivery thereof, in form and substance satisfactory to you, to the effect set
forth in Annex I hereto (the executed copy of the letter delivered prior to the
execution of this Agreement is attached as Annex I(a) hereto and a draft of the
form of letter to be delivered on the effective date of any post-effective
amendment to the Registration Statement and as of each Time of Delivery is
attached as Annex I(b) hereto);
(h)(i) Neither the Company nor any of its subsidiaries shall have sustained
since the date of the latest audited financial statements included or
incorporated by reference in the Prospectus any loss or interference with its
business from fire, explosion, flood or other calamity, whether or not covered
by insurance, or from any labor dispute or court or governmental action, order
or decree, otherwise than as set forth or contemplated in the Prospectus, and
(ii) since the respective dates as of which information is given in the
Prospectus there shall not have been any change in the capital stock,
partnership interests, short-term debt or long-term debt of the Company or any
of its subsidiaries or any change, or any development involving a prospective
change, in or affecting the general affairs, management, financial position,
shareholders' equity or results of operations of the Company and its
subsidiaries, otherwise than as set forth or contemplated in the Prospectus, the
effect of which, in any such case described in Clause (i) or (ii), is in the
judgment of the Representatives so material and adverse as to make it
impracticable or inadvisable to proceed with the public offering or the delivery
of the Shares being delivered at such Time of Delivery on the terms and in the
manner contemplated in the Prospectus;
(i) On or after the date hereof (i) no downgrading shall have occurred in
the rating according the Company's debt securities by any "national recognized
statistical rating organization", as that term is defined by the Commission for
purposes of Rule 436(g)(2) under the Act, and (ii) no such organization shall
have publicly announced that it has under surveillance or review, with possible
negative implications, its rating of any of the Company's debt securities.
(j) On or after the date hereof there shall not have occurred any of the
following: (i) a suspension or material limitation in trading in securities
generally on the New York Stock Exchange or on NASDAQ; (ii) a suspension or
material limitation in trading in the Company's securities on NASDAQ; (iii) a
general moratorium on commercial banking activities declared
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by either Federal or New York or Washington State authorities; or (iv) the
outbreak or escalation of hostilities involving the United States or the
declaration by the United States of a national emergency or war, if the effect
of any such event specified in this Clause (iv) in the judgment of the
Representatives makes it impracticable or inadvisable to proceed with the public
offering or the delivery of the Shares being delivered at such Time of Delivery
on the terms and in the manner contemplated in the Prospectus;
(k) The Shares to be sold by the Selling Shareholders at the Time of
Delivery shall have been duly listed for quotation on NASDAQ;
(l) The Company has obtained and delivered to the Underwriters executed
copies of an agreement from each of the shareholders listed on Schedule III
substantially to the effect set forth in Section 5(e) hereof in form and
substance satisfactory to you;
(m) The Company shall have complied with the provisions of Section 5(c)
hereof with respect to the furnishing of prospectuses on the New York Business
Day next succeeding the date of this Agreement; and
(n) The Company and each of the Selling Shareholders shall have furnished
or caused to be furnished to you at such Time of Delivery certificates of
officers of the Company and of the Selling Shareholders, respectively,
satisfactory to you as to the accuracy of the representations and warranties of
the Company and each of the Selling Shareholders, respectively, herein at and as
of such Time of Delivery, as to the performance by the Company and each of the
Selling Shareholders of all of their respective obligations hereunder to be
performed at or prior to such Time of Delivery, and as to such other matters as
you may reasonably request, and the Company shall have furnished or caused to be
furnished certificates as to the matters set forth in subsections (a) and (h) of
this Section, and as to such other matters as you may reasonably request.
