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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE TRANSITION PERIOD FROM __________ TO __________
COMMISSION FILE NUMBER 000-28160
WESTERN WIRELESS CORPORATION
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(Exact name of registrant as specified in its charter)
WASHINGTON 91-1638901
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(State or other jurisdiction of incorporation or (IRS Employer
organization) Identification No.)
3650 131ST AVENUE S.E.
BELLEVUE, WASHINGTON 98006
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(Address of principal executive offices) (Zip Code)
(425) 653-4600
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(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Class A Common Stock
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
The aggregate market value of the voting stock held by nonaffiliates of the
registrant, computed by reference to the last sale of such stock as of the close
of trading on March 5, 1999, was $1,061,771,643.
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
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Title Shares Outstanding as of March 5, 1999
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<S> <C>
Class A Common Stock, no par value 42,748,299
Class B Common Stock, no par value 33,591,093
</TABLE>
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the following documents are incorporated by reference into the
indicated parts of this Form 10-K: 1999 Proxy Statement - Part III.
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WESTERN WIRELESS CORPORATION
FORM 10-K
FOR THE YEAR ENDED DECEMBER 31, 1998
TABLE OF CONTENTS
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Part I
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Item 1. BUSINESS...........................................................................3
Item 2. PROPERTIES........................................................................25
Item 3. LEGAL PROCEEDINGS.................................................................25
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS...............................25
EXECUTIVE OFFICERS OF THE REGISTRANT......................................................26
Part II
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.............28
Item 6. SELECTED FINANCIAL DATA...........................................................29
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS......................................................................30
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.......................................39
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE.....................................................................39
Part III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT...............................40
Item 11. EXECUTIVE COMPENSATION...........................................................40
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT...................40
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS...................................40
Part IV
Item 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS ON FORM 8-K................41
</TABLE>
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CAUTIONARY STATEMENT FOR PURPOSES OF THE "SAFE HARBOR" PROVISIONS OF THE
PRIVATE LITIGATION REFORM ACT OF 1995. The following information contains
statements that are not based on historical fact, including the words
"believes," "anticipates," "intends," "expects" and similar words. These
statements 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 significantly
different from any future results, events or developments expressed or implied
by such forward-looking statements. Such factors include: 1) general economic
and business conditions, both nationally and in the regions in which Western
Wireless operates; 2) technology changes; 3) competition; 4) changes in business
strategy or development plans; 5) Western Wireless' potentially high level of
debt; 6) the ability to attract and retain qualified personnel; 7) existing
governmental regulations and changes in, or the failure to comply with,
governmental regulations; 8) liability and other claims asserted against Western
Wireless; and 9) Western Wireless' ability and the ability of its third-party
suppliers to take corrective action in a timely manner with respect to the Year
2000 issue.
GIVEN THESE UNCERTAINTIES, WE CAUTION PROSPECTIVE INVESTORS NOT TO PLACE
UNDUE RELIANCE ON SUCH FORWARD-LOOKING STATEMENTS. Western Wireless disclaims
any obligation to update any such factors or to publicly announce any revisions
to any of the forward-looking statements contained herein to reflect future
results, events or developments.
PART I
ITEM 1. BUSINESS
INTRODUCTION
Western Wireless Corporation ("Western Wireless") provides wireless
communications services in the 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 Western Wireless' belief that there are certain
strategic advantages to operating each technology in these respective areas. As
of December 31, 1998, Western Wireless provides cellular services in 17 western
states under the Cellular One(R) brand name. Western Wireless provides PCS
services through its 80.1% ownership in VoiceStream Wireless Corporation
("VoiceStream"). VoiceStream had commenced commercial operations in ten markets
under the VoiceStream(R) brand name as of December 31, 1998 (an eleventh market
commenced commercial operations in February 1999). VoiceStream PCS services are
also offered in three additional markets in conjunction with joint ventures (a
fourth market commenced commercial operations in February 1999).
On February 8, 1999, Western Wireless announced its intention to
separate VoiceStream from Western Wireless' other operations (the "Spin-off").
Western Wireless has received a favorable ruling by the Internal Revenue Service
for a tax free spin-off, and the approval by its board of directors to take the
necessary steps to complete the Spin-off. Western Wireless will distribute all
of its interest in VoiceStream to its shareholders upon the Spin-off. Although
VoiceStream has been operated separately from Western Wireless' other operations
and has been a separate legal entity since its inception, the Spin-off will
establish VoiceStream as a stand-alone entity with objectives separate from
those of Western Wireless. The Spin-off is subject to numerous conditions
including, among others, the receipt of certain government and third party
approvals. There is no assurance that such conditions will be met to complete
the Spin-off.
BACKGROUND
THE WIRELESS COMMUNICATIONS INDUSTRY
OVERVIEW
Wireless communications systems use a variety of radio frequencies to
transmit voice and data. Broadly defined, the wireless communications industry
includes one-way radio applications, such as paging or beeper services, and
two-way radio applications, such as cellular, PCS and Enhanced Specialized
Mobile Radio ("ESMR") networks. Each such application is licensed in a distinct
radio frequency block.
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Since its introduction in 1983, wireless service has grown dramatically.
As of June 30, 1998, according to the Cellular Telecommunications Industry
Association ("CTIA") there were over 60.8 million wireless subscribers in the
United States, representing a penetration rate of 22.4%.
In the wireless communications industry, there are two principal
frequency bands licensed by the Federal Communications Commission ("FCC") for
transmitting two way voice and data signals, "cellular" and "PCS." Cellular
systems are generated at 824 to 899 MHz and can be either analog or digital.
Although all cellular systems provide analog capabilities, digital technology
has been introduced by most carriers in urban markets. Analog technology 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).
PCS is a term commonly used in the United States to describe a portion
of radio spectrum from 1850 to 1990 MHz. PCS spectrum was auctioned by the FCC
in six frequency blocks (A-F) beginning with the A and B Blocks 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. In 1999, the FCC intends
to reauction portions of the C, D, E and F Blocks returned to the FCC. 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 ("SMR") services. PCS includes features
that are not generally offered by analog cellular providers, such as data
transmissions to and from computers, advanced paging services and facsimile
services. In addition, wireless providers may eventually offer mass market
wireless local loop applications in competition with wired local communications
services.
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, a
single cell in a cellular system generally transmits over a wider radius than a
comparable PCS cell. 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 wireless 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 inter-exchange 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.
Wireless system operators normally agree to provide service to
subscribers from other compatible wireless systems who are temporarily located
in or traveling through their service areas in a practice called "roaming."
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. 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 and necessary roaming
arrangements exist. Although PCS and cellular systems utilize similar
technologies and hardware, they operate on different frequencies and use
different technical and network standards. Dual mode phones, however, make it
possible for users of one type of system to "roam" on a different type of system
outside of their service area.
PCS systems operate under one of three principal digital signal
transmission technologies, or standards, that have been deployed by various
operators and vendors for use in PCS systems: GSM, TDMA or CDMA. GSM is the most
widely used digital wireless standard in the world serving over 120 million
subscribers in approximately 130
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countries. A benefit associated with GSM technology is its use of an open system
architecture that allows operators to purchase network equipment from a variety
of vendors that share standard interfaces for operation.
GSM and TDMA are both based upon time-division of spectrum and are
currently incompatible with each other and with CDMA. Accordingly, a subscriber
of a system that utilizes GSM technology is currently unable to use a GSM
handset when traveling in an area not served by GSM-based PCS operators, unless
the subscriber carries a dual-mode handset that permits the subscriber to use
the analog cellular system in that area. Under a memorandum of understanding
between GSM operators in the United States and Canada and the association of
TDMA operators in the United States and Canada, there are plans to promote the
interoperability of GSM and TDMA standards.
The TDMA-based PCS standard offers the same features and services
offered by the time division-based digital cellular standard currently in use by
certain cellular operators in the United States, including AT&T Wireless
Services Inc. ("AT&T Wireless") and Southwestern Bell Wireless ("Southwestern
Bell"). Both the CDMA- and TDMA-based PCS standards use a closed system
architecture that will limit PCS operators' choices of equipment vendors. The
CDMA standard is the most widely adopted digital standard in the United States.
CDMA-based PCS systems offer the same features and services offered by
CDMA-based cellular systems.
THE CELLULAR BUSINESS OF WESTERN WIRELESS
After the Spin-off Western Wireless will continue to operate domestic
cellular services, paging and competitive local exchange services in select U.S.
markets and international telecommunications operations through joint ventures.
GENERAL
Western Wireless operates high quality cellular systems in 17 western
states, serving over 660,000 cellular subscribers under the Cellular One brand
name. To support its rapidly growing subscriber base, Western Wireless operates
and maintains extensive centralized management, back office functions and a call
center in the state of Washington. Western Wireless also operates paging systems
in eight western states serving 35,900 paging customers at December 31, 1998.
Through international joint ventures, Western Wireless has interests in
(and in certain cases manages) wireless licenses in several foreign countries,
including Ghana, Iceland, Haiti, Croatia and the Republics of Latvia and
Georgia. In addition, Western Wireless has interests in entities which have made
wireless license applications in certain other foreign countries. Western
Wireless does not own a controlling interest in any of these joint ventures. As
such each of these joint ventures is accounted for using the equity method as of
December 31, 1998. A joint venture which Western Wireless controls has been
notified by the Irish Government that it is the preferred applicant for a
DCS-1800/GSM 900 mobile communication license in Ireland. The license has not
yet been issued, as the decision by the Irish Government is subject to a pending
legal proceeding.
CELLULAR STRATEGY
Western Wireless' principal focus is on the operation of cellular
systems in rural markets in the United States. Western Wireless believes that
analog cellular is the optimum technology for these rural areas because they are
less susceptible to competition and have a greater capacity for future growth
than most major markets.
Western Wireless' operating strategy is to position itself as the
premier rural communications provider in the United States. This strategy
requires that it: (i) maintain and operate high quality systems with extensive
coverage; (ii) expand operations through increased subscriber growth and usage;
(iii) utilize centralized management, back office functions and its own sales
force to improve operating efficiencies and generate greater economies of scale;
and (iv) acquire additional cellular licenses in rural areas.
Western Wireless is implementing its strategy by: (i) continually
upgrading and maintaining its present systems to allow for more functionality
and quality performance; (ii) offering a targeted range of products and services
to complement today's business and personal lifestyles at competitive prices;
and (iii) providing a superior level of customer service.
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Western Wireless has roaming arrangements with virtually every cellular
carrier in North America including roaming arrangements with certain cellular
carriers adjacent to Western Wireless' markets that provide attractive rates to
Western Wireless' customers when roaming in these surrounding areas. In
addition, Western Wireless has roaming arrangements with several wireless
service providers, including AT&T Wireless, Sprint PCS L.P. ("Sprint PCS"),
AirTouch Communications, Inc. ("AirTouch"), Southwestern Bell and U.S. West
Wireless ("U.S. West") that allow their customers to roam in Western Wireless'
cellular markets. Western Wireless allows PCS subscribers to roam in its
markets through the use of dual and tri-mode handsets.
WESTERN WIRELESS FORMATION
Western Wireless 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 Western Wireless 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.
CELLULAR MARKETS AND SYSTEMS
Western Wireless operates cellular systems in 16 smaller Metropolitan
Statistical Areas ("MSA") and 76 Rural Service Areas ("RSA"), and generally owns
100% of each of its cellular licenses that cover approximately 7.6 million
people. See "-- Cellular Governmental Regulation, Licensing of Cellular
Systems." Western Wireless' experience is that several inherent attributes of
RSAs and small MSAs make such markets attractive. Such attributes include high
subscriber growth rates, population bases of customers with substantial needs
for wireless communications, the ability to cover larger geographic areas with
fewer Cell Sites than is possible in urban areas, less intense competitive
environments and less vulnerability to PCS competition.
See the summarized financial results of Western Wireless' cellular
operations in the footnotes to the consolidated financial statements located in
Part II of this Form 10-K.
Population data in the following table is estimated for 1999 based upon
1998 estimates by Equifax Marketing Decision Systems, Inc. ("Equifax") adjusted
by Western Wireless by applying Equifax's growth factors from 1997 to 1998.
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CELLULAR CELLULAR
LICENSE AREA (1) POPULATION LICENSE AREA (1) POPULATION
------------------------------ -------------- -------------------------------- ---------------
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California Nevada
Mono (CA-6) 29,000 Humbolt (NV-1) 46,000
-------------- Lander (NV-2) 57,000
California Total 29,000 Mineral (NV-4) 36,000
-------------- White Pine (NV-5) 15,000
---------------
Colorado Nevada Total 154,000
Pueblo 134,000 ---------------
Fremont (CO-4) 89,000
Elbert (CO-5) 34,000 New Mexico
Saguache (CO-7) 50,000 Lincoln (NM-6) 245,000
Kiowa (CO-8) 46,000 ---------------
Costilla (CO-9) 30,000 New Mexico Total 245,000
-------------- ---------------
Colorado Total 383,000 North Dakota
-------------- Bismarck 91,000
Fargo 167,000
Idaho Grand Forks 102,000
Idaho (ID-2) (2) 78,000 Divide (ND-1) 104,000
-------------- Bottineau (ND-2) 59,000
Idaho Total 78,000 McKenzie (ND-4) 64,000
-------------- Kidder (ND-5) 47,000
Iowa ---------------
Sioux City 123,000 North Dakota Total 634,000
Monona (IA-8) 54,000 ---------------
-------------- Oklahoma
Iowa Total 177,000 Cimarron (OK-1) 27,000
-------------- Beckham (OK-7) 127,000
Jackson (OK-8) 96,000
Kansas
Jewell (KS-3) 52,000
Marshall (KS-4) 123,000
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CELLULAR CELLULAR
LICENSE AREA (1) POPULATION LICENSE AREA (1) POPULATION
------------------------------ ------------- -------------------------------- ---------------
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Ellsworth (KS-8) 129,000 Oklahoma Total 250,000
Morris (KS-9) 58,000 ---------------
Franklin (KS-10) 111,000 South Dakota
Reno (KS-14) 173,000 Rapid City 109,000
------------- Sioux Falls (3) 142,000
Kansas Total 646,000 Harding (SD-1) 37,000
------------- Corson (SD-2) 23,000
McPherson (SD-3) 53,000
Minnesota Marshall (SD-4) 69,000
Kittson (MN-1) 50,000 Custer (SD-5) 27,000
Lake of the Woods Haakon (SD-6) 41,000
(MN-2-A1) 26,000 Sully (SD-7) 66,000
Chippewa (MN-7) 173,000 Kingsbury (SD-8) 74,000
Lac qui Parie (MN-8) 67,000 Harrison (SD-9) 100,000
Pipestone (MN-9) 134,000 --------------
------------- South Dakota Total 741,000
Minnesota Total 450,000 --------------
-------------
Missouri Texas
Bates (MO-9) 79,000
------------- Abilene 153,000
Missouri Total 79,000 Lubbock 234,000
------------- Midland (3) 117,000
Odessa (3) 123,000
Montana San Angelo 104,000
Billings (3) 125,000 Dallam (TX-1) 57,000
Great Falls 80,000 Hansford (TX-2) 90,000
Lincoln (MT-1) 151,000 Parmer (TX-3) 141,000
Toole (MT-2) 37,000 Briscoe (TX-4) 42,000
Malta (MT-3) 14,000 Hardeman (TX-5) 76,000
Daniels (MT-4) 39,000 Gaines (TX-8) 136,000
Mineral (MT-5) 190,000 Hudspeth (TX-12) 27,000
Deer Lodge (MT-6) 64,000 Reeves (TX-13) 32,000
Fergus (MT-7) 30,000 Loving (TX-14) 46,000
Beaverhead (MT-8) 93,000 --------------
Carbon (MT-9) 32,000 Texas Total 1,378,000
Prairie (MT-10) 20,000 --------------
-------------
Montana Total 875,000 Utah
------------- Juab (UT-3) 59,000
Beaver (UT-4) 120,000
Nebraska Piute (UT-6) 27,000
Lincoln 236,000 Utah Total --------------
Cherry (NE-2) 30,000 206,000
Knox (NE-3) 116,000 --------------
Grant (NE-4) 35,000
Columbus (NE-5) 148,000 Wyoming
Keith (NE-6) 110,000 Casper 63,000
Hall (NE-7) 92,000 Sheridan (WY-2) 76,000
Chase (NE-8) 58,000 Cheyenne, Laramie (WY-4) 134,000
Adams (NE-9) 80,000 Douglas (WY-5) 12,000
Cass (NE-10) 87,000 ---------------
------------- Wyoming Total 285,000
Nebraska Total 992,000 ---------------
-------------
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Cellular Total 7,602,000
===============
</TABLE>
(1) Excludes one market containing a population of 88,000 in which Western
Wireless operates under an Interim Operating Authority.
(2) The population for Idaho 2 includes 5,000 persons in the Idaho 3 RSA
because Western Wireless has construction permits to build Cell Sites in
portions of Idaho 3 under its Idaho 2 license.
(3) Western Wireless owns approximately 98% of the Billings license, 99% of
the Sioux Falls license, 96% of the Midland license and 96% of the Odessa
license.
In addition to the license areas listed in the above table, Western
Wireless has announced the intention to purchase the Brownsville and McAllen
MSAs in southern Texas from another cellular provider. These MSAs include a
population of approximately 850,000. This acquisition is expected to close
during the second quarter of 1999.
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CELLULAR PRODUCTS AND SERVICES
Western Wireless 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, data services and no-answer transfer. In addition, all subscribers
can access local government emergency services from their cellular handsets
(with no air time charge) by dialing 911. Western Wireless will continue to
evaluate new products and services that may be complementary to its wireless
operations. Western Wireless 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
Western Wireless separately charges for its custom calling features.
Western Wireless provides extended regional and national service to
cellular subscribers in its markets, through its membership in North American
Cellular Network ("NACN") and other regional networking arrangements, thereby
allowing them to make and receive calls while in other cellular service areas
without dialing special access codes. NACN is the largest wireless telephone
network system in the world, linking non-wireline cellular operators throughout
the United States, Canada, Puerto Rico and the Virgin Islands. Western Wireless
also has special roaming arrangements with certain cellular carriers in areas
adjacent to Western Wireless' markets that provide Western Wireless' customers
attractive rates when roaming in these surrounding areas.
CELLULAR MARKETING, SALES AND CUSTOMER SERVICE
Western Wireless' sales and marketing strategy is to generate continued
net subscriber growth and increased subscriber revenues. In addition, Western
Wireless 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.
Marketing - Western Wireless markets its cellular products and services
in all markets 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 48 states with a combined estimated
population of over 115 million. The national advertising campaign conducted by
the Cellular One Group enhances Western Wireless' advertising exposure at a
lesser cost than what could be achieved by Western Wireless alone.
Sales - Western Wireless sells its products and services through a
combination of direct and indirect channels. Western Wireless operates 165
retail sales locations under the Cellular One brand name and utilizes a direct
sales force of over 1,000 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.
Western Wireless believes that its local sales offices provide the
physical presence in local markets necessary to position Cellular One as a
quality local service provider, and give Western Wireless greater control over
both its costs and the sales process. Western also utilizes indirect sales
through an extensive network of national and local merchant and specialty
retailers. Western Wireless 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, Western Wireless 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, Western
Wireless has historically sold handsets below cost to respond to competition and
general industry practice and expects to continue to do so in the future.
Customer Service - Customer service is a significant element of Western
Wireless' operating philosophy. Western Wireless is committed to attracting and
retaining subscribers by providing consistently superior customer service. In
Issaquah, Washington, Western Wireless 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. Western Wireless has announced its
intention to open a new call center in Manhattan, Kansas during 1999, to support
its growing subscriber base.
Western Wireless implements credit check procedures at the time of sale
and continuously monitors customer churn (the rate of subscriber attrition).
Western Wireless believes that it helps manage its churn through an outreach
program by its sales force and customer service personnel. This program not only
enhances subscriber loyalty, but
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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.
CELLULAR SUPPLIERS AND EQUIPMENT VENDORS
Western Wireless does not manufacture any of the handsets or Cell Site
equipment used in its operations. The high degree of compatibility among
different manufacturers' models of handsets and Cell Site equipment allows
Western Wireless 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 operations are available for purchase from multiple
sources, and anticipates that such equipment will continue to be available in
the foreseeable future. Western Wireless currently purchases handsets primarily
from Motorola, Inc., NEC Inc. and Nokia Telecommunications, Inc. ("Nokia") and
its Cell Site and switching equipment primarily from Northern Telecom, Inc. and
Lucent Technologies, Inc.
CELLULAR 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. Under
current FCC rules, there may be up to seven PCS licensees in each geographic
area in addition to the two existing cellular licensees. Also, SMR dispatch
system operators have constructed 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 Western Wireless operates.
Western Wireless has one cellular competitor in each of its cellular
markets including AirTouch, Aliant Communications, Inc., CommNet Cellular Inc.,
Kansas Cellular, Southwestern Bell and United States Cellular Corporation.
Western Wireless has one PCS competitor in some of its largest markets. Western
Wireless also competes with paging, dispatch and conventional mobile telephone
companies, resellers and landline telephone service providers in its cellular
markets. Potential users of cellular systems may, however, find their
communications needs satisfied by other current and developing technologies. One
or two-way paging 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 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
Western Wireless.
In the future, Western Wireless 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.
CELLULAR 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. Western Wireless 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 Western Wireless 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 Western Wireless has entered into are for original five-year
terms expiring on various dates. Assuming compliance by Western Wireless with
the provisions of the agreements, each of these agreements may be renewed at
Western Wireless' option for three additional five-year terms.
Western Wireless holds federal trademark registration of the mark
"Western Wireless" and has registered or applied for various other trade and
service marks with the United States Patent and Trademark Office.
9
<PAGE> 10
CELLULAR GOVERNMENTAL REGULATION
The FCC regulates the licensing, construction, operation, acquisition
and sale of cellular 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 SYSTEMS
A cellular communications system operates under a protected geographic
service area license granted by the FCC for a particular market on one of two
frequency blocks allocated for cellular service. One license for each market was
initially awarded to a company or group that was affiliated with a local
landline telephone carrier in such market and is called the wireline or "B" band
license and the other license is called the non-wireline or "A" band license.
Following notice of completion of construction, a cellular operator obtains
initial operating authority. Cellular authorizations are generally issued for a
10-year term beginning on the date of the initial notification of construction
by a cellular carrier. Under FCC rules, the authorized service area of a
cellular provider in each of its markets is referred to as the Cellular
Geographic Service Area or CGSA. A cellular licensee has the exclusive right to
serve the entire area that falls within the licensee's MSA or RSA for a period
of five years after grant of the licensee's construction permit. At the end of
the five-year period, however, the licensee's exclusive CGSA rights become
limited to the area actually served by the licensee as of that time, as
determined pursuant to a formula adopted by the FCC. After the five-year period
any entity may apply to serve portions of the MSA or RSA not being served by the
licensee. The five year exclusivity period has expired for most licensees and
parties have filed unserved area applications, including some in Western
Wireless 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. Western Wireless has approximately 70 cellular licenses
which will be subject to renewal in the next three years. While Western 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.
Under the FCC's current rules specifying spectrum ownership limits
affecting cellular licensees, no entity may hold licenses for more than 45
MHz of cellular, PCS and SMR services regulated as Commercial Mobile Radio
Service ("CMRS") where there is significant overlap in any geographic area
(significant overlap will occur when at least ten percent of the population of
the PCS licensed service area is within the Cellular Geographic Service Area
(""CGSA'') and/or SMR service area, as defined by the FCC). The FCC is currently
reexamining these ownership limits.
Western Wireless owns cellular licenses serving markets that are wholly
or partially within the Denver MTA and the Oklahoma City MTA, resulting in
Western Wireless exceeding the FCC's current 45 MHz of cellular, PCS and CMRS
cross ownership restriction described above. Western Wireless 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, either VoiceStream or Western Wireless will
be obligated to divest sufficient portions of their markets in the Denver and
Oklahoma City MTA to come into compliance with the rules. Western Wireless does
not believe such restriction or any actions Western Wireless or Western Wireless
is required to take to comply therewith will have a material adverse effect on
Western Wireless due to the relatively minor geographic overlap.
Cellular systems are subject to certain Federal Aviation Administration
("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 Western Wireless'
activities. Western Wireless 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.
10
<PAGE> 11
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, which CMRS includes cellular
service.
Western Wireless has purchased its Cellular licenses from private
parties or the federal government. Western Wireless has used a combination of
debt and equity financing to acquire such licenses.
TRANSFERS AND ASSIGNMENTS OF CELLULAR LICENSES
The Communications Act and FCC rules require the FCC's prior approval of
the assignment or transfer of control of a construction permit or license for a
cellular system (proforma transfer of control does not require prior FCC
approval). Subject to FCC approval, a license or permit may be transferred from
a non-wireline 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 Western Wireless 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 Western Wireless, 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 Western
Wireless or any other prospective buyer.
WESTERN WIRELESS EMPLOYEES AND LABOR RELATIONS
Western Wireless considers its labor relations to be good and, to
Western Wireless' knowledge, none of its employees is covered by a collective
bargaining agreement. As of December 31, 1998, Western Wireless, excluding
VoiceStream, employed a total of approximately 2,137 people in the following
areas:
<TABLE>
<CAPTION>
Number of
Category Employees
-------- ---------
<S> <C>
Sales and marketing 1,170
Engineering 149
General and administration, including customer service 818
</TABLE>
THE BUSINESS OF WESTERN WIRELESS INTERNATIONAL
After the Spin-off, Western Wireless International ("WWI") will continue
to operate as a subsidiary of Western Wireless.
GENERAL OVERVIEW
WWI has pursued a strategy of obtaining interests in licenses to
provide telecommunications services in a variety of countries. The elements of
WWI's strategy are to find opportunities where, with local partners, the
company can leverage its operating knowledge and construction capabilities to
bring wireless telecommunications to markets it believes are underserved by the
existing, if any, wireless operators. In addition, it has been the strategy of
WWI to pursue ventures that it believes will result in a minimal amount of
license costs to be paid to the licensing authority.
Operating companies in which WWI has a minority interest have begun
operations in the Republics of Latvia and Georgia and Iceland and had a total
of 75,000 subscribers as of December 31, 1998.
In addition, WWI has minority interests in licenses in Ghana, Haiti and
Croatia. WWI expects the operating companies to begin to provide wireless
services in each of these countries during 1999.
A joint venture which WWI controls has been notified by the Irish
Government that it is the preferred applicant for a DCS-1800/GSM 900 mobile
communication license in Ireland. The license has not yet been issued, as the
decision by the Irish Government is subject to a pending legal proceeding.
11
<PAGE> 12
THE PCS BUSINESS OF VOICESTREAM
After the Spin-off, Western Wireless and VoiceStream will operate as
separate businesses. VoiceStream will continue to operate its PCS business in
urban areas in the United States.
GENERAL
VoiceStream provides PCS services under the VoiceStream brand name in 11
urban markets -- Denver, Seattle/Tacoma, Phoenix/Tucson, Portland, Salt Lake
City, Des Moines, Oklahoma City, Honolulu, El Paso, Albuquerque and Boise -- and
is currently constructing systems in San Antonio and Austin. VoiceStream holds
107 broadband PCS licenses covering approximately 62.6 million persons.
VoiceStream has experienced rapid growth of its operations since commencement in
February 1996. VoiceStream's subscribers have grown to 322,400 at December 31,
1998, and revenues have grown to $168.0 million for the year ended December 31,
1998. VoiceStream believes these results reflect the strong demand for wireless
services in its markets, the success of its marketing strategy and its
management capabilities.
VoiceStream believes its PCS service offerings are more extensive than
those generally offered by cellular systems in VoiceStream's markets. 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.
VoiceStream's goal is to achieve significant market penetration by
aggressively marketing competitively priced services under its proprietary
VoiceStream brand name, offering enhanced services not generally provided by
cellular operators and providing superior customer service. In addition,
VoiceStream is well-positioned to be a low-cost provider of PCS services by
utilizing centralized management, marketing, billing and customer service
functions, and by focusing on efficient customer acquisition and retention.
VoiceStream selected GSM as the digital standard for its PCS systems
because it believes GSM has significant advantages over the other competing
digital standards. These advantages include the widest array of features, and an
open system architecture that provides cost advantages in choosing from a
variety of equipment options and providers, which result from the experience of
years of proven operability in Europe and Asia. GSM is the leading digital
wireless standard in the world, with over 120 million customers in 130
countries.
VoiceStream has entered into roaming agreements with substantially all
of the licensees that have deployed the GSM standard in North America. Such
agreements will allow VoiceStream's subscribers to roam in these carriers' PCS
markets, and vice versa, when such systems are operational. VoiceStream also has
approximately 90 reciprocal roaming agreements with a variety of international
carriers who have chosen to deploy the GSM standard. In addition, VoiceStream
has entered into roaming agreements with several cellular carriers, including
Western Wireless.
VOICESTREAM STRATEGY
VoiceStream's principal focus is on the operation of PCS systems in
urban markets in the United States. VoiceStream believes that PCS is the optimum
technology for more densely populated urban areas where cellular systems are
generally more expensive to deploy and face potential capacity constraints.
VoiceStream's operating strategy is to: (i) construct and operate high
quality systems with extensive coverage in urban areas; (ii) expand operations
through increased subscriber growth and usage; (iii) utilize centralized
management, back office functions and its own sales force to improve operating
efficiencies and generate greater economies of scale; and (iv) acquire
additional PCS licenses in urban markets.
VoiceStream is implementing its strategy by: (i) expanding its present
systems and building new systems; (ii) offering a targeted range of products to
complement today's business and personal lifestyles at competitive prices; (iii)
continually upgrading the quality of its network; (iv) establishing brand
recognition through a strong sales and marketing program; and (v) providing a
superior level of customer service.
12
<PAGE> 13
VOICESTREAM FORMATION
VoiceStream was formed in 1994 as "Western PCS Corporation" to
participate on behalf of Western Wireless and its shareholders in FCC auctions
of various PCS licenses. It was a wholly owned subsidiary of Western Wireless
until February 1998, when Hutchison Telecommunications PCS (USA) Limited
("Hutchison USA"), a subsidiary of Hutchison Whampoa Limited ("Hutchison"),
invested $248.4 million (the "Hutchison Investment") to purchase newly issued
shares of common stock representing a 19.9 percent interest in VoiceStream.
VOICESTREAM MARKETS AND SYSTEMS
VoiceStream owns 107 broadband PCS licenses, seven of which are for
Major Trading Area ("MTA") license areas and 100 of which are for Basic Trading
Area ("BTA") license areas, covering a total of approximately 62.6 million
persons. See "-- PCS Governmental Regulation, Licensing of PCS Systems." MTAs
and BTAs are based on the Rand McNally 1992 Commercial Atlas & Marketing Guide,
123rd Edition, at pages 38-39 ("BTA/MTA Map"). Rand McNally organizes the 50
States and the District of Columbia into 47 MTAs and 487 BTAs. The BTA/MTA Map
is available for public inspection at the Office of Engineering and Technology's
Information Center, 2000 M Street, NW., Washington, DC 20554.
VoiceStream obtained its licenses as follows: (i) six MTA licenses in
the FCC's A Block auction in 1995; (ii) one MTA license from another carrier in
1996; (iii) 92 BTA licenses in the FCC's D and E Block auctions in 1997; and
(iv) eight BTA licenses from another carrier in October 1997. Cook Inlet Western
Wireless PV/SS PCS, LP ("Cook Inlet PCS"), in which VoiceStream owns a 49.9%
limited partnership interest, owns 18 PCS BTA licenses that were acquired in the
FCC's C and F Block auctions. Cook Inlet PCS provides service in the Spokane,
Tulsa, Phoenix/Tucson and Seattle/Tacoma markets. VoiceStream has also formed
another joint venture with some of the same Cook Inlet PCS partners to
participate in the FCC's reauction of C and F Block licenses. Through other
joint ventures in which VoiceStream has an interest, PCS service is available in
the Wichita market and certain markets in Iowa, and is anticipated to be
available in certain markets in southern Texas in 1999. All of these operational
markets use the internationally-proven GSM technology.
See the summarized financial results of Voice Stream's PCS operations in
the footnotes to the consolidated financial statements located in Part II of
this Form 10-K.
Population data in the following table is estimated for 1999 based upon
1998 estimates by Equifax adjusted by VoiceStream by applying Equifax's growth
factors from 1997 to 1998.