8. (a) The Company will indemnify and hold harmless each Underwriter
against any losses, claims, damages or liabilities, joint or several, to which
such Underwriter may become subject, under the Act or otherwise, insofar as such
losses, claims, damages or liabilities (or actions in respect thereof) arise out
of or are based upon an untrue statement or alleged untrue statement of a
material fact contained in any Preliminary Prospectus, the Registration
Statement or the Prospectus, or any amendment or supplement thereto, or arise
out of or are based upon the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, and will reimburse each Underwriter for any legal or
other expenses reasonably incurred by such Underwriter in connection with
investigating or defending any such action or claim as such expenses are
incurred; provided, however, that the Company shall not be liable in any such
case to the extent that any such loss, claim, damage or liability arises out of
or is based upon an untrue statement or alleged untrue statement or omission or
alleged omission made in any Preliminary Prospectus, the Registration Statement
or the Prospectus or any such amendment or supplement in reliance upon and in
conformity with written information furnished to the Company by any Underwriter
through Goldman, Sachs & Co. expressly for use therein.
(b) Each of the Selling Shareholders severally and not jointly will
indemnify and hold harmless each Underwriter against any losses, claims, damages
or liabilities, joint or several, to which such Underwriter may become subject,
under the Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based
20
<PAGE> 21
upon an untrue statement or alleged untrue statement of a material fact
contained in any Preliminary Prospectus, the Registration Statement or the
Prospectus, or any amendment or supplement thereto, or arise out of or are based
upon the omission or alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements therein not misleading,
in each case to the extent, but only to the extent, that such untrue statement
or alleged untrue statement or omission or alleged omission was made in any
Preliminary Prospectus, the Registration Statement or the Prospectus or any such
amendment or supplement in reliance upon and in conformity with written
information furnished to the Company by such Selling Stockholder expressly for
use therein; and will reimburse each Underwriter for any legal or other expenses
reasonably incurred by such Underwriter in connection with investigating or
defending any such action or claim as such expenses are incurred; provided,
however, that such Selling Stockholder shall not be liable in any such case to
the extent that any such loss, claim, damage or liability arises out of or is
based upon an untrue statement or alleged untrue statement or omission or
alleged omission made in any Preliminary Prospectus, the Registration Statement
or the Prospectus or any such amendment or supplement in reliance upon and in
conformity with written information furnished to the Company by any Underwriter
through Goldman, Sachs & Co. expressly for use therein; provided, further, that
the liability of a Selling Shareholder pursuant to this subsection (b) shall not
exceed the product of the number of Shares sold by such Selling Shareholder and
the public offering price of the Shares as set forth in the Prospectus.
(c) Each Underwriter will indemnify and hold harmless the Company and each
Selling Shareholder against any losses, claims, damages or liabilities, joint or
several, to which the Company or such Selling Shareholder may become subject,
under the Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon an
untrue statement or alleged untrue statement of a material fact contained in any
Preliminary Prospectus, the Registration Statement or the Prospectus, or any
amendment or supplement thereto, or arise out of or are based upon the omission
or alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading, in each case
to the extent, but only to the extent, that such untrue statement or alleged
untrue statement or omission or alleged omission was made in any Preliminary
Prospectus, the Registration Statement or the Prospectus or any such amendment
or supplement in reliance upon and in conformity with written information
furnished to the Company by such Underwriter through Goldman, Sachs & Co.
expressly for use therein; and will reimburse the Company and each Selling
Shareholder for any legal or other expenses reasonably incurred by the Company
or such Selling Shareholder in connection with investigating or defending any
such action or claim as such expenses are incurred.
(d) Promptly after receipt by an indemnified party under subsection (a),
(b) or (c) above of notice of the commencement of any action, such indemnified
party shall, if a claim in respect thereof is to be made against an indemnifying
party under such subsection, notify the indemnifying party in writing of the
commencement thereof; but the omission so to notify the indemnifying party shall
not relieve it from any liability which it may have to any indemnified party
otherwise than under such subsection. In case any such action shall be brought
against any indemnified party and it shall notify the indemnifying party of the
commencement thereof, the indemnifying party shall be entitled to participate
therein and, to the extent that it shall wish, jointly with any other
indemnifying party similarly notified, to assume the defense thereof, with
counsel satisfactory to such indemnified party (who shall not, except with the
consent of the indemnified party, be counsel to the indemnifying party), and,
after notice from
21
<PAGE> 22
the indemnifying party to such indemnified party of its election so to assume
the defense thereof, the indemnifying party shall not be liable to such
indemnified party under such subsection for any legal expenses of other counsel
or any other expenses, in each case subsequently incurred by such indemnified
party, in connection with the defense thereof other than reasonable costs of
investigation. No indemnifying party shall, without the written consent of the
indemnified party, effect the settlement or compromise of, or consent to the
entry of any judgment with respect to, any pending or threatened action or claim
in respect of which indemnification or contribution may be sought hereunder
(whether or not the indemnified party is an actual or potential party to such
action or claim) unless such settlement, compromise or judgment (i) includes an
unconditional release of the indemnified party from all liability arising out of
such action or claim and (ii) does not include a statement as to or an admission
of fault, culpability or a failure to act, by or on behalf of any indemnified
party.
(e) If the indemnification provided for in this Section 8 is unavailable to
or insufficient to hold harmless an indemnified party under subsection (a), (b)
or (c) above in respect of any losses, claims, damages or liabilities (or
actions in respect thereof) referred to therein, then each indemnifying party
shall contribute to the amount paid or payable by such indemnified party as a
result of such losses, claims, damages or liabilities (or actions in respect
thereof) in such proportion as is appropriate to reflect the relative benefits
received by the Company and the Selling Shareholders on the one hand and the
Underwriters on the other from the offering of the Shares. If, however, the
allocation provided by the immediately preceding sentence is not permitted by
applicable law or if the indemnified party failed to give the notice required
under subsection (d) above, then each indemnifying party shall contribute to
such amount paid or payable by such indemnified party in such proportion as is
appropriate to reflect not only such relative benefits but also the relative
fault of the Company and the Selling Shareholders on the one hand and the
Underwriters on the other in connection with the statements or omissions which
resulted in such losses, claims, damages or liabilities (or actions in respect
thereof), as well as any other relevant equitable considerations (including any
material prejudice as a result of any failure to give notice as required by
subsection (d) above). The relative benefits received by the Company and the
Selling Shareholders on the one hand and the Underwriters on the other shall be
deemed to be in the same proportion as the total net proceeds from the offering
of the Shares purchased under this Agreement (before deducting expenses)
received by the Company and the Selling Shareholders in the underwritten public
offering bear to the total underwriting discounts and commissions received by
the Underwriters with respect to the Shares purchased under this Agreement, in
each case as set forth in the table on the cover page of the Prospectus. The
relative fault shall be determined by reference to, among other things, whether
the untrue or alleged untrue statement of a material fact or the omission or
alleged omission to state a material fact relates to information supplied by the
Company or the Selling Shareholders on the one hand or the Underwriters on the
other and the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such statement or omission. The Company, each
of the Selling Shareholders and the Underwriters agree that it would not be just
and equitable if contributions pursuant to this subsection (e) were determined
by pro rata allocation (even if the Underwriters were treated as one entity for
such purpose) or by any other method of allocation which does not take account
of the equitable considerations referred to above in this subsection (e). The
amount paid or payable by an indemnified party as a result of the losses,
claims, damages or liabilities (or actions in respect thereof) referred to above
in this subsection (e) shall be deemed to include any legal or other expenses
reasonably incurred by such indemnified party in
22
<PAGE> 23
connection with investigating or defending any such action or claim.
Notwithstanding the provisions of this subsection (e), no Underwriter shall be
required to contribute any amount in excess of the amount by which the total
price at which the Shares underwritten by it and distributed to the public were
offered to the public exceeds the amount of any damages which such Underwriter
has otherwise been required to pay by reason of such untrue or alleged untrue
statement or omission or alleged omission and no Selling Shareholder shall be
required to contribute any amount in excess of the product of the number of
Shares sold by such Selling Shareholder and the public offering price of the
Shares as set forth in the Prospectus. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Act) shall be
entitled to contribution from any person who was not guilty of such fraudulent
misrepresentation. The Underwriters' obligations in this subsection (e) to
contribute are several in proportion to their respective underwriting
obligations and not joint.