<TABLE>
<CAPTION>
MTA/BTA LICENSE AREA POPULATION BLOCK MHZ
- -------------------- ---------- ----- ------
<S> <C> <C> <C>
Denver
Casper-Gillette....................................... 140,000 B 30 MHz
Cheyenne.............................................. 109,000 B 30 MHz
Colorado Springs...................................... 513,000 B 30 MHz
Denver................................................ 2,478,000 B 30 MHz
Fort Collins.......................................... 231,000 B 30 MHz
Grand Junction........................................ 233,000 B 30 MHz
Greeley............................................... 160,000 B 30 MHz
Pueblo................................................ 299,000 B 30 MHz
Rapid City............................................ 194,000 B 30 MHz
Riverton.............................................. 49,000 B 30 MHz
Rock Springs.......................................... 59,000 B 30 MHz
Scottsbluff........................................... 101,000 B 30 MHz
---------
4,566,000
Seattle
Olympia-Centralia..................................... 327,000 E 10 MHz
Seattle-Tacoma........................................ 3,090,000 E 10 MHz
---------
3,417,000
Phoenix
Flagstaff............................................. 119,000 D 10 MHz
Nogales............................................... 40,000 D 10 MHz
Phoenix............................................... 3,191,000 D 10 MHz
Prescott.............................................. 153,000 D 10 MHz
Sierra Vista-Douglas.................................. 114,000 D 10 MHz
Tucson................................................ 807,000 D 10 MHz
Yuma.................................................. 126,000 D 10 MHz
---------
4,550,000
Portland
Bend.................................................. 141,000 A 30 MHz
Coos Bay-North Bend................................... 84,000 A 30 MHz
Eugene-Springfield.................................... 312,000 A 30 MHz
Klamath Falls......................................... 81,000 A 30 MHz
Longview.............................................. 96,000 A 30 MHz
</TABLE>
13
<PAGE> 14
<TABLE>
<CAPTION>
MTA/BTA LICENSE AREA POPULATION BLOCK MHZ
- -------------------- ---------- ----- ------
<S> <C> <C> <C>
Medford-Grants Pass................................... 249,000 A 30 MHz
Portland.............................................. 2,041,000 A 30 MHz
Roseburg.............................................. 103,000 A 30 MHz
Salem-Albany.......................................... 514,000 A 30 MHz
---------
3,621,000
Salt Lake City
Logan................................................. 101,000 A 30 MHz
Provo-Orem............................................ 358,000 A 30 MHz
Salt Lake City........................................ 1,554,000 A 30 MHz
St. George............................................ 129,000 A, E 40 MHz
Boise-Nampa........................................... 538,000 A 30 MHz
Idaho Falls........................................... 211,000 A 30 MHz
Pocatello............................................. 102,000 A 30 MHz
Twin Falls............................................ 158,000 A 30 MHz
---------
3,151,000
El Paso-Albuquerque
Albuquerque........................................... 792,000 A 30 MHz
Carlsbad.............................................. 54,000 A 30 MHz
Farmington-Durango.................................... 194,000 A 30 MHz
Gallup................................................ 141,000 A 30 MHz
Las Cruces............................................ 240,000 A 30 MHz
Roswell............................................... 79,000 A 30 MHz
Santa Fe.............................................. 204,000 A 30 MHz
El Paso............................................... 772,000 A 30 MHz
---------
2,476,000
Oklahoma City
Ada................................................... 54,000 A 30 MHz
Ardmore............................................... 88,000 A 30 MHz
Enid.................................................. 85,000 A, E 40 MHz
Lawton-Duncan......................................... 173,000 A 30 MHz
McAlester............................................. 53,000 A 30 MHz
Oklahoma City......................................... 1,391,000 A, E 40 MHz
Ponca City............................................ 46,000 A, E 40 MHz
Stillwater............................................ 76,000 A, E 40 MHz
---------
1,966,000
Des Moines-Quad Cities
Burlington............................................ 137,000 A 10 MHz
Cedar Rapids.......................................... 280,000 A 10 MHz
Clinton-Sterling...................................... 146,000 A 10 MHz
Davenport-Moline...................................... 427,000 A 10 MHz
Des Moines(1)......................................... 776,000 A 10/30 MHz
Dubuque............................................... 177,000 A 10 MHz
Fort Dodge............................................ 126,000 A 10 MHz
Iowa City............................................. 122,000 A 10 MHz
Marshalltown.......................................... 56,000 A 10 MHz
Mason City............................................ 116,000 A 10 MHz
Ottumwa............................................... 123,000 A 10 MHz
Sioux City............................................ 341,000 A 10 MHz
Waterloo-Cedar Falls.................................. 259,000 A 10 MHz
---------
3,086,000
Honolulu
Hilo.................................................. 142,000 A 30 MHz
Honolulu.............................................. 866,000 A 30 MHz
Kahului-Wailuku-Lahaina............................... 123,000 A 30 MHz
Lihue................................................. 57,000 A 30 MHz
---------
1,188,000
San Antonio
San Antonio........................................... 1,805,000 D 10 MHz
Dallas-Fort Worth
Abilene............................................... 256,000 D 10 MHz
Amarillo.............................................. 407,000 D 10 MHz
Austin................................................ 1,188,000 D 10 MHz
</TABLE>
14
<PAGE> 15
<TABLE>
<CAPTION>
MTA/BTA LICENSE AREA POPULATION BLOCK MHZ
- -------------------- ---------- ----- ------
<S> <C> <C> <C>
Big Spring............................................ 35,000 D 10 MHz
Brownwood............................................. 62,000 D 10 MHz
Clovis................................................ 80,000 E 10 MHz
Hobbs................................................. 56,000 D 10 MHz
Lubbock............................................... 404,000 E 10 MHz
Midland............................................... 122,000 D, E 20 MHz
Odessa................................................ 217,000 D, E 20 MHz
Paris................................................. 91,000 D 10 MHz
San Angelo............................................ 165,000 D 10 MHz
---------
3,083,000
St. Louis
Cape Girardeau........................................ 188,000 E 10 MHz
Carbondale-Marion..................................... 218,000 E 10 MHz
Columbia.............................................. 208,000 E 10 MHz
Jefferson City........................................ 156,000 D 10 MHz
Kirksville............................................ 56,000 E 10 MHz
Mount Vernon.......................................... 122,000 D 10 MHz
Poplar Bluff.......................................... 155,000 D 10 MHz
Quincy-Hannibal....................................... 180,000 D 10 MHz
Rolla................................................. 93,000 D 10 MHz
St. Louis............................................. 2,822,000 E 10 MHz
West Plains........................................... 75,000 D 10 MHz
---------
4,273,000
Tulsa
Coffeyville........................................... 61,000 D 10 MHz
Wichita
Hutchinson............................................ 124,000 D 10 MHz
Salina................................................ 143,000 D 10 MHz
Wichita............................................... 652,000 D 10 MHz
---------
919,000
Chicago
Jacksonville.......................................... 71,000 E 10 MHz
Cincinnati-Dayton
Dayton-Springfield.................................... 1,209,000 E 10 MHz
Cleveland
Ashtabula............................................. 102,000 E 10 MHz
Canton-New Philadelphia............................... 526,000 E 10 MHz
Cleveland-Akron....................................... 2,964,000 E 10 MHz
East Liverpool-Salem.................................. 111,000 E 10 MHz
Erie.................................................. 278,000 E 10 MHz
Mansfield............................................. 226,000 E 10 MHz
Meadville............................................. 89,000 E 10 MHz
Sandusky.............................................. 140,000 E 10 MHz
Sharon................................................ 122,000 E 10 MHz
Youngstown-Warren..................................... 480,000 E 10 MHz
---------
5,038,000
Kansas City
Manhattan-Junction City............................... 110,000 10 MHz
Little Rock
Fayetteville-Springdale............................... 292,000 E 10 MHz
Fort Smith............................................ 311,000 D 10 MHz
Harrison.............................................. 87,000 D 10 MHz
Hot Springs........................................... 132,000 D 10 MHz
Jonesboro-Paragould................................... 174,000 E 10 MHz
Little Rock........................................... 920,000 D 10 MHz
Pine Bluff............................................ 148,000 D 10 MHz
Russellville.......................................... 93,000 E 10 MHz
---------
2,157,000
Milwaukee
Milwaukee............................................. 1,789,000 D 10 MHz
</TABLE>
15
<PAGE> 16
<TABLE>
<CAPTION>
MTA/BTA LICENSE AREA POPULATION BLOCK MHZ
- -------------------- ---------- ----- ------
<S> <C> <C> <C>
Minneapolis-St. Paul
Aberdeen.............................................. 87,000 D 10 MHz
Bemidji............................................... 64,000 D 10 MHz
Bismarck.............................................. 127,000 E 10 MHz
Fargo................................................. 307,000 E 10 MHz
Grand Forks........................................... 208,000 D 10 MHz
Huron................................................. 54,000 D 10 MHz
Mitchell.............................................. 84,000 D 10 MHz
Sioux Falls........................................... 232,000 D 10 MHz
Watertown............................................. 76,000 D 10 MHz
Willmar-Marshall...................................... 84,000 E 10 MHz
Worthington........................................... 96,000 D 10 MHz
---------
1,419,000
Omaha
Grand Island.......................................... 148,000 E 10 MHz
Hastings.............................................. 72,000 E 10 MHz
Lincoln............................................... 332,000 E 10 MHz
McCook................................................ 34,000 E 10 MHz
Norfolk............................................... 112,000 E 10 MHz
North Platte.......................................... 85,000 E 10 MHz
---------
783,000
Richmond-Norfolk
Danville.............................................. 168,000 E 10 MHz
Lynchburg............................................. 161,000 E 10 MHz
Martinsville.......................................... 90,000 E 10 MHz
Norfolk-VA Beach...................................... 1,763,000 E 10 MHz
Richmond-Petersburg................................... 1,202,000 E 10 MHz
Staunton-Waynesburo................................... 107,000 E 10 MHz
---------
3,491,000
San Francisco-San Jose
San Francisco......................................... 6,965,000 E 10 MHz
Spokane-Billings
Billings.............................................. 307,000 E 10 MHz
Bozeman............................................... 77,000 E 10 MHz
Butte................................................. 67,000 D 10 MHz
Great Falls........................................... 164,000 E 10 MHz
Helena................................................ 67,000 D 10 MHz
Kalispell............................................. 72,000 D 10 MHz
Kennewick-Pasco....................................... 189,000 D 10 MHz
Lewiston-Moscow....................................... 123,000 E 10 MHz
Missoula.............................................. 164,000 D 10 MHz
Walla Walla-Pendleton................................. 169,000 D 10 MHz
---------
1,399,000
---------
VoiceStream Total....................................... 62,593,000
===========
</TABLE>
(1) VoiceStream contributed portions of the Des Moines MTA license to
Iowa Wireless (defined below). As a result, VoiceStream owns 30 MHz of the
license for certain counties within the Des Moines BTA but only 10 MHz for the
remainder of the Des Moines BTA.
COOK INLET PCS
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
under FCC rules. VoiceStream holds a 49.9% partnership interest in Cook Inlet
PCS. Cook Inlet PCS began operations in the Tulsa market in June 1997, in the
Phoenix/Tucson market in November 1998 and in the Seattle/Tacoma and Spokane
markets in February 1999. Cook Inlet PCS has not yet finalized its construction
plans for the other licenses it owns. For the Phoenix/Tucson and Seattle/Tacoma
markets, Cook Inlet PCS and VoiceStream have entered into agreements allowing
system leasing, resale and roaming, enabling each of them to operate on the
systems constructed for the markets.
16
<PAGE> 17
Cook Inlet PCS owns FCC licenses to provide wireless communications
services in the following 18 BTA license areas. See "-- PCS Governmental
Regulation, Licensing of PCS Systems."
<TABLE>
<CAPTION>
MTA/BTA LICENSE AREA POPULATION BLOCK MHZ
- -------------------- ---------- ----- ------
<S> <C> <C> <C>
Cincinnati-Dayton
Cincinnati............................................. 2,139,000 F 10 MHz
Dallas-Fort Worth
Temple-Killeen......................................... 354,000 F 10 MHz
Kansas City
Pittsburg-Parsons...................................... 90,000 F 10 MHz
Phoenix
Phoenix(1)............................................. 3,191,000 F 10 MHz
Tucson(1).............................................. 807,000 F 10 MHz
---------
3,998,000
Seattle
Aberdeen............................................... 91,000 C 15 MHz
Bellingham............................................. 161,000 F 10 MHz
Bremerton.............................................. 242,000 C 15 MHz
Port Angeles........................................... 93,000 C 15 MHz
Seattle-Tacoma(1)...................................... 3,090,000 F 10 MHz
Wenatchee.............................................. 211,000 C 15 MHz
Yakima................................................. 259,000 C 15 MHz
---------
4,147,000
Spokane-Billings
Spokane................................................ 733,000 C 15 MHz
Walla Walla-Pendleton(1)............................... 169,000 C 15 MHz
---------
902,000
Tulsa
Bartlesville........................................... 47,000 C 15 MHz
Coffeyville(1)......................................... 61,000 C 15 MHz
Muskogee............................................... 159,000 C 15 MHz
Tulsa.................................................. 910,000 C 15 MHz
----------
1,177,000
----------
Cook Inlet PCS Total..................................... 12,807,000
==========
</TABLE>
(1) VoiceStream also owns 10 MHz E Block licenses for these BTAs.
IOWA WIRELESS
Iowa Wireless Services, L.P. ("Iowa Wireless") is a Delaware limited
partnership ultimately controlled by Iowa Network Services, Inc., an Iowa
corporation. VoiceStream has a 38% limited partnership interest in Iowa
Wireless. Iowa Wireless began operations in certain markets in 1998.
Iowa Wireless owns FCC licenses to provide wireless communications
services in the following 13 BTA license areas. See "--PCS Governmental
Regulation, Licensing of PCS Systems."
<TABLE>
<CAPTION>
MTA/BTA LICENSE AREA POPULATION BLOCK MHZ
- -------------------- ---------- ----- ------
<S> <C> <C> <C>
Des Moines-Quad Cities
Burlington................................... 137,000 A, D 30 MHz
Cedar Rapids................................. 280,000 A 20 MHz
Clinton-Sterling............................. 146,000 A, D 30 MHz
Davenport-Moline............................. 427,000 A 20 MHz
Des Moines................................... 207,000 A 20 MHz
Dubuque...................................... 177,000 A 20 MHz
Fort Dodge................................... 126,000 A 20 MHz
Iowa City.................................... 122,000 A 20 MHz
Marshalltown................................. 56,000 A, D 30 MHz
Mason City................................... 116,000 A, D 30 MHz
Ottumwa...................................... 123,000 A 20 MHz
Sioux City................................... 341,000 A 20 MHz
Waterloo-Cedar Falls......................... 259,000 A 20 MHz
---------
Iowa Wireless Total............................ 2,517,000
=========
</TABLE>
17
<PAGE> 18
WICHITA PCS
VoiceStream manages the Wichita market under the VoiceStream brand name
for Omnipoint Corp. ("Omnipoint") VoiceStream is reimbursed for the costs of
managing this market. Omnipoint purchases VoiceStream's D Block service at
wholesale in the Wichita, Hutchison and Salina BTAs and resells VoiceStream
service to its own customers. These operations are referred to as Wichita PCS.
Wichita PCS provides wireless communications services using the following three
FCC licenses.
<TABLE>
<CAPTION>
MTA/BTA LICENSE AREA POPULATION BLOCK MHZ
- -------------------- ---------- ----- ------
<S> <C> <C> <C>
Wichita
Hutchinson................................... 124,000 D 10 MHz
Salina....................................... 143,000 D 10 MHz
Wichita...................................... 652,000 D 10 MHz
----------
Wichita PCS Total.............................. 919,000
==========
</TABLE>
STPCS
STPCS Joint Venture, LLC ("STPCS") is a Delaware limited liability
company ultimately controlled by STPCS Investment, LLC. VoiceStream has an 18%
membership interest in STPCS. STPCS, through its wholly owned subsidiaries, owns
seven FCC licenses to provide wireless communications services in the following
six BTA markets. See "-- PCS Governmental Regulation, Licensing of PCS Systems."
<TABLE>
<CAPTION>
MTA/BTA LICENSE AREA POPULATION BLOCK MHZ
- -------------------- ---------- ----- ------
<S> <C> <C> <C>
San Antonio
Brownsville-Harlingen............................. 353,000 D, F 20 MHz
Corpus Christi.................................... 556,000 D 10 MHz
Eagle Pass-Del Rio................................ 120,000 F 10 MHz
Laredo............................................ 215,000 D 10 MHz
McAllen........................................... 594,000 D 10 MHz
---------
1,838,000
Houston
Victoria.......................................... 164,000 F 10 MHz
---------
STPCS TOTAL......................................... 2,002,000
=========
</TABLE>
COOK INLET/VOICESTREAM PCS LLC
On February 12, 1999, VoiceStream formed a Delaware limited liability
company, Cook Inlet/ VoiceStream PCS LLC. This LLC, like Cook Inlet PCS, is
ultimately controlled by Cook Inlet Region, Inc., and is participating in FCC
reauctions of C Block and F Block licenses.
VOICESTREAM PRODUCTS AND SERVICES
VoiceStream provides a variety of wireless products and services
designed to match a range of needs for business and personal use. VoiceStream
currently offers several distinct services and features in its PCS systems,
including:
o Enhanced Features -- VoiceStream's 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.
o Messaging and Wireless Data Transmission -- Digital networks offer voice and
data communications, including text messaging, through a single handset.
VoiceStream believes that, as data transmission services develop, a number
of uses for such services will emerge.
o 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.
18
<PAGE> 19
o 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.
o Over-the-Air Activation and Over-the Air Subscriber Profile Management --
VoiceStream 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.
o Roaming -- Subscribers are able to roam throughout 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.
VoiceStream has entered into roaming agreements which allow its customers to
roam on cellular systems. Dual-mode handsets allow roaming onto analog
cellular systems.
VOICESTREAM MARKETING, SALES AND CUSTOMER SERVICE
VoiceStream's sales and marketing strategy is to generate continued
subscriber growth and increased subscriber revenues. In addition, VoiceStream
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. VoiceStream markets its services under a proprietary brand name,
and sells its products and services through a combination of direct and indirect
distribution channels.
Marketing -- VoiceStream markets its PCS products and services under the
proprietary VoiceStream brand name. VoiceStream'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, VoiceStream
emphasizes the enhanced features, privacy and competitive pricing of such
services. VoiceStream concentrates its marketing efforts primarily on businesses
and individuals "on-the-go," who benefit from integrated mobile voice, messaging
and wireless data transmission capabilities, and enhanced features and services.
Sales -- VoiceStream sells its products and services through a
combination of direct and indirect channels. VoiceStream operates 90
company-owned retail sales locations and utilizes a direct sales force of over
680 persons. VoiceStream's training programs provide its sales employees with an
in-depth understanding of VoiceStream's system, products and services so that
they, in turn, can provide extensive information to prospective customers. Sales
commissions generally are linked both to subscriber revenue and subscriber
retention, as well as to activation levels.
VoiceStream believes that its local sales offices provide the physical
presence in local markets necessary to position VoiceStream as a quality local
service provider, and give VoiceStream greater control over both its costs and
the sales process. VoiceStream also utilizes indirect sales through an extensive
network of national and local merchant and specialty retailers. VoiceStream
intends to continue to use a combination of direct and indirect sales channels,
with the mix depending on the retail needs of each particular market.
In addition, VoiceStream 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,
VoiceStream has historically sold handsets below cost to respond to competition
and general industry practice and expects to continue to do so in the future.
Customer Service -- Customer service is a significant element of
VoiceStream's operating philosophy. VoiceStream is committed to attracting and
retaining subscribers by providing consistently superior customer service. In
Albuquerque, New Mexico, VoiceStream 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.
VoiceStream implements credit check procedures at the time of sale and
continuously monitors customer churn (the rate of subscriber attrition).
VoiceStream believes that it helps manage its churn rate through an outreach
program implemented through its sales force and customer service personnel. This
program not only enhances subscriber loyalty, but also increases add-on sales
and customer referrals. The outreach program allows the sales staff to check
customer satisfaction, as well as to offer additional calling features, such as
voice mail, call waiting and call forwarding.
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<PAGE> 20
VOICESTREAM SUPPLIERS AND EQUIPMENT VENDORS
VoiceStream does not manufacture any of the handsets or network
equipment used in its operations. The high degree of compatibility among
different manufacturers' models of handsets and network equipment allows
VoiceStream to design, construct and operate its systems without being dependent
upon any single source of such equipment. The handsets and network equipment
used in VoiceStream's operations are available for purchase from multiple
sources, and VoiceStream anticipates that such equipment will continue to be
available in the foreseeable future. VoiceStream currently purchases handsets
primarily from Motorola Inc., Ericsson Inc., Mitsubishi Wireless Communications,
Inc. and Nokia Mobile Phones, Inc. (together with its affiliate, Nokia).
VoiceStream currently purchases network equipment primarily from Northern
Telecom Inc. and Nokia.
VOICESTREAM COMPETITION
Competition for subscribers among wireless licensees is based
principally upon the services and features offered, the technical quality of the
wireless systems, customer service, system coverage, capacity and price. Under
current FCC rules, there may be up to seven PCS licensees in each geographic
area in addition to the two cellular licensees. Also, SMR dispatch system
operators have constructed 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 VoiceStream operates.
VoiceStream is a relatively new entrant in a highly competitive market.
VoiceStream's principal competitors are the cellular service providers in its
markets, many of which have been operational for a number of years, and national
PCS providers, many of which offer no or low cost roaming and toll calls. Many
of VoiceStream's competitors have significantly greater financial and technical
resources than those available to VoiceStream and provide comparable services in
competition with VoiceStream's PCS systems. These competitors include AirTouch,
AT&T Wireless, Bell Atlantic Moble, Inc., GTE Mobilnet Inc., Sprint PCS and US
West. VoiceStream also competes with paging, dispatch and conventional mobile
telephone companies, resellers and landline telephone service providers in its
PCS markets. Potential users of wireless 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, wireless service may also
compete more directly with traditional landline telephone service providers.
VoiceStream's principal PCS competitors use standards other than GSM. As
a result, VoiceStream's subscribers may not be able to conveniently use PCS
services while roaming in areas outside its markets. US West and Sprint PCS use
the CDMA standard, AT&T Wireless and Southwestern Bell use the TDMA standard.
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. 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 VoiceStream. 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, VoiceStream expects to face increased competition from
entities providing similar services using other communications technologies.
While some of these technologies and services are currently operational, others
are being developed or may be developed in the future.
VoiceStream recognizes that technological advances and changing
regulations have led to rapid evolution of the wireless telecommunications
industry. At the end of 1996, the FCC transferred 200 MHz of spectrum previously
allocated to federal government use to the private sector. In April of 1997, the
FCC auctioned 30 MHz of spectrum for Wireless Communications Services, which can
provide fixed or mobile telecommunications service. In late 1997, the FCC also
auctioned 10 MHz of spectrum for SMR service, another potential competitor with
PCS and cellular service. Moreover, in 1998, the FCC auctioned more than 1000
MHz of spectrum for Local Multipoint Distribution Service ("LMDS"). VoiceStream
acquired 16 licenses as a result of such auction. During 1998, the FCC auctioned
25 MHz of spectrum for the General Wireless Communications Service, plus
additional spectrum in the 220 MHz and 39 MHz bands. VoiceStream 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.
20
<PAGE> 21
VOICESTREAM INTELLECTUAL PROPERTY
VoiceStream holds federal trademark registration of the marks
"VoiceStream" and "VoiceStream and Design," and has registered or applied for
various other trade and service marks with the United States Patent and
Trademark Office.
VOICESTREAM ORGANIZATION
VoiceStream holds its FCC licenses and conducts all operations through a
number of direct and indirect wholly-owned subsidiaries and through certain
affiliates. Indirect wholly-owned subsidiaries of VoiceStream are the 49.9%
limited partner of Cook Inlet PCS, the 38.0% limited partner of Iowa Wireless,
the 18.0% member of STPCS, and the non-controlling member of Cook
Inlet/VoiceStream LLC. In three BTAs, VoiceStream and Cook Inlet PCS each own a
license for 10 MHz of PCS spectrum that are the subject of agreements allowing
each of VoiceStream and Cook Inlet PCS to operate on the PCS systems built by
VoiceStream in those BTAs.
PCS GOVERNMENTAL REGULATION
The FCC regulates the licensing, construction, operation, acquisition
and sale of PCS systems in the United States pursuant to the Communications Act
of 1934, as amended from time to time, and the rules, regulations and policies
promulgated by the FCC thereunder.
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 seven licensees will compete in each PCS
service area. The FCC has allocated 120 MHz of radio spectrum in the 2 GHz band
for licensed 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) (which has been split in some
BTAs into two 15 MHz blocks) licensed for each of the 493 BTAs, and three 10 MHz
blocks (D, E and F Blocks) licensed for each of the 493 BTAs. A PCS license will
be awarded for each MTA or BTA in every block, for a total of more than 2,000
licenses. During 1997, the last of these auctions was completed; however, a
reauction of certain C, D, E and F Block licenses is currently scheduled for
1999.
Under the FCC's current rules specifying spectrum ownership limits
affecting broadband PCS licensees, no entity may hold licenses for more than 45
MHz of PCS, cellular and SMR services regulated as Commercial Mobile Radio
Service ("CMRS") where there is significant overlap in any geographic area
(significant overlap will occur when at least ten percent of the population of
the PCS licensed service area is within the CGSA and/or SMR service area, as
defined by the FCC). The FCC is currently reexamining these ownership limits.
Western Wireless owns cellular licenses serving markets that are wholly
or partially within the Denver MTA and the Oklahoma City MTA, resulting in
Western Wireless exceeding the FCC's current 45 MHz CMRS cross ownership
restriction described above. Western Wireless 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, either VoiceStream or Western Wireless will be obligated to
divest sufficient portions of their markets in the Denver and Oklahoma City MTA
to come into compliance with the rules. VoiceStream does not believe such
restriction or any actions Western Wireless or VoiceStream is required to take
to comply therewith will have a material adverse effect on VoiceStream due to
the relatively minor geographic overlap.
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 VoiceStream, must
construct facilities that offer coverage to one-third of the population of their
service area within five
21
<PAGE> 22
years of their initial license grants and to two-thirds of the population within
ten years. Licensees that fail to meet the coverage requirements may be subject
to forfeiture of the license.
FCC rules restrict the voluntary assignments or transfers of control of
C and F Block licenses. During the first five years of the license term,
assignments or transfers affecting control are permitted only to assignees or
transferees that meet the eligibility criteria for participation in the
entrepreneur block auction at the time the application for assignment or
transfer of control is filed, or if the proposed assignee or transferee holds
other licenses for C and F Blocks and, at the time of receipt of such licenses,
met the same eligibility criteria. Any transfers or assignments during the
entire ten year initial license term are subject to an unjust enrichment penalty
of acceleration of any installment payment plans should the assignee or
transferee not qualify for the same benefits. Any transfers or assignments
during the first five years of the initial license term are subject to an unjust
enrichment penalty of forfeiture of bidding credits. In the case of the C and F
Blocks, the FCC will conduct random audits to ensure that licensees are in
compliance with the FCC's eligibility rules. Violations of the Communications
Act or the FCC's rules could result in license revocations, forfeitures or
fines.
For a period of up to ten years after the grant of a PCS license
(subject to extension), a PCS licensee will share spectrum with existing
licensees that operate certain fixed microwave systems within its license area.
To secure a sufficient amount of unencumbered spectrum to operate its PCS
systems efficiently and with adequate population coverage, VoiceStream 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 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.
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 VoiceStream's activities. VoiceStream 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.
VoiceStream has purchased its PCS licenses from private parties and the
federal government. VoiceStream has used a combination of debt and equity
financing to acquire such licenses. Some joint ventures in which VoiceStream is
a member have utilized financing from the federal government to the extent
available.
TRANSFERS AND ASSIGNMENTS OF PCS LICENSES
The Communications Act and FCC rules require the FCC's prior approval of
the assignment or transfer of control of a license for a PCS system (proforma
transfer of control does not require prior FCC approval). In addition, the FCC
has established transfer disclosure requirements that require licensees who
transfer control of or assign a PCS license within the first three years of
their license term to file associated contracts for sale, option agreements,
management agreements or other documents disclosing the total consideration that
the licensee would receive in return for the transfer or assignment of its
license. Non-controlling interests in an entity that holds a PCS license or PCS
system generally may be bought or sold without FCC approval. Any acquisition or
sale by VoiceStream 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.
22
<PAGE> 23
VOICESTREAM EMPLOYEES AND LABOR RELATIONS
VoiceStream considers its labor relations to be good and, to
VoiceStream's knowledge, none of its employees is covered by a collective
bargaining agreement. As of December 31, 1998, VoiceStream employed a total of
approximately 1,834 people in the following areas:
<TABLE>
<CAPTION>
Number of
Category Employees
-------- ---------
<S> <C>
Sales and marketing 771
Engineering 269
General and administration, including customer service 794
</TABLE>
VOICESTREAM FOREIGN OWNERSHIP
Under the Communications Act, no more than 25% of an FCC licensee's
capital stock may be indirectly owned or voted by non-U.S. citizens or their
representatives, by a foreign government, or by a foreign corporation, absent an
FCC finding that a higher level of alien ownership is not inconsistent with the
public interest. In November 1997, the FCC adopted new rules, effective in
February 1998, in anticipation of implementation of the World Trade Organization
Basic Telecom Agreement ("WTO Agreement"). Formerly, potential licensees had to
demonstrate that their markets offered effective competitive opportunities in
order to obtain authorization to exceed the 25% indirect foreign ownership
threshold. Under the new rules, this showing now only applies to non-WTO
members. Applicants from WTO Agreement signatories have an "open entry"
standard: they are presumed to offer effective competitive opportunities.
However, the FCC reserves the right to attach additional conditions to a grant
of authority, and, in the exceptional case in which an application poses a very
high risk to competition, to deny the application. The limitation on direct
foreign ownership in an FCC licensee remains fixed at 20%, with no opportunity
to increase the percentage, and is unaffected by the FCC's new rules.
VoiceStream has applied for and received FCC approval for foreign ownership of
up to 39.9%. As of the December 31, 1998, foreign ownership of VoiceStream is
less than 30%.
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. VoiceStream 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 VoiceStream'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.
23
<PAGE> 24
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 provider must
relay a caller's automatic number identification and Cell Site location, and by
2001 they must be able to identify the location of a 911 caller within 125
meters in 67% of all cases. State actions incompatible with the FCC rules are
subject to preemption. On December 1, 1997, the FCC required wireless carriers
to transmit all 911 calls without regard to validation procedures intended to
identify and intercept calls from non-subscribers.
On August 1, 1996, the FCC released a Report and Order expanding the
flexibility of cellular, PCS and other CMRS providers to provide fixed as well
as mobile services. Such fixed services include, but need not be limited to,
"wireless local loop" services, e.g., to apartment and office buildings, and
wireless backup to PBXs and local area networks, to be used in the event of
interruptions due to weather or other emergencies. The FCC has not yet decided
how such fixed services should be regulated, but it has proposed a presumption
that they be regulated as CMRS services.
On August 8, 1996, the FCC released its order implementing the
interconnection provisions of the Telecommunications Act. The FCC's decision is
lengthy and complex and is subject to petitions for reconsideration and judicial
review (as described below), and its precise impact is difficult to predict with
certainty. However, the FCC's order concludes that CMRS providers are entitled
to reciprocal compensation arrangements with local exchange carriers ("LECs")
and prohibits LECs from charging CMRS providers for terminating LEC-originated
traffic. Under the rules adopted by the FCC, states must set arbitrated rates
for interconnection and access to unbundled elements based upon the LECs'
long-run incremental costs, plus a reasonable share of forward-looking joint and
common costs. In lieu of such cost-based rates, the FCC has established proxy
rates to be used by states to set interim interconnection rates pending the
establishment of cost-based rates. The FCC has also permitted states to impose
"bill and keep" arrangements, under which CMRS providers would make no payments
for LEC termination of calls where LECs and CMRS providers have symmetrical
termination costs and roughly balanced traffic flows. However, the FCC has found
no evidence that these conditions presently exist. The relationship of these
charges to the payment of access charges and universal service contributions has
not yet been resolved by the FCC. LECs and state regulators filed appeals of the
interconnection order, which have been consolidated in the US Court of Appeals
for the Eighth Circuit. The Court has vacated many of the rules adopted by the
FCC, including those rules governing the pricing of 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 January 1999, the U.S. Supreme Court reversed many aspects
of the Eighth Circuit's judgment, holding that: (i) the FCC has general
jurisdiction to implement the 1996 Act's local-competition provisions; (ii) the
FCC's rules governing unbundled access are consistent with the 1996 Act, except
for Rule 319, which gives requesting carriers blanket access to network
elements; and (iii) the "pick and choose" rule is a reasonable interpretation of
the 1996 Act. The FCC will now have to reexamine the list of unbundled network
elements that incumbent local exchange carriers must offer to competitors.
Furthermore, as a result of the Supreme Court's vacating and remanding the
Eighth Circuit's ruling that the FCC lacked authority to set local pricing
standards, the Eighth Circuit will have to decide whether the FCC's
total-element long-run incremental cost methodology for setting interconnection
and unbundled network element rates violates the 1996 Act.
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. VoiceStream 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.
VoiceStream can not predict the outcome of such challenges. In February 1999,
the FCC extended the deadline for CMRS carriers to implement service provider
local number portability until November 24, 2002.
24
<PAGE> 25
The 1996 Act applied the FCC's long-standing rate integration policy to
all providers of interstate, interexchange services, including CMRS. Generally,
rate integration requires interstate telecommunications companies to provide
interstate long distance services to their customers in each state, including
U.S. territories, at rates no higher than those they charge to their customers
in other states. The FCC is in the process of determining how best to encourage
CMRS providers to move forward with innovative pricing plans in light of the
rate integration mandate of the 1996 Act. The matter is currently the subject of
an appeal before the United States Court of Appeals for the District of Columbia
Circuit.
The Compliance with Communications Assistance for Law Enforcement Act
("CALEA"), enacted by Congress on October 25, 1994, requires telecommunications
carriers to ensure that their facilities are technically capable of assisting
law enforcement officials to use wiretaps and like devices to intercept and/or
isolate subscriber communications. The compliance deadline has been extended
until June 30, 2000. Compliance with CALEA requirements could result in
substantial costs for CMRS carriers, including Western Wireless and VoiceStream.
ITEM 2. PROPERTIES
WESTERN WIRELESS CELLULAR PROPERTIES
In addition to the direct and attributable interests in cellular
licenses, paging licenses and other similar assets discussed previously, Western
Wireless leases its principal executive offices located primarily in Issaquah
and Bellevue, Washington. Western Wireless and its subsidiaries and affiliates
also lease and own locations for inventory storage, microwave, Cell Site and
switching equipment and local sales and administrative offices. Western
Wireless is currently seeking additional space in or near Bellevue to support
the growth of its principal executive offices.
Western Wireless currently leases a cellular customer call center in
Issaquah, Washington and has announced its intention to build a new call center
in Manhattan, Kansas during 1999, which is expected to support Western Wireless'
anticipated subscriber growth for the foreseeable future.
VOICESTREAM PCS PROPERTIES
In addition to the direct and attributable interests in PCS licenses and
other similar assets discussed previously, VoiceStream leases its principal
executive offices located in Bellevue, Washington, and leases its customer
service center located in Albuquerque, New Mexico. VoiceStream and its
subsidiaries and affiliates lease and own locations for inventory storage,
microwave, cell site and switching equipment, sales and administrative offices,
and retail stores.
VoiceStream leases from the City of Albuquerque a customer call center
in Albuquerque, New Mexico. This facility is approximately 65,000 square feet
and is expected to support VoiceStream's anticipated subscriber growth for the
foreseeable future.
VoiceStream leases a distribution center in Denver, which stores and
distributes handset inventory for all of Western Wireless' cellular and
VoiceStream's PCS operations. The facility has adequate space to support the
growth of both distribution networks.
ITEM 3. LEGAL PROCEEDINGS
There are no material, pending legal proceedings to which Western
Wireless or any of its subsidiaries or affiliates is a party or to which any of
their property is subject which, if adversely decided, would have a material
adverse effect on Western Wireless or any of its subsidiaries or affiliates.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
25
<PAGE> 26
EXECUTIVE OFFICERS OF THE REGISTRANT
The names, ages and positions of the executive officers and key
personnel of Western Wireless are listed below along with their business
experience during the past five years. The business address of all officers of
the Western Wireless is 3650 131st Avenue SE, Bellevue, Washington 98006. All of
these individuals are citizens of the United States. Executive officers of
Western Wireless are appointed by the Board of Directors. No family
relationships exist among any of the executive officers of Western Wireless,
except for Mr. Stanton and Ms. Gillespie, who are married to each other.
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
John W. Stanton 43 Chairman, Director and Chief Executive Officer
Donald Guthrie 43 Vice Chairman and Chief Financial Officer
Robert R. Stapleton 40 President
Mikal J. Thomsen 42 Chief Operating Officer
Theresa E. Gillespie 46 Senior Vice President
Alan R. Bender 44 Senior Vice President, General Counsel, and Secretary
Cregg B. Baumbaugh 42 Senior Vice President - Corporate Development
Timothy R. Wong 43 Vice President - Engineering
Robert P. Dotson 38 Vice President - Marketing
Bradley J. Horwitz 43 Vice President - International
Patricia L. Miller 36 Controller and Principal Accounting Officer
</TABLE>
John W. Stanton has been a director, Chairman of the Board and Chief
Executive Officer of Western Wireless and its predecessors since 1992. Mr.
Stanton has also been a director of VoiceStream since February 1998, and has
been Chief Executive Officer and Chairman since it was formed in 1994. Mr.
Stanton served as a director of McCaw Cellular Communications, Inc. ("McCaw")
from 1986 to 1994, and as a director of LIN Broadcasting Corporation ("LIN
Broadcasting") from 1990 to 1994, during which time it was a publicly traded
company. From 1983 to 1991, Mr. Stanton served in various capacities with McCaw,
serving as Vice-Chairman of the Board of McCaw from 1988 to September 1991 and
as Chief Operating Officer of McCaw from 1985 to 1988. Mr. Stanton is also a
member of the Board of Directors of Advanced Digital Information Corporation,
Columbia Sportswear, Inc. and SmarTone (Hong Kong). In addition, Mr. Stanton is
a trustee of Whitman College, a private college. Mr. Stanton is currently
Chairman of the Cellular Telecommunications Industry Association.
Donald Guthrie has been Vice Chairman of Western Wireless since November
1995 and Chief Financial Officer of Western Wireless since February 1997. From
1986 to October 1995 he served as Senior Vice President and Treasurer of McCaw
and, from 1990 to October 1995 he served as Senior Vice President--Finance of
LIN Broadcasting.
Robert R. Stapleton has been President of Western Wireless and one of
its predecessors since 1992. From 1989 to 1992, he served in various positions
with this predecessor, including Chief Operating Officer and Vice President of
Operations. Mr. Stapleton has also been President of VoiceStream since it was
formed in 1994. Effective April 1998, Mr. Stapleton became responsible for all
operations of VoiceStream. From 1984 to 1989, Mr. Stapleton was employed by
mobile communications subsidiaries of Pacific Telesis, Inc., which now are
affiliated with AirTouch Communications.