(f) The obligations of the Company and the Selling Shareholders under this
Section 8 shall be in addition to any liability which the Company and the
respective Selling Shareholders may otherwise have and shall extend, upon the
same terms and conditions, to each person, if any, who controls any Underwriter
within the meaning of the Act; and the obligations of the Underwriters under
this Section 8 shall be in addition to any liability which the respective
Underwriters may otherwise have and shall extend, upon the same terms and
conditions, to each officer and director of the Company and to each person, if
any, who controls the Company or any Selling Shareholder within the meaning of
the Act.
9. (a) If any Underwriter shall default in its obligation to purchase the
Shares which it has agreed to purchase hereunder at a Time of Delivery, you may
in your discretion arrange for you or another party or other parties to purchase
such Shares on the terms contained herein. If within thirty-six hours after such
default by any Underwriter you do not arrange for the purchase of such Shares,
then the Selling Shareholders shall be entitled to a further period of
thirty-six hours within which to procure another party or other parties
satisfactory to you to purchase such Shares on such terms. In the event that,
within the respective prescribed periods, you notify the Selling Shareholders
that you have so arranged for the purchase of such Shares, or the Selling
Shareholders notify you that they have so arranged for the purchase of such
Shares, you or the Selling Shareholders shall have the right to postpone such
Time of Delivery for a period of not more than seven days, in order to effect
whatever changes may thereby be made necessary in the Registration Statement or
the Prospectus, or in any other documents or arrangements, and the Company
agrees to file promptly any amendments to the Registration Statement or the
Prospectus which in your opinion may thereby be made necessary. The term
"Underwriter" as used in this Agreement shall include any person substituted
under this Section with like effect as if such person had originally been a
party to this Agreement with respect to such Shares.
(b) If, after giving effect to any arrangements for the purchase of the
Shares of a defaulting Underwriter or Underwriters by you and the Selling
Shareholders as provided in subsection (a) above, the aggregate number of such
Shares which remains unpurchased does not exceed one-eleventh of the aggregate
number of all the Shares to be purchased at such Time of Delivery, then the
Selling Shareholders shall have the right to require each non-defaulting
Underwriter to purchase the number of Shares which such Underwriter agreed to
purchase hereunder at such Time of Delivery and, in addition, to require each
non-defaulting Underwriter to purchase its pro rata share (based on the number
of Shares which such Underwriter agreed to purchase hereunder) of the Shares of
such defaulting Underwriter or
23
<PAGE> 24
Underwriters for which such arrangements have not been made; but nothing herein
shall relieve a defaulting Underwriter from liability for its default.
(c) If, after giving effect to any arrangements for the purchase of the
Shares of a defaulting Underwriter or Underwriters by you and the Selling
Shareholders as provided in subsection (a) above, the aggregate number of such
Shares which remains unpurchased exceeds one-eleventh of the aggregate number of
all the Shares to be purchased at such Time of Delivery, or if the Selling
Shareholders shall not exercise the right described in subsection (b) above to
require non-defaulting Underwriters to purchase Shares of a defaulting
Underwriter or Underwriters, then this Agreement (or, with respect to the Second
Time of Delivery, the obligations of the Underwriters to purchase and of the
Selling Shareholders to sell the Optional Shares) shall thereupon terminate,
without liability on the part of any non-defaulting Underwriter or the Company
or the Selling Shareholders, except for the expenses to be borne by the Company
and the Selling Shareholders and the Underwriters as provided in Section 6
hereof and the indemnity and contribution agreements in Section 8 hereof; but
nothing herein shall relieve a defaulting Underwriter from liability for its
default.
10. The respective indemnities, agreements, representations, warranties and
other statements of the Company, the Selling Shareholders and the several
Underwriters, as set forth in this Agreement or made by or on behalf of them,
respectively, pursuant to this Agreement, shall remain in full force and effect,
regardless of any investigation (or any statement as to the results thereof)
made by or on behalf of any Underwriter or any controlling person of any
Underwriter, or the Company, or any of the Selling Shareholders, or any officer
or director or controlling person of the Company, or any controlling person of
any Selling Shareholder, and shall survive delivery of and payment for the
Shares.
Anything herein to the contrary notwithstanding, the indemnity agreement of
the Company in subsection (a) of Section 8 hereof, the representations and
warranties in subsections (a)(ii), (a)(iii) or (a)(iv) of Section 1 hereof and
any representation or warranty as to the accuracy of the Registration Statement
or the Prospectus contained in any certificate furnished by the Company pursuant
to Section 7 hereof, insofar as they may constitute a basis for indemnification
for liabilities (other than payment by the Company of expenses incurred or paid
in the successful defense of any action, suit or proceeding) arising under the
Act, shall not extend to the extent of any interest therein of a controlling
person or partner of an Underwriter who is a director, officer or controlling
person of the Company when the Registration Statement has become effective or
who, with his or her consent, is named in the Registration Statement as about to
become a director of the Company, except in each case to the extent that an
interest of such character shall have been determined by a court of appropriate
jurisdiction as not against public policy as expressed in the Act. Unless in the
opinion of counsel for the Company the matter has been settled by controlling
precedent, the Company will, if a claim for such indemnification is asserted,
submit to a court of appropriate jurisdiction the question of whether the
extension of the indemnification by the Company to such interest is against
public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
11. If this Agreement shall be terminated pursuant to Section 9 hereof,
neither the Company nor the Selling Shareholders shall then be under any
liability to any Underwriter except as provided in Sections 6 and 8 hereof; but,
if for any other reason any Shares are not delivered by or on behalf of the
Selling Shareholders as provided herein, the Company will reimburse the
Underwriters through you for all out-of-pocket expenses approved in writing by
24
<PAGE> 25
you, including fees and disbursements of counsel, reasonably incurred by the
Underwriters in making preparations for the purchase, sale and delivery of the
Shares not so delivered, but the Company and the Selling Shareholders shall then
be under no further liability to any Underwriter in respect of the Shares not so
delivered except as provided in Sections 6 and 8 hereof.
12. In all dealings hereunder, you shall act on behalf of each of the
Underwriters, and the parties hereto shall be entitled to act and rely upon any
statement, request, notice or agreement on behalf of any Underwriter made or
given by you jointly or by Goldman, Sachs & Co. on behalf of you as the
representatives; and in all dealings with any Selling Shareholder hereunder, you
and the Company shall be entitled to act and rely upon any statement, request,
notice or agreement on behalf of such Selling Shareholder made or given by any
or all of the Attorneys-in-Fact for such Selling Shareholder.
All statements, requests, notices and agreements hereunder shall be in
writing, and if to the Underwriters shall be delivered or sent by mail, telex or
facsimile transmission to you as the representatives in care of Goldman, Sachs &
Co., 85 Broad Street, New York, New York 10004, Attention: Registration
Department; if to any Selling Shareholder shall be delivered or sent by mail,
telex or facsimile transmission to counsel for such Selling Shareholder at its
address set forth in Schedule II hereto; and if to the Company shall be
delivered or sent by mail, telex or facsimile transmission to the address of the
Company set forth in the Registration Statement, Attention: Secretary; provided,
however, that any notice to an Underwriter pursuant to Section 8(d) hereof shall
be delivered or sent by mail, telex or facsimile transmission to such
Underwriter at its address set forth in its Underwriters' Questionnaire, or
telex constituting such Questionnaire, which address will be supplied to the
Company or the Selling Shareholders by you upon request. Any such statements,
requests, notices or agreements shall take effect upon receipt thereof.
13. This Agreement shall be binding upon, and inure solely to the benefit
of, the Underwriters, the Company and the Selling Shareholders and, to the
extent provided in Sections 8 and 10 hereof, the officers and directors of the
Company and each person who controls the Company, any Selling Shareholder or any
Underwriter, and their respective heirs, executors, administrators, successors
and assigns, and no other person shall acquire or have any right under or by
virtue of this Agreement. No purchaser of any of the Shares from any Underwriter
shall be deemed a successor or assign by reason merely of such purchase.
14. Time shall be of the essence of this Agreement. As used herein, the
term "business day" shall mean any day when the Commission's office in
Washington, D.C. is open for business.
15. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH
THE LAWS OF THE STATE OF NEW YORK.