Mikal J. Thomsen has been Chief Operating Officer of Western Wireless
and one of its predecessors since 1991. Mr. Thomsen was also a director of this
predecessor from 1991 until Western Wireless was formed in 1994. Effective April
1998, Mr. Thomsen became responsible for all domestic cellular operations of
Western Wireless. From 1983 to 1991, Mr. Thomsen held various positions at
McCaw, serving as General Manager of its International Division from 1990 to
1991 and as General Manager of its West Florida Region from 1987 to 1990.
26
<PAGE> 27
Theresa E. Gillespie has been Senior Vice President of Western Wireless
since February 1997. Prior to that, Ms. Gillespie was Chief Financial Officer of
Western Wireless and one of its predecessors since 1991. Prior to that, Ms.
Gillespie was Chief Financial Officer of certain entities controlled by Mr.
Stanton and Ms. Gillespie since 1988. From 1986 to 1987, Ms. Gillespie was
Senior Vice President and Controller of McCaw. From 1975 to 1986 she was
employed by a national public accounting firm.
Alan R. Bender has been Senior Vice President, General Counsel, and
Secretary of Western Wireless and VoiceStream since each was formed in 1994. Mr.
Bender was General Counsel and Secretary for one of Western Wireless'
predecessors from 1990 to 1994 and Vice President from 1992 to 1994. From 1988
to 1990, Mr. Bender was Vice President and Senior Counsel of Equitec Financial
Group, Inc., a subsidiary of PacifiCorp Inc.
Cregg B. Baumbaugh has been Senior Vice President--Corporate Development
of Western Wireless and VoiceStream since each was formed in 1994. From 1989 to
1994, he has served in various positions with one of Western Wireless'
predecessors, including Vice President--Business Development. From 1986 to 1989,
Mr. Baumbaugh was employed by The First Boston Corporation.
Timothy R. Wong has been Vice President--Engineering of Western Wireless
and VoiceStream since 1996. From 1990 to 1995, Mr. Wong held various positions
at US WEST Cellular, serving as Executive Director--Engineering and Operations
from 1994 to 1995, Director of Wireless Systems Engineering in 1993, Manager of
International Wireless Engineering in 1992, and Manager--Systems Design from
1990 to 1991.
Robert P. Dotson has been Vice President--Marketing of Western Wireless
and VoiceStream since 1996. Previously, Mr. Dotson held various marketing
positions with PepsiCo's KFC restaurant group, serving as Senior Director of
Concept Development from 1994 to 1996, Director of International Marketing from
1993 to 1994, Divisional Marketing Director from 1991 to 1993 and Manager of New
Product Development and Base Business Marketing from 1989 through 1991.
Bradley J. Horwitz has been Vice President--International of Western
Wireless and President of Western Wireless International Corporation, a
subsidiary of Western Wireless, since November 1995. From 1983 to 1995, Mr.
Horwitz held various positions at McCaw, serving as Vice
President--International Operations from 1992 to 1995, Director--Business
Development from 1990 to 1992 and Director of Paging Operations from 1986 to
1990. Mr. Horwitz is currently a member of the Board of Directors of SmarTone
(Hong Kong).
Patricia L. Miller has been Controller and Principal Accounting Officer
of Western Wireless and VoiceStream since January 1998. From 1993 to 1997, Ms.
Miller held various accounting positions with Western Wireless and one of its
predecessors. Prior to 1993, Ms. Miller held various accounting positions with a
subsidiary of Weyerhaeuser Company.
27
<PAGE> 28
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Western Wireless commenced its initial public offering on May 22, 1996,
at a price to the public of $23.50 per share. Since that date, Western Wireless'
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 Western
Wireless' Class B Common Stock. The following table sets forth the quarterly
high and low bid quotations for the Class A Common Stock on the NASDAQ Stock
Market. These quotations reflect the inter-dealer prices, without retail
mark-up, mark-down or commission and may not necessarily represent actual
transactions.
<TABLE>
<CAPTION>
1997 High Low
---- ---- ---
<S> <C> <C>
First quarter $16 1/8 $12
Second quarter $16 7/8 $10
Third quarter $19 1/8 $13 5/8
Fourth quarter $22 1/4 $16 1/2
</TABLE>
<TABLE>
<CAPTION>
1998 High Low
---- ---- ---
<S> <C> <C>
First quarter $24 5/8 $16 3/8
Second quarter $23 1/4 $16 3/8
Third quarter $22 1/8 $14 11/16
Fourth quarter $22 1/8 $14 1/2
</TABLE>
Western Wireless has never declared or paid dividends on its Common
Stock and does not anticipate paying dividends in the foreseeable future. In
addition, certain provisions of the Senior Secured Facilities (as described in
"Management's Discussion and Analysis of Results of Operations and Financial
Condition - Liquidity and Capital Resources") and the indentures of its public
debt offerings contain restrictions on Western Wireless' ability to declare and
pay dividends on its Common Stock.
As of March 5, 1999, there were approximately 252 and 94 shareholders of
record of Western Wireless' Class A and Class B Common Stock, respectively.
There were no sales of unregistered securities made by the registrant in
1998.
28
<PAGE> 29
ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth certain selected consolidated, cellular
and PCS financial and operating data for Western Wireless as of and for each of
the five years in the period ended December 31, 1998, which was derived from
Western Wireless' 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 Western Wireless'
consolidated financial statements and notes thereto.
CONSOLIDATED FINANCIAL DATA
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
(Dollars in thousands, except ----------------------------------------------------------------------------
per share data) 1998 1997 1996 1995 1994
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENTS OF
OPERATIONS DATA:
Revenues $ 584,582 $ 380,578 $ 243,085 $ 146,555 $ 63,108
Operating expenses 707,946 540,239 329,971 170,490 86,676
------------ ------------ ------------ ------------ ------------
Operating loss (123,364) (159,661) (86,886) (23,935) (23,568)
Other income (expense) (144,740) (105,873) (43,219) (25,374) (2,392)
Minority interest in net loss of consolidated
subsidiaries 44,035
------------ ------------ ------------ ------------ ------------
Loss before extraordinary item (224,069) (265,534) (130,105) (49,309) (25,960)
Extraordinary item (6,645)
------------ ------------ ------------ ------------ ------------
Net loss $ (224,069) $ (265,534) $ (130,105) $ (55,954) $ (25,960)
============ ============ ============ ============ ============
Share data (1):
Basic loss per common share
before extraordinary item $ (2.95) $ (3.76) $ (2.00) $ (0.87) $ (0.59)
Per common share effect of extraordinary item
(0.12)
------------ ------------ ------------ ------------ ------------
Basic loss per common share $ (2.95) $ (3.76) $ (2.00) $ (0.99) $ (0.59)
============ ============ ============ ============ ============
Weighted average common shares used in computing
basic loss per common share 75,863,000 70,692,000 65,196,000 56,470,000 43,949,000
============ ============ ============ ============ ============
OTHER DATA:
EBITDA (2) $ 34,805 $ (26,191) $ (7,145) $ 25,521 $ 2,102
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------------------------------------
(Dollars in thousands) 1998 1997 199 1995 1994
---------- ---------- ---------- -------- --------
<S> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEETS DATA:
Total assets $1,958,194 $1,719,973 $1,241,703 $659,028 $370,194
========== ========== ========== ======== ========
Total long-term debt, net of current
portion $1,585,000 $1,395,000 $ 743,000 $362,487 $200,587
========== ========== ========== ======== ========
OTHER DATA:
Cellular subscribers 660,400 520,000 324,200 209,500 112,800
PCS subscribers 322,400 128,600 35,500
</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 income (loss) before depreciation and
amortization. EBITDA should not be construed as an alternative to operating
income (loss) as determined in accordance with United States generally
accepted accounting principles (GAAP), as an alternate to cash flows from
operating activities (as determined in accordance with GAAP), or as a
measure of liquidity. EBITDA is presented because it is a commonly used
financial indicator in the wireless industry. It is used as an indicator of
a company's ability to service and/or incur debt. Because EBITDA is not
calculated in the same manner by all companies, VoiceStream's presentation
may not be comparable to other similarly titled measures of other companies.
In 1994, Western Wireless recorded provisions for restructuring costs of
$2.5 million. EBITDA before such provisions for restructuring costs would
have been $4.6 million.
29
<PAGE> 30
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
CAUTIONARY STATEMENT FOR PURPOSES OF THE "SAFE HARBOR" PROVISIONS OF THE PRIVATE
LITIGATION REFORM ACT OF 1995.
Statements contained or incorporated by reference Statements contained or
incorporated by reference in this document that are not based on historical fact
are "forward-looking statements" within the meaning of the Private Securities
Reform Act of 1995. Forward-looking statements may be identified by use of
forward-looking terminology such as "believe," "intends," "may," "will,"
"expect," "estimate," "anticipate," "continue," or similar terms, variations of
those terms or the negative of those terms.
CONSOLIDATED OVERVIEW
Western Wireless provides wireless communications services in the United
States principally through the ownership and operation of cellular and PCS
systems. The cellular operations are primarily in rural areas and the PCS
operations are primarily in urban areas due to Western Wireless' belief that
there are certain strategic advantages to operating each technology in these
respective areas. Western Wireless provides PCS services through its 80.1%
ownership of VoiceStream Wireless.
On February 8, 1999, Western Wireless announced its intention to
separate VoiceStream from Western Wireless' other operations (the "Spin-off").
Western Wireless has received a favorable ruling by the Internal Revenue Service
for a tax free spin-off, and the approval by its board of directors to take the
necessary steps to complete the Spin-off. Western Wireless will distribute all
of its interest in VoiceStream to its shareholders upon the Spin-off. Although
VoiceStream has been operated separately from Western Wireless' other operations
and has been a separate legal entity since its inception, the Spin-off will
establish VoiceStream as a stand-alone entity with objectives separate from
those of Western Wireless. The Spin-off is subject to numerous conditions
including, among others, the receipt of certain government and third party
approvals. There is no assurance that such conditions will be met to complete
the Spin-off.
Revenues consist primarily of subscriber revenues (including access
charges and usage charges), and equipment sales. The majority of revenues are
derived from subscriber revenues. Western Wireless expects to continue to sell
handsets below cost and regards these losses as a cost of building its
subscriber base. As used herein, "service revenues" include subscriber, roamer
and other revenue. Other revenues consist primarily of paging revenues.
Cost of service consists of the cost of providing wireless service to
subscribers, primarily costs to access local exchange and long distance carrier
facilities and to maintain the wireless network. General and administrative
expenses include the costs associated with billing a subscriber and the
administrative costs 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 retail locations, advertising and promotional expenses.
Sales and marketing costs do not include the revenue or costs of handset sales.
However, when sales and marketing costs per net subscriber addition are
discussed, the revenue and costs from handset sales are included, because such
measure is commonly used in the wireless industry. Depreciation and amortization
primarily includes depreciation expense associated with the 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 Western
Wireless' operations including VoiceStream. 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.
EBITDA represents operating income (loss) before depreciation and
amortization. EBITDA should not be construed as an alternative to operating
income (loss) as determined in accordance with United States GAAP, as an
alternate to cash flows from operating activities (as determined in accordance
with GAAP), or as a measure of liquidity. EBITDA is presented because it is a
commonly used financial indicator in the wireless industry. It is used as an
indicator of a company's ability to service and/or incur debt. Because EBITDA is
not calculated in the same manner by all companies, VoiceStream's presentation
may not be comparable to other similarly titled measures of other companies.
In the comparisons that follow, Western Wireless has separately set
forth certain information relating to its cellular operations (including paging)
and VoiceStream's PCS operations.
30
<PAGE> 31
WESTERN WIRELESS CELLULAR OVERVIEW
Western Wireless provides cellular communications services in 17 western
states under the cellular one brand name. Western Wireless owns FCC licenses to
provide such services in 16 MSAs and 76 RSAs, including 12 RSAs acquired from
Triad Cellular Corporation, Triad Cellular L.P. and certain of their affiliates
(collectively "Triad") in October 1997. This purchase included RSAs in Texas,
Utah, Oklahoma and Minnesota.
Western Wireless also holds interests in entities which own and operate
wireless licenses in certain foreign countries, including Georgia, Ghana,
Iceland and Latvia. In addition, Western Wireless has interests in entities
which have been awarded wireless licenses in Ireland, Croatia and Haiti. Western
Wireless does not own a controlling interest in any of the joint ventures
currently providing wireless services, therefore they are accounted for using
the equity method and are not included in the following discussions.
RESULTS OF CELLULAR OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 1998,
1997, AND 1996
Western Wireless had 660,400 cellular subscribers at December 31, 1998,
a 27.0% increase during 1998. Western Wireless had 520,000 cellular subscribers
at December 31, 1997, a 60.4% increase in 1997. Western Wireless had 324,200
cellular subscribers at December 31, 1996, a 54.7% increase during 1996. The net
number of subscribers added through system acquisitions was approximately 5,100
in 1998, 58,500 in 1997 and 4,900 in 1996. Removing the effect of the Triad
subscribers acquired in October 1997, the subscriber growth would have been
42.4% during 1997.
The following table sets forth certain financial data as it relates to
Western Wireless' cellular operations:
<TABLE>
<CAPTION>
(Dollars in thousands) YEAR ENDED DECEMBER 31,
----------------------------------------------------------
1998 % CHANGE 1997 % CHANGE 1996
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Cellular revenues:
Subscriber revenues $330,050 34.5% $245,364 40.5% $174,647
Roamer revenues 66,744 67.9% 39,750 16.7% 34,065
Equipment sales and other
revenues 19,826 11.8% 17,734 5.3% 16,834
-------- -------- --------
Total revenues $416,620 $302,848 $225,546
======== ======== ========
Cellular operating expenses:
Cost of service $ 55,592 18.3% $ 47,001 14.3% $ 41,130
Cost of equipment sales 33,149 11.6% 29,698 16.4% 25,516
General and administrative 88,888 46.0% 60,865 31.0% 46,464
Sales and marketing 83,309 35.7% 61,409 17.8% 52,147
Depreciation and amortization 74,402 11.7% 66,595 1.9% 65,346
-------- -------- --------
Total operating expenses $335,340 $265,568 $230,603
======== ======== ========
Other income (expenses) $(95,118) 143.9% $(38,999) 0.8% $(38,698)
======== ======== ========
Net Loss $(13,838) 705.0% $ (1,719) (96.1%) $(43,755)
======== ======== ========
EBITDA $155,682 49.9% $103,875 72.3% $ 60,289
======== ======== ========
</TABLE>
CELLULAR REVENUES
The increase in subscriber revenues each year is primarily due to the
growth in the number of subscribers offset slightly by a decrease in the average
monthly subscriber revenue per subscriber ("ARPU"). ARPU was $46.59 in 1998, an
8.9% decline from $51.13 in 1997, which was a 7.0% decline from $54.96 in 1996.
Over the past few years the cellular industry as a whole has also shown a
decline in the average monthly cellular subscriber revenue per subscriber.
Removing the effect of the Triad subscribers acquired in October 1997, the
average monthly cellular subscriber revenue per subscriber was $51.38 in 1997.
The increase in roamer revenues over the past three years was caused by
an increase in roaming traffic and partially offset by decreases in the rates
charged between carriers. While Western Wireless expects total roamer minutes to
continue to increase, the decline in the rates charged between carriers may
limit the growth of roamer revenues. Excluding the effect of the Triad
acquisition, roaming revenue would have increased 35.2% in 1998 and 10.2% in
1997.
31
<PAGE> 32
Cellular equipment sales, which consists primarily of handset sales,
increased each year due to the growth in subscriber additions which resulted in
an increase in handsets sold. Offsetting this increase is a decrease in the
average handset selling price, which is the result of lower handset costs and
the competitive environment.
CELLULAR OPERATING EXPENSES
The increase in cost of service each year is primarily attributable to
the increased number of subscribers and the related increase in activity on the
wireless system. While cost of service increased in total dollars, it decreased
as a percentage of service revenues to 13.8% in 1998 from 16.2% in 1997 and
19.3% in 1996 due primarily to efficiencies gained from the growing subscriber
base. While Western Wireless expects cost of service dollars to continue to
increase in 1999 as a result of the growth in subscribers, Western Wireless
expects the cost of service as a percentage of service revenues to continue to
decline as greater economies of scale are realized.
The increases in general and administrative costs each year 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 $12.55 in 1998 from $12.60 in 1997 and $14.58 in 1996.
Western Wireless expects general and administrative dollars to continue to
increase in 1999 as a result of the growth in subscribers, as well as increased
costs associated with the construction of a new call center. Initially, the
construction of the new call center may increase costs on a per subscriber
basis.
Increases in sales and marketing costs each year are primarily due to
the increase in net subscriber additions. During 1998 the sales and marketing
cost per net subscriber added, including the loss on equipment sales, increased
to $752 from $574 in 1997. This increase is largely due to a growth in
disconnected subscribers causing the increase in costs to be spread over a
similar amount of net subscriber additions as in the prior year. The growth in
disconnected subscribers is a result of a similar churn rate (representing
customer attrition) applied to a larger subscriber base. Although sales and
marketing costs increased in 1997, sales and marketing cost per net subscriber
added, including the loss on equipment sales, decreased to $574 in 1997 from
$593 in 1996. 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 each year due to the increase in the
number of handsets sold, offset by a decrease in the average cost of handsets
sold. VoiceStream expects this trend to continue in 1999. Although subscribers
generally are responsible for purchasing or otherwise obtaining their own
handsets, VoiceStream has historically sold handsets below cost to respond to
competition and general industry practice and expects to continue to do so in
the future.
Increases in depreciation and amortization expense over the past three
years are primarily due to the purchase of additional wireless communications
system assets. 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, Western Wireless
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.
CELLULAR EBITDA
The increase in cellular EBITDA is primarily 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 38.7% in 1998 from 35.8% in 1997 and
28.3% in 1996.
CELLULAR NET LOSS
From 1997 to 1998, the increase in net loss is primarily attributable
to the increase in other expenses, offset by the continued improvements in
operating income. Western Wireless expects continued improvements in operating
income from 1998 to 1999. Net loss may not improve due to potential non-cash
stock option expenses related to the Spin-off. Net loss decreased in 1997 from
1996 due to the increase in revenues and operating efficiencies gained.
32
<PAGE> 33
CELLULAR OTHER INCOME (EXPENSE); NET OPERATING LOSS CARRYFORWARDS
Interest and financing expense increased to $92.2 million in 1998 from
$41.4 million in 1997 and $41.1 million in 1996 due to the increase in long-term
debt. Long-term debt was incurred primarily to fund Western Wireless' capital
expenditures associated with the build-out and enhancements of the cellular
systems and the acquisition of wireless properties. The cellular weighted
average interest rate was 8.87% in 1998, 8.22% in 1997 and 7.79% in 1996.
Western Wireless' cellular operations had available at December 31,
1998, net operating loss ("NOL") carryforwards of approximately $180 million
which will expire in the years 2002 through 2018. Western Wireless 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 Western
Wireless in July 1994. Management believes that, based on a number of factors,
there is sufficient uncertainty regarding the utilization of Western Wireless'
NOL carryforwards.
CELLULAR LIQUIDITY AND CAPITAL RESOURCES
The following table sets forth certain financial data as it relates to
the 1998 cash flows for Western Wireless' cellular operations:
<TABLE>
<CAPTION>
(Dollars in thousands)
YEAR ENDED DECEMBER 31, 1998
<S> <C>
Net loss $ (13,359)
Net cash provided by operating activities $ 66,669
Net cash used in investing activities $ (135,124)
Net cash provided by financing activities $ 55,525
Ending cash $ 2,192
</TABLE>
Western Wireless has a credit facility (the "Cellular Credit Facility")
with a consortium of lenders providing for $750 million of revolving credit and
a $200 million term loan. As of December 31, 1998, $645 million was outstanding
under the Cellular Credit Facility. Indebtedness under the Cellular Credit
Facility matures on March 31, 2006, and bears interest at variable rates.
Substantially all the assets of Western Wireless, excluding the VoiceStream PCS
assets and certain other assets, are pledged as security for such indebtedness.
The terms of the Cellular Credit Facility restrict, among other things, the sale
of assets, distribution of dividends or other distributions and loans. Amounts
available for borrowing, which are limited by certain financial covenants and
other restrictions, were $305 million at December 31, 1998.
Western Wireless has issued $200 million principal amount of 10-1/2%
Senior Subordinated Notes Due 2006 (the "2006" Notes) at par and $200 million
principal amount of 10-1/2% Senior Subordinated Notes Due 2007 (the "2007"
Notes) at par. Indebtedness under the 2006 Notes and 2007 Notes matures in June
1, 2006 and February 1, 2007, respectively. The Credit Facility prohibits the
repayment of all or any portion of the principal amounts of the 2006 Notes or
2007 Notes prior to the repayment of all indebtedness under the Credit
Facility. The 2006 and 2007 Notes contain certain restrictive covenants which
impose limitations on the operations and activities of Western Wireless and
certain of its subsidiaries, including the issuance of other indebtedness, the
creation of liens, the sale of assets, issuance of preferred stock of
subsidiaries and certain investments and acquisitions. Western Wireless will
obtain the appropriate waivers from the holders of these notes prior to
consummating the terms of the Spin-off.
In February 1998, a subsidiary of Hutchison Telecommunications Limited
("HTL") purchased 19.9% of the outstanding capital stock of VoiceStream for an
aggregate purchase price of $248.4 million (the "Hutchison Investment").
Approximately $113 million of the proceeds were paid to Western Wireless as a
repayment of advances made to VoiceStream and were used by Western Wireless to
reduce amounts outstanding under the Cellular Credit Facility.
Through the end of 1999, Western Wireless anticipates spending
significant capital resources for the acquisition of wireless assets and the
continued development of its existing infrastructure. In 1999, Western Wireless
expects to spend approximately $80 million for the continued expansion of its
cellular infrastructure and approximately $95 million for the purchase of the
cellular licenses and operations of the Brownsville, Texas and McAllen, Texas
MSAs. Western Wireless will utilize cash on hand, the Cellular Credit Facility
and other sources of funding, for purposes of funding its cellular and other
activities.
In June 1998, WWI, through a controlling interest in a partnership (the
"Ireland Partnership"), was notified by the Irish Government that it was the
preferred applicant for a DCS-1800/GSM 900 mobile communication license in
Ireland. The amount bid by the Ireland Partnership on this license was $16.2
million, including related fees. The license has not yet been issued, as the
decision by the Irish Government is subject to a pending legal proceeding.
33
<PAGE> 34
Adjustments to the $13.4 million cellular net loss to reconcile to net
cash used in operating activities primarily included $74.4 million of
depreciation and amortization, $44.0 million for the minority interest loss of
consolidated subsidiaries and $4.7 million for the equity in net loss of
unconsolidated affiliates due to the increase in activity in international
investments. Other adjustments included changes in operating assets and
liabilities, including: (i) an increase of $7.7 million in net accounts
receivable, due primarily to increased revenues; and (ii) a decrease of $5.0
million in inventory due to an effort to reduce inventory levels. Net cash used
in operating activities was $83.6 million in 1997 and $19.9 million in 1996.
Cellular investing activities consisted primarily of: (i) purchases of
property and equipment of $73.4; (ii) investments in and advances to
unconsolidated affiliates of $15.5 million, primarily attributable to advances
to international joint ventures; (iii) $8.5 million of additions to licensing
costs and other intangible assets, primarily attributable to 36 Local Multipoint
Distribution Service (LMDS) licenses that Western Wireless acquired in an FCC
auction; and (iv) $35.3 million for acquisition of wireless properties in 1998
which consists primarily of Western Wireless' purchase of the cellular licenses
and operations of the Nebraska 5 and Colorado 4 RSAs in the second and third
quarters of 1998, respectively.
Cellular financing activities primarily consisted of the net repayment
on long-term debt of $50.0 million.
In the ordinary course of business, Western Wireless continues to
evaluate cellular acquisition opportunities, joint ventures and other potential
business transactions. Such acquisitions, joint ventures and business
transactions may be material. Such transactions may also require Western
Wireless 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 Western Wireless
on acceptable or favorable terms.
CELLULAR SEASONALITY
Western Wireless, and the wireless communications industry in general,
have historically experienced significant subscriber growth during the fourth
calendar quarter. Accordingly, during such quarter Western Wireless experiences
greater losses on equipment sales and increases in sales and marketing expenses.
Western Wireless has historically experienced highest usage and revenue per
subscriber during the summer months. Western Wireless expects these trends to
continue.
VOICESTREAM PCS OVERVIEW
VoiceStream did not commence operations in any of its markets until
February 1996. From that date through the end of 1996 VoiceStream launched
service in six markets: Honolulu, Portland, Salt Lake City, Albuquerque,
Oklahoma City and Des Moines. In 1997, VoiceStream launched service in El Paso,
Boise and Denver. In 1998, VoiceStream launched service in Phoenix/Tucson. Due
to the varying dates at which each of the markets became operational, the
expenses and revenues incurred during any period may not be comparable to
another period and may not be representative of future operations. Additionally,
during each period being discussed a portion of the operating expenses was
related to start-up costs incurred before the commencement of operations in each
of the markets. Exclusive of depreciation and amortization expense, which was
not material, approximately $7.7 million of start-up costs were incurred in
1998, $5.4 million in 1997 and $17.0 million in 1996.
As Western Wireless owns its PCS operations through its 80.1% ownership
of VoiceStream, all discussion has been presented from the perspective of
VoiceStream, therefore, the following results of operations reflects 100% of
VoiceStream's consolidated PCS operations.
RESULTS OF PCS OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 1998, 1997,
AND 1996
VoiceStream had 322,400 subscribers at December 31, 1998, a 150.7%
increase during 1998. VoiceStream had 128,600 subscribers at December 31, 1997,
a 262.3% increase during 1997. At December 31, 1996, VoiceStream had 35,500
subscribers.
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<PAGE> 35
The following table sets forth certain financial data as it relates to
VoiceStream's PCS operations:
<TABLE>
<CAPTION>
(Dollars in thousands) YEAR ENDED DECEMBER 31,
------------------------------------------------------------------
1998 % CHANGE 1997 % CHANGE 1996
--------- -------- --------- ------- ---------
<S> <C> <C> <C> <C> <C>
PCS revenues:
Subscriber revenues $ 123,966 136.8% $ 52,360 574.7% $ 7,794
Roamer revenues 3,506 1,444.4% 227 N.M.
Equipment revenues 40,490 61.0% 25,143 158.0% 9,745
--------- --------- ---------
Total revenues $ 167,962 $ 77,730 $ 17,539
PCS operating expenses:
Cost of service $ 50,978 18.0% $ 43,183 246.3% $ 12,470
Cost of equipment sales 77,071 44.1% 53,469 157.2% 20,789
General and administrative 75,343 45.8% 51,678 155.7% 20,209
Sales and marketing 85,447 43.7% 59,466 88.8% 31,505
Depreciation and amortization 83,767 25.3% 66,875 364.6% 14,395
--------- --------- ---------
Total operating expenses $ 372,606 $ 274,671 $ 99,368
Other income (expense) $ (49,622) (25.8%) $ (66,874) 1,379.2% $ (4,521)
--------- --------- ---------
Net loss $(254,266) (3.6%) $(263,815) 205.5% (86,350)
========= ========= =========
EBITDA $(120,877) (7.1%) $(130,066) 93.0% $ (67,434)
========= ========= =========
</TABLE>
PCS REVENUES
The increase in subscriber revenues is due to the increase in the number
of subscribers. The increase in subscribers is due to the higher number of
operational markets during each period and the relative maturity of
VoiceStream's operations in these markets. Offsetting this increase is a
decrease in the average monthly subscriber revenue per average subscriber
("ARPU"). ARPU was $45.81 for 1998 compared to $57.48 for 1997 and $62.85 for
1996. The decrease in ARPU is primarily due to the change in strategy in 1998,
signified by the "Get More" advertising campaign. In this campaign, subscribers
get more value from their wireless service through lower priced rate plans that
include high minutes of use. Revenues from prepaid customers of $2.1 million are
included in subscriber revenues for 1998. VoiceStream does not expect that ARPU
will decline at the same rate in 1999 as it did in 1998.
Roamer revenues are a result of VoiceStream's continuing effort to
procure domestic and international roaming agreements with other carriers.
VoiceStream expects roamer revenues to increase in 1999 due to increased
wireless subscribers and VoiceStream's expanded coverage.
Equipment sales increased as a result of more handsets sold. The
increase in handsets sold is due to the number of operational markets during
each period and the relative maturity of VoiceStream's operations in these
markets. Offsetting this increase is a decrease in the average handset selling
price, which is the result of lower handset costs and the competitive
environment. VoiceStream anticipates continued growth in equipment sales as a
result of increases in subscriber additions and the commencement of commercial
operations in other markets.
PCS OPERATING EXPENSES
Cost of service expenses represent expenses incurred only by operational
markets. The increase in cost of service is primarily attributable to the
increased costs of maintaining the expanding wireless network as a result of new
markets becoming operational. Cost of service as a percentage of service
revenues declined to 40.0% in 1998 from 82.7% in 1997 and 160.0% in 1996 due to
efficiencies gained from the growing subscriber base. While cost of service
expenses are expected to grow in 1999 due to the growth in subscribers and
operating markets, VoiceStream expects the cost of service as a percentage of
service revenue to decline as greater economies of scale are realized.
Cost of equipment sales increased each year due to the increase in
handsets sold, offset by a decrease in the average cost of handsets sold.
VoiceStream expects this trend to continue in 1999. Although subscribers
generally are responsible for purchasing or otherwise obtaining their own
handsets, VoiceStream has historically sold handsets below cost to respond to
competition and general industry practice and expects to continue to do so in
the future.
The increase in general and administrative expenses is primarily
attributable to the increased costs associated with supporting a larger
subscriber base. General and administrative costs per average subscriber were
$27.84 for 1998 compared to $56.74 for 1997 and $135.81 for 1996. This decrease
is largely the result of efficiencies gained from a larger subscriber base.
While general and administrative expenses are expected to grow in 1999 due to
the growth in subscribers and operating markets, VoiceStream expects the costs
per average subscriber to decline as greater economies of scale are realized.
35
<PAGE> 36
The increase in sales and marketing costs each year is primarily due to
the increase in subscribers added. Sales and marketing costs per net subscriber
added, including the loss on equipment sales, was $630 for 1998 compared to $943
for 1997 and $1,200 for 1996. This decrease is largely the result of
efficiencies gained from larger subscriber additions. Sales and marketing costs
are expected to increase in 1999 due to the anticipated growth in subscriber
additions.
The increase in depreciation and amortization expenses is attributable
to the continued expansion of the wireless systems. FCC licenses are not
amortized until the related market is operational. These expenses will increase
as new markets become operational.
PCS EBITDA
From 1997 to 1998, the decrease in negative EBITDA is attributable to
the increase in revenues and operating efficiencies gained from the growing
subscriber base. VoiceStream expects a similar trend in EBITDA from 1999 for its
operational markets, however the commencement of operations in new markets will
slow and could reverse this trend. Negative EBITDA increased in 1997 from 1996
due to the commencement of operations in three new markets.
PCS NET LOSS
From 1997 to 1998, the decrease in net loss is attributable to the
increase in revenues, operating efficiencies gained from growing the subscriber
base and a decrease in other expense. VoiceStream expects a similar trend in net
loss from 1998 to 1999 for its operational markets, however the commencement of
operations in new markets will slow and could reverse this trend. Net loss
increased in 1997 from 1996 due to the commencement of operations in new
markets.
PCS OTHER INCOME (EXPENSE); NET OPERATING LOSS CARRYFORWARDS
Interest and financing expense, net of capitalized interest, decreased
in 1998 from 1997 due to the equity contributions from Western Wireless in
December 1997 and Hutchison USA in February 1998 (see "PCS Liquidity and
Capital Resources"). The equity contribution from Western Wireless was a
conversion of debt that had previously incurred interest. The Hutchison
Investment allowed VoiceStream to repay the remaining debt to Western Wireless
and to forego additional borrowings until July 1998. The increase in interest
and financing expense in 1997 from 1996 was due to the increase in long-term
debt. Long-term debt was incurred primarily to fund the capital expenditures
associated with the build-out of the wireless systems. Interest expense will
increase in 1999 as a result of increased borrowings to fund the expansion of
the wireless network. The weighted average interest rate, before the effect of
capitalized interest, was 8.76% in 1998, 8.23% in 1997 and 8.12% in 1996.
Interest income and other increased in 1998 from 1997 due to interest
earned on the funds received in the Hutchison Investment.
VoiceStream had $707 million of NOL carryforwards at December 31, 1998,
which will expire between 2010 and 2018. After the Spin-off, these NOL
carryforwards will remain with VoiceStream. Management believes that, based on a
number of factors, there is sufficient uncertainty regarding the utilization of
VoiceStream's NOL carryforwards.
PCS LIQUIDITY AND CAPITAL RESOURCES
The following table sets forth certain financial data as it relates to
the 1998 cash flows for PCS operations:
<TABLE>
<CAPTION>
(Dollars in thousands)
YEAR ENDED DECEMBER 31, 1998
<S> <C>
Net loss $(254,266)
Net cash used in operating activities $(112,931)
Net cash used in investing activities $(253,633)
Net cash provided by financing activities $ 374,284
Ending cash $ 8,057
</TABLE>
VoiceStream, through a wholly-owned subsidiary, has a credit facility
with a consortium of lenders (the "PCS Credit Facility") consisting of $500
million in revolving credit and $500 million in term loans. As of December 31,
1998, $540 million was outstanding under the PCS Credit Facility. The amount
which VoiceStream can borrow under the Credit Facility is reduced beginning on
2001, the same year in which repayment of the Credit Facility begins. Debt under
the PCS Credit Facility matures on December 31, 2006, for the revolver and the
delayed draw term loan, and June 30, 2007, for the other $250 million term loan.
The borrowings under the PCS Credit Facility bear interest at variable rates.
Substantially all the assets of VoiceStream, other than certain PCS licenses
acquired in the FCC's D and E Block auctions and certain other assets, are
pledged as security for such debt. The terms of the PCS Credit Facility
restrict, among other things, the sale of assets, distribution of dividends or
other distributions and loans. As of January 1, 1999, the amount available to
borrow under the PCS Credit Facility, which is restricted by certain financial
covenants, was $277 million.
36
<PAGE> 37
The Hutchison Investment closed in February 1998. Approximately $135
million of the proceeds of the Hutchison Investment was used by VoiceStream for
the build-out of its systems during 1998. The remainder of the proceeds was paid
to Western Wireless as a repayment of loans made to VoiceStream.
In 1999, VoiceStream anticipates spending approximately $150 million for
the continued expansion of its operating markets and $150 million for the
development and expansion of new markets (both amounts include VoiceStream's
anticipated spending by Cook Inlet PCS). VoiceStream will use cash on hand and
amounts available for borrowing under the PCS Credit Facility for such purposes.
In addition, further funds (which may be significant) will be required to
finance the continued growth of its operations, including the build-out of its
markets, provide for working capital and service debt. The build-out of
additional systems by VoiceStream will require substantial additional funds. The
capital cost of completing the project in any particular market, and overall,
could vary materially from current estimates. If adequate funds are not
available from its existing capital resources, VoiceStream may be required to
curtail its service operations or to obtain additional funds. The terms of any
additional funds may be less favorable than those contained in current
arrangements. In addition to the aforementioned capital expenditures,
VoiceStream expects to make in 1999, VoiceStream has noncancellable lease
agreements for various facilities, including cell-site locations, of
approximately $25 million in 1999. The sources of funding for such expenditures
will come from the same sources as discussed above. VoiceStream has reached an
agreement in principle with one of its infrastructure equipment vendors whereby
such vendor would purchase $400,000,000 of VoiceStream's newly designated and
issued 12% cumulative senior exchangeable preferred stock. During the first five
years following issuance, dividends would be paid in cash or, at VoiceStream's
option, in additional shares of exchangeable preferred stock having an aggregate
liquidation preference equal to the amount of such dividends. After the fifth
anniversary, all dividends would be payable only in cash. In addition,
VoiceStream would modify its existing PCS supply agreement with such vendors.
The agreement in principle contemplates that the net proceeds of the sale of the
exchangeable preferred stock would be used to finance capital expenditures, for
working capital purposes and to finance permitted investments and acquisitions.
Although VoiceStream is working diligently with the vendor to prepare formal
contracts, there can be no assurance that formal contracts will be executed and
that such funds will be available to VoiceStream.
A wholly owned subsidiary of VoiceStream holds a 49.9% interest in Cook
Inlet PCS. Cook Inlet PCS is subject to the FCC's build-out requirements and
will require significant additional amounts to complete the build-out of its PCS
systems and to meet the government debt service requirements on its C and F
Block licenses. No principal payments on these licenses are due in 1999. 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, Western Wireless has funded the operations of Cook Inlet PCS
through the issuance of promissory notes. VoiceStream does not have any further
commitments to fund Cook Inlet PCS. At December 31, 1998, Western Wireless had
advanced funds totaling $65.3 million to Cook Inlet PCS under such promissory
notes. During the second quarter of 1998, Cook Inlet PCS participated in the C
Block restructuring options provided by the FCC. The options chosen by Cook
Inlet PCS had the effect of reducing its debt by $29.1 million.
In January 1999, certain partners of Cook Inlet PCS, including
VoiceStream, formed another joint venture, Cook Inlet/VoiceStream PCS LLC
("CIVS") (of which 49.9% is owned by VoiceStream and 50.1% is owned by Cook
Inlet Region, Inc.) to participate in the FCC's reauction of C and F Block
licenses in 1999. VoiceStream contributed $25 million in March of 1999, to the
deposit required by the FCC to participate in the reauction. CIVS has reached
an agreement in principle with one of its infrastructure equipment vendors
whereby such vendor would provide to CIVS a $725,000,000 senior credit facility
and a $100,000,000 subordinated facility, and would agree to acquire certain
equipment, software and services from such vendor. The agreement in principle
contemplates that the net proceeds of the senior secured facility and the
subordinated facility would be used to finance capital expenditures, for
working capital and to finance permitted investments and acquisitions. The
effectiveness of the senior secured facility and the subordinated facility will
be conditioned upon CIVS acquiring licenses for BTA's covering at least 2
million persons. The amount available for borrowing pursuant to the senior
credit facility and the subordinated facility will be based upon the aggregate
number of persons covered by licenses for BTA's acquired by CIVS, with $825
million in the aggregate being available if CIVS acquires licenses for BTA's
covering at least 15 million persons and such availability being ratably
reduced if CIVS acquired licenses for BTA's covering fewer than 15 million
persons. Although CIVS is working diligently with the vendor to prepare formal
contracts, there can be no assurance that formal contracts will be executed or
that such funds will be available to CIVS.
After the Spin-off, the NOL carryforwards resulting from VoiceStream's
cumulative tax losses will remain with VoiceStream. Pursuant to a tax sharing
agreement entered into at the time of the Hutchison Investment, VoiceStream will
pay Western Wireless in 1999 an amount representative of the tax benefit of NOLs
generated while VoiceStream was a wholly-owned subsidiary of Western Wireless.
This payment will not exceed $20 million, net of taxes.
37
<PAGE> 38
Net cash used in operating activities was $112.9 million in 1998.
Adjustments to the $254.3 million net loss to reconcile to net cash used in
operating activities included $83.8 million of depreciation and amortization,
and $24.1 million for equity in the net loss of unconsolidated subsidiaries.
Other adjustments included changes in operating assets and liabilities,
including: (i) an increase of $20.9 million in accrued liabilities, the largest
component of which is attributable to an increase in property taxes; and (ii) an
increase of $13.7 million in accounts payable, due to the growth of the
business. Net cash used in operating activities was $198.1 million in 1997 and
$81.3 million in 1996.
Net cash used in investing activities was $253.6 million in 1998.
Investing activities consisted primarily of: (i) purchases of property and
equipment of $206.5 million, largely related to the build-out of the wireless
network; (ii) investments in and advances to unconsolidated affiliates of $34.3
million, primarily attributable to advances to Cook Inlet PCS for working
capital and purchases of property and equipment; and (iii) $12.9 million of
additions to licensing costs and other intangible assets, primarily attributable
to 16 Local Multipoint Distribution Service (LMDS) licenses acquired in an FCC
auction. Net cash used in investing activities was $370.2 million in 1997 and
$342.6 million 1996.
Net cash provided by financing activities was $374.3 million in 1998.
Financing activities consisted of: (i) net proceeds from the Hutchison
Investment of $244.8 million, offset by the repayment of advances from Western
Wireless of $105.4 million; and (ii) net borrowings on long-term debt of $240.0
million, offset by $5.1 million of financing fees. Net cash provided by
financing activities was $563.3 million in 1997 and $429.3 million in 1996.
In the ordinary course of business, VoiceStream continues to evaluate
acquisitions, joint ventures and other potential business transactions. Any such
transactions would be financed with the borrowings under the Credit Facility or
through the issuance of additional debt or the sale of additional equity. There
can be no assurance that such funds will be available to VoiceStream on
acceptable or favorable terms.
PCS SEASONALITY
VoiceStream, and the wireless communications industry in general, have
historically experienced significant subscriber growth during the fourth
calendar quarter. Accordingly, during such quarter VoiceStream experiences
greater losses on equipment sales and increases in sales and marketing expenses.
VoiceStream expects this trend to continue.
WESTERN WIRELESS AND ITS SUBSIDIARIES YEAR 2000 ISSUES
Western Wireless, like most owners of computer software, will be
required to modify significant portions of its software so that it will function
properly in the year 2000. Any of Western Wireless', or its vendors, computer
programs that have date-sensitive software may recognize a date using "00" as
the year 1900 rather than the year 2000. Western Wireless is currently
remediating its critical systems to address the year 2000 issue. Critical
systems are those whose failure poses a risk of disruption to Western Wireless'
ability to provide wireless services, to collect revenues, to meet safety
standards, or to comply with legal requirements. Western Wireless 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. Western Wireless cannot assure that the remediation of its
critical systems will be complete by the year 2000.
Much of Western Wireless' technology, including technology associated
with its critical systems, is purchased from third parties. Western Wireless is
dependent on those third parties to assess the impact of the year 2000 issue on
the technology and services they supply and to take any necessary corrective
action. Western Wireless' plan includes obtaining information from all third
parties to determine whether they have accurately assessed the problem and taken
corrective action. Western Wireless cannot assure that these third parties will
have taken the necessary corrective action prior to the year 2000.
While costs incurred to date to address the year 2000 issue have not
been significant, Western Wireless expects to incur incremental consolidated
expenses of not more than $5 million through the end of 1999 to implement its
plan for its consolidated critical systems. In addition, Western Wireless has
redeployed internal resources to address the problem. The majority of these
expenses will be incurred in the first half of 1999. Additionally, Western
Wireless will incur capitalized costs that represent ongoing investment in new
systems and system upgrades, the timing of which is being accelerated to
facilitate year 2000 compliance and which is not expected to have a material
impact on Western Wireless' financial position or results of operations. This
estimate assumes that third party suppliers have accurately assessed the
compliance of their products and that they will successfully correct the issue
in non-compliant products. Because of the complexity of correcting the year 2000
issue, actual costs may vary from this estimate.
38
<PAGE> 39
Based on its current assessments and its remediation plan, which are
based in part upon certain representations of third parties, VoiceStream expects
that it will not experience a disruption of its operations as a result of the
change to the year 2000. However, there can be no assurance that either Western
Wireless or the third parties who have supplied technology used in Western
Wireless' critical systems will be successful in taking corrective action in a
timely manner. Western Wireless has developed contingency plans with respect to
its critical systems, which Western Wireless believes will successfully avoid
service disruption; however, Western Wireless cannot guarantee this. Western
Wireless will continuously test and update these plans and systems as long as
necessary.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements required by this item are set forth on pages
F-1 through F-22 and the related financial statement schedules are set forth on
page S-1 through S-3.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
39
<PAGE> 40
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information on directors of the registrant called for by this Item
is incorporated by reference to the section entitled "Election of Directors and
Management Information" in Western Wireless' Proxy Statement for its 1999 annual
shareholders meeting to be filed with the United States Securities and Exchange
Commission. The information on executive officers of the registrant called for
by this Item is included herein in the section entitled "Executive Officers of
the Registrant."
ITEM 11. EXECUTIVE COMPENSATION
The information called for by this Item is incorporated by reference to
the section entitled "Executive Compensation" in Western Wireless' Proxy
Statement for its 1999 annual shareholders meeting to be filed with the United
States Securities and Exchange Commission.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information called for by this Item is incorporated by reference to
the section entitled "Security Ownership of Certain Beneficial Owners and
Management" in Western Wireless' Proxy Statement for its 1999 annual
shareholders meeting to be filed with the United States Securities and Exchange
Commission.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information called for by this Item is incorporated by reference to
the section entitled "Certain Relationships and Related Transactions" in Western
Wireless' Proxy Statement for its 1999 annual shareholders meeting to be filed
with the United States Securities and Exchange Commission.
40
<PAGE> 41
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS ON FORM 8-K
(A) Financial Statements and Schedule
The financial statements and schedules are filed with this Form 10-K are
set forth in the Index to Consolidated Financial Statements and Schedules at
page F-1, which immediately precedes such documents.
(B) Reports on Form 8-K
A Form 8-K was filed on October 27, 1998, reporting Western Wireless'
financial and operating results for the third quarter ended September 30, 1998,
and announcing the filing of a request for ruling with the Internal Revenue
Service.
A Form 8-K was filed on February 8, 1999, announcing that Western
Wireless received a favorable ruling from the Internal Revenue Service regarding
the tax free nature of a potential spin off of its 80.1 percent ownership of
VoiceStream Wireless Corporation, and that the Board of Directors of Western
Wireless approved such a spin off transaction.
A Form 8-K was filed on February 17, 1999, reporting Western Wireless'
financial and operating results for the fourth quarter and year end 1998.
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
- --------- -----------------------------------------------------------------
<S> <C>
3.1(1) Amended and Restated Articles of Incorporation of the Registrant.
3.2(1) Bylaws of the Registrant.
4.1(2) Indenture between Western Wireless Corporation and Harris Trust
Company of California, dated May 22, 1996
4.2(3) Indenture between Western Wireless Corporation and Harris Trust
Company of California, dated October 24, 1996
4.3(6) Form of Supplemental Indenture to be entered into between Western
Wireless Corporation and Harris Trust Company of California,
relating to the 10 1/2% Senior Subordinated Notes Due 2007
4.4(6) Form of Supplemental Indenture to be entered into between Western
Wireless Corporation and Harris Trust Company of California,
relating to the 10 1/2% Senior Subordinated Notes Due 2006
10.1(1) Loan Agreement between Western PCS II Corporation and Northern
Telecom Inc., dated June 30, 1995
10.2(1) PCS 1900 Project and Supply Agreement between Western PCS
Corporation and Northern Telecom Inc., dated June 30, 1995
10.3(1) Purchase Agreement between Motorola Nortel Communications Co. and
General Cellular Corporation, dated July 29, 1993
10.4(1) Loan Agreement among Western Wireless Corporation and The
Toronto-Dominion Bank, Barclays Bank, PLC, and Morgan Guaranty
Trust Company of New York, as Managing Agents for the Various
Lenders, dated June 30, 1995
10.5(1) First Amendment to Loan Agreement by and among Western Wireless
Corporation, The Toronto-Dominion Bank, Barclays Bank, PLC, and
Morgan Guaranty Trust Company of New York, as Managing Agents for
the Various Lenders, dated January 11, 1996
10.6(1) Supply Contract by and between Western PCS Corporation and Nokia
Telecommunications Inc., dated December 14, 1995
10.7(1) Purchase and Sale Agreement, Nokia Mobile Phones, Inc. and
Western Wireless Corporation, dated November 10, 1995
</TABLE>
41
<PAGE> 42
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
- --------- -----------------------------------------------------------------
<S> <C>
10.8(1) Western Wireless Corporation, 1994 Management Incentive Stock
Option Plan, approved, as adopted and amended, by Shareholders
November 16, 1995 together with form of Stock Option Agreement
for offers thereunder
10.9(1) Stockholders Agreement by and among Western Wireless Corporation
and certain of its shareholders, dated July 29, 1994
10.10(1) First Amendment to Stockholders Agreement by and among Western
Wireless Corporation and certain of its shareholders, Adding as a
Party Western PCS Corporation, dated November 30, 1994
10.11(1) Waiver Agreement by and among Western Wireless Corporation,
Western PCS Corporation and certain of Western Wireless
Corporation's shareholders, dated November 30, 1994
10.12(1) Waiver Agreement by and among Western Wireless Corporation,
Western PCS Corporation and certain of Western Wireless
Corporation's shareholders, dated February 15, 1996
10.13(1) Voting Agreement by and among Western Wireless Corporation and
certain of its shareholders, dated July 29, 1994
10.14(1) Voting Agreement by and among Western Wireless Corporation and
certain of its shareholders
10.15(1) Lease Agreement by and between WWC Holding Co., Inc., successor
in interest to MARKETS Cellular Limited Partnership, and WRC
Properties, Inc., dated May 1, 1994
10.16(1) Lease Agreement by and between Western Wireless Corporation and
Department of Natural Resources, dated August 25, 1995
10.17(1) First Amendment to Lease Agreement by and between Western
Wireless Corporation and Department of Natural Resources, dated
February 28, 1996
10.18(1) Form of Cellular One Group License Agreement
10.19(1) Asset Purchase Agreement between Western PCS III License
Corporation as Buyer and GTE Mobilnet Incorporated as Seller,
dated January 16, 1996
10.20(1) Purchase and Sale Agreement by and between Robert O. Tyler, Esq.,
as Trustee, Seller, and GCC License Corporation, Purchaser, dated
December 22, 1995
10.21(1) Agreement for Purchase and Sale of Autoplex Cellular Equipment,
Software and Services by and among American Telephone and
Telegraph Company, WWC Holding Co., Inc., successor to MARKETS
Cellular Limited Partnership and MCII General Partnership, dated
March 17, 1993
10.22(1) Agreement and Plan of Reorganization by and among Palouse Paging,
Inc., the Shareholders of 100% of the Stock of Palouse Paging,
Inc., Western Paging I Corporation and Western Wireless
Corporation, dated February 5, 1996
10.23(1) First Amendment to Agreement and Plan of Reorganization by and
among Western Paging I Corporation, the former Shareholders of
100% of the Stock of Palouse Paging, Inc. and Western Wireless
Corporation
10.24(1) Agreement and Plan of Reorganization by and among Sawtooth
Paging, Inc., the Shareholders of 52.93% of the Stock of Sawtooth
Paging, Inc., Western Paging II Corporation and Western Wireless
Corporation, dated February 5, 1996
10.25(1) Employment Agreement by and between John W. Stanton and Western
Wireless Corporation, dated March 12, 1996
10.26(1) Employment Agreement by and between Robert R. Stapleton and
Western Wireless Corporation, dated March 12, 1996
10.27(1) Employment Agreement by and between Mikal J. Thomsen and Western
Wireless Corporation, dated March 12, 1996
10.28(1) Employment Agreement by and between Theresa E. Gillespie and
Western Wireless Corporation, dated March 12, 1996
10.29(1) Employment Agreement by and between Alan R. Bender and Western
Wireless Corporation, dated March 12, 1996
</TABLE>
42
<PAGE> 43
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
- --------- -----------------------------------------------------------------
<S> <C>
10.30(1) Employment Agreement by and between Cregg B. Baumbaugh and
Western Wireless Corporation, dated March 12, 1996
10.31(7) Employment Agreement by and between Donald Guthrie and Western
Wireless Corporation, dated March 12, 1996
10.32(1) Form of Registrant's Restrictive Covenant and Confidentiality
Agreement
10.33(1) Form of Director and Officer Indemnification Agreement
10.34(1) Western PCS Corporation Series A Preferred Stock Purchase
Agreement among Western Wireless Corporation, Western PCS
Corporation and the Purchasers listed therein, dated April 10,
1995
10.35(1) PCS Block "C" Organization and Financing Agreement by and among
Western PCSBTA I Corporation, Western Wireless Corporation, Cook
Inlet PV/SS PCS Partners, L.P., Cook Inlet Telecommunications,
Inc., SSPCS Corporation and Providence Media Partners L.P. dated
as of November 5, 1995
10.36(1) Limited Partnership Agreement by and between Cook Inlet PV/SS PCS
Partners, L.P. and Western PCS BTA I Corporation dated as of
November 5, 1995
10.37(1) First Amendment to Block "C" Organization and Financing Agreement
and Cook Inlet Western Wireless PV/SS PCS, L.P. Limited
Partnership Agreement by and among Western PCS BTA I Corporation,
Western Wireless Corporation, Cook Inlet PV/SS PCS Partners,
L.P., Cook Inlet Telecommunications, Inc., SSPCS Corporation and
Providence Media Partners L.P. dated as of April 8, 1996
10.38(1) Amended and Restated Loan Agreement among Western Wireless
Corporation and The Toronto-Dominion Bank, Barclays Bank, PLC,
and Morgan Guaranty Trust Company of New York, as Managing Agents
for the Various Lenders, dated May 6, 1996
10.39(3) Second Amendment to Block "C" Organization and Financing
Agreement and Cook Inlet Western Wireless PV/SS PCS, L.P. Limited
Partnership Agreement by and among Western PCS BTA I Corporation,
Western Wireless Corporation, Cook Inlet PV/SS PCS Partners,
L.P., Cook Inlet Telecommunications, Inc., SSPCS Corporation and
Providence Media Partners L.P. dated as of June 27, 1996
10.40(3) Third Amendment to Block "C" Organization and Financing Agreement
and Cook Inlet Western Wireless PV/SS PCS, L.P. Limited
Partnership Agreement and First Amendment to Technical Services
Agreement by and among Western PCS BTA I Corporation, Western
Wireless Corporation, Cook Inlet PV/SS PCS Partners, L.P., Cook
Inlet Telecommunications, Inc., SSPCS Corporation, Providence
Media Partners L.P. and Cook Inlet Western Wireless PV/SS PCS,
L.P., dated July 30, 1996
10.41(3) General Agreement for Purchase of Cellular Systems between Lucent
Technologies Inc. and Western Wireless Corporation, dated
September 16, 1996
10.42(3) Amendment No. 1 to PCS 1900 Supply Agreement between Western PCS
Corporation and Northern Telecom Inc., dated July 25, 1996
10.43(3) Amendment No. 2 to PCS 1900 Supply Agreement between Western PCS
Corporation and Northern Telecom Inc., dated July 25, 1996
10.44(7) Amendment No. 3 to PCS Supply Agreement between Western PCS
Corporation and Northern Telecom Inc., dated October 14, 1996
10.45(4) Western Wireless Corporation 1996 Employee Stock Purchase Plan
10.46(5) Western Wireless Corporation 1997 Executive Restricted Stock Plan
10.47(5) Form of First Amendment to Amended and Restated Loan Agreement
among Western Wireless Corporation and The Toronto Dominion Bank,
Barclays Bank, PLC, and Morgan Guaranty Trust Company of New
York, as Managing Agents for the various lenders, dated March 27,
1997
</TABLE>
43
<PAGE> 44
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
- --------- -----------------------------------------------------------------
<S> <C>
10.48(5) Purchase Agreement, dated April 24, 1997, by and among Western
Wireless Corporation, Triad Texas, L.P., Triad Utah, L.P., Triad
Oklahoma, L.P., Triad Cellular Corporation and Triad Cellular
L.P.
10.49(5) Purchase Agreement, dated April 24, 1997, by and between Western
Wireless Corporation and Triad Cellular Corporation
10.50(5) Agreement and Plan of Merger, dated April 24, 1997, by and among
Western Wireless Corporation, Minnesota Cellular Corporation,
Triad Investment Minnesota, Inc., Barry B. Lewis, Craig W.
Viehweg, Terry E. Purvis, Triad Cellular Corporation, Triad
Cellular L.P., and Triad Minnesota, L.P.
10.51(5) Purchase Agreement, dated April 24, 1997, by and between Western
Wireless Corporation and Triad Cellular, L.P.
10.52(8) First Amendment to Loan Agreement, dated as of March 6, 1997,
among Western PCS II Corporation, Northern Telecom Inc., NTFC
Capital Corporation and Export Development Corporation
10.53(8) Second Amendment to Loan Agreement, dated as of April 15, 1997,
among Western PCS II Corporation, Northern Telecom Inc., NTFC
Capital Corporation and Export Development Corporation
10.54(9) Second Amendment to Amended and Restated Loan Agreement by and
among Western Wireless Corporation, various financial
institutions, and The Toronto-Dominion Bank, Barclays Bank PLC
and Morgan Guaranty Trust Company of New York as Managing Agents
dated May 28, 1997
10.55(10) Stock Subscription Agreement by and among Western Wireless
Corporation, Hutchison Telecommunications Limited and Hutchison
Telecommunications Holdings (USA) Limited dated October 14, 1997
10.56(10) Purchase Agreement by and among Western PCS Corporation, Western
Wireless Corporation, Hutchison Telecommunications Limited and
Hutchison Telecommunications PCS (USA) Limited dated October 14,
1997
10.57(10) Form of Cash Management Agreement by and between Western Wireless
Corporation and Western PCS Corporation
10.58(10) Form of Roaming Agreement by and between Western Wireless
Corporation and Western PCS Corporation
10.59(10) Form of Services Agreement by and between Western Wireless
Corporation and Western PCS Corporation
10.60(10) Form of Shareholders Agreement by and among Western Wireless
Corporation, Hutchison Telecommunications PCS (USA) Limited and
Western PCS Corporation
10.61(10) Form of Tax Sharing Agreement by and between Western Wireless
Corporation and Western PCS Corporation
10.62(10) Agreement to Form Limited Partnership dated September 30, 1997,
by and among Western PCS I Iowa Corporation, a Delaware
corporation, INS Wireless, Inc., an Iowa corporation, Western PCS
I Corporation, a Delaware corporation, and Iowa Network Services,
Inc., an Iowa corporation
10.63(10) Iowa Wireless Services, L.P. Limited Partnership Agreement dated
as of September 30, 1997, by and between INS Wireless, Inc., as
General Partner, and Western PCS I Iowa Corporation, as Limited
Partner
10.64(11) Software License Maintenance and Subscriber Billing Services
Agreement dated June 1997
10.65(11) First Amendment to Software License, Maintenance and Subscriber
Billing Services Agreement dated December 1997, between CSC
Intelicom, Inc., and Western Wireless Corporation
10.66(11) Letter agreement dated December 16, 1997 between Western Wireless
Corporation and Intelicom Services Inc. to provide products and
services pursuant to the Software License Maintenance and
Subscriber Billing Services Agreements and First Amendment
thereto
</TABLE>
44
<PAGE> 45
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
- --------- -----------------------------------------------------------------
<S> <C>
10.67(12) Second Amendment to Loan Agreement by and among Western Wireless
Corporation, TD Securities (USA) Inc., Barclays Capital, and J.P.
Morgan Securities Inc., as Managing Agents for the Various
Lenders, dated February 17, 1998
10.68(12) Employment Agreement by and between Timothy Wong and Western
Wireless Corporation, dated February 10, 1998.
10.69(12) Employment Agreement by and between Robert Dotson and Western
Wireless Corporation, dated February 10, 1998
10.70(13) Amendment Number 4 to PCS 1900 Project and Supply Agreement by
and between Western PCS Corporation and Northern Telecom Inc.
dated March 26, 1998
10.71(13) Supply Contract by and between Western PCS Corporation and Nokia
Telecommunications Inc. dated March 9, 1998
10.72(13) Purchase and Sale Agreement by and between Nokia Mobile Phones,
Inc. and Western PCS Corporation dated March 9, 1998
10.74(13) Loan Agreement among Western PCS Holding Corporation, various
financial institutions, and Toronto-Dominion (Texas), Inc. as
Administrative Agent, dated June 26, 1998
10.75(13) Asset Purchase Agreement by and between WWC Holding Co, Inc.,
Western Wireless Corporation, and Celludyne II, Inc. dated June
10, 1998
10.76(14) Amendment Number 5 to PCS 1900 Project and Supply Agreement
between VoiceStream Wireless Corporation and Northern Telecom
Inc. dated September 17, 1998
10.77(14) Exchange Rights and Grant Agreement by and among Western PCS BTA
I Corporation, Western Wireless Corporation, Cook Inlet
Telecommunications, Inc. and VoiceStream Wireless Corporation
dated December 17, 1998
10.78(14) Exchange Rights and Grant Agreement by and among Western PCS BTA
I Corporation, Western Wireless Corporation, SSPCS Corporation
and VoiceStream Wireless Corporation dated January 19, 1999
10.79(14) First Amendment to Loan Agreement by and among Western PCS
Holding Corporation, TD Securities (USA) Inc., NationsBanc
Montgomery Securities LLC, Barclays Capital, J.P. Morgan
Securities Inc., Chase Securities Inc., J.P. Morgan Securities
Inc., NationsBanc Montgomery Securities LLC, Chase Securities
Inc. and Toronto Dominion (Texas), Inc. dated November 25, 1998
10.80(15) Amendment No. 1 to the General Agreement for Purchase of Cellular
Systems between Western Wireless Corporation and Lucent
Technologies, Inc. effective January 1998
10.81(15) Amendment No. 2 to Purchase Agreement between General Cellular
Corporation and Northern Telecom Inc.
10.82(15) Amendment No. 3 to Purchase Agreement between Western Wireless
Corporation and Northern Telecom Inc. dated September 1998
10.83 Asset Purchase Agreement by and among McAllen Cellular Telephone
Company, Inc., GCC License Corporation, Celutel, Inc. and Western
Wireless Corporation dated January 26, 1999
10.84 Asset Purchase Agreement by and among Brownsville Cellular
Telephone Company Inc., LLC License Corporation, Celutel, Inc.,
and Western Wireless Corporation dated January 24, 1999
21.1 Subsidiaries of the Registrant
23.1 Consent of Arthur Andersen LLP
27.1 Financial Data Schedule
</TABLE>
45
<PAGE> 46
(1) Incorporated herein by reference to the exhibit filed with Western
Wireless' Registration Statement on Form S-1 (Commission File No.
333-2432).
(2) Incorporated herein by reference to the exhibit filed with Western
Wireless' Registration Statement on Form S-1 (Commission File No.
333-2688).
(3) Incorporated herein by reference to the exhibit filed with Western
Wireless' Registration Statement on Form S-4 (Commission File No.
333-14859).
(4) Incorporated herein by reference to the exhibit filed with Western
Wireless' Registration Statement on Form S-8 (Commission File No.
333-18137).
(5) Incorporated by reference to the exhibit filed with Western Wireless'
Registration Statement on Form S-1 (Commission File No. 333-14859)
(6) Incorporated by reference to the exhibit filed with Western Wireless'
Registration Statement on Form S-3 (Commission File No. 333-14859)
(7) Incorporated by reference to the exhibit filed with Western Wireless' Form
10-K for the year ended 12/31/96.
(8) Incorporated by reference to the exhibit filed with Western Wireless' Form
10-Q for the quarter ended 3/31/97.
(9) Incorporated by reference to the exhibit filed with Western Wireless' Form
10-Q for the quarter ended 6/30/97.
(10) Incorporated by reference to the exhibit filed with Western Wireless' Form
10-Q for the quarter ended 9/30/97.
(11) Incorporated by reference to the exhibit filed with Western Wireless' Form
10-K for the year ended 12/31/97.
(12) Incorporated by reference to the exhibit filed with Western Wireless' Form
10-Q for the quarter ended 3/31/98.
(13) Incorporated by reference to the exhibit filed with Western Wireless' Form
10-Q for the quarter ended 6/30/98.
(14) Incorporated by reference to the exhibit filed with Western Wireless'
Registration Statement on Form 10 (Commission File No. 000-25441)
(15) Portions of this exhibit have been omitted and filed separately with the
Secretary of the Commission pursuant to the Registrant's Application
Requesting Confidential Treatment under Rule 246-2 of the Securities
Exchange Act of 1934.
46
<PAGE> 47
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, 1998 and 1997.................................................... F-3
Consolidated Statements of Operations for the years ended December 31, 1998, 1997 and 1996...................... F-4
Consolidated Statements of Shareholders' Equity for the years ended December 31, 1998, 1997 and 1996............ F-5
Consolidated Statements of Cash Flows for the years ended December 31, 1998, 1997 and 1996...................... F-6
Notes to Consolidated Financial Statements .................................................................. F-7
Schedule I - Parent Company Only Financial Statements............................................................. S-1
Schedule II - Valuation and Qualifying Accounts ............................................................. S-3
</TABLE>
F-1
<PAGE> 48
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, 1998 and 1997, and the related
consolidated statements of operations and comprehensive loss, shareholders'
equity and cash flows for each of the three years in the period ended December
31, 1998. These financial statements and schedules referred to below are the
responsibility of Western Wireless 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, 1998 and 1997, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1998, 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 18, 1999
F-2
<PAGE> 49
WESTERN WIRELESS CORPORATION
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
<TABLE>
<CAPTION>
As of December 31,
---------------------------
1998 1997
----------- -----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 10,249 $ 15,459
Accounts receivable, net of allowance for doubtful accounts of
$13,344 and $9,931, respectively 70,093 55,652
Inventory 28,976 36,425
Prepaid expenses and other current assets 14,937 31,216
----------- -----------
Total current assets 124,255 138,752
Property and equipment, net of accumulated depreciation
of $360,184 and $221,031, respectively 891,597 699,129
Licensing costs and other intangible assets, net of accumulated
amortization of $95,008 and $73,049, respectively 830,829 807,409
Investments in and advances to unconsolidated affiliates 98,601 64,156
Other assets 12,912 10,527
----------- -----------
$ 1,958,194 $ 1,719,973
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 21,273 $ 11,519
Accrued liabilities 116,284 104,595
Construction accounts payable 64,799 14,431
----------- -----------
Total current liabilities 202,356 130,545
----------- -----------
Long-term debt 1,585,000 1,395,000
----------- -----------
Minority interest in consolidated subsidiaries 77,578
-----------
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, and paid-in capital; 300,000,000 shares
authorized; Class A, 38,710,893 and 22,201,336 shares issued and
outstanding, respectively, and; Class B, 37,312,477 and 53,431,163
shares issued
and outstanding, respectively 800,631 675,036
Deferred compensation (1,211) (845)
Foreign currency translation (2,328)
Deficit (703,832) (479,763)
----------- -----------
Total shareholders' equity 93,260 194,428
----------- -----------
$ 1,958,194 $ 1,719,973
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements
F-3
<PAGE> 50
WESTERN WIRELESS CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
For the year ended December 31,
----------------------------------------------
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
Revenues:
Subscriber revenues $ 454,016 $ 297,724 $ 182,441
Roamer revenues 70,250 39,977 34,065
Equipment sales and other revenues 60,316 42,877 26,579
------------ ------------ ------------
Total revenues 584,582 380,578 243,085
------------ ------------ ------------
Operating expenses:
Cost of service 106,570 90,184 53,600
Cost of equipment sales 110,220 83,167 46,305
General and administrative 164,231 112,543 66,673
Sales and marketing 168,756 120,875 83,652
Depreciation and amortization 158,169 133,470 79,741
------------ ------------ ------------
Total operating revenues 707,946 540,239 329,971
------------ ------------ ------------
Operating loss (123,364) (159,661) (86,886)
------------ ------------ ------------
Other income (expense):
Interest and financing expense, net (126,345) (98,964) (44,690)
Equity in net loss of unconsolidated affiliates (28,866) (11,058) (968)
Other, net 10,471 4,149 2,439
------------ ------------ ------------
Total other income (expense) (144,740) (105,873) (43,219)
------------ ------------ ------------
Minority interest in net loss of consolidated subsidiaries 44,035
------------ ------------ ------------
Net loss $ (224,069) $ (265,534) $ (130,105)
============ ============ ============
Basic loss per common share $ (2.95) $ (3.76) $ (2.00)
============ ============ ============
Weighted average common shares used in computing basic
loss per common share 75,863,000 70,692,000 65,196,000
============ ============ ============
Comprehensive loss:
Net loss $ (224,069) $ (265,534) $ (130,105)
Other comprehensive loss:
Foreign currency translation adjustment (2,328)
------------ ------------ ------------
Total comprehensive loss $ (226,397) $ (265,534) $ (130,105)
============ ============ ============
</TABLE>
See accompanying notes to consolidated financial statements
F-4
<PAGE> 51
WESTERN WIRELESS CORPORATION
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(Dollars in thousands)
<TABLE>
<CAPTION>
Common Stock
--------------------------------------
Par value Foreign Total
Class A Class B and paid-in Deferred currency shareholders'
shares shares capital compensation translation Deficit equity
---------- ---------- ----------- ------------ ----------- ---------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1996 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
Shares issued:
Upon exercise of stock options 290,871 -- 1,159 -- -- -- 1,159
Excess of net book value
from the sale of
minority interest in
consolidated subsidiaries -- -- 121,998 -- -- -- 121,998
Class B shares exchanged for
Class A shares 16,118,686 (16,118,686) -- -- -- -- --
Deferred compensation 100,000 -- 2,438 (366) -- -- 2,072
Foreign currency translation
adjustment -- -- -- -- (2,328) -- (2,328)
Net loss -- -- -- -- -- (224,069) (224,069)
---------- --------- -------- ------- ------- --------- ---------
Balance, December 31, 1998 38,710,893 37,312,477 $800,631 $(1,211) $(2,328) $(703,832) $ 93,260
========== ========== ======== ======= ======= ========= =========
</TABLE>
See accompanying notes to consolidated financial statements
F-5
<PAGE> 52
WESTERN WIRELESS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
<TABLE>
<CAPTION>
For the year ended December 31,
-------------------------------------
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Operating Activities:
Net loss $(224,069) $(265,534) $(130,105)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation and amortization 158,169 133,470 79,741
Employee equity compensation 1,972 1,835 1,029
Equity in net loss of unconsolidated affiliates 28,866 11,058 968
Minority interest in net loss of consolidated
subsidiaries (44,035)
Other, net 4,343 4,834 3,088
Changes in operating assets and liabilities, net of effects
from consolidating acquired interests:
Accounts receivable, net (14,137) (23,871) (10,309)
Inventory 7,496 (9,481) (20,493)
Prepaid expenses and other current assets 1,279 (16,913) (10,979)
Accounts payable 9,754 (4,807) 5,771
Accrued liabilities 24,100 54,911 19,956
--------- --------- ---------
Net cash used in operating activities (46,262) (114,498) (61,333)
--------- --------- ---------
Investing activities:
Purchase of property and equipment (279,874) (318,750) (333,315)
Additions to licensing costs and other intangible assets (21,341) (71,917) (86,097)
Acquisition of wireless properties, net of cash acquired (35,346) (195,790) (40,180)
Investments in and advances to unconsolidated affiliates (49,702) (63,402) (5,994)
Deposit held by FCC, net 7,749 (23,500)
Other assets (2,494) (10,194)
--------- --------- ---------
Net cash used in investing activities (388,757) (652,304) (489,086)
--------- --------- ---------
Financing activities:
Proceeds from issuance of common stock, net 1,159 75,376 235,603
Additions to long term debt 600,000 722,000 893,000
Repayment of debt (410,000) (70,000) (512,722)
Deferred financing costs (5,059) (19,149)
Proceeds from sale of minority interest in consolidated
subsidiary, net 243,709
--------- --------- ---------
Net cash provided by financing activities 429,809 727,376 596,732
--------- --------- ---------
Change in cash and cash equivalents (5,210) (39,426) 46,313
Cash and cash equivalents, beginning of year 15,459 54,885 8,572
--------- --------- ---------
Cash and cash equivalents, end of year $ 10,249 $ 15,459 $ 54,885
========= ========= =========
</TABLE>
See accompanying notes to consolidated financial statements
F-6
<PAGE> 53
WESTERN WIRELESS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION:
Western Wireless Corporation ("Western Wireless") provides wireless
communications services in the United States principally through the ownership
and operation of cellular and personal communications services ("PCS") systems.