16. This Agreement may be executed by any one or more of the parties hereto
in any number of counterparts, each of which shall be deemed to be an original,
but all such counterparts shall together constitute one and the same instrument.
25
<PAGE> 26
If the foregoing is in accordance with your understanding, please sign and
return to us six counterparts hereof, and upon the acceptance hereof by you, on
behalf of each of the Underwriters, this letter and such acceptance hereof shall
constitute a binding agreement among each of the Underwriters, the Company and
each of the Selling Shareholders. It is understood that your acceptance of this
letter on behalf of each of the Underwriters is pursuant to the authority set
forth in a form of Agreement among Underwriters (U.S. Version), the form of
which shall be submitted to the Company and the Selling Shareholders for
examination upon request, but without warranty on your part as to the authority
of the signers thereof.
Very truly yours,
Western Wireless Corporation
By: . . . . . . . . . . . . . . . . . . . .
Name:
Title:
[Names of Selling Shareholders]
By: . . . . . . . . . . . . . . . . . . . .
Name:
Title:
As Attorney-in-Fact acting on behalf of each
of the Selling Shareholders named in
Schedule II to this Agreement
Accepted as of the date hereof:
Goldman, Sachs & Co.
[Co-Representatives]
By:...................................
(Goldman, Sachs & Co.)
On behalf of each of the Underwriters
26
<PAGE> 27
SCHEDULE I
<TABLE>
<CAPTION>
NUMBER OF
OPTIONAL SHARES
TOTAL NUMBER TO BE PURCHASED
OF FIRM SHARES IF MAXIMUM
TO BE OPTION
UNDERWRITER PURCHASED EXERCISED
- -------------- ------------- --------------
<S> <C> <C>
Goldman, Sachs & Co. ......................................
[Names of Co-Representatives]..............................
___________................................................
___________................................................
------------- --------------
Total.............................................
============= ==============
</TABLE>
27
<PAGE> 28
SCHEDULE II
<TABLE>
<CAPTION>
TOTAL NUMBER
OF FIRM SHARES
TO BE SOLD
-------------
<S> <C>
The Selling Shareholder(s):
[Name of Selling Shareholder] (a) ............................
___________ ..................................................
___________ ..................................................
___________ ..................................................
___________ ..................................................
Total........................................................
=============
</TABLE>
(a) This Selling Shareholder is represented by Preston Gates & Ellis and
has appointed John W. Stanton and Alan R. Bender, and each of them, as the
Attorneys-in-Fact for such Selling Shareholder.
28
<PAGE> 29
SCHEDULE III
John W. Stanton
Theresa E. Gillespie
Hellman & Friedman Capital Partners II, L.P.
H&F Orchard Partners, L.P.
H&F International Partners, L.P.
Media/Communications Partners II Limited Partnership
Media/Communications Investors Limited Partnership
The Goldman Sachs Group, L.P.
GS Capital Partners, L.P.
Bridge Street Fund 1992, L.P.
Stone Street Fund 1992, L.P.
Odyssey Partners, L.P.
Providence Media Partners, L.P.
Donald Guthrie
Robert A. Stapleton
Mikal J. Thomsen
Alan R. Bender
Cregg B. Baumbaugh
29
<PAGE> 30
ANNEX I
Pursuant to Section 7(g) of the Underwriting Agreement, the accountants
shall furnish letters to the Underwriters to the effect that:
(i) They are independent certified public accountants with respect to the
Company and its subsidiaries within the meaning of the Act and the applicable
published rules and regulations thereunder;
(ii) In their opinion, the financial statements and any supplementary
financial information and schedules (and, if applicable, financial forecasts
and/or pro forma financial information) examined by them and included or
incorporated by reference in the Registration Statement or the Prospectus comply
as to form in all material respects with the applicable accounting requirements
of the Act or the Exchange Act, as applicable, and the related published rules
and regulations thereunder; and, if applicable, they have made a review in
accordance with standards established by the American Institute of Certified
Public Accountants of the consolidated interim financial statements, selected
financial data, pro forma financial information, financial forecasts and/or
condensed financial statements derived from audited financial statements of the
Company for the periods specified in such letter, as indicated in their reports
thereon, copies of which have been separately furnished to the representatives
of the Underwriters (the "Representatives");
(iii) They have made a review in accordance with standards established by the
American Institute of Certified Public Accountants of the unaudited condensed
consolidated statements of income, consolidated balance sheets and consolidated
statements of cash flows included in the Prospectus and/or included in the
Company's Quarterly Report on Form 10-Q incorporated by reference into the
Prospectus as indicated in their reports thereon copies of which have been
separately furnished to the Representatives; and on the basis of specified
procedures including inquiries of officials of the Company who have
responsibility for financial and accounting matters regarding whether the
unaudited condensed consolidated financial statements referred to in paragraph
(vi)(A)(i) below comply as to form in all material respects with the applicable
accounting requirements of the Act and the Exchange Act and the related
published rules and regulations, nothing came to their attention that caused
them to believe that the unaudited condensed consolidated financial statements
do not comply as to form in all material respects with the applicable accounting
requirements of the Act and the Exchange Act and the related published rules and
regulations;
(iv) The unaudited selected financial information with respect to the
consolidated results of operations and financial position of the Company for the
five most recent fiscal years included in the Prospectus agrees with the
corresponding amounts (after restatements where applicable) in the audited
consolidated financial statements for such five fiscal years which were included
or incorporated by reference in the Company's Annual Reports on Form 10-K for
such fiscal years;
(v) They have compared the information in the Prospectus under selected
captions with the disclosure requirements of Regulation S-K and on the basis of
limited procedures specified in such letter nothing came to their attention as a
result of the foregoing procedures that caused them to believe that this
information does not conform in all material respects with the disclosure
requirements of Items 301, 302, 402 and 503(d), respectively, of Regulation S-K;
I-1
<PAGE> 31
(vi) On the basis of limited procedures, not constituting an examination in
accordance with generally accepted auditing standards, consisting of a reading
of the unaudited financial statements and other information referred to below, a
reading of the latest available interim financial statements of the Company and
its subsidiaries, inspection of the minute books of the Company and its
subsidiaries since the date of the latest audited financial statements included
in the Prospectus, inquiries of officials of the Company and its subsidiaries
responsible for financial and accounting matters and such other inquiries and
procedures as may be specified in such letter, nothing came to their attention
that caused them to believe that:
(A) (i) the unaudited condensed consolidated statements of income,
consolidated balance sheets and consolidated statements of cash flows
included in the Prospectus and/or included or incorporated by reference in
the Company's Quarterly Reports on Form 10-Q incorporated by reference in
the Prospectus do not comply as to form in all material respects with the
applicable accounting requirements of the Exchange Act and the related
published rules and regulations, or (ii) any material modifications should
be made to the unaudited condensed consolidated statements of income,
consolidated balance sheets and consolidated statements of cash flows
included in the Prospectus or included in the Company's Quarterly Reports
on Form 10-Q incorporated by reference in the Prospectus, for them to be in
conformity with generally accepted accounting principles;
(B) any other unaudited income statement data and balance sheet items
included in the Prospectus do not agree with the corresponding items in the
unaudited consolidated financial statements from which such data and items
were derived, and any such unaudited data and items were not determined on
a basis substantially consistent with the basis for the corresponding
amounts in the audited consolidated financial statements included or
incorporated by reference in the Company's Annual Report on Form 10-K for
the most recent fiscal year;