Western Wireless provides cellular operations primarily in rural areas in 17
western states under the Cellular One(R) brand name. Western Wireless provides
PCS services through its 80.1% ownership in VoiceStream Wireless Corporation
("VoiceStream"). VoiceStream has commenced commercial operations in ten markets
under the VoiceStream(R) brand name using the GSM technology. Additionally,
VoiceStream PCS services are offered in three additional markets in conjunction
with joint ventures.
Through international joint ventures, Western Wireless International
("WWI"), a subsidiary of Western Wireless, has interests in (and in some cases
manages) wireless licenses in certain foreign countries, including Gahna,
Iceland, Haiti, Croatia and the Republics of Latvia and Georgia. In addition,
WWI has interests in entities which have made wireless license applications in
certain other foreign countries.
On February 8, 1999, Western Wireless announced its intention to
separate VoiceStream from Western Wireless' other operations (the "Spin-off").
Western Wireless has received a favorable ruling by the Internal Revenue Service
for a tax free spin-off, and the approval by its board of directors to take the
necessary steps to complete the Spin-off. Western Wireless will distribute all
of its interest in VoiceStream to its shareholders upon the Spin-off. Although
VoiceStream has been operated separately from Western Wireless' other operations
and has been a separate legal entity since its inception, the Spin-off will
establish VoiceStream as a stand-alone entity with objectives separate from
those of Western Wireless. The Spin-off is subject to numerous conditions
including, among others, the receipt of certain government and third party
approvals. There is no assurance that such conditions will be met to complete
the Spin-off.
Western Wireless expects that VoiceStream will incur significant
operating losses and generate negative cash flows from operating activities
during the next several years while it expands its PCS systems and customer
base.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Principles of consolidation:
The consolidated financial statements include the accounts of Western
Wireless, its wholly owned subsidiaries and its affiliate investments in which
Western Wireless has a greater than 50% interest that is not temporary. All
affiliate investments in which Western Wireless 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> 54
WESTERN WIRELESS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 twenty years.
Licensing costs and other intangible assets and amortization:
Licensing costs primarily represent costs incurred to acquire Federal
Communication Commission's ("FCC") wireless licenses, including cellular
licenses principally obtained through acquisitions, and PCS licenses primarily
purchased from the FCC.
Amortization of cellular licenses is computed using the straight-line
method. Effective January 1, 1997, Western Wireless 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.
In accordance with Statement of Financial Accounting Standards ("SFAS")
No. 121, "Accounting for the Impairment of Long-lived Assets and for Long-lived
Assets to be Disposed of," Western Wireless periodically evaluates whether there
has been any indication of impairment of its long-lived assets, including its
licensing costs and other intangibles. As of December 31, 1998, there has been
no indication of such impairment.
Capitalized Interest:
VoiceStream PCS licenses and wireless communications systems represent
qualified assets pursuant to SFAS No. 34, "Capitalization of Interest Cost."
VoiceStream capitalized interest of $1.8 million in 1998 and $4.0 million in
1997.
Income taxes:
Deferred tax assets and liabilities are recognized based on temporary
differences between the financial statements and the tax bases of assets and
liabilities using enacted tax rates expected to be in effect when they are
realized. A valuation allowance against deferred tax assets is recorded, if,
based upon weighted available evidence, it is more likely than not that some or
all of the deferred tax assets will not be realized.
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:
Western Wireless accounts for its stock-based compensation plans under
APB Opinion No. 25, "Accounting for Stock Issued to Employees." See Note 12 for
discussion of the effect on net loss and other related disclosures had Western
Wireless accounted for these plans under SFAS No. 123, "Accounting for
Stock-Based Compensation."
F-8
<PAGE> 55
WESTERN WIRELESS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):
Foreign currency translation:
For operations outside the United States that prepare financial
statements in currencies other than the United States dollar, results of
operations and cash flows are translated at average exchange rates during the
period, and assets and liabilities are translated at end of period exchange
rates. Translation adjustments are included as a separate component of
shareholders' equity.
Fair value of financial instruments:
As required under the Cellular and PCS Credit Facilities (as defined in
Note 7), Western Wireless enters into interest rate swap and cap agreements to
manage interest rate exposure pertaining to long-term debt. Western Wireless has
only limited involvement with these financial instruments, and does not use them
for trading purposes. In addition, Western Wireless has historically held
derivative financial instruments to maturity and has never recognized a material
gain or loss on disposal. It is Western Wireless' 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 Western Wireless 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 financial instruments.
The carrying value of 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. Western Wireless does not hold or issue
any financial instruments for trading purposes.
Supplemental cash flow disclosure:
Cash paid for interest (net of amounts capitalized) was $123.2 million
in 1998, $87.4 million in 1997 and $36.2 million in 1996.
Non-cash investing and financing activities were as follows:
<TABLE>
<CAPTION>
(Dollars in thousands) YEAR ENDED DECEMBER, 31
-----------------------------------------------------
1998 1997 1996
-------------- --------------- --------------
<S> <C> <C> <C>
Release of cash held in escrow $ 15,000
Contribution of wireless licenses to joint ventures $ 14,744
Conversion of FCC deposit to wireless license $ 17,251
Conversion of revolving debt to term debt $ 200,000
Issuance of common stock in exchange for wireless assets $ 28,600 $ 7,117
</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 1998 presentation.
F-9
<PAGE> 56
.WESTERN WIRELESS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):
Recently issued accounting standards:
In June 1998, the Financial Accounting Standards Board issued SFAS No.
133, "Accounting for Derivative Instruments and Hedging Activities." It requires
the recognition of all derivatives as either assets or liabilities and the
measurement of those instruments at fair value. The required adoption period is
effective for the issuance of Western Wireless' March 31, 2000, quarterly
financial statements. The implementation of SFAS No. 133 is not expected to have
a material impact on Western Wireless' financial position or results of
operations.
The American Institute of Certified Public Accountants recently issued
Statement of Position (SOP) 98-5, "Reporting on the Costs of Start-Up
Activities." This SOP provides guidance on the financial reporting of start-up
costs and organizational activities. It requires costs of start-up activities
and organizational costs to be expensed as incurred. SOP 98-5 is not expected to
materially affect the financial position or results of operations of Western
Wireless. The required adoption period is effective for the issuance of Western
Wireless' December 31, 1999, financial statements
3. PROPERTY AND EQUIPMENT:
<TABLE>
<CAPTION>
(Dollars in thousands) DECEMBER 31,
----------------------------
1998 1997
--------- ---------
<S> <C> <C>
Land, buildings and improvements $ 28,297 $ 20,406
Wireless communications systems 845,897 697,319
Furniture and equipment 99,542 74,768
--------- ---------
973,736 792,493
Less accumulated depreciation (360,184) (221,031)
--------- ---------
613,552 571,462
Construction in progress 278,045 127,667
--------- ---------
$ 891,597 $ 699,129
========= =========
</TABLE>
Depreciation expense was $139.8 million in 1998, $119.1 million in 1997
and $54.9 million in 1996.
4. LICENSING COSTS AND OTHER INTANGIBLE ASSETS:
<TABLE>
<CAPTION>
(Dollars in thousands) DECEMBER 31,
------------------------------
1998 1997
--------- ---------
<S> <C> <C>
License costs $ 884,991 $ 846,466
Other intangible assets 40,846 33,992
--------- ---------
925,837 880,458
Accumulated amortization (95,008) (73,049)
--------- ---------
$ 830,829 $ 807,409
========= =========
</TABLE>
Amortization expense was $18.4 million in 1998, $14.4 million in 1997
and $24.8 million in 1996.
F-10
<PAGE> 57
WESTERN WIRELESS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
5. INVESTMENTS IN AND ADVANCES TO UNCONSOLIDATED AFFILIATES:
<TABLE>
<CAPTION>
(Dollars in thousands) DECEMBER 31,
------------------------
1998 1997
------- -------
<S> <C> <C>
VoiceStream PCS:
Cook Inlet PCS $47,889 $36,055
Iowa Wireless 10,563
Other PCS investments 2,486
Western Wireless International:
Latcom Wireless Telephone Co. 12,724 11,791
ACG Telesystems Ghana, LLC 13,122 8,706
Other international investments 11,817 7,604
------- -------
$98,601 $64,156
======= =======
</TABLE>
Western Wireless' ownership interest in these unconsolidated affiliates
range from 18% to 63%. Those ownership interests greater than 50% are temporary,
therefore the entities are not consolidated.
VoiceStream Investments:
A subsidiary of VoiceStream holds a 49.9% interest in Cook Inlet Western
Wireless PV/SS PCS, L.P. ("Cook Inlet PCS"). Cook Inlet PCS is subject to the
FCC build-out requirements and will require significant additional amounts to
complete the build-out of its PCS systems and to meet the government debt
service requirements on its C and F Block licenses. 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. VoiceStream
funded the operations of Cook Inlet PCS during 1998 and 1997 through loans
evidenced by promissory notes which are due 180 days after the date of issuance.
The weighted average interest rate was 15% for 1998 and 1997. All promissory
notes that have come due were replaced with new promissory notes.
During the second quarter of 1998, Cook Inlet PCS participated in the C
Block restructuring options provided by the FCC. The FCC provided for various
options, including: (1) to return to the FCC entire licenses purchased in the C
Block auction and be relieved of 100% of the related debt ("Amnesty"); and (2)
to return 15 MHz, from a total of 30 MHz, of the licenses purchased in the
auction and be relieved of one half of the related debt ("Disaggregation"). Of
the licenses purchased in the C Block auction, Cook Inlet PCS chose Amnesty for
two Basic Trading Area ("BTA") licenses and Disaggregation for 11 BTA licenses.
This resulted in a reduction of Cook Inlet PCS's debt of $29.1 million and a
gain of $3.9 million, due to the retroactive adjustment of interest accrued on
the related debt, the effect of which reduced the equity losses picked up by
VoiceStream for the second quarter.
In September 1997, a wholly owned subsidiary of VoiceStream and a
subsidiary of Iowa Network Services, Inc., formed a limited partnership ("Iowa
Wireless") to build and operate a PCS network under the VoiceStream brand name
covering certain metropolitan areas in Iowa and the major interstate and state
highways linking such areas. In 1998, VoiceStream contributed certain licenses
that it purchased in the FCC's A and D Block auctions for approximately $12.3
million to the venture for an approximate 38% ownership interest.
Western Wireless International Investments:
In October 1998, a joint venture in which, WWI owns a 19.0% minority
interest was granted a license to provide wireless communication services in
Croatia. WWI contributed $3.3 million for the purchase of the license.
In September 1998, a joint venture in which, WWI owns a 28.5% minority
interest was granted a license to provide wireless communication services in
Haiti. WWI contributed $8.5 million for the purchase of the license.
F-11
<PAGE> 58
WESTERN WIRELESS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
5. INVESTMENTS IN AND ADVANCES TO UNCONSOLIDATED AFFILIATES (CONTINUED):
In June 1998, WWI, through a controlling interest in a partnership (the
"Ireland Partnership"), was notified by the Irish Government that it was the
preferred applicant for a DCS-1800/GSM 900 mobile communication license in
Ireland. The amount bid by the Ireland Partnership on this license was $16.2
million, including related fees. The license has not yet been issued, as the
decision by the Irish Government is subject to a pending legal proceeding.
The following summarized financial information represents the combined
assets, liabilities and results of operations of Western Wireless'
unconsolidated affiliates. Individually, these unconsolidated affiliates are not
material to Western Wireless' assets, liabilities or results of operations,
however, as a group they represent a material portion of Western Wireless'
operating results. The information provided represents 100% of these entities
assets, liabilities and results of operations, not just Western Wireless'
portion.
<TABLE>
<CAPTION>
(Dollars in thousands) DECEMBER 31,
-------------------------
Combined Balance Sheet Data: 1998 1997
--------- ---------
<S> <C> <C>
Total current assets $ 16,872 $ 12,022
========= =========
Total non-current assets $ 243,290 $ 171,349
========= =========
Total current liabilities $ 95,000 $ 52,975
========= =========
Total non-current liabilities $ 160,858 $ 133,641
========= =========
Combined Statements of Operations Data:
Revenues $ 30,235 $ 3,388
Operating expenses 55,176 22,076
--------- ---------
Operating loss (24,941) (18,688)
Other income (expense) (18,220) (12,639)
--------- ---------
Net loss $ (43,161) $ (31,327)
========= =========
</TABLE>
6. ACCRUED LIABILITIES:
<TABLE>
<CAPTION>
(Dollars in thousands) DECEMBER 31,
------------------------
1998 1997
-------- --------
<S> <C> <C>
Accrued payroll and benefits $ 21,225 $ 15,111
Accrued interest expense 15,914 17,831
Accrued property taxes 26,432 13,428
Accrued taxes (other than income) 8,073 5,844
Final payment for acquisition 15,000
Accrued interconnect charges 10,344 8,149
Other 34,296 29,232
-------- --------
$116,284 $104,595
======== ========
</TABLE>
F-12
<PAGE> 59
WESTERN WIRELESS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
7. LONG-TERM DEBT:
<TABLE>
<CAPTION>
(Dollars in thousands) DECEMBER 31,
--------------------------
1998 1997
---------- ----------
<S> <C> <C>
Cellular Credit Facility:
Revolver $ 445,000 $ 495,000
Term Loan 200,000 200,000
PCS Credit Facility:
Revolver 290,000
Term Loan 250,000
10-1/2% Senior Subordinated Notes Due 2006 200,000 200,000
10-1/2% Senior Subordinated Notes Due 2007 200,000 200,000
PCS Vendor Facility 300,000
---------- ----------
$1,585,000 $1,395,000
========== ==========
</TABLE>
Cellular Credit Facility:
Western Wireless has a credit facility with a group of banks (the
"Cellular Credit Facility") pursuant to which the banks agreed to make loans to
Western Wireless, on a revolving-credit basis, in an aggregate principal amount
not to exceed $750 million (the "Cellular Revolver") and a term loan (the
"Cellular Term Loan") of $200 million. The Cellular Revolver is limited to the
principal amount outstanding on December 31, 2000. Western Wireless is required
to make quarterly payments on the outstanding principal of the Cellular Revolver
beginning March 31, 2001, and on the Cellular Term Loan beginning June 30, 2001.
These payments increase each year on the anniversary date of the initial
payment, until paid in full on December 31, 2005, for the Cellular Revolver and
March 31, 2006, for the Cellular Term Loan. The Cellular Credit Facility also
contains certain financial covenants, the most restrictive of which impose
limitations on the incurrence of indebtedness.
Under the Cellular Credit Facility, interest is payable at an applicable
margin in excess of a prevailing base rate. The prevailing rate is based on the
prime rate, the CD rate or LIBOR. The applicable margin on the Cellular Revolver
is determined quarterly based on the leverage ratio of Western Wireless,
excluding certain of its subsidiaries. The applicable margin on the Cellular
Term Loan is 2.5%. During 1998 and 1997, all loans under the Cellular Credit
Facility had been borrowed using the LIBOR option. The weighted average interest
rate, including the appropriate applicable margin, was 7.57% in 1998 and 8.22%
in 1997. The Cellular Credit Facility also provides for an annual fee ranging
from 0.25% to 0.375% on the unused commitment, payable quarterly.
The repayment of the Cellular Credit Facility is secured by, among other
things, the grant of a security interest in substantially all of the assets of
Western Wireless, excluding, among other items, the capital stock and assets of
VoiceStream.
The Cellular Credit Facility requires Western Wireless to enter into
interest rate swap and cap agreements to manage the interest rate exposure
pertaining to borrowings under the Cellular Credit Facility. Western had entered
into interest rate caps and swaps with a total notional amount of $325 million
at December 31, 1998, and $365 million at December 31, 1997. 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 7.67% in 1998 and 7.40% in 1997. The
amount of unrealized loss attributable to changing interest rates at December
31, 1998 and 1997, was immaterial.
F-13
<PAGE> 60
WESTERN WIRELESS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
7. LONG-TERM DEBT - (CONTINUED):
PCS Credit Facility:
In June 1998, a wholly owned subsidiary of VoiceStream (the "PCS
Borrower") entered into a $1 billion credit facility with a consortium of
lenders (the "PCS Credit Facility"). The PCS Credit Facility consists of $500
million in revolving credit and $250 million in a delayed draw term loan
(collectively the "PCS Revolver"), and a term loan (the "PCS Term Loan") for
$250 million. Beginning September 2001, the amount available to borrow under the
PCS Revolver and the principal balance of the PCS Term Loan are to be reduced by
various percentages each year. The PCS Revolver and the PCS Term Loan are due in
their entirety on December 31, 2006, and June 30, 2007, respectively. The PCS
Credit Facility also contains certain financial covenants, which, among other
things, impose limitations on the amount of indebtedness, limit the amount of
capital spending and impose limitations on acquisitions and investments. The
repayment of the PCS Credit Facility is secured by, among other things, the
grant of a security interest in substantially all of the assets of the PCS
Borrower and its subsidiaries.
Under the PCS Credit Facility, interest is payable at an applicable
margin in excess of a prevailing rate. The prevailing rate is based on the prime
rate or LIBOR at the PCS Borrower's option. The applicable margin on the PCS
Credit Facility is determined quarterly based on certain events and the leverage
ratio of the PCS Borrower. The weighted average interest rate on all of
VoiceStream's debt, including the appropriate margin, was 8.76% in 1998 and
8.20% in 1997. As of December 31, 1998, all loans under the PCS Credit Facility
had been borrowed using the LIBOR option. The PCS Credit Facility also provides
for an annual fee ranging from 0.375% to 0.5% on the unused commitment, payable
quarterly.
The PCS Credit Facility requires VoiceStream to enter into interest rate
swap and cap agreements to manage the interest rate exposure pertaining to
borrowings under the PCS Credit Facility. VoiceStream had entered into interest
rate caps and swaps with a total notional amount of $295 million at December 31,
1998. Generally these instruments have initial terms ranging from 1 to 4 years
and effectively convert variable rate debt to fixed rate. The weighted average
interest rate under these agreements was approximately 6.11% in 1998. The amount
of unrealized gain or loss attributable to changing interest rates at December
31, 1998, was not material.
Interest only payments are required through June 30, 2001. Commencing
September 30, 2001, and at the end of each calendar quarter thereafter,
VoiceStream is required to make payments on the principal amount outstanding
under the PCS Credit Facility in increasing quarterly installments.
Immediately after entering into the PCS Credit Facility, VoiceStream
paid off, in its entirety, the balance owed under the $300 million PCS Vendor
Facility.
10-1/2% Senior Subordinated Notes Due 2006:
In May 1996, Western Wireless issued at par $200 million of 10-1/2%
Senior Subordinated Notes that mature on June 1, 2006 (the "2006 Notes").
Interest is payable semi-annually. The 2006 Notes may be redeemed at any time at
the option of Western Wireless, in whole or from time to time in part, at
varying redemption prices. The Cellular and PCS Credit Facilities prohibit the
repayment of all or any portion of the principal amount of the 2006 Notes prior
to the repayment of all indebtedness under each credit facility. The 2006 Notes
contain certain restrictive covenants which impose limitations on the operations
and activities of Western Wireless 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 Cellular
Credit Facility and the PCS Credit Facility.
F-14
<PAGE> 61
WESTERN WIRELESS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
7. LONG-TERM DEBT - (CONTINUED):
10-1/2% Senior Subordinated Notes Due 2007:
In October 1996, Western Wireless issued at par $200 million of 10-1/2%
Senior Subordinated Notes that mature on February 1, 2007 (the "2007 Notes").
Interest is payable semi-annually. 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
Western Wireless, in whole or from time to time in part, at varying redemption
prices. The Cellular and PCS Credit Facilities prohibit repayment of all or any
portion of the principal amount of the 2007 Notes prior to the repayment of all
indebtedness under each 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 Cellular Credit Facility and
the PCS Credit Facility.
The aggregate amounts of principal maturities as of December 31, 1998,
are as follows (dollars in thousands):
<TABLE>
<S> <C>
Year ending December 31,
1999 $ 0
2000 0
2001 63,000
2002 100,250
2003 159,250
Thereafter 1,262,500
----------
$1,585,000
==========
</TABLE>
8. COMMITMENTS:
Western Wireless 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 Western Wireless to
pay property taxes, insurance and normal maintenance costs. Substantially all of
Western Wireless' leases have fixed minimum lease payments. Western Wireless has
no significant capital lease liabilities.
Future minimum payments required under operating leases and agreements
that have initial or remaining noncancellable terms in excess of one year as of
December 31, 1998, are summarized below (dollars in thousands):
<TABLE>
<S> <C>
Year ending December 31,
1999 $ 40,442
2000 37,346
2001 31,297
2002 20,185
2003 14,002
Thereafter 34,797
---------
$ 178,069
==========
</TABLE>
Aggregate rental expense for all operating leases was approximately
$33.5 million in 1998, $28.0 million in 1997 and $14.2 million in 1996.
In order to ensure adequate supply and availability of certain inventory
requirements and service needs, Western Wireless has committed to purchase from
various suppliers wireless communications equipment and services. These
agreements expire at various dates through December 2005. The aggregate amount
of these commitments total approximately $550 million. At December 31, 1998,
Western Wireless has ordered approximately $409 million under all of these
agreements, of which approximately $14 million is outstanding.
F-15
<PAGE> 62
WESTERN WIRELESS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
8. COMMITMENTS (CONTINUED):
Western Wireless 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,
net of tax, are as follows:
<TABLE>
<CAPTION>
(Dollars in thousands) DECEMBER 31,
------------------------
1998 1997
--------- ---------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards $ 353,700 $ 228,800
Other temporary differences 25,900 17,200
--------- ---------
Total deferred tax assets 379,600 246,000
Valuation allowance (298,600) (195,600)
--------- ---------
81,000 50,400
Deferred tax liabilities:
Property and wireless licenses basis difference (81,000) (50,400)
--------- ---------
$ 0 $ 0
========= =========
</TABLE>
Western Wireless had available at December 31, 1998, net operating loss
("NOL") carryforwards of approximately $887 million. Of this amount,
approximately $707 million is related to cumulative losses incurred by
VoiceStream from its PCS operations. The NOL carryforwards will expire between
2002 and 2018. Western Wireless 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 Western Wireless in July 1994. The change in
the valuation allowance increased $103 million in 1998, $107 million in 1997 and
$56 million in 1996.
Management believes that 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 VoiceStream's PCS business and expected increased competition
from new entrants into Western Wireless' cellular markets. Accordingly, a
valuation allowance has been provided for the net deferred tax assets of Western
Wireless.
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 Western Wireless is primarily due to the full valuation allowance
against net deferred tax assets. Western Wireless' ability to utilize the NOL
carryforwards in any given year may be limited by certain events, including a
significant change in ownership interest.
After the Spin-off, the NOL carryforwards resulting from VoiceStream's
cumulative tax losses will remain with VoiceStream. Pursuant to a tax sharing
agreement entered into at the time of the Hutchison Investment (as defined in
note 10), VoiceStream will pay Western Wireless an amount representative of the
tax benefit of NOLs generated while VoiceStream was a wholly-owned subsidiary of
Western Wireless. This payment will not exceed $20 million, net of taxes.
F-16
<PAGE> 63
WESTERN WIRELESS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
10. MINORITY INTEREST IN CONSOLIDATED SUBSIDIARIES:
In February 1998, Hutchison Telecommunications Limited ("HTL") and a
subsidiary of HTL (the "HTL Sub") purchased 19.9% of VoiceStream for an
aggregate purchase price of $248.4 million (the "Hutchison Investment"). Western
Wireless and VoiceStream have amended certain outstanding financing agreements
to which they are subject, and unless otherwise agreed to by HTL Sub and Western
Wireless, neither Western Wireless nor VoiceStream shall have any liability
regarding any indebtedness of the other. The HTL Sub designated two directors to
a ten person Board of Directors of VoiceStream, who have approval rights over
certain transactions of VoiceStream.
The terms of the Hutchison Investment restrict, among other things, the
transfer of assets between Western Wireless and VoiceStream as well as the
distribution of dividends or other distributions by VoiceStream.
11. SHAREHOLDERS' EQUITY:
Stock issuances:
In May 1998, Western Wireless completed a secondary offering on form S-3
(the "Secondary Offering") of 13,915,000 Class A Common Stock shares (including
on over-allotment exercised by the underwriters). Western Wireless did not issue
any new primary shares and received no proceeds from the Secondary Offering. The
shares were offered by certain shareholders of Western Wireless who elected to
convert a portion of their Class B Common Stock into publicly traded Class A
Common Stock for sale pursuant to a registration statement. No member of
management of Western Wireless sold any shares in the Secondary Offering.
Western Wireless issued 100,000 shares in 1998 and 90,000 in 1997, of
its Class A Common Stock to certain key executives pursuant to an Executives
Restricted Stock Plan. The vesting of these shares are subject to certain
performance thresholds as determined by the Board of Directors. Under this same
plan, 105,000 shares were issued in January of 1999.
In November 1997, Western Wireless issued 3,888,888 shares of its Class
A common stock (approximately 5% of the then outstanding capital stock of
Western Wireless) to a subsidiary of HTL for a purchase price of approximately
$74 million.
In October 1997, Western Wireless issued 1,600,000 shares of its Class A
Common Stock as a portion of the consideration to purchase the cellular business
and assets of Triad (see Note 13).
Other transactions:
In February 1998, Western Wireless received additional paid-in capital
of approximately $123.2 million related to the Hutchison Investment. This
represents the amount in excess of the book value of VoiceStream for the 19.9%
interest purchased by the HTL Sub.
12. STOCK-BASED COMPENSATION PLANS:
The Management Incentive Stock Option Plan (the "MISOP"), which has been
effective since 1994, 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.
F-17
<PAGE> 64
WESTERN WIRELESS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
12. STOCK-BASED COMPENSATION PLANS (CONTINUED):
The Employee Stock Purchase Plan (the "ESPP"), which has been effective
since 1997, 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 Western Wireless 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 are offered under this ESPP at 85% of market value at each
offer date. Participants are fully vested at all times.
At December 31, 1998, 1997, and 1996 Western Wireless 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, Western
Wireless' net loss and basic loss per share would have increased to the pro
forma amounts indicated below:
<TABLE>
<CAPTION>
(Dollars in thousands, except per share data) YEAR ENDED DECEMBER 31,
---------------------------------------------
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
Net loss:
As reported $ (224,069) $ (265,534) $ (130,105)
Pro forma $ (232,110) $ (271,745) $ (134,255)
Basic and diluted loss per share:
As reported $ (2.95) $ (3.76) $ (2.00)
Pro forma $ (3.06) $ (3.84) $ (2.06)
</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>
1998 1997 1996
------ ------ ------
<S> <C> <C> <C>
Weighted average risk free interest rates 5.75% 6.28% 6.33%
Expected dividend yield 0% 0% 0%
Expected volatility 50% 50% 50%
Expected lives (in years) 7.5 7.5 7.5
</TABLE>
The Black-Scholes option-pricing model requires the input of highly
subjective assumptions and does not necessarily provide a reliable measure of
fair value.
Options granted, exercised and canceled under the above MISOP are
summarized as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
(In thousands, except ------------------------------------------------------------------
pricing information) 1998 1997 1996
------------------------------------------------------------------
Weighted Weighted Weighted
average average average
Shares price Shares price Shares price
----- --------- ----- --------- ----- ---------
<S> <C> <C> <C> <C> <C> <C>
Outstanding, beginning of period 3,711 $ 9.79 4,165 $ 9.66 3,538 $ 8.02
Options granted 992 $ 17.41 18 $ 14.65 1,139 $ 12.54
Options exercised (291) $ 5.02 (269) $ 4.85 (384) $ 2.28
Options cancelled (64) $ 14.32 (203) $ 13.12 (128) $ 12.06
----- ----- -----
Outstanding, end of the
period 4,348 $ 11.78 3,711 $ 9.79 4,165 $ 9.65
===== ===== =====
Exercisable, end of period 2,656 $ 9.36 2,384 $ 8.23 1,877 $ 6.36
</TABLE>
The weighted average fair value of stock options granted was $9.75 in
1998, $9.34 in 1997 and $9.79 in 1996.
F-18
<PAGE> 65
WESTERN WIRELESS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
12. STOCK-BASED COMPENSATION PLANS (CONTINUED):
The following table summarizes information about fixed price stock
options outstanding at December 31, 1998:
<TABLE>
<CAPTION>
Options outstanding Options exercisable
(in thousands, except ------------------------------------------------- -----------------------------
pricing information) Weighted
average Weighted Weighted
remaining average average
Range of Number contractual exercise Number exercise
exercise prices outstanding life price exercisable price
- ------------------------ ----------- ----------- -------- ----------- ---------
<S> <C> <C> <C> <C> <C>
$ 1.10 - $ 4.03 690 4 years $ 2.78 690 $ 2.78
$ 9.68 - $ 9.68 625 6 years $ 9.68 625 $ 9.68
$ 11.29 - $ 12.90 1,200 7 years $ 12.01 917 $ 12.02
$ 13.73 - $ 16.13 854 8 years $ 13.85 423 $ 13.84
$ 17.38 - $ 19.94 979 9 years $ 17.41 0 $ 0
- ------------------------ ----------- ----------- -------- ----------- ---------
$ 1.10 - $ 19.94 4,348 7 years $ 11.78 2,655 $ 9.36
=========== ===========
</TABLE>
All options outstanding at December 31, 1998, have been issued by
Western Wireless. After the Spin-off, VoiceStream intends to have its own stock
option plans that are substantially similar to the plans that are currently
administered by Western Wireless. In connection with the Spin-off, (i) Western
Wireless option holders will receive one vested VoiceStream option and one
vested Western Wireless option for each existing vested Western Wireless option
at the Spin-off; and (ii) Western Wireless option holders who become VoiceStream
employees will receive for each unvested Western Wireless option at the Spin-off
a number of unvested VoiceStream options. It is anticipated the unvested options
will have materially the same vesting schedule and expiration dates as the
original options issued by Western Wireless. Proforma disclosures required under
SFAS 123 are not presented as the number of VoiceStream options as of the
Spin-off is not yet ascertainable.
13. ACQUISITIONS:
All of these acquisitions were accounted for using the purchase method
of accounting.
Cellular acquisitions:
Subsequent to December 31, 1998, Western Wireless signed an agreement to
purchase the cellular licenses and operations of the Brownsville, TX and
McAllen, TX Metropolitan Statistical Areas ("MSA") for an aggregate amount of
approximately $95.0 million in cash. This purchase is pending approval from the
FCC. Additionally, Western Wireless has purchased the cellular license and
operations of the Wyoming 4 and Oklahoma 1 Rural Service Areas ("RSA") for an
aggregate amount of approximately $19.0 million in cash. Western Wireless had
previously operated the Wyoming 4 RSA under an Interim Operating Authority
("IOA") from the FCC.
In August 1998, Western Wireless purchased the cellular license and
operations of the Colorado 4 RSA for approximately 18.5 million in cash.
In June 1998, Western Wireless purchased the cellular license and
operations of the Nebraska 5 RSA for approximately $15.5 million in cash. Prior
to the purchase of the Nebraska 5 RSA, Western Wireless operated this market
under an IOA from the FCC.
In March 1998, Western Wireless was granted 52 Local Multipoint
Distribution Service ("LMDS") licenses that it was the high bidder on in an FCC
auction. Western Wireless paid approximately $14.9 million for these licenses.
F-19
<PAGE> 66
WESTERN WIRELESS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
13. ACQUISITIONS (CONTINUED):
In October 1997, Western Wireless consummated the purchase of the
cellular business and assets of Triad (the "Triad Acquisition") 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 Western Wireless Class A Common
Stock. In accordance with its agreement with Triad, Western Wireless filed a
shelf Registration Statement on Form S-3 covering future resales of such shares.
During 1996 Western Wireless acquired two cellular RSAs and one cellular
MSA in the western United States. The aggregate cash paid for these transactions
was $35.6 million. Substantially all of the purchase price of each acquisition
was allocated to licensing costs.
PCS acquisitions:
Of the 52 LMDS licenses purchased by Western Wireless in the first
quarter of 1998, 16 were purchased on behalf of VoiceStream. VoiceStream paid
approximately $8.7 million for these licenses.
In October 1997, as part of the Triad Acquisition, Western Wireless
purchased on behalf of VoiceStream, various D and E Block PCS licenses for an
aggregate purchase price of approximately $4.6 million.
In June 1996, Western Wireless purchased, on behalf of VoiceStream, a
Denver MTA PCS wireless license for $66.1 million.
14. SELECTED QUARTERLY CONSOLIDATED FINANCIAL INFORMATION (UNAUDITED):
Selected quarterly consolidated financial information for the years
ended December 31, 1998 and 1997 is as follows:
<TABLE>
<CAPTION>
(Dollars in thousands, except per share data)
BASIC LOSS
TOTAL PER COMMON
QUARTER ENDED REVENUES OPERATING LOSS NET LOSS SHARE
- ------------------ -------- -------------- -------- ----------
<S> <C> <C> <C> <C>
March 31, 1998 $120,513 $(32,245) $(64,150) $ (0.85)
June 30, 1998 $134,912 $(31,966) $(53,040) $ (0.70)
September 30, 1998 $157,550 $(24,619) $(49,673) $ (0.65)
December 31, 1998 $171,607 $(34,534) $(57,206) $ (0.75)
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)
</TABLE>
F-20
<PAGE> 67
WESTERN WIRELESS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
15. SEGMENT INFORMATION:
Western Wireless operations are classified into two principal reportable
segments: cellular and PCS. Western Wireless provides cellular services in rural
markets and VoiceStream 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 general and
administrative costs and assets benefit all of Western Wireless' operations.
Such centralized items include the costs of customer service and accounting
as well as the assets to support these functions. These items are allocated to
the segments in a manner which reflects the relative time devoted to each of the
segments.
<TABLE>
<CAPTION>
(Dollars in thousands) CELLULAR PCS OTHER(a)
OPERATIONS OPERATIONS OPERATIONS CONSOLIDATED
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1998
Total revenues $ 416,620 $ 167,962 $ 584,582
Interest expense $ 92,227 $ 34,118 $ 126,345
Depreciation and amortization expense $ 74,402 $ 83,767 $ 158,169
Operating income (loss) $ 81,280 $ (204,644) $ (123,364)
Total capital expenditures $ 73,371 $ 206,503 $ 279,874
Total assets $ 859,245 $ 1,051,656 $ 47,293 $ 1,958,194
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
</TABLE>
(a) Includes amounts related to international investments.
16. RELATED PARTY TRANSACTIONS:
In connection with the 2006 Notes and equity offerings during the second
quarter of 1996, Western Wireless paid total underwriting fees of approximately
$23.3 million. In connection with the 2007 Notes during the third quarter of
1996, Western Wireless paid total underwriting fees of approximately $5.5
million. Goldman, Sachs & Co., an affiliate of a shareholder of Western
Wireless, was the lead underwriter on each offering.
F-21
<PAGE> 68
WESTERN WIRELESS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
17. PROFORMA CONDENSED FINANCIAL INFORMATION: (Unaudited)
The proforma condensed financial information presented below represents
the balance sheet and statement of operations of Western Wireless as if the
Spin-off occurred at December 31, 1998. Therefore, the statements below reflect
VoiceStream and all of its subsidiaries as discontinued operations.