(C) the unaudited financial statements which were not included in the
Prospectus but from which were derived the unaudited condensed financial
statements referred to in Clause (A) and any unaudited income statement
data and balance sheet items included in the Prospectus and referred to in
Clause (B) were not determined on a basis substantially consistent with the
basis for the audited consolidated financial statements included or
incorporated by reference in the Company's Annual Report on Form 10-K for
the most recent fiscal year;
(D) any unaudited pro forma consolidated condensed financial statements
included or incorporated by reference in the Prospectus do not comply as to
form in all material respects with the applicable accounting requirements
of the Act and the published rules and regulations thereunder or the pro
forma adjustments have not been properly applied to the historical amounts
in the compilation of those statements;
(E) as of a specified date not more than five days prior to the date of
such letter, there have been any changes in the consolidated capital stock
(other than issuances of capital stock upon exercise of options and stock
appreciation rights, upon earn-outs of performance shares and upon
conversions of convertible securities, in each case which were outstanding
on the date of the latest balance sheet included or incorporated by
reference in the Prospectus) or any increase in the consolidated long-term
debt of the Company and its subsidiaries, or any decreases in consolidated
net current assets or shareholders' equity or other items specified by the
Representatives, or any increases in any items specified by the
Representatives, in each case as compared with amounts
I-2
<PAGE> 32
shown in the latest balance sheet included or incorporated by reference in
the Prospectus, except in each case for changes, increases or decreases
which the Prospectus discloses have occurred or may occur or which are
described in such letter; and
(F) for the period from the date of the latest financial statements
included or incorporated by reference in the Prospectus to the specified
date referred to in Clause (E) there were any decreases in consolidated net
revenues or operating profit or the total or per share amounts of
consolidated net income or other items specified by the Representatives, or
any increases in any items specified by the Representatives, in each case
as compared with the comparable period of the preceding year and with any
other period of corresponding length specified by the Representatives,
except in each case for increases or decreases which the Prospectus
discloses have occurred or may occur or which are described in such letter;
and
(vii) In addition to the examination referred to in their report(s) included
or incorporated by reference in the Prospectus and the limited procedures,
inspection of minute books, inquiries and other procedures referred to in
paragraphs (iii) and (vi) above, they have carried out certain specified
procedures, not constituting an examination in accordance with generally
accepted auditing standards, with respect to certain amounts, percentages and
financial information specified by the Representatives which are derived from
the general accounting records of the Company and its subsidiaries, which appear
in the Prospectus (excluding documents incorporated by reference) or in Part II
of, or in exhibits and schedules to, the Registration Statement specified by the
Representatives or in documents incorporated by reference in the Prospectus
specified by the Representatives, and have compared certain of such amounts,
percentages and financial information with the accounting records of the Company
and its subsidiaries and have found them to be in agreement.
I-3
<PAGE> 33
ANNEX II(a)
[OPINION OF SULLIVAN & CROMWELL]
II(a)-1
<PAGE> 34
ANNEX II(b)
[OPINION OF PRESTON GATES & ELLIS]
II(b)-1
<PAGE> 35
ANNEX II(c)
[OPINION OF GURMAN, BLASK & FRIEDMAN]
II(c)-1
<PAGE> 1
EXHIBIT 5.1
OPINION OF PRESTON GATES & ELLIS LLP
April 7, 1998
Western Wireless Corporation
2001 NW Sammamish Road
Issaquah, Washington, 98027
Re: Registration Statement on Form S-3
Ladies and Gentleman:
In connection with the registration of shares of Class A Common Stock, no
par value per share (the "Shares"), of Western Wireless Corporation (the
"Company") with the Securities and Exchange Commission on a Registration
Statement on Form S-3 (the "Registration Statement"), relating to the sales of
the Shares by certain selling shareholders named in the Registration Statement,
we have examined such documents, records and matters of law as we have
considered relevant.
Based on this review, it is our opinion that the Shares will be fully paid
and non-assessable under the Washington Business Corporation Act when
certificates representing the Shares shall have been duly executed,
countersigned and registered and duly delivered to the purchasers thereof
against payment of the agreed consideration therefor.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to all references to our firm included in or made a
part of the Registration Statement.
Very truly yours,
PRESTON GATES & ELLIS LLP
By: /s/ G. SCOTT GREENBURG
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G. Scott Greenburg
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EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our
report included in this registration statement and to the incorporation by
reference in this registration statement of our report dated February 17, 1998
included in the Annual Report on Form 10-K of Western Wireless Corporation for
the year ended December 31, 1997, and to all references to our firm included in
this registration statement.
By: /s/ ARTHUR ANDERSEN LLP
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Arthur Andersen LLP
Seattle, Washington
April 6, 1998