<TABLE>
<CAPTION>
-----------------------------------------------
(Dollars in thousands, unaudited) DECEMBER 31, 1998
-----------------------------------------------
PROFORMA CONDENSED BALANCE SHEET: HISTORICAL PROFORMA PROFORMA
PRESENTATION ADJUSTMENTS RESULTS
----------- ----------- -----------
<S> <C> <C> <C>
Current assets $ 124,255 $ (59,398) $ 64,857
Property and equipment, net 891,597 (619,280) 272,317
Licensing costs and other intangible assets, net 830,829 (312,040) 518,789
Other assets 111,513 (60,938) 50,575
Net assets from discontinued operations 314,762 314,762
----------- ----------- -----------
Total assets $ 1,958,194 $ (736,894) $ 1,221,300
=========== =========== ===========
Current liabilities $ 202,356 $ (119,955) $ 82,401
Long-term debt 1,585,000 (540,000) 1,045,000
Minority interest 77,578 (76,939) 639
Common stock and other equity 797,092 797,092
Deficit (703,832) (703,832)
----------- ----------- -----------
Total liabilities and shareholders' equity $ 1,958,194 $ (736,894) $ 1,221,300
=========== =========== ===========
PROFORMA CONDENSED STATEMENT OF OPERATIONS:
Subscriber revenues $ 454,016 $ (123,966) $ 330,050
Roamer revenues 70,250 (3,506) 66,744
Equipment sales and other revenues 60,316 (40,490) 19,826
----------- ----------- -----------
Total revenues 584,582 (167,962) 416,620
Cost of service 106,570 (50,978) 55,592
Cost of equipment sales 110,220 (77,071) 33,149
General and administrative 164,231 (75,343) 88,888
Sales and marketing 168,756 (85,447) 83,309
Depreciation and amortization 158,169 (83,767) 74,402
----------- ----------- -----------
Total operating expenses 707,946 (372,606) 335,340
----------- ----------- -----------
Operating income (loss) (123,364) 204,644 81,280
----------- ----------- -----------
Other income (expense):
Interest and financing expense, net (126,345) 34,118 (92,227)
Equity in net loss of affiliates (28,866) 24,120 (4,746)
Other, net 10,471 (8,616) 1,855
----------- ----------- -----------
Other income (expense) (144,740) 49,622 (95,118)
----------- ----------- -----------
Minority interest in net loss of consolidated
subsidiaries 44,035 (43,556) 479
----------- ----------- -----------
Net loss from continuing operations (224,069) (210,710) (13,359)
----------- ----------- -----------
Loss from discontinued operations (210,710) (210,710)
----------- ----------- -----------
Net loss $ (224,069) $ $ (224,069)
=========== =========== ===========
Basic loss from continuing operations per
common share $ (0.17)
Basic loss from discontinued operations per
common share $ (2.78)
----------- -----------
Basic loss per common share $ (2.95) $ (2.95)
=========== ===========
</TABLE>
F-22
<PAGE> 69
WESTERN WIRELESS CORPORATION
SCHEDULE I - CONDENSED FINANCIAL INFORMATION
(PARENT COMPANY ONLY)
(Dollars in thousands)
<TABLE>
<CAPTION>
COMBINED BALANCE SHEETS DATA: As of December 31,
---------------------------
1998 1997
--------- ---------
<S> <C> <C>
Total current assets 64,857 88,807
========= =========
Total non-current assets 1,233,382 1,297,728
========= =========
Total current liabilities 82,401 97,107
========= =========
Total non-current liabilities 1,122,578 1,095,000
========= =========
</TABLE>
<TABLE>
<CAPTION>
COMBINED STATEMENTS OF OPERATIONS DATA: For the year ended December 31,
-----------------------------------
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Total revenues 416,620 302,848 225,546
Operating expenses 335,340 265,568 230,603
--------- --------- ---------
Operating income (loss) 81,280 37,280 (5,057)
Other income (expense) (305,349) (302,814) (125,048)
--------- --------- ---------
Net loss (224,069) (265,534) (130,105)
========= ========= =========
COMBINED STATEMENTS OF CASH FLOWS DATA:
Operating activities:
Net cash provided by operating activities 66,669 83,631 19,939
--------- --------- ---------
Investing activities:
Purchase of property and equipment (73,371) (54,318) (98,953)
Additions to licensing costs and other intangible assets (8,470) (283) (1,984)
Acquisition of wireless properties, net of cash acquired (35,346) (191,145) (40,180)
Investments in and advances to unconsolidated affiliates 90,003 (432,416) (303,752)
Other assets (2,494) (10,194) (880)
--------- --------- ---------
Net cash used in investing activities (29,678) (688,356) (445,749)
--------- --------- ---------
Financing activities:
Proceeds from issuance of common stock, net (243,630) 75,376 235,603
Additions to long-term debt 60,000 565,000 763,000
Repayment of debt (110,000) (70,000) (512,722)
Deferred financing costs (19,149)
Proceeds from sale of minority interest in consolidated
subsidiary 243,709
--------- --------- ---------
Net cash (used in) provided by financing activities (49,921) 570,376 466,732
--------- --------- ---------
Change in cash and cash equivalents (12,930) (34,349) 40,922
Cash and cash equivalents, beginning of year 15,122 49,471 8,549
--------- --------- ---------
Cash and cash equivalents, end of year $ 2,192 $ 15,122 $ 49,471
========= ========= =========
</TABLE>
See notes to condensed financial information
S-1
<PAGE> 70
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 Western Wireless
as if the subsidiary that is restricted under the Hutchison Investment (see note
in consolidated footnotes) was an unconsolidated entity. Western Wireless less
this subsidiary is referred to as "Parent Company Only" in Schedule I. Western
Wireless 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, 1998,
of Western Wireless debt excluding the debt of the restricted subsidiary are as
follows (dollars in thousands):
<TABLE>
<S> <C>
Year ending December 31, $
1999 0
2000 0
2001 46,000
2002 68,750
Thereafter 930,250
----------
$1,045,000
==========
</TABLE>
S-2
<PAGE> 71
WESTERN WIRELESS CORPORATION
SCHEDULE II VALUATION AND QUALIFYING ACCOUNTS
ACCOUNTS RECEIVABLE ALLOWANCE FOR DOUBTFUL ACCOUNTS
(Dollars in thousands)
<TABLE>
<CAPTION>
Balance at Charged to Charged
beginning of costs and to other Deductions Balance at
Description period expenses accounts(1) (2) end of period
----------- ------------ ---------- ----------- ---------- -------------
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1998 $ 9,931 $ 28,733 $ 1,107 $(26,427) $ 13,344
======== ======== ======== ======== ========
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
======== ======== ======== ======== ========
</TABLE>
(1) Represents market acquisitions and dispositions, late fees and net fraud
credits given to customers.
(2) Write-offs, net of bad debt recovery.
S-3
<PAGE> 72
WESTERN WIRELESS CORPORATION
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly causes this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
Date: 3/31/99
-----------------
WESTERN WIRELESS CORPORATION
By /s/ John W. Stanton
----------------------
John W. Stanton
Chairman of the Board and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed by the following persons on behalf of the registrant
and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signatures Title
---------- -----
<S> <C> <C>
/S/ John W. Stanton Chairman of the Board and Chief Executive Date: 3/31/99
------------------------ Officer -------
John W. Stanton (Principal Executive Officer)
/S/ Donald Guthrie Vice Chairman and Chief Financial Officer Date: 3/31/99
------------------------ (Principal Financial Officer) -------
Donald Guthrie
/S/ Patricia L. Miller Controller Date: 3/31/99
------------------------ (Principal Accounting Officer) -------
Patricia L. Miller
/S/ John L. Bunce, Jr. Director Date: 3/31/99
------------------------ -------
John L. Bunce, Jr.
/S/ Mitchell R. Cohen Director Date: 3/31/99
------------------------ -------
Mitchell R. Cohen
/S/ Daniel J. Evans Director Date: 3/31/99
------------------------ -------
Daniel J. Evans
/S/ Jonathan M. Nelson Director Date: 3/31/99
------------------------ -------
Jonathan M. Nelson
/S/ Terence O'Toole Director Date: 3/31/99
------------------------ -------
Terence O'Toole
</TABLE>
<PAGE> 73
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
- --------- -----------------------------------------------------------------
<S> <C>
3.1(1) Amended and Restated Articles of Incorporation of the Registrant.
3.2(1) Bylaws of the Registrant.
4.1(2) Indenture between Western Wireless Corporation and Harris Trust
Company of California, dated May 22, 1996
4.2(3) Indenture between Western Wireless Corporation and Harris Trust
Company of California, dated October 24, 1996
4.3(6) Form of Supplemental Indenture to be entered into between Western
Wireless Corporation and Harris Trust Company of California,
relating to the 10 1/2% Senior Subordinated Notes Due 2007
4.4(6) Form of Supplemental Indenture to be entered into between Western
Wireless Corporation and Harris Trust Company of California,
relating to the 10 1/2% Senior Subordinated Notes Due 2006
10.1(1) Loan Agreement between Western PCS II Corporation and Northern
Telecom Inc., dated June 30, 1995
10.2(1) PCS 1900 Project and Supply Agreement between Western PCS
Corporation and Northern Telecom Inc., dated June 30, 1995
10.3(1) Purchase Agreement between Motorola Nortel Communications Co. and
General Cellular Corporation, dated July 29, 1993
10.4(1) Loan Agreement among Western Wireless Corporation and The
Toronto-Dominion Bank, Barclays Bank, PLC, and Morgan Guaranty
Trust Company of New York, as Managing Agents for the Various
Lenders, dated June 30, 1995
10.5(1) First Amendment to Loan Agreement by and among Western Wireless
Corporation, The Toronto-Dominion Bank, Barclays Bank, PLC, and
Morgan Guaranty Trust Company of New York, as Managing Agents for
the Various Lenders, dated January 11, 1996
10.6(1) Supply Contract by and between Western PCS Corporation and Nokia
Telecommunications Inc., dated December 14, 1995
10.7(1) Purchase and Sale Agreement, Nokia Mobile Phones, Inc. and
Western Wireless Corporation, dated November 10, 1995
</TABLE>
<PAGE> 74
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
- --------- -----------------------------------------------------------------
<S> <C>
10.8(1) Western Wireless Corporation, 1994 Management Incentive Stock
Option Plan, approved, as adopted and amended, by Shareholders
November 16, 1995 together with form of Stock Option Agreement
for offers thereunder
10.9(1) Stockholders Agreement by and among Western Wireless Corporation
and certain of its shareholders, dated July 29, 1994
10.10(1) First Amendment to Stockholders Agreement by and among Western
Wireless Corporation and certain of its shareholders, Adding as a
Party Western PCS Corporation, dated November 30, 1994
10.11(1) Waiver Agreement by and among Western Wireless Corporation,
Western PCS Corporation and certain of Western Wireless
Corporation's shareholders, dated November 30, 1994
10.12(1) Waiver Agreement by and among Western Wireless Corporation,
Western PCS Corporation and certain of Western Wireless
Corporation's shareholders, dated February 15, 1996
10.13(1) Voting Agreement by and among Western Wireless Corporation and
certain of its shareholders, dated July 29, 1994
10.14(1) Voting Agreement by and among Western Wireless Corporation and
certain of its shareholders
10.15(1) Lease Agreement by and between WWC Holding Co., Inc., successor
in interest to MARKETS Cellular Limited Partnership, and WRC
Properties, Inc., dated May 1, 1994
10.16(1) Lease Agreement by and between Western Wireless Corporation and
Department of Natural Resources, dated August 25, 1995
10.17(1) First Amendment to Lease Agreement by and between Western
Wireless Corporation and Department of Natural Resources, dated
February 28, 1996
10.18(1) Form of Cellular One Group License Agreement
10.19(1) Asset Purchase Agreement between Western PCS III License
Corporation as Buyer and GTE Mobilnet Incorporated as Seller,
dated January 16, 1996
10.20(1) Purchase and Sale Agreement by and between Robert O. Tyler, Esq.,
as Trustee, Seller, and GCC License Corporation, Purchaser, dated
December 22, 1995
10.21(1) Agreement for Purchase and Sale of Autoplex Cellular Equipment,
Software and Services by and among American Telephone and
Telegraph Company, WWC Holding Co., Inc., successor to MARKETS
Cellular Limited Partnership and MCII General Partnership, dated
March 17, 1993
10.22(1) Agreement and Plan of Reorganization by and among Palouse Paging,
Inc., the Shareholders of 100% of the Stock of Palouse Paging,
Inc., Western Paging I Corporation and Western Wireless
Corporation, dated February 5, 1996
10.23(1) First Amendment to Agreement and Plan of Reorganization by and
among Western Paging I Corporation, the former Shareholders of
100% of the Stock of Palouse Paging, Inc. and Western Wireless
Corporation
10.24(1) Agreement and Plan of Reorganization by and among Sawtooth
Paging, Inc., the Shareholders of 52.93% of the Stock of Sawtooth
Paging, Inc., Western Paging II Corporation and Western Wireless
Corporation, dated February 5, 1996
10.25(1) Employment Agreement by and between John W. Stanton and Western
Wireless Corporation, dated March 12, 1996
10.26(1) Employment Agreement by and between Robert R. Stapleton and
Western Wireless Corporation, dated March 12, 1996
10.27(1) Employment Agreement by and between Mikal J. Thomsen and Western
Wireless Corporation, dated March 12, 1996
10.28(1) Employment Agreement by and between Theresa E. Gillespie and
Western Wireless Corporation, dated March 12, 1996
10.29(1) Employment Agreement by and between Alan R. Bender and Western
Wireless Corporation, dated March 12, 1996
</TABLE>
<PAGE> 75
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
- --------- -----------------------------------------------------------------
<S> <C>
10.30(1) Employment Agreement by and between Cregg B. Baumbaugh and
Western Wireless Corporation, dated March 12, 1996
10.31(7) Employment Agreement by and between Donald Guthrie and Western
Wireless Corporation, dated March 12, 1996
10.32(1) Form of Registrant's Restrictive Covenant and Confidentiality
Agreement
10.33(1) Form of Director and Officer Indemnification Agreement
10.34(1) Western PCS Corporation Series A Preferred Stock Purchase
Agreement among Western Wireless Corporation, Western PCS
Corporation and the Purchasers listed therein, dated April 10,
1995
10.35(1) PCS Block "C" Organization and Financing Agreement by and among
Western PCSBTA I Corporation, Western Wireless Corporation, Cook
Inlet PV/SS PCS Partners, L.P., Cook Inlet Telecommunications,
Inc., SSPCS Corporation and Providence Media Partners L.P. dated
as of November 5, 1995
10.36(1) Limited Partnership Agreement by and between Cook Inlet PV/SS PCS
Partners, L.P. and Western PCS BTA I Corporation dated as of
November 5, 1995
10.37(1) First Amendment to Block "C" Organization and Financing Agreement
and Cook Inlet Western Wireless PV/SS PCS, L.P. Limited
Partnership Agreement by and among Western PCS BTA I Corporation,
Western Wireless Corporation, Cook Inlet PV/SS PCS Partners,
L.P., Cook Inlet Telecommunications, Inc., SSPCS Corporation and
Providence Media Partners L.P. dated as of April 8, 1996
10.38(1) Amended and Restated Loan Agreement among Western Wireless
Corporation and The Toronto-Dominion Bank, Barclays Bank, PLC,
and Morgan Guaranty Trust Company of New York, as Managing Agents
for the Various Lenders, dated May 6, 1996
10.39(3) Second Amendment to Block "C" Organization and Financing
Agreement and Cook Inlet Western Wireless PV/SS PCS, L.P. Limited
Partnership Agreement by and among Western PCS BTA I Corporation,
Western Wireless Corporation, Cook Inlet PV/SS PCS Partners,
L.P., Cook Inlet Telecommunications, Inc., SSPCS Corporation and
Providence Media Partners L.P. dated as of June 27, 1996
10.40(3) Third Amendment to Block "C" Organization and Financing Agreement
and Cook Inlet Western Wireless PV/SS PCS, L.P. Limited
Partnership Agreement and First Amendment to Technical Services
Agreement by and among Western PCS BTA I Corporation, Western
Wireless Corporation, Cook Inlet PV/SS PCS Partners, L.P., Cook
Inlet Telecommunications, Inc., SSPCS Corporation, Providence
Media Partners L.P. and Cook Inlet Western Wireless PV/SS PCS,
L.P., dated July 30, 1996
10.41(3) General Agreement for Purchase of Cellular Systems between Lucent
Technologies Inc. and Western Wireless Corporation, dated
September 16, 1996
10.42(3) Amendment No. 1 to PCS 1900 Supply Agreement between Western PCS
Corporation and Northern Telecom Inc., dated July 25, 1996
10.43(3) Amendment No. 2 to PCS 1900 Supply Agreement between Western PCS
Corporation and Northern Telecom Inc., dated July 25, 1996
10.44(7) Amendment No. 3 to PCS Supply Agreement between Western PCS
Corporation and Northern Telecom Inc., dated October 14, 1996
10.45(4) Western Wireless Corporation 1996 Employee Stock Purchase Plan
10.46(5) Western Wireless Corporation 1997 Executive Restricted Stock Plan
10.47(5) Form of First Amendment to Amended and Restated Loan Agreement
among Western Wireless Corporation and The Toronto Dominion Bank,
Barclays Bank, PLC, and Morgan Guaranty Trust Company of New
York, as Managing Agents for the various lenders, dated March 27,
1997
</TABLE>
<PAGE> 76
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
- --------- -----------------------------------------------------------------
<S> <C>
10.48(5) Purchase Agreement, dated April 24, 1997, by and among Western
Wireless Corporation, Triad Texas, L.P., Triad Utah, L.P., Triad
Oklahoma, L.P., Triad Cellular Corporation and Triad Cellular
L.P.
10.49(5) Purchase Agreement, dated April 24, 1997, by and between Western
Wireless Corporation and Triad Cellular Corporation
10.50(5) Agreement and Plan of Merger, dated April 24, 1997, by and among
Western Wireless Corporation, Minnesota Cellular Corporation,
Triad Investment Minnesota, Inc., Barry B. Lewis, Craig W.
Viehweg, Terry E. Purvis, Triad Cellular Corporation, Triad
Cellular L.P., and Triad Minnesota, L.P.
10.51(5) Purchase Agreement, dated April 24, 1997, by and between Western
Wireless Corporation and Triad Cellular, L.P.
10.52(8) First Amendment to Loan Agreement, dated as of March 6, 1997,
among Western PCS II Corporation, Northern Telecom Inc., NTFC
Capital Corporation and Export Development Corporation
10.53(8) Second Amendment to Loan Agreement, dated as of April 15, 1997,
among Western PCS II Corporation, Northern Telecom Inc., NTFC
Capital Corporation and Export Development Corporation
10.54(9) Second Amendment to Amended and Restated Loan Agreement by and
among Western Wireless Corporation, various financial
institutions, and The Toronto-Dominion Bank, Barclays Bank PLC
and Morgan Guaranty Trust Company of New York as Managing Agents
dated May 28, 1997
10.55(10) Stock Subscription Agreement by and among Western Wireless
Corporation, Hutchison Telecommunications Limited and Hutchison
Telecommunications Holdings (USA) Limited dated October 14, 1997
10.56(10) Purchase Agreement by and among Western PCS Corporation, Western
Wireless Corporation, Hutchison Telecommunications Limited and
Hutchison Telecommunications PCS (USA) Limited dated October 14,
1997
10.57(10) Form of Cash Management Agreement by and between Western Wireless
Corporation and Western PCS Corporation
10.58(10) Form of Roaming Agreement by and between Western Wireless
Corporation and Western PCS Corporation
10.59(10) Form of Services Agreement by and between Western Wireless
Corporation and Western PCS Corporation
10.60(10) Form of Shareholders Agreement by and among Western Wireless
Corporation, Hutchison Telecommunications PCS (USA) Limited and
Western PCS Corporation
10.61(10) Form of Tax Sharing Agreement by and between Western Wireless
Corporation and Western PCS Corporation
10.62(10) Agreement to Form Limited Partnership dated September 30, 1997,
by and among Western PCS I Iowa Corporation, a Delaware
corporation, INS Wireless, Inc., an Iowa corporation, Western PCS
I Corporation, a Delaware corporation, and Iowa Network Services,
Inc., an Iowa corporation
10.63(10) Iowa Wireless Services, L.P. Limited Partnership Agreement dated
as of September 30, 1997, by and between INS Wireless, Inc., as
General Partner, and Western PCS I Iowa Corporation, as Limited
Partner
10.64(11) Software License Maintenance and Subscriber Billing Services
Agreement dated June 1997
10.65(11) First Amendment to Software License, Maintenance and Subscriber
Billing Services Agreement dated December 1997, between CSC
Intelicom, Inc., and Western Wireless Corporation
10.66(11) Letter agreement dated December 16, 1997 between Western Wireless
Corporation and Intelicom Services Inc. to provide products and
services pursuant to the Software License Maintenance and
Subscriber Billing Services Agreements and First Amendment
thereto
</TABLE>
43
<PAGE> 77
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
- --------- -----------------------------------------------------------------
<S> <C>
10.67(12) Second Amendment to Loan Agreement by and among Western Wireless
Corporation, TD Securities (USA) Inc., Barclays Capital, and J.P.
Morgan Securities Inc., as Managing Agents for the Various
Lenders, dated February 17, 1998
10.68(12) Employment Agreement by and between Timothy Wong and Western
Wireless Corporation, dated February 10, 1998.
10.69(12) Employment Agreement by and between Robert Dotson and Western
Wireless Corporation, dated February 10, 1998
10.70(13) Amendment Number 4 to PCS 1900 Project and Supply Agreement by
and between Western PCS Corporation and Northern Telecom Inc.
dated March 26, 1998
10.71(13) Supply Contract by and between Western PCS Corporation and Nokia
Telecommunications Inc. dated March 9, 1998
10.72(13) Purchase and Sale Agreement by and between Nokia Mobile Phones,
Inc. and Western PCS Corporation dated March 9, 1998
10.74(13) Loan Agreement among Western PCS Holding Corporation, various
financial institutions, and Toronto-Dominion (Texas), Inc. as
Administrative Agent, dated June 26, 1998
10.75(13) Asset Purchase Agreement by and between WWC Holding Co, Inc.,
Western Wireless Corporation, and Celludyne II, Inc. dated June
10, 1998
10.76(14) Amendment Number 5 to PCS 1900 Project and Supply Agreement
between VoiceStream Wireless Corporation and Northern Telecom
Inc. dated September 17, 1998
10.77(14) Exchange Rights and Grant Agreement by and among Western PCS BTA
I Corporation, Western Wireless Corporation, Cook Inlet
Telecommunications, Inc. and VoiceStream Wireless Corporation
dated December 17, 1998
10.78(14) Exchange Rights and Grant Agreement by and among Western PCS BTA
I Corporation, Western Wireless Corporation, SSPCS Corporation
and VoiceStream Wireless Corporation dated January 19, 1999
10.79(14) First Amendment to Loan Agreement by and among Western PCS
Holding Corporation, TD Securities (USA) Inc., NationsBanc
Montgomery Securities LLC, Barclays Capital, J.P. Morgan
Securities Inc., Chase Securities Inc., J.P. Morgan Securities
Inc., NationsBanc Montgomery Securities LLC, Chase Securities
Inc. and Toronto Dominion (Texas), Inc. dated November 25, 1998
10.80(15) Amendment No. 1 to the General Agreement for Purchase of Cellular
Systems between Western Wireless Corporation and Lucent
Technologies, Inc. effective January 1998
10.81(15) Amendment No. 2 to Purchase Agreement between General Cellular
Corporation and Northern Telecom Inc.
10.82(15) Amendment No. 3 to Purchase Agreement between Western Wireless
Corporation and Northern Telecom Inc. dated September 1998
10.83 Asset Purchase Agreement by and among McAllen Cellular Telephone
Company, Inc., GCC License Corporation, Celutel, Inc. and Western
Wireless Corporation dated January 26, 1999
10.84 Asset Purchase Agreement by and among Brownsville Cellular
Telephone Company Inc., LLC License Corporation, Celutel, Inc.,
and Western Wireless Corporation dated January 24, 1999
21.1 Subsidiaries of the Registrant
23.1 Consent of Arthur Andersen LLP
27.1 Financial Data Schedule
</TABLE>
(1) Incorporated herein by reference to the exhibit filed with Western
Wireless' Registration Statement on Form S-1 (Commission File No.
333-2432).
(2) Incorporated herein by reference to the exhibit filed with Western
Wireless' Registration Statement on Form S-1 (Commission File No.
333-2688).
(3) Incorporated herein by reference to the exhibit filed with Western
Wireless' Registration Statement on Form S-4 (Commission File No.
333-14859).
<PAGE> 78
(4) Incorporated herein by reference to the exhibit filed with Western
Wireless' Registration Statement on Form S-8 (Commission File No.
333-18137).
(5) Incorporated by reference to the exhibit filed with Western Wireless'
Registration Statement on Form S-1 (Commission File No. 333-14859)
(6) Incorporated by reference to the exhibit filed with Western Wireless'
Registration Statement on Form S-3 (Commission File No. 333-14859)
(7) Incorporated by reference to the exhibit filed with Western Wireless' Form
10-K for the year ended 12/31/96.
(8) Incorporated by reference to the exhibit filed with Western Wireless' Form
10-Q for the quarter ended 3/31/97.
(9) Incorporated by reference to the exhibit filed with Western Wireless' Form
10-Q for the quarter ended 6/30/97.
(10) Incorporated by reference to the exhibit filed with Western Wireless' Form
10-Q for the quarter ended 9/30/97.
(11) Incorporated by reference to the exhibit filed with Western Wireless' Form
10-K for the year ended 12/31/97.
(12) Incorporated by reference to the exhibit filed with Western Wireless' Form
10-Q for the quarter ended 3/31/98.
(13) Incorporated by reference to the exhibit filed with Western Wireless' Form
10-Q for the quarter ended 6/30/98.
(14) Incorporated by reference to the exhibit filed with Western Wireless'
Registration Statement on Form 10 (Commission File No. 000-25441)
(15) Portions of this exhibit have been omitted and filed separately with the
Secretary of the Commission pursuant to the Registrant's Application
Requesting Confidential Treatment under Rule 246-2 of the Securities
Exchange Act of 1934.
<PAGE> 1
EXHIBIT 10.80
AMENDMENT NO. 1 TO THE GENERAL AGREEMENT FOR PURCHASE OF
CELLULAR SYSTEMS BETWEEN
WESTERN WIRELESS CORPORATION AND LUCENT TECHNOLOGIES INC.
This is the first amendment ("Amendment No. 1") to the General Agreement for the
Purchase of Cellular Systems ("Agreement"), between Western Wireless
Corporation, a Washington corporation ("Customer") and Lucent Technologies Inc.,
a Delaware Corporation, ("Seller"), Contract No. LNM010196ERWWC, and is made
effective as of the date January 1, 1998. Capitalized terms not defined herein
shall have the same meaning given to such terms in the Agreement.
WHEREAS Seller and Customer desire to amend the Agreement as stated in this
Amendment.
WHEREAS, in consideration of Seller's replacement of Customer's existing network
equipment in [ * ] (the "Swapout"), Seller and Customer wish to extend the term
of the Agreement by one (1) year.
NOW, THEREFORE, in consideration of the mutual promises and covenants
hereinafter set forth and other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged.
1. The Agreement is hereby amended to include the following terms and
conditions:
A. Definitions
1. "Acceptance" occurs upon shipment, or, if Products are installed by Seller,
on acceptance by Customer, pursuant to the provisions of Section 4.2 of the
Agreement or thirty (30) days from the date Seller submits its notice of
completion of installation, whichever is sooner.
B. Term of the Agreement
1. The term of the Agreement is hereby extended one (1) year to December 31,
2001. Seller shall also extend the time period by one year to December 31, 2001
for Customer to meet its volume purchase commitment under the Agreement. In
accordance with this provision, the date December 31, 2000 is hereby changed to
December 31, 2001 in Section 1.4; the date January l, 2001 is hereby changed to
January l, 2002 in Section 1.10.1; the date March 2001 is hereby changed to
March 2002 in Section 1.10.1 (a); and the date 2000 is hereby changed to 2001 in
Section 1.10.1 (h). In addition, the parties agree to extend for one year any
other dates in the Agreement which may require such an adjustment.
* Information omitted and filed separately with the SEC pursuant to request for
confidential treatment under Rule 406 of the Securities Act of 1933, as amended.
LUCENT TECHNOLOGIES/WESTERN WIRELESS CORPORATION PROPRIETARY
CONFIDENTIAL RESTRICTED AMENDMENT NO. 1
<PAGE> 2
C. Swapout of U-MOD and T-MOD Equipment
1. The [ * ] specified in section 1.10.1 (m) of the Agreement which would have
otherwise expired on [ * ], respectively shall remain in effect through [ * ].
This [ * ] shall apply at the rate of [ * ] per 5ESS or CDX. Seller will also
extend the same [ * ] for any new 5ESS or CDX ordered by [ * ], with the
exception of the 5ESS(s) for the replacement of existing network equipment
("Swapout") in [ * ], which is addressed elsewhere in this Amendment No. 1.
Pricing is based on configurations substantially similar to those set forth in
Attachments G and H to the Agreement. Any and all such [ * ] are conditioned
upon return of the equipment in accordance with section 1.10.1(m).
D. Landline Offer
1. Seller shall provide landline hardware and software capabilities to
Customer in accordance with the model pricing and conditions set forth in
Attachment "1" and Attachment "2", which are attached to this Amendment No. 1.
The following Not To Exceed Prices are for Engineering and Installation Services
of the equipment specified in the 5ESS Landline Pricing Model, and the CDX
Landline Pricing Model.
Engineering Installation
5ESS Landline Pricing Model [ * ] [ * ]
CDX Landline Pricing Model [ * ] [ * ]
Engineering and Installation for the equipment in the models only. Installation
includes installation and handbook testing of equipment. Does not include
end-to-end testing. Installation to have access to the building 24 hours as
needed. Does not include abnormal travel and living, "hot slide" installations,
hauling and hoisting, or warehousing in excess of 30 days.
Translations are not included in these prices.
2. Upon deployment of each model configuration, Seller shall activate packaged
line/BRI features for one year after Acceptance [ * ]. Should Customer wish to
continue usage of the features beyond [ * ], selected features will be subject
to a [ * ]. Both invoices are due and payable in accordance with Section 1.11 of
the Agreement.
3. Seller shall [ * ] on all landline 5ESS growth hardware during the first
year after Acceptance of each Switch. Pricing excludes taxes, transportation,
hauling, hoisting, warehousing, engineering, installation, voice mail systems,
transmission (such as SLC) and power plant equipment. Any additional landline
5ESS feature software will be [ * ].
4. For the [ * ], Seller shall provide the Required and Optional Switch
Software package set forth in Attachment 1 [ * ].
* Information omitted and filed separately with the SEC pursuant to request for
confidential treatment under Rule 406 of the Securities Act of 1933, as amended.
-2-
<PAGE> 3
5. Seller shall provide use of Checkmate features as defined in Attachment "3"
and attached hereto, [ * ].
6. Seller shall provide, [ * ], an on-site switch technician to provide
support and administration and a customer care representative to interface with
customers in a work-order and trouble ticket generation mode for each new CDX
switch as described in Attachment "4". The length of stay for each switch and
customer care technician shall be: [ * ]. A joint review of resource utilization
shall be conducted every month by Seller and Customer.
7. Seller shall provide [ * ].
8. Annual Release Maintenance Fees for wireless switch support are set forth
in the Agreement. [ * ].
9. Switch Translations shall be priced in accordance with Attachment "5",
which is attached to this Amendment No. 1.
10. Customer shall [ * ].
11. All invoices that are submitted pursuant to this Amendment No. 1 are due
and payable in accordance with Section 1.11 of the Agreement.
E. [ * ]
1. Seller shall provide incentive pricing for the [ * ] markets as outlined in
Attachment "6", and specified in detail in Attachment "7", which are attached to
this Amendment No. 1.
2. Upon Seller's and Customer's execution of this Amendment No. 1, Seller
shall provide Customer with [ * ].
3. Seller shall provide [ * ].
4. Seller shall provide [ * ].
5. [ * ].
6. [ * ]. The following are Not-To-Exceed Engineering Prices for the equipment
specified for the Access Manager for [ * ]:
<TABLE>
<CAPTION>
Engineering
<S> <C>
5ESS [ * ]
5ESS CDX or VCDX [ * ]
IMS [ * ]
</TABLE>
* Information omitted and filed separately with the SEC pursuant to request for
confidential treatment under Rule 406 of the Securities Act of 1933, as amended.
-3-
<PAGE> 4
<TABLE>
<S> <C>
ECP [ * ]
OMP [ * ]
</TABLE>
These prices are for engineering of a full blown 5ESS with 1 SM2000 and a CDX or
VCDX with 1 SM2000 to support wireless service only for a system with [ * ] cell
sites. The IMS/ECP/OMP are also sized to support a system with [ * ] cell sites.
Power is not included.
These prices include the engineering for the access manager only. Included are:
Cable rack and superstructure over/under the Switch/ECP complex
Cabinet anchoring, cabinet grounding, end guards, cable trough, cross aisle
connections
Floor plan created in Autocad
1 Site survey of building location
Protected AC to feed protected equipment (all terminals, all printers,
control room) if Lucent Power.
Not included:
Cable rack and superstructure over/under telco lineups & misc relay rack
lineups.
Cable rack in power room/battery room #5ESS-200 lights.
Complete ground system for telco room.
Protected AC to feed protected equipment (all terminals, all printers,
control room) if non-Lucent power.
All items listed are for hardware (cable rack, unistrut, aux framing, grounding,
lights, anchoring, clips, bolts, nuts, etc.) and are for Switch/ECP/OMP complex
only. Any power items (rectifiers, distribution, inverters, batteries, panels,
power feeds, etc.) are not included in this scope of work and are handled by a
completely separate scope.
F. Miscellaneous Conditions
1. [ * ].
2. [ * ].
3. [ * ].
4. (a) The Seller represents and warrants that during the Warranty Periods set
forth in Section 2.9(b) and 3.8(b), but in no event ending prior to December 31,
2001, any Seller Products and Software delivered by the Seller to the Customer
under this Contract will:
(i) accurately and fully record, store, present and process calendar
dates falling on or after January 1, 2000 (including February 29, 2000), with
substantially the same functionality as such products record, store, present and
process calendar dates falling on or before January 1, 2000; and
* Information omitted and filed separately with the SEC pursuant to request for
confidential treatment under Rule 406 of the Securities Act of 1933, as amended.
-4-
<PAGE> 5
(ii) provide substantially the same functionality with respect to the
introduction of records containing dates falling on or after January 1, 2000, as
it provides with respect to the introduction of records containing dates falling
on or before December 31, 1999. All of the foregoing functionality shall be
known as "Year 2000 Compliant."
(b) When Customer purchases more than one version of Year 2000 Compliant
Software, if they are intended by Seller to interoperate, all such versions of
Year 2000 Compliant Software will be compatible and interoperate in such manner
as to process between them, as applicable, date related data correctly as
described in Section (a) above.
(c) The foregoing sets forth an additional warranty for Seller's Products
and Software. The failure of the Products and Software to meet the foregoing
requirements during the warranty period set forth in Sections 2.9(b) and 3.8(b)
entitles Customer to the remedies set forth in Sections 2.9(c) to (f).
(d) Nothing in the foregoing shall be deemed to make Seller responsible for
the Year 2000 capability of any third party Software interoperating or intending
to operate with Seller's Software. Customer and/or the manufacturer or other
supplier of such third party Software shall be responsible for any Year 2000
compliance and assuring the ability of such third party Software, not provided
by Seller, to successfully operate while interoperating with Seller's Software.
5. Seller shall make good faith efforts to install and make ready for
acceptance by Customer the CLEC model configurations for the [ * ] switch no
later than [ * ].
Except as modified by this Amendment, all terms and conditions of the Agreement
shall remain in effect and be fully applicable to this Amendment.
IN WITNESS WHEREOF, the parties have caused this Amendment No. 1 to be
executed by their duly authorized representatives on the date(s) indicated.
<TABLE>
<S> <C>
Western Wireless Corporation Lucent Technologies, Inc.
By: /s/ Western Wireless Corporation By: /s/ Lucent Technologies, Inc.
-------------------------------------- ------------------------------------
Title: Chief Operating Officer Title: V.P. Sales
----------------------------------- ---------------------------------
Date: 10/19/98 Date: 10/28/98
------------------------------------ ---------------------------------
</TABLE>
* Information omitted and filed separately with the SEC pursuant to request for
confidential treatment under Rule 406 of the Securities Act of 1933, as amended.
-5-
<PAGE> 1
EXHIBIT 10.81
AMENDMENT NO. 2
TO
PURCHASE AGREEMENT
BETWEEN
GENERAL CELLULAR CORPORATION
AND
NORTHERN TELECOM INC.
Made effective as of the 11th day of September, 1996, by and between Northern
Telecom Inc. ("Seller") and Western Wireless Corporation ("Buyer").
WHEREAS, General Cellular Corporation and Seller's predecessor in interest,
Motorola Nortel Communications Co., entered into a Purchase Agreement dated July
29, 1993, thereafter assigned to Northern Telecom Inc. and amended as of April
21, 1995 ("Agreement"); and,
WHEREAS, General Cellular Corporation is now a wholly owned subsidiary of
Western Wireless Corporation, and by assignment agreed to by Seller, has
assigned its rights, obligations, and responsibilities under the Agreement to
Western Wireless Corporation; and,
WHEREAS, Buyer and Seller now wish to amend the Agreement, as assigned, to
include, among other things, a new, extended term of the Agreement, a new
commitment to purchase by Buyer and new Add-on pricing, all as further described
herein;
NOW, THEREFORE, in consideration of the mutual covenants herein contained, Buyer
and Seller agree to amend the Agreement as follows:
1. Delete all references to "General Cellular Corporation" and "Motorola
Nortel Communications Co." in the Agreement and replace them with "Western
Wireless Corporation" and "Northern Telecom Inc.," respectively.
1
<PAGE> 2
2. Amend Article 1 (Seller Undertakings) by amending Subsection 1.1.1 as
follows:
(c) Add the following after the last paragraph:
"During the Extended Term, "Equipment" shall be deemed to mean either
singularly or collectively the Hardware and Software products provided
hereunder. The terms of this Agreement applicable to 'Equipment' shall
also be deemed to apply to OEM Equipment unless otherwise expressly
excluded in this Agreement, subject to the terms and conditions in
this Agreement applicable to OEM Equipment.
During the Extended Term, Hardware shall be deemed to mean the
Seller-manufactured hardware components provided hereunder. The terms
of this Agreement applicable to Hardware shall also be deemed to apply
to OEM hardware unless otherwise expressly excluded in this Agreement,
subject to the terms and conditions in this Agreement applicable to
OEM hardware."
3. Amend Article 2 (Term) by deleting the first sentence and replacing it with
the following two new sentences:
"This Agreement shall become effective on the date of execution by the
last party subscribing (hereinafter 'Effective Date'). The term of
this Agreement shall consist of an initial term commencing on the
Effective Date and ending on September 11, 1996 (hereinafter 'Initial
Term') and an extended term commencing on September 12, 1996
("Extended Effective Date") and ending four (4) years thereafter
(hereinafter 'Extended Term')."
4. Amend Article 3 (Add-On Equipment/Services/Software) at Section 3.1 by
deleting the first sentence and replacing it with the following:
"During the Initial Term and the Extended Term, Buyer may order
additional Systems, Expansions, Hardware, Merchandise, or
2
<PAGE> 3
Conversion Equipment and Software (hereinafter 'Add-on Equipment') at
prices stated in Annex 7, as applicable to such Initial Term and
Extended Term, respectively."
5. Amend Article 4 (Price and Terms of Payment) as follows:
(a) Delete Section 4.8 in its entirety and replace it with a new
Section 4.8, as follows:
"4.8 Buyer understands that it has a firm obligation to purchase/
license no less than [ * ] (net Price) of Equipment/
Software from Seller during the Initial Term ('Initial
Commitment') and to purchase/license from Seller no less
than an additional [ * ] (net Price) of Equipment/ Software
during the Extended Term ('Extended Commitment'). Buyer
shall issue Purchase Orders for, and take delivery of, no
less than [ * ] of such Extended Commitment on or before
[ * ]. The Equipment/ Software set forth in Annex 1 is
representative of Buyer's initial System configuration and
makes up an initial portion of the Initial Commitment. The
remainder of the Initial Commitment and all of the Extended
Commitment shall be satisfied from Purchase Orders submitted
by Buyer pursuant to Article 3 hereof."
(b) Revise Subsection 4.8.1 by deleting the word "Commitment" and
replacing it with the following:
"Initial Commitment or Extended Commitment, as applicable"
6. A. Amend Article 7 as follows:
(a) In the third line of Section 7.1, add the word "Equipment,"
before the word "System."
(b) Delete the first sentence in Subsection 7.2.1 and replace it with
the following:
* Information omitted and filed separately with the SEC pursuant to request for
confidential treatment under Rule 406 of the Securities Act of 1933, as amended.
3
<PAGE> 4
"Seller warrants that the Equipment purchased by Buyer during the
Initial Term and Extended Term, respectively, shall be free from
defects in material and workmanship, and shall conform to the
Specifications and that the Installation services furnished under this
Agreement shall be performed in a professional and workmanlike manner,
for the following periods ('Warranty Period'):
(i) For Equipment purchased during the Initial Term, [ * ] from the
date of Turnover, as defined in Section 14.2 herein, or for a
period of [ * ] from the date of shipment for cell site equipment
installed by Buyer; and,
(ii) For Equipment purchased during the Extended Term, [ * ] from the
date of Turnover, as defined in Section 14.2 herein, if installed
by Seller, but not more than [ * ] from the date of shipment of
such Equipment , or for a period of [ * ] from the date of
shipment of Equipment if installed by Buyer; provided Buyer shall
not install a DMS-MTX or DMS-MTX components.
The Installation services furnished under this Agreement shall be
performed in a professional and workmanlike manner."
B. Amend Subsection 7.2.2 by adding "and expense (subject to Buyer's
responsibilities with respect to shipment of defective Equipment as
set out in this Subsection)" after the words "at Seller's option."
C. Amend Subsection 7.2.3, as follows:
(a) Amend item (4) by adding, "its employees, agents, or
subcontractors" after both references to "Seller."
(b) Amend item (5) by adding "employees, subcontractors or" after
"other than Seller or Seller's."
(c) Add the following new paragraphs to the end of Subsection 7.2.3:
* Information omitted and filed separately with the SEC pursuant to request for
confidential treatment under Rule 406 of the Securities Act of 1933, as amended.
4
<PAGE> 5
"Notwithstanding the foregoing, if Buyer requests Seller to repair any
Equipment or component thereof which has been damaged as a result of
any of the events set forth in this Section 7.2.3, Seller agrees to
use its reasonable efforts to repair such Equipment or component
thereof and cure any such defects. Charges for such repair services
shall be on an as-quoted basis, and all costs of shipping such
Equipment and/or components, risk of loss or damage with respect to
such Equipment and/or components (other than loss or damage due to the
negligence of Seller or Seller's employees, agents or subcontractors),
travel and living expenses, and such other costs as Seller may
reasonably incur as a direct result of performing such repairs, shall
be Buyer's responsibility."
D. Amend Section 7.3 as follows:
(a) Replace the word "Term" with "Initial Term;" and,
(b) At the end of the first sentence delete the words "without
defects which materially affect Buyer's use of the Software in
accordance with the Specifications" and replace them with "and
shall be free from defects in material and workmanship and
perform the functions set forth in the Specifications."
(c) In the next to last sentence of the first paragraph add "or
termination" after the word "expiration."
E. Amend Section 7.4 by deleting the first sentence and replacing it as
follows:
"Seller warrants that during the Warranty Period, the Equipment and
Software furnished hereunder during the Initial Term, and Equipment
initially configured and furnished hereunder during the Extended Term
by Seller to operate as a System, shall respectively function under
normal use and service as a System and operate in accordance with the
Specifications."
5
<PAGE> 6
Delete the first sentence of Subsection 7.5.2 in its entirety and
replace it with the following:
"Subject to Buyer's expense obligations described in this
Subsection, Seller shall, during the Warranty Period and at its
own expense, use all reasonable efforts to ship replacement
Equipment (or components thereof) within [ * ] of notification of
the warranty defect by Buyer. If Seller determines that, due to
the particular emergency circumstances, on-site services are
required, Seller shall use all reasonable efforts to dispatch
such personnel as Seller deems necessary to undertake repair or
replacement services on-site at Seller's expense within [ * ] of
notification of the warranty defect by Buyer."
G. Amend Section 7.6 as follows:
(a) Add "or Section 4.1" after each reference to "Section 4.0";
and,
(b) Replace each reference to "Term" with "Initial Term or
Extended Term, as applicable."
H. Add new Section 7.8 to Article 7, as follows:
"7.8 Except for OEM Equipment, for a period of ten (10) years
following the date of Buyer's first Purchase Order issued for
specific Hardware under the Agreement, Seller shall make
available functionally equivalent spare parts for repair/return
purposes for sale to Buyer at Seller's then-current prices,
except to the extent that such then-current prices may be
superseded by pricing pursuant to the terms of a then-existing
Agreement. In addition to spare parts support, Seller shall make
available for a period of ten (10) years following the date of
the initial license thereof, Software maintenance through
Seller's Technical Assistance Services (TAS) department at
Seller's then-current prices, terms and
* Information omitted and filed separately with the SEC pursuant to request for
confidential treatment under Rule 406 of the Securities Act of 1933, as amended.
6
<PAGE> 7
conditions. Such services are conditioned upon Buyer's compliance
with Seller's Software support policy which requires Buyer to
maintain reasonably current Software upgrades, i.e., current
within two (2) consecutive releases, and to purchase any
associated hardware upgrades that may be required.
7.8.1 In the case that Seller shall manufacture-discontinue Equipment,
Seller shall provide Buyer twelve (12) months advance written
notification to allow Buyer to place Purchase Orders for such
discontinued Equipment, and Buyer shall take delivery thereof
within three (3) months following acceptance by Seller of Buyer's
Purchase Order therefor."
7. Amend Section 10 as follows:
A. In Section 10.4 add the following language after sub-part (2) of such
Section:
"or, (3) alleging that method of use claims in such patent are
infringed by any service offering and/or by any use by Buyer of
Equipment furnished hereunder to make such service offering other than
a service offering described in or contemplated by Seller's
Specifications."
B. Amend the first sentence of Section 10.2 by adding "at Seller's cost"
after "Buyer" in item (a).
8. Amend Article 15, Section 15.1, by adding the following to the end of the
last sentence of such Section:
"; provided, however, that nothing herein shall limit Seller's
responsibility for any such interference or disruption caused by the
failure of Seller's Equipment to perform in accordance with the
Specifications during the Warranty Period."
9. Amend Article 16 as follows:
7
<PAGE> 8
A. In the first sentence, (i) delete the words "use all reasonable efforts
to," (ii) add the words "or Equipment, as applicable," after "System, and
(iii) after the word "Agreement," add the following:
"during the Initial Term, and on the date of shipment of the applicable
Equipment during the Extended Term,"
B. After the first sentence add the following new sentence:
"To the extent that Buyer participates in any installation activities,
Buyer will advise Seller of any such State or local laws or regulations of
which Buyer is aware and reasonably cooperate with Seller in achieving
compliance therewith."
C. Add the words "or Extended Effective Date, as applicable" after the
reference to "Effective Date" in the second paragraph.
10. Amend Article 19 by deleting the word "Term" in Subsection 19.1.1 and
replacing it with the following:
"Initial Term and Extended Term"
11. Amend Article 23 (General) as follows:
A. In Subsection 23.1.1 add "General Cellular Corporation, GCC License
Corp., WWC Holding Co., Inc.," between "GCC South Dakota 9
Corporation" and "Lawton Cellular License Corporation."
B. In Section 23.2 delete the mailing address and replace it with the
following:
"Western Wireless Corporation
2001 NW Sammamish Road
Suite 100
Issaquah, Washington 98027
Attention: Legal Department"
C. In Section 23.6 delete "Illinois" and replace it with the word
"Washington."
D. Add new Section 23.13 as follows:
8
<PAGE> 9
"23.13 Seller will obtain and maintain during the Extended Term of
this Agreement, at its own expense, all insurance and/or
bonds required by law, including, but not limited to, the
following:
23.13.1 (a) workers' compensation insurance in the form and amount
prescribed by the laws of the state in which the
Services are performed;
(b) comprehensive general liability insurance with broad
form liability coverage which includes, but is not
limited to, coverage for products liability, personal
injury, broad form property damage, and coverage for
completed operations. Limits will not be less than
[ * ] combined single limit for each occurrence;
(c) comprehensive automobile liability insurance covering
the use and maintenance of owned, non-owned, hired and
rented vehicles with limits of not less than [ * ]
combined single limit coverage for each occurrence;
(d) umbrella liability insurance with limits of at least
[ * ] for each occurrence.
23.13.2 At Buyer's request, Seller will furnish a certificate or
adequate proof of the foregoing insurance or proof of
self-insurance. Buyer will allow Seller, upon provision of
such adequate proof of self-insurance, to self-insure the
insurance requirements contained in this clause.
23.13.3 Seller will require its subcontractors who may enter upon
Buyer's premises to maintain similar insurance.
23.13.4 Any certificate or proof of insurance (other than
self-insurance) submitted under Subsection 23.13.2 will
contain a clause stating that Buyer will be notified in
writing
* Information omitted and filed separately with the SEC pursuant to request for
confidential treatment under Rule 406 of the Securities Act of 1933, as amended.
9
<PAGE> 10
by Seller at least sixty (60) calendar days prior to
Seller's canceling, or making any material change in, the
policy."
12. Amend Annex 1, Section 1.0 as follows:
(a) In the second sentence of the first footnote on page 1-4 of the
Agreement delete the word "Term" and replace it with "Initial Term."
(b) In the third footnote on page 1-4 of the Agreement delete the word
"Commitment" and replace it with the following:
"Initial Commitment or the Extended Commitment."
13. Amend Annex 1, Sections 4.2, 4.3, and 4.4 by deleting the words [ * ]
in each such section.
14. Delete Annex 2 (Payment Terms), in its entirety and replace it with a new
Annex 2 as set out in Schedule "A."
15. Amend Annex 7 (Add-on Pricing) as follows:
(a) In Section 2.0 delete the first two sentences and replace them with
the following:
"During the Initial Term, Buyer may purchase Hardware and/or
Software (subject to Section 5.0 hereof) at [ * ]. During the
Extended Term, Buyer may purchase Hardware at [ * ]. During the
Extended Term, Buyer may purchase Hardware not listed in Section
4.1, but commercially available to Seller's 800 MHz AMPS/TDMA
customers, at [ * ]:
[ * ]
(b) Delete the first sentence of Section 4.0 and replace it with the
following:
* Information omitted and filed separately with the SEC pursuant to request for
confidential treatment under Rule 406 of the Securities Act of 1933, as amended.
10
<PAGE> 11
"Any items of Hardware not listed in Section 4.0 below will be
priced in accordance with Sections 2.0 or 6.0, as applicable,
during the Initial Term."
(c) Add a new Section 4.1 as set out in the attached Schedule "B."
(d) Add the words "Initial Term" after the Software License Fee heading in
Section 5.0.
(e) Add a new Section 5.1 as set out in the attached Schedule "C."
(f) Amend Section 8.1 by deleting the first sentence and replacing it with
the following:
"The Warranty Periods set forth in Subsection 7.2.1 and Section 7.3 of
this Agreement shall apply as follows:
(a) "during the Initial Term, to the Equipment (and Software) designated
in this Annex 7, Sections 4.0 and 5.0, respectively; and,
(b) during the Extended Term, to the Equipment designated in this Annex 7,
Sections 4.1 and 5.1, respectively."
16. Amend Annex 10 as follows:
(a) Add a new opening paragraph as follows:
"All terms and Seller commitments in this Annex 10 are applicable only
to the Initial Term.
(b) At Section 15 delete the word "Term" and replace it with the
following:
"Initial Term "
17. Ratification of Agreement
Except as specifically modified by this Amendment No. 2, the Agreement
shall in all other respects continue in full force and effect.
11
<PAGE> 12
IN WITNESS WHEREOF, the parties have caused this Amendment No. 2 to be executed
by their duly authorized representatives and to be effective as of September 11,
1996.
<TABLE>
<S> <C>
WESTERN WIRELESS NORTHERN TELECOM INC.
CORPORATION
By: /s/ Tim R. Wong By: /s/ Charles Drayton
-------------------------------- -------------------------------------
Name: Tim R. Wong Name: Charles Drayton
-------------------------------- -------------------------------------
(Type/Print) (Type/Print)
Title: V.P. Engineering Ops Title: Vice President
----------------------------- ----------------------------------
Date: 12/31/96 Date: 1/9/97
------------------------------ -----------------------------------
</TABLE>
12
<PAGE> 1
EXHIBIT 10.82
AMENDMENT NO. 3
TO
PURCHASE AGREEMENT
BETWEEN
WESTERN WIRELESS CORPORATION
AND
NORTHERN TELECOM INC.
Made effective as of the 1st day of September, 1998, by and between Northern
Telecom Inc. ("Seller") and Western Wireless Corporation ("Buyer").
WHEREAS, General Cellular Corporation and Seller's predecessor in interest,
Motorola Nortel Communications Co., entered into a Purchase Agreement dated July
29, 1993, thereafter assigned to Northern Telecom Inc. and amended by Amendment
No. 1 and Amendment No. 2 (the "Agreement"); and,
WHEREAS, General Cellular Corporation is now a wholly owned subsidiary of
Western Wireless Corporation, and by assignment agreed to by Seller, has
assigned its rights, obligations, and responsibilities under the Agreement to
Western Wireless Corporation; and,
WHEREAS, Buyer and Seller now wish to amend the Agreement to add new markets as
designated in Annex 7.
NOW, THEREFORE, in consideration of the mutual covenants herein contained, Buyer
and Seller agree to amend the Agreement as follows:
1. Amend Section 7 by adding the following new subsection 7.8:
"7.8 Year 2000 Ready-Warranty
Seller represents and warrants that Seller's Hardware and/or
Software supplied to Buyer under this Agreement, shall function,
during the applicable Warranty Period of the applicable Hardware
and/or Software under this Agreement (but in any event, at least
through March 30, 2000), with respect to any date dependent
operations, without any material, service-affecting or
operational non-conformance to its applicable specifications,
provided that both any Hardware and/or any specific Software load
or release designated as necessary by Seller has been installed
with respect to such Seller Hardware and/or Software [ * ]. If
Seller's Hardware and/or Software fails to so function, Buyer's
sole remedy and
* Information omitted and filed separately with the SEC pursuant to request for
confidential treatment under Rule 406 of the Securities Act of 1933, as amended.
<PAGE> 2
Seller's sole obligation under this warranty is for Seller, at
the earliest practicable time, to correct such failure through,
at Seller's option, the replacement or the repair or modification
of the applicable Hardware and/or Software or such other actions
as Seller reasonably determines to be appropriate.
The foregoing does not constitute a commitment by Seller (a) to
otherwise support the Hardware and/or Software beyond its
contractually committed Warranty Period, or (b) that the date
format used by the Hardware and/or Software complies with any
particular standard. Some Seller Hardware and/or Software may
continue to use year representations which do not use four digits
where such representations can be interpreted without ambiguity
as to century."
2. Amend Annex 7, Section 5.1 (ADD-ON PRICING) as follows:
(a) Delete the opening paragraph of Subsection 5.1.1 in its entirety and
replace it with the following:
"5.1.1 Existing Switches
Subject to Subsection 5.1.2(c) below, for each Switch in service as of the
Extended Effective Date and for each Nortel DMS-MTX 800 MHz
AMPS/TDMA switch which has been acquired by Buyer from a party other than
Nortel after the Extended Effective Date, in each Buyer market designated
below, ("Existing Switch"), Buyer shall pay Seller a Software license fee
each calendar year during the Extended Term ("Annual Software Fee"), as
follows:"
(b) Add the following two (2) new Buyer markets to the list of Buyer's
markets in Subsection 5.1.1:
<TABLE>
<S> <C> <C>
[ * ] 1996 [ * ]
1997 [ * ]
1998 [ * ]
1999 [ * ]
2000 [ * ]
[ * ] 1996 [ * ]
1997 [ * ]
1998 [ * ]
1999 [ * ]
2000 [ * ]
</TABLE>
3. Seller hereby acknowledges and agrees to the transfer to Buyer of Software
resident on such Existing Switches described hereinabove and hereby licenses the
use of such Software in accordance with applicable terms of the Agreement.
* Information omitted and filed separately with the SEC pursuant to request for
confidential treatment under Rule 406 of the Securities Act of 1933, as amended.
-2-
<PAGE> 3
4. Ratification of Agreement
Except as specifically modified by this Amendment No. 3, the Agreement
shall in all other respects continue in full force and effect.
IN WITNESS WHEREOF, the parties have caused this Amendment No. 3 to be executed
by their duly authorized representatives.
<TABLE>
<S> <C>
WESTERN WIRELESS CORPORATION NORTHERN TELECOM INC.
By: Tim R. Wong By: Nancy White
--------------------------------- ----------------------------------------
Name: Tim R. Wong Name: Nancy White
------------------------------- --------------------------------------
(Type/Print) (Type/Print)
Title:V.P. Engineering Ops Title:V.P. and General Manager, U.S. Region
------------------------------ -------------------------------------
Date: 9/17/98 Date: 10/30/98
------------------------------ ------------------------------------
</TABLE>
-3-
<PAGE> 1
EXHIBIT 10.83
ASSET PURCHASE AGREEMENT
This Asset Purchase Agreement (this "Agreement") is entered into as of
January 26, 1999 by and among McAllen Cellular Telephone Company, Inc., a Nevada
corporation ("Seller"), GCC License Corporation, a Delaware corporation
("Purchaser"), Celutel, Inc., a Delaware corporation ("Celutel" or
"Shareholder"), and Western Wireless Corporation, a Delaware Corporation, as
guarantor pursuant to Section 16.2 ("Western"). Purchaser, Seller, Celutel and
Western are sometimes referred to herein collectively as the "Parties" and each
as a "Party."
RECITALS
WHEREAS, Purchaser desires to purchase non-wireline cellular radio
telephone systems, including the licenses necessary to operate such systems, in
both the Brownsville/Harlingen, Texas Metropolitan Statistical Area (the
"Brownsville MSA") and the McAllen, Texas Metropolitan Statistical Area (the
"McAllen MSA");
WHEREAS, Seller is the holder of the non-wireline cellular radio
telephone license granted by the Federal Communications Commission (the "FCC")
and certain assets necessary for the operation of the non-wireline cellular
radio telephone system in the McAllen MSA (the "System")and the Brownsville MSA;
WHEREAS, the Parties desire that Purchaser acquire from Seller all of
the assets of the System including, among other things, all of the
authorizations issued by the FCC for the operation of the System, all in
accordance with the terms and conditions set forth in this Agreement;
WHEREAS, concurrent with the execution of this Agreement, Purchaser is
entering into a separate Asset Purchase Agreement with the Brownsville Cellular
Telephone Company, Inc. ("Brownsville"), which is the holder of the non-wireline
cellular radio telephone license granted by the FCC for the Brownsville MSA (the
"Brownsville Transaction"), and certain provisions of this Agreement (as
provided herein) are conditioned upon Purchaser's ability to consummate the
Brownsville Transaction (the "Brownsville Closing");
WHEREAS, Celutel is the owner of 69.5% of the issued and outstanding
common stock of Seller and 78.4% of the issued and outstanding common stock of
Brownsville;
WHEREAS, the Parties have determined that it would further the
development of competitive, non-wireline cellular systems in the United States
to consummate the transactions contemplated hereby; and
WHEREAS, subject to the terms of this Agreement, Purchaser and Seller
may effectuate the transfer of the Assets in a transaction qualifying as an
exchange (the "Exchange") by the Seller of "like kind" property to the extent
permitted under Section 1031 of the Internal Revenue Code of 1986, as amended
(the "Code").
<PAGE> 2
NOW, THEREFORE, in consideration of the mutual covenants and promises
contained herein and for other good and valuable consideration, the receipt and
adequacy of which are hereby acknowledged, the Parties hereto agree as follows:
ARTICLE 1.
DEFINITIONS
As used herein, the terms below shall have the following meanings:
(a) "Action" shall have the meaning set forth in Section 5.12.
(b) "Affiliate" of a Person shall mean any Person which directly or
indirectly, through one or more intermediaries, owns, controls, or is controlled
by, or is under common control with, such Person. The term "control" (including,
with correlative meaning, the terms "controlling", "controlled by" and "under
common control with"), as used with respect to any Person, shall mean the
possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of such Person, whether through the
ownership of voting securities, by contract or otherwise.
(c) "Applicable Laws" shall mean all federal, state and local statutes,
ordinances, rules, and regulations, of any Governmental Authority that govern,
regulate or otherwise apply to the Assets, the Business or operation of the
System.
(d) "Appraiser" shall have the meaning set forth in Section 16.7
hereof.
(e) "Appraisal" shall have the meaning set forth in Section 16.7
hereof.
(f) "Assets" shall mean all assets, properties and rights, both
tangible and intangible, that are owned by, leased or licensed to Seller for use
in the System, and are otherwise necessary for the operation of the Business in
a manner consistent with the present operations and with past practices of the
System, including, without limitation, the Real Property, Equipment,
Authorizations, Contracts, Subscriber Agreements, Intellectual Property and
Books and Records; provided, however, that the Assets shall not include the
Excluded Assets, or any assets used exclusively in connection with the Excluded
Operations.
(g) "Assumed Liabilities" shall have the meaning set forth in Section
3.1.2. hereof.
(h) "Auditor" shall have the meaning set forth in Section 2.4.4.
hereof.
(i) "Authorizations" shall mean the approvals, consents,
authorizations, permits and licenses issued to Seller by any Governmental
Authority relating to the System.
(j) "Books and Records" shall mean all the books and records related to
the Assets, the Business and the System, including without limitation, (a) books
and records relating to the purchase
2
<PAGE> 3
of materials and supplies, invoices, Subscriber lists, supplier lists, personnel
records, and Subscriber information, and (b) computer software (to the extent
such software is included in the Assets)and data in computer readable and/or
human readable form used to maintain such books and records together with the
media on which such software and data are stored and all documentation relating
thereto, but shall not include books and records relating to the Excluded Assets
or Seller's corporate books and records or stock ledgers.
(k) " Brownsville Closing" shall have the meaning set forth in the
fourth Recital hereof.
(l) "Brownsville Transaction" shall have the meaning set forth in the
fourth Recital hereof.
(m) "Business" shall mean all of the business and operations relating
to the System as currently conducted by Seller; provided however, that the
Business shall not include the Excluded Operations.
(n) "Celutel" shall mean Celutel, Inc., a Delaware Corporation.
(o) "CERCLA" shall have the meaning set forth in Section 1(y) hereof.
(p) "Closing Date" shall mean the date which is the last business day
of the month in which the issuance of FCC Consent by Final Order occurs, unless
that date would occur less than six (6) business days before the last business
day of such month, in which case the Closing Date shall be the last business day
of the month following such month of the issuance of FCC Consent by Final Order.
(q) "Closing Place" shall mean such location agreed upon by the Parties
or, in the absence of such an agreement, the offices of Stokes Lawrence, P.S.,
800 Fifth Avenue, Suite 4000, Seattle, Washington 98104-3179.
(r) "Closing" shall mean the consummation of the assignment, transfer,
conveyance and delivery of the Assets and the Purchase Price as contemplated
hereunder.
(s) "Code" shall mean the Internal Revenue Code of 1986, as amended.
(t) "Consents" shall mean any and all consents, approvals,
authorizations or waivers of any Governmental Authority, including, without
limitation, the FCC Consent, and any and all consents, approvals or waivers from
parties to Contracts that are (i) required for the consummation of the
transactions contemplated by this Agreement or (ii) necessary or desirable in
order that Purchaser (or its designee) can conduct the Business after the
Closing Date substantially in the same manner as before the Closing Date.
(u) "Contracts" shall mean all leases, contracts, commitments, and
other binding agreements relating to the System to which Seller is a party and
which are set forth on SCHEDULE 5.8., whether written or oral.
3
<PAGE> 4
(v) "Disclosure Statement" shall mean the document to be delivered by
Seller to Purchaser within 10 business days of the date of this Agreement which
shall contain, in the form of schedules attached thereto, certain information
and disclosures as required to be made and referenced in this Agreement. All
schedules attached to the Disclosure Statement shall be numbered to correspond
to the applicable sections of this Agreement and shall form the basis for the
Schedules to be attached to this Agreement.
(w) "Disputes" shall have the meaning set forth in Section 13.3.
hereof.
(x) "DOJ" shall mean the United States Department of Justice.
(y) "Due Diligence Notice"shall have the meaning set forth in Section
4.1.2. hereof.
(z) "Employees" shall mean all persons employed on a full or part-time
basis together with all persons retained as "independent contractors."
(aa) "Environmental Laws" shall mean Applicable Laws relating to
pollution, the environment or the Handling of Regulated Substances, including
without limitation, the Comprehensive Environmental Response, Compensation and
Liability Act of 1980 ("CERCLA").
(bb) "Equipment" shall mean all of the furniture, fixtures,
furnishings, machinery, computer hardware, antennas, transmitters, and other
personal property used in connection with the Business and the System.
(cc) "ERISA" shall have the meaning set forth in Section 5.10. hereof.
(dd) "Escrow Agent" shall mean the Trust Department of Regions Bank, an
Alabama banking corporation.
(ee) "Escrow Agreement" shall have the meaning set forth in Section
11.2.2. hereof.
(ff) "Escrow Amount" shall have the meaning set forth in Section 2.2.
hereof.
(gg) "Exchange" shall have the meaning set forth in Section 16.6
hereof.
(hh) "Excluded Assets" shall mean those assets set forth on SCHEDULE
1(GG) hereto.
(ii) "Excluded Operations" shall mean the operations of, and the
services provided by Seller or to Seller, for businesses or operations that are
not exclusively related to the Business or the System, or that are provided
outside the McAllen MSA and set forth on SCHEDULE 1(HH) hereto.
(jj) "FCC" shall mean the Federal Communications Commission.
(kk) "FCC Consent" shall mean the action of the FCC granting its
consent to the transfer of control of the FCC Authorization from Seller to
Purchaser.
4
<PAGE> 5
(ll) "FCC Authorization" shall mean the Authorizations from the FCC
relating to the operation of the System.
(mm) "FTC" shall mean the Federal Trade Commission.
(nn) "Final Order" shall mean a Preliminary Order which is not
reversed, stayed, enjoined, set aside, annulled, or suspended, and with respect
to which no timely request for stay, motion or petition for reconsideration or
rehearing, application or request for review, or notice of appeal or other
judicial petition for review is pending, and as to which the time for filing any
such request, motion, petition, application, appeal, or notice, and for the
entry of an order staying, reconsidering, or reviewing on the FCC's or other
regulatory authorities' own motion, has expired. A Preliminary Order which is
not reversed, stayed, enjoined, set aside, annulled, or suspended, and with
respect to which no timely request for stay, motion or petition for
reconsideration or rehearing, application or request for review, or notice of
appeal or other judicial petition for review is pending, and as to which the
time for filing any such request, motion, petition, application, appeal, or
notice, and for the entry of an order staying, reconsidering or reviewing on the
FCC's or other regulatory authorities' own motion has expired, but which is
subject to conditions is not (and shall not be deemed) a Final Order unless and
until the Purchaser has notified Seller in writing of Purchaser's willingness to
accept such conditions.
(oo) "Final Settlement" shall have the meaning set forth in Section
2.4.3 hereof.
(pp) "Financial Statements" shall have the meaning set forth in Section
5.11. hereof.
(qq) "Governmental Authority" shall mean any court or any federal,
state, county, local or foreign governmental, legislative or regulatory body,
agency, department, authority, instrumentality or other subdivision thereof,
including, without limitation, the FCC and the PUC.
(rr) "Handling" shall mean the production, use, generation, storage,
treatment, recycling, disposal, discharge, release, or other handling or
disposition at any time on or prior to the Closing Date of any Regulated
Substance either in, on, or under any Operating Site.
(ss) "HSR Act" shall mean the Hart-Scott-Rodino Antitrust Improvements
Act of 1976, as amended.
(tt) "Intellectual Property" shall mean all patents, trademarks,
service marks, trade names, copyrights, licenses, formulas, computer software,
advertising slogans, know-how, data and other intellectual property rights or
intangible property rights of Seller which are used or intended for use in
connection with the System.
(uu) "Inventory" shall mean all merchandise owned and intended for
resale in connection with the Business, whether or not located on the premises,
on consignment to a third party, or in transit or storage.
(vv) "Liabilities" shall mean liabilities, obligations or commitments
of any nature, absolute, accrued, contingent or otherwise, known or unknown,
whether matured or unmatured.
5
<PAGE> 6
(ww) "Lien" shall mean any contract for sale (except for the sale of
cellular telephone service and rentals of cellular telephone equipment to
Subscribers), claim, lien, pledge, option, charge, covenant, restriction,
encroachment, easement, security interest, mortgage, deed of trust,
right-of-way, encumbrance or adverse interest of any kind or character of any
other Person.
(xx) "Losses" shall have the meaning set forth in Section 11.2.1.
hereof.
(yy) "McAllen MSA" shall have the meaning set forth in the first
Recital herein.
(zz) "Operating Data Statements" shall have the meaning set forth in
Section 5.11. hereof.
(aaa) "Operating Site" shall mean any real property or facility owned,
leased or used at any time by Seller in connection with the System.
(bbb) "Owned Real Property" shall have the meaning set forth in Section
4.1.16. hereof.
(ccc) "Person" shall mean an individual, a corporation, a partnership,
an association, a joint-stock company, a trust, any unincorporated organization,
or a government or a political subdivision thereof.
(ddd) "Preliminary Order" shall mean an action by the FCC and other
applicable state regulatory authority consenting to or authorizing the transfer
of control of the FCC Authorization to Purchaser (or its designee), which action
has not yet become a Final Order.
(eee) "PUC" shall mean the Texas Public Utilities Commission.
(fff) "Purchase Price" shall have the meaning set forth in Section 2.2.
hereof
(ggg) "Purchaser's Closing Certificate" shall have the meaning set
forth in Section 7.1. hereof.
(hhh) "Real Property" shall mean all real property owned or leased by
or used, or intended by Seller for use, in connection with the System, together
with all buildings, improvements, fixtures, easements, licenses, options,
insurance proceeds and condemnation awards and all other rights of Seller in or
appurtenant thereto.
(iii) "Regulated Substance" shall mean (i) any "hazardous substance" as
defined in CERCLA, (ii) any petroleum or petroleum substance, and (iii) any
other pollutant, waste, contaminant, or other substance regulated under
Environmental Laws.
(jjj) "Representative" shall mean any officer, director, principal,
attorney, agent, employee or other representative of any Person.
(kkk) "Seller's Closing Certificate" shall have the meaning set forth
in Section 8.1 hereof.
6
<PAGE> 7
(lll) "Service" shall mean the provision of the System's cellular
telephone service to Subscribers.
(mmm)"Subscribers" shall mean customers of Seller that subscribe to the
Service.
(nnn) "Subscriber Agreements" shall mean Contracts whereby Seller has
agreed to provide Service.
(ooo) "Survival Period" shall have the meaning set forth in Section
11.1 hereof.
(ppp) "Taxes" shall mean all taxes, charges, fees, levies or other
assessments or changes of any kind whatsoever, including without limitation,
income, excise, use, transfer, payroll, occupancy, property, sales, franchise,
unemployment and withholding taxes, imposed by any Governmental Authority, and
any assessments against Real Property together with any interest, penalties or
additional taxes attributable to such taxes and other assessments.
(qqq) "Title Commitment" shall have the meaning set forth in Section
4.1.16. hereof.
(rrr) "Title Policy" shall have the meaning set forth in Section
4.1.16. hereof.
(sss) "To the knowledge" or "knowledge" of a Party (or similar phrases)
shall mean (i) with respect to Seller, to the extent of matters which are
actually known by any of the individuals set forth on SCHEDULE (SSS) or which,
based on facts of which such parties are aware, would be known to a reasonable
Person in similar circumstances and (ii) with respect to Purchaser, to the
extent of matters which are actually known by any of the individuals set forth
on SCHEDULE (SSS)(B), or which, based on facts of which such parties are aware,
would be known to a reasonable Person in similar circumstances.
(ttt) "Transfer Application" shall mean that joint application filed
with the FCC relating to the transfer of the Assets to Purchaser in the manner
contemplated by this Agreement.
ARTICLE 2.
PURCHASE OF ASSETS
2.1. Transfer of Assets. Subject to the terms and upon satisfaction of
the conditions contained in this Agreement, at the Closing, Seller shall sell,
convey, transfer, assign and deliver to Purchaser (or its designee), and
Purchaser (or its designee) will accept and acquire, the Assets.
2.2. Purchase Price. Subject to the transactions contemplated hereby
being consummated as an Exchange, the purchase price for the Assets shall be
FIFTY EIGHT MILLION FOUR-HUNDRED TWENTY-FIVE THOUSAND ($58,425,00), subject to
adjustment pursuant to this Article 2 (the "Purchase Price"), which shall be
paid by Purchaser to Seller (or its designee) on the Closing Date as follows:
(i) Three Million Dollars ($3,000,000) of such Purchase Price (the "Escrow
Amount") shall be delivered to the Escrow Agent as defined in Section 11.2.2 and
held pursuant to the terms
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<PAGE> 8
of Section 11.2.2; and (ii) the balance of such Purchase Price shall be paid by
Purchaser either (x) to Seller by wire transfer of immediately available funds;
or (y) to a "qualified intermediary" (as such term is defined in the Code)
designated by Seller.
2.3. Exchange Adjustment. (a) On the Closing Date, in addition to the
Purchase Price, Purchaser shall deliver to Seller (in the same manner as the
Escrow Amount) Six Hundred-Fifteen Thousand Dollars ($615,000.00), which amount
shall represent an upward adjustment of the Purchase Price if Seller is unable
to structure and complete the disposition of the Assets as an Exchange (the
"Exchange Adjustment").
(b) Seller shall return the Exchange Adjustment to Purchaser within ten
(10) business days of Seller's successful completion of an Exchange. If Seller
fails to consummate an Exchange within 180 days of the Closing Date, then the
Exchange Adjustment shall be retained in full by Seller as part of the Purchase
Price.
2.4. Other Adjustments and Prorations.
2.4.1. The Purchase Price shall be adjusted in accordance with
the following:
(a) The Purchase Price shall be increased by an
amount equal to any cash, adjusted accounts receivable, Inventory, prepaid
expenses and any other current assets transferred to Purchaser. For the purposes
of this section the "adjusted accounts receivable" shall equal the sum of the
following:
(i) 100% of the accounts receivable from carriers and
resellers.
(ii) 100% of the amount of all Subscriber accounts
receivable which remain unpaid by Subscribers
("Outstanding") for less than 31 days from the date
of billing; plus
(iii) 75% of the amount of all Subscriber accounts
receivable that are Outstanding for more than 30 days
but less than 61 days from the date of billing; and
(iv) 60% of the amount of all Subscriber accounts
receivable that are Outstanding for more than 60
days, but less than 90 days from the date of billing;
plus
(v) There shall be no adjustment (i.e. 0%) for the amount
of any Subscriber accounts receivable that are
Outstanding more than 90 days.
(b) The Purchase Price shall be decreased by an
amount equal to (x) the Assumed Liabilities, and (y) amounts collected by Seller
from Subscribers on or prior to the Closing Date (net of deferred access revenue
included in such amounts), which relate to Services provided after the Closing
Date (hereinafter referred to as "Advance Receipts"), and (z) deferred access
revenue assumed by Purchaser.
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2.4.2. All revenues and all expenses arising from the Business
and ownership of the Assets prior to the Closing Date, including resale charges
and other expenses payable in respect to Service, utility charges, Taxes levied
against the Assets, property and equipment rentals, sales and service charges,
Taxes (except for Taxes arising from the transfer of the Assets ), and similar
prepaid and deferred items, shall be prorated between Seller and Purchaser in
accordance with the principle that Seller shall receive the benefit of all
revenues, and be responsible for all expenses, costs, obligations and
Liabilities allocable to the Business and the ownership of the Assets for the
period prior to the Closing Date, and Purchaser shall receive the benefit of all
revenues, and be responsible for all expenses, costs, obligations and
Liabilities allocable to the Business and the ownership of the Assets on and
after the Closing Date.
2.4.3. A final settlement (the "Final Settlement") of all
adjustments or prorations made under this Section, with payment being made by
the appropriate Party in cash (but without any interest thereon), shall occur no
later than ninety (90) days after the Closing Date.
2.4.4. In the event that the Parties cannot agree on the
amount of the Final Settlement, the determination shall be made by a mutually
agreed upon national accounting firm selected jointly by Purchaser and Seller
that has not, during the prior three (3) years, been employed by any of the
Parties (the "Auditor"). The Auditor shall make its determination of the Final
Settlement based on the express provisions of this Agreement; provided, however,
that if the Auditor finds that the express terms of this Agreement are not
sufficient to resolve any issue or issues, the Auditor shall rely upon generally
accepted accounting principles then in effect. Any Party may invoke the use of
the Auditor by notifying the other Party in writing, provided that a Party may
not invoke the use of the Auditor to determine the Final Settlement earlier than
forty (40) days after the Closing Date. The Auditor shall be required to render
a decision within twenty-one (21) days after the Auditor is requested to render
a determination under this Section 2.4.4. The decision of the Auditor shall be
binding on the Parties and not subject to any judicial challenge by the Parties.
Within five (5) business days after the Auditor provides the determination to
the Parties, the payment of the Final Settlement shall be made in accordance
with that determination. The expenses of the Auditor shall be paid by Seller and
Purchaser in proportion to the Auditor's determination with respect to the
allocation to Seller and Purchaser of the amount in disagreement. For example,
if the amount in disagreement is One Hundred Thousand Dollars ($100,000) and the
Auditor determines that the Seller should receive Seventy Thousand Dollars
($70,000) and the Purchaser should receive Thirty Thousand Dollars ($30,000),
then Seller shall pay thirty percent (30%) of the Auditor's expenses, and
Purchaser shall pay seventy percent (70%).
2.5. Failure or Delay of Brownsville Closing.
2.5.1. In the event that the Brownsville Closing does not occur, for
any reason other than a breach by Purchaser (or Purchaser's designee with
respect to the Brownsville Transaction), on or before thirty (30) days from the
specified Closing Date for this transaction, Purchaser shall have the right to:
(a) elect to delay the Closing until such later date that will allow
for a concurrent Brownsville Closing; and/or
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(b) elect to terminate this Agreement and the Brownsville Transaction
at any time prior to the issuance of a Preliminary Order for the Brownsville
Transaction.
ARTICLE 3.
ASSUMED OBLIGATIONS
3.1. No Assumption of Liabilities by Purchaser, Exceptions.
3.1.1. Except as set forth in Section 3.1.2. below, Purchaser
expressly does not, and shall not, assume or be deemed to have assumed under
this Agreement or by reason of any transactions contemplated hereunder, any
Liabilities of any nature whatsoever relating to the System or of Seller, or any
of Seller's stockholders or partners, as the case may be.
3.1.2. At the Closing, Purchaser shall assume and shall timely
pay, perform, fulfill and discharge all of Seller's liabilities and obligations
due after the Closing Date on those Contracts and Liabilities set forth on
SCHEDULE 3.1.2. (the "Assumed Liabilities").
ARTICLE 4.
COVENANTS AND AGREEMENTS
4.1. Covenants of Seller. Seller and Shareholder jointly and severally
covenant and agree that from the time of the execution and delivery of this
Agreement until (and including) the Closing Date:
4.1.1. Consummate Transactions. Seller shall use its best
efforts to cause the transactions contemplated by this Agreement to be
consummated in accordance with the terms hereof, and, without limiting the
generality of the foregoing, use best efforts to obtain all necessary approvals,
consents, permits, licenses and other authorizations required in connection with
this Agreement and the transactions contemplated hereby from Governmental
Authorities, and to make all filings with and to give all notices to third
parties, which may be necessary or reasonably required of Seller in order to
consummate the transactions contemplated hereby.
4.1.2. Full Access and Purchaser Due Diligence. (a) Seller
shall allow Purchaser and its agents and representatives (including, without
limitation, its independent auditors and attorneys) reasonable access during
normal business hours to all of Seller's personnel, premises, properties,
assets, financial statements and records, books, contracts, documents and
commitments of or relating to the Business, and shall furnish Purchaser and its
agents and representatives with all such information concerning the affairs of
the System as Purchaser may reasonably request. The Parties understand and agree
that the purpose of the due diligence review process is to provide Purchaser
with the opportunity to investigate the Assets, System and Business operations
to determine if they comport with the representation and warranties made in this
Agreement and the information
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contained in the Disclosure Statement, and if any amendments with respect to the
terms and conditions of this Agreement would be required to make this
transaction acceptable to Purchaser.
(b) Purchaser has provided Seller with a Due Diligence Outline
requesting specific information regarding the operations of the System. Seller
will provide Purchaser with written notice when all information requested in the
outline has been provided to Purchaser. Purchaser shall have 30 days from
receipt of such notice to notify Seller in writing of any issues uncovered as a
result of its due diligence review that Purchaser deems to be reasonably
unacceptable ("Due Diligence Notice"). Purchaser and Seller agree to negotiate
in good faith to resolve such issues in a mutually acceptable manner within ten
(10) business days from the date of Seller's receipt of the Due Diligence
Notice. In the event that Purchaser does not provide Seller with a Due Diligence
Notice within the 30 day time period, Purchaser will be deemed to have waived
the conditions of Section 4.1.2(d) with respect to the Due Diligence Notice.
(c) Purchaser shall have 30 days from receipt of the Disclosure
Statement to notify Seller in writing of any matters that are contained in the
Disclosure Statement that Purchaser deems to be reasonably unacceptable
("Disclosure Statement Notice"). Purchaser and Seller agree to negotiate in good
faith to resolve such issues in a mutually acceptable manner within ten (10)
business days from the date of Seller's receipt of the Disclosure Statement
Notice. In the event that Purchaser does not provide Seller with a Disclosure
Statement Notice within the 30 day time period, Purchaser will be deemed to have
accepted the Disclosure Statement and to have waived the conditions of Section
4.1.2(d) with respect to the Disclosure Statement.
(d) In the event the Parties are not able to resolve the issues
outlined in either the Due Diligence Notice or the Disclosure Statement Notice
within the applicable 10 day period, Purchaser shall have the right to terminate
this Agreement upon written notice to Seller.
4.1.3. Ordinary Course. Seller shall cause the Business and
affairs of the System to be conducted only in the ordinary course and consistent
with past practices. Without limiting the foregoing, Seller shall continue to
pay its bills and other obligations, all in the ordinary course of business
consistent with past practices, but shall not, without the prior written consent
of Purchaser:(a) incur any material Liability other than obligations to Seller's
brokers, attorneys and accountants, all of which shall be paid by Seller; (b)
assume, guarantee, change any existing guarantee, endorse, act as an
accommodation party, or otherwise become responsible for, the obligations of any
other Person; (c) make any loans or advances to any Person; (d) sell, transfer,
convey, mortgage, pledge, hypothecate or place any Liens on any of the Assets;
(e) waive or compromise any right or claim for any amount; (f) cancel any note,
loan or other material obligation owing to Seller; (g) enter into any Contract
with any Person, including, without limitation, the stockholders of Seller or
any of its Affiliates, consultants, agents or assigns; (h)except as set forth in
Seller's salary administration review project (the results of which have been
disclosed to Purchaser) or as otherwise provided in this Agreement, increase or
modify compensation of any type currently paid to any of its employees,
officers, directors, agents or consultants,; (i) make any new arrangement for
any profit-sharing plan, retirement plan, bonus plan, severance arrangement,
employee benefit plan, or any similar plan except for modifications of existing
plans that are required by law, or contemplated to be implemented at the time of
the execution of this Agreement; (j) except as required by law, enter into any
collective bargaining agreement, or make any commitment
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whatsoever to any union or other representative or party which intends to
represent any of Seller's employees subsequent to the Closing; (k) except as
permitted under Section 5.10 hereof, hire any employees; (l) except as required
by law, enter into any additional reseller agreements; or (m) enter into any
Contract involving payments, assets, or liabilities with a value greater than
$32,500 individually or $100,000 in the aggregate, excluding noncapital
expenditures incurred in the ordinary course of business consistent with past
practices. Notwithstanding the foregoing, nothing in this Section 4.1.3 shall
prevent Seller from taking appropriate action as may be necessary to maintain
its ability to control and manage the System and to comply with the rules,
regulations or directives of any Governmental Authority.
4.1.4. Retention of Records. On the Closing Date, Seller shall
deliver to Purchaser all such Books and Records as are reasonably requested by
Purchaser. In addition, for a period of four (4) years after the Closing Date,
Seller shall make available to Purchaser copies of any documents not theretofore
delivered to Purchaser relating to System or the Assets.
4.1.5. No Amendments or Issuance of Additional Shares. Seller
shall not and Shareholder shall not cause or permit Seller to amend its charter,
by-laws, or comparable governing instrument, which amendment would have a
material adverse effect on the Assets, the Business or the transactions
contemplated by this Agreement or which would require any additional consents or
approvals of the transactions contemplated by this Agreement. Seller shall not
and Shareholder shall not permit Seller to issue or sell any shares of its
capital stock or other securities, or issue options, warrants or rights of any
kind to acquire, or any securities convertible into, exchangeable for or
representing a right to purchase or receive, any stock-based or stock-related
awards or other equity-based awards, shares of its capital stock or other equity
or other securities, or enter into any arrangement or contract with respect to
the purchase or voting of shares of its capital stock or other equity, or
adjust, split, combine or reclassify any of its securities, or make any other
changes in its capital structure, if any such issuance, sale, contract, plan,
understanding, arrangement, adjustment, split, combination, reclassification or
changes would require any additional approvals of the transactions contemplated
by this Agreement or would otherwise have a material adverse effect on the
transactions contemplated by this Agreement.
4.1.6. No Termination or Settlement. Without the prior written
consent of Purchaser, which consent shall not be unreasonably withheld Seller
shall not terminate any agent, or settle any dispute with any agent if such
termination or settlement would cause Purchaser to have any continuing
obligation after the Closing with respect thereto.
4.1.7. Preserve Business and Goodwill. Seller shall use its
diligent efforts to keep the System intact, to preserve and maintain the Assets,
to preserve the Business and to preserve the goodwill of suppliers, Subscribers
and others dealing with Seller.
4.1.8. Compliance with Law. Seller shall comply in all
material respects with Applicable Laws.
4.1.9. Approvals; Consents. Seller shall obtain and maintain
in full force and effect, and shall not take any action which might have a
material adverse effect on, any Authorizations that are required for the
operation of the Business as presently conducted, except where such
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Authorizations are administrative in nature, and the failure to obtain or
maintain such Authorizations would not adversely impact the continued operation
of any part of the System or any component thereof, as currently operated. The
Parties shall consult with one another as to the approach to be taken with any
Governmental Authority with respect to obtaining any Authorization to the
transactions contemplated hereby, and each of the Parties shall keep each other
Party reasonably informed as to the status of any such communications with any
Governmental Authority. Seller shall not make any material commitments with
respect to any Authorizations without Purchaser's prior written consent.
4.1.10. Insurance. From the date hereof through the Closing
Date, Seller shall maintain in full force and effect (including necessary
renewals thereof) all of the insurance policies that Seller currently maintains
relating to System, which are set forth on SCHEDULE 4.1.10. From and after the
Closing Date, Seller shall take all actions that may be necessary to cause the
coverage under such policies to continue in full force and effect after the
Closing Date with respect to liability occurrences prior to the Closing Date and
shall take all actions necessary to preserve or protect rights under any such
policies with respect to any claim against Seller arising out of the Assets or
Business of Seller prior to the Closing Date. Seller will provide Purchaser with
information and records regarding all claims pending with respect to the Assets
or Business of Seller and agrees to provide to Purchaser any additional
information and records Purchaser may reasonably require regarding such claims.
4.1.11. Books and Records. Seller shall continue to maintain
the Books and Records in the manner and on a basis consistent with prior years.
4.1.12. Notice of Claims. Seller shall give written notice to
Purchaser promptly upon the commencement of any action, investigation,
arbitration or proceeding (including any proceeding before any Governmental
Authority), or promptly upon obtaining knowledge of any facts giving rise to a
threat of any such action, investigation, arbitration or proceeding which would,
if adversely determined, would have a material adverse effect on (a) Seller's
ability to consummate the transactions contemplated hereby; (b) the Business; or
(c) the Assets.
4.1.13. Notice of Breaches. Seller shall promptly after
obtaining knowledge of the occurrence of, or the impending or threatened
occurrence of, any event which would cause or constitute a breach of any
warranties, representations, covenants or agreements of the Seller contained in
this Agreement, give notice in writing of such event or occurrence or impending
or threatened event or occurrence, to Purchaser and use its diligent efforts to
prevent or to promptly remedy such breach.
4.1.14. Notice of Change. Except for events occurring in the
communications industry generally, Seller shall notify Purchaser promptly in
writing of any event, condition or state of facts, which has had or would
reasonably be expected to have a material adverse effect on the System, the
Business or on the Assets or on the transaction contemplated by this Agreement.
4.1.15. Training / Transition Assistance. (a) At the request
of Purchaser, Seller hereby agrees to use commercially reasonable efforts to
instruct Purchaser's employees and agents in the use of Seller's billing system.
Such instruction will be provided at Seller's premises at
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mutually convenient times so as not to disrupt the operation of Seller's
businesses and shall be provided at no cost to Purchaser.
(b) The Parties agree to use diligent efforts and to direct their
respective employees, agents, and subcontractors to cooperate in the conversion
and transfer of the Subscribers to Purchaser's billing system so that upon the
Closing Date, or as soon thereafter as is reasonably practicable, all of the
System's customer billing information shall have been transferred and converted
to Purchaser's billing system. The costs associated with converting and
transferring the information to Purchaser's billing system shall be the sole
responsibility of Purchaser.
4.1.16. Title Insurance.
(a) With respect to all Real Property owned by Seller ("Owned
Real Property"), Seller will obtain and deliver to Purchaser (i) as soon as
practicable after the date of this Agreement, a title commitment disclosing the
condition of title to such Owned Real Property and all easements, rights of way,
and restrictions of record with respect thereto, as of a date not earlier that
the date of this Agreement, accompanied by copies of all available instruments
evidencing the scope and extent of all such easements, rights of way, and
restrictions of record ("Title Commitment") and (ii) at or prior to Closing, an
ALTA Owner's Policy of Title Insurance on a form customarily used in the state
in which the Real Property is located, issued by First American Title Insurance
Company, in an amount equal to the fair market value of the Real Property (as
reasonably determined by Purchaser and submitted by Purchaser to Seller on the
date hereof), insuring title to such property to be in the name of a party
designated by Purchaser, subject only to Permitted Encumbrances (each a "Title
Policy").
(b) Each Title Policy obtained and delivered to Purchaser
pursuant to this Agreement shall, except to the extent that title insurers in
the state in which the applicable property is located are not lawfully permitted
to issue such policies (i) insure title to the property described in the policy
and all recorded easements benefiting such property, (ii) contain an "extended
coverage endorsement" or similar modification insuring over or otherwise
eliminating the general exceptions customarily contained in title policies,
(iii) contain an endorsement insuring that the property described in the policy
is the same real estate shown in the survey delivered with respect to such
property, (iv) contain a "contiguity" endorsement with respect to any property
consisting of more than one record parcel, (v) provide full coverage against
mechanics' and materialmen's liens arising out of the construction, repair or
alteration of any of the Owned Real Property, (vi) contain any special
endorsements reasonably required by Purchaser, including, without limitation, an
endorsement insuring that the improvements included in the Real Property are a
permitted use under the zoning designation applicable to the Owned Real
Property, and (vii) not be subject to any exception for matters disclosed by any
survey delivered with respect to such property other than matters which do not
constitute a breach of the representations and warranties contained in this
Agreement.
(c) With respect to each Owned Real Property interest as to
which a Title Policy is to be procured pursuant to this Agreement, Seller will
obtain and deliver to Purchaser as soon as practicable after the date of this
Agreement a current survey of the relevant parcel, prepared and certified to
Purchaser and to the title insurer of such Owned Real Property interest by a
licensed
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surveyor and conforming to current ALTA Minimum Detail Requirements for Land
Title Surveys, disclosing the location of all improvements, easements, party
walls, sidewalks, roadways, utility lines, and other matters customarily shown
on such surveys, and showing access affirmatively to public streets and roads.
4.1.17. Interim Financial Statements and Statistical
Summaries. Between the date of this Agreement and the Closing Date, Seller shall
deliver to Purchaser (i) as soon as practicable, but no later than forty-five
(45) days after the end of each calender month, unaudited financial statements
("Interim Financial Statements") for the most recent month and the interim
period then ended, and (ii) within ten (10) Business Days after the end of each
calender month, interim operating data summaries (the "Interim Operating Data
Statements") for the most recent month and interim period then ended, which
summaries will be in scope and format substantially identical to the Operating
Data Statements.
4.1.18. Material Contracts. Seller shall not (a) default in
any material respect under, or breach any term or provision of, or suffer or
permit to exist any condition or event which, after notice or lapse of time, or
both, would constitute a material default under, any material Contract, or (b)
cause or permit the termination, modification or amendment of any material
Contract of Seller.
4.1.19. Condition of Assets. Seller shall use diligent efforts
to preserve its assets intact and, from time to time, make all necessary repairs
thereto, so that the Business may be conducted in the ordinary course consistent
with past practices.
4.2. Covenants of Purchaser. Purchaser covenants and agrees that from
the time of the execution and delivery of this Agreement until (and including)
the Closing Date:
4.2.1. Consummate Transaction. Purchaser shall use its best
efforts to cause the transactions contemplated by this Agreement to be
consummated in accordance with the terms hereof, and, without limiting the
generality of the foregoing, to assist Seller in obtaining all necessary
Authorizations of third parties, including, without limitation, the approval of
this Agreement and the transactions contemplated hereby as required by any
Governmental Authority, and to make all filings with and to give all notices to
third parties which may be necessary or reasonably required of Purchaser in
order to consummate the transactions contemplated hereby.
4.2.2. Purchaser Not to Control. Notwithstanding any provision
of this Agreement that may be construed to the contrary, pending the
consummation of the Closing, Seller shall maintain actual (de facto) and legal
(de jure) control over the System. Specifically, and without limitation, the
responsibility for the operation of the Business and the System shall, pending
the Closing Date, reside with the Board of Directors and management of Seller,
including, but not limited to, responsibility for the following matters: (1)
access to and the use of the facilities of and equipment owned by Seller; (2)
control of the daily operation of the System; (3) creation and implementation of
policy decisions; (4) employment and supervision of employees; (5) payment of
financing obligations and expenses incurred in the operation of the System; (6)
receipt and distribution of monies and profits derived from the operation of the
System; and (7) execution and approval of all contracts and applications
prepared and filed before Governmental Authorities.
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4.3. Mutual Covenants of Seller and Purchaser. Seller and Purchaser
covenant and agree that following the execution hereof, and until (and including
) the Closing Date that they will file with the FCC, and, if necessary, will
file with the PUC or any other Governmental Authority, as soon as practicable
following the date hereof, joint applications requesting the approval of the
transfer of control of the System to Purchaser, and, if applicable, will file
all necessary applications with the DOJ and/or the FTC pursuant to the HSR Act.
Seller and Purchaser agree to use their best efforts to make all such filings
within ten (10) business days of the execution of this Agreement. Seller and
Purchaser shall diligently take or cooperate in the taking of all steps which
are necessary or appropriate to expedite the prosecution and favorable
consideration of such applications. Purchaser shall the pay the filing fees
associated with the filings required by this Section 4.3. Seller and Purchaser
covenant and agree to undertake all actions and file such material as shall be
necessary or required to obtain any necessary waivers or other authority in
connection with the foregoing applications.
4.4 Covenants of Celutel. Celutel covenants and agrees that from the
time of the execution and delivery of this Agreement until (and including) the
Closing Date:
4.4.1. Voting of Shares. It will affirmatively exercise its rights as a
stockholder of Seller to vote, its shares of common stock of Seller (whether at
a meeting or by written consent) upon any matter arising under this Agreement,
properly submitted to a vote of the stockholders in favor of the transactions
contemplated by this Agreement.
4.4.2. No Transfer or Encumbrance of Shares. It will not sell,
transfer, encumber, or otherwise dispose of its shares of common stock of
Seller.
ARTICLE 5.
REPRESENTATIONS AND WARRANTIES OF SELLER
Seller and Shareholder hereby jointly and severally make the following
representations and warranties to Purchaser, all of which have been relied upon
by Purchaser in entering into this Agreement and the truth and accuracy of which
shall constitute a condition precedent to the obligations of Purchaser
hereunder:
5.1. Organization and Standing. Seller (a) is a corporation duly
organized, validly existing and in good standing under the laws of the state of
Delaware, (b) has full corporate power and authority to enter into and perform
this Agreement, to own and lease the Assets, and operate the System and to carry
on the Business as now being conducted and proposed to be conducted by it, and
(c) is duly qualified to do business and is in good standing as a foreign
corporation in every jurisdiction in which the nature of the business conducted
by it requires such qualification, except where the failure to so qualify would
not have a material adverse effect on the System, the Business or the Assets.
5.2. Authorization and Binding Obligations. The execution, delivery and
performance of this Agreement by each of Seller and Shareholder has been duly
and validly authorized by all necessary corporate action, including approval of
the entire transaction by the requisite vote of their
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Boards of Directors and the Board of Directors of Century Telephone Enterprises,
Inc. This Agreement has been duly executed and delivered by Seller and
Shareholder and constitutes a valid and binding obligation of Seller enforceable
against it in accordance with its terms, except as its enforceability may be
limited by bankruptcy, insolvency, moratorium or other laws relating to or
affecting creditors' rights generally and the exercise of judicial discretion in
accordance with general equitable principles.
5.3. No Contravention. Except as otherwise contemplated hereunder, the
execution, delivery and performance of this Agreement, the consummation of the
transactions contemplated hereby and the compliance with the provisions hereof
by Seller and Shareholder will not (a) violate any provisions of the corporate
charter or by-laws of Seller and Shareholder, (b) result in the breach of, or
constitute a default under, or result in the creation of any Lien, upon any of
the Assets under the provisions of any agreement or other instrument to which
Seller is a party or by which any Asset is bound or affected or (c) with respect
to Seller, violate any Applicable Laws.
5.4. Compliance with Law. Seller and Shareholder shall comply in all
material respects with Applicable Laws relating to the System, the Business and
the Assets.
5.5. Title to Assets.
5.5.1. SCHEDULE 5.5.1. is a list of all tangible personal
property included in the Assets. Seller has good and marketable title to all the
tangible personal property to be transferred by it hereunder, free and clear of
all Liens, charges or any other encumbrances, except for and subject only to
liens for Taxes not yet due or payable ("Permitted Liens").
5.5.2. SCHEDULE 5.5.2. is a list of all the Real Property.
Seller has good and marketable title to all of the Real Property to be
transferred by it hereunder, free and clear of all Liens, and without
reservation or exclusion of any mineral, timber or other rights or interests,
except for and subject only to (a) Permitted Liens, (b) those matters set forth
in SCHEDULE 5.5.2. including the leases listed thereon (whether as lessor or
lessee), none of which is violated by existing structures or impairs Seller's
use and none of which materially impairs or pursuant to its terms would
materially impair the present operations of the System or the present use of
such property, and (c) those Liens set forth in SCHEDULE 5.5.2. The Liens set
forth on SCHEDULE 5.5.2 will be removed on or prior to the Closing Date.
5.5.3. The Assets include all assets (except the Excluded
Assets and any assets used solely in connection with the Excluded Operations)
which are used to conduct the Business and operations of the System as presently
conducted .
5.6. Condition of the Assets. All tangible Assets are in reasonable
operating condition and repair, ordinary wear and tear excepted, are reasonably
suitable for the uses and purposes for which they are being used, and are in
compliance with all Applicable Laws, except where failure of such compliance
would not have a material adverse effect on the Assets, and Seller has no
knowledge and has received no notice that it or the present use of the Assets is
in violation in any material respect of any Applicable Laws. Notwithstanding the
foregoing, the Equipment is being sold on an "as
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is - where is" basis, and Seller is making no representations with respect to
the condition of the Equipment forming part of the Assets.
5.7. Authorizations. The Authorizations listed on SCHEDULE 5.7. are all
of the Authorizations necessary to operate the System, the Business and the
Assets as they are now operated. The Authorizations are validly issued in the
name of Seller and are in full force and effect. Except as set forth on SCHEDULE
5.7, the Authorizations are unimpaired by any acts or omissions of Seller (or
any of its Representatives) and the Authorizations are free and clear of any
restrictions which might limit the full operation of the System. All ownership
reports, employment reports, and other documents required to be filed by Seller
with the FCC with respect to the System have been filed or the time period for
such filing has not lapsed. All such reports and documents since the date that
Seller acquired the System are correct in all material respects. The FCC actions
granting the current FCC Authorization to operate the System together with all
underlying construction permits have not been reversed, stayed, enjoined, set
aside, annulled, or suspended, and no timely request for stay, motion or
petition for reconsideration or rehearing, application or request for review, or
notice of appeal or other judicial petition for review is pending. The time for
filing any such request, motion, petition, application, appeal, or notice, and
for the entry of an order staying, reconsidering, or reviewing on the FCC's or
other regulatory authorities' own motion, has expired.
5.8. Contracts. SCHEDULE 5.8. is a list of all Contracts other than
Subscriber Agreements and Contracts with Seller's Affiliates which will not
survive the Closing. Each such Contract is in full force and effect, paid
currently, and has not been materially impaired by any acts or omissions of
Seller or any of its Representatives. Except as set forth on SCHEDULE 5.8., no
Contract requires the consent of any other contracting party to the transactions
contemplated by this Agreement. Seller is not (and, to the best of its
knowledge, no other party is) in material breach or violation of, or default
under any of the Contracts. Seller is not aware of any intent by any party to
any Contract to terminate or amend the terms thereof or to refuse to renew any
Contract upon expiration of its term.
5.9. Intellectual Property. SCHEDULE 5.9. is a list of all Intellectual
Property. No person has a right to receive a royalty or similar payment in
respect of any Intellectual Property other than as indicated on SCHEDULE 5.9.
Seller has no licenses granted by or to it, or any other agreements to which it
is a party, relating in whole or in part to any of the Intellectual Property
other than as indicated on SCHEDULE 5.9. To Seller's knowledge, Seller's use of
the Intellectual Property is not infringing upon or otherwise violating the
rights of any third party, and no proceedings have been instituted against or
notices received by Seller alleging that such use of its Intellectual Property
infringes upon or otherwise violates any rights of a third party.
5.10. Employees; Employment Obligations. Seller and/or the System
currently employs those persons in those positions and at those salaries
(including benefits) as are listed on SCHEDULE 5.10. Seller shall hire no
further employees without the prior written consent of Purchaser, provided that
Seller may, as the need arises, hire employees to replace existing employees
without the consent of Purchaser. Except as otherwise set forth on such SCHEDULE
5.10., Seller and the System are not bound, and at no time have been bound, by
any oral or written collective bargaining agreement, severance, pension,
retirement, profit-sharing, 401(k), "employee benefit plan" (within the meaning
of Section 3(3) of the Employee Retirement Income Security Act of 1974, as
amended ("ERISA")), or other employment agreement (other than any agreements
terminable on 30 days' or less notice
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without penalty or severance obligation) with any officer, employee or
consultant, nor does Seller or the System have any liability under any such
agreement which was terminated previously. Seller has complied in all material
respects with all applicable laws, rules and regulations which relate to prices,
wages, hours, discrimination in employment and collective bargaining and is not
liable for any arrears of wages or any taxes or penalties for failure to comply
with any of the foregoing. With respect to each "employee benefit plan," if any,
within the meaning of Section 3(3) of ERISA, which is now, or ever has been,
maintained, contributed to, or required to be contributed to by Seller, such
employee benefit plan has been established and maintained in all material
respects in accordance with its terms and in material compliance with all
applicable laws, statutes, orders, rules and regulations, including but not
limited to ERISA. Seller is not a party to, and is not affected by or threatened
with, any dispute or controversy with a union or with respect to unionization or
collective bargaining involving the Employees of Seller or the System.
5.11. Financial Statements. Attached hereto as SCHEDULE 5.11. are the
audited and unaudited financial statements of Seller for the periods indicated
on such Schedule (the "Financial Statements"). SCHEDULE 5.11. also lists key
statistical summary information and other documents which set forth the
subscriber history for the last three years and local and roaming minutes of use
data of the System (since 1996 through the date of this Agreement) (the
"Operating Data Statements"). All Financial Statements are true and correct in
all material respects, have been prepared from the Books and Records and fairly
represent the financial position of Seller in a manner consistent with the prior
periods prepared in accordance with generally accepted accounting principles. To
Seller's knowledge, Seller has not incurred nor is it subject to any
Liabilities, whether accrued or absolute, which are not disclosed in the
Financial Statements or elsewhere in this Agreement. All Operating Data
Statements listed on such SCHEDULE 5.11. are accurate in all material respects.
5.12. Litigation. Except as set forth on SCHEDULE 5.12., there is no
action, order, writ, injunction, judgment or decree outstanding or claim, suit,
litigation, proceeding, or labor dispute ("Action"), other than rule-making
proceedings affecting the cellular telephone industry generally, pending or, to
the knowledge of Seller, threatened, relating to or affecting (a) Seller, (b)
the Assets, (c) the Business, or (d) the transactions contemplated by this
Agreement which if adversely determined, could have a material adverse effect on
the Business.. Seller is not in default with respect to any judgment, order,
writ, injunction or decree of any court or governmental agency, and there are no
unsatisfied judgments against Seller or the Assets. There is not a reasonable
likelihood of an adverse determination of any pending Action which would,
individually or in the aggregate, have a material adverse effect on the Assets
or the Business or the financial condition of Seller.
5.13. Complaints. There is not, to the best of Seller's knowledge, any
FCC investigation, notice of apparent liability or order of forfeiture pending
or outstanding against Seller or the System respecting any violation, or
allegation thereof, of any FCC rule, regulation or policy, or, to the best of
Seller's knowledge, any complaint before the FCC as a result of which an
investigation, notice of apparent liability or order of forfeiture may issue
from the FCC relating to the System.
5.14. Reports. Except as set forth in SCHEDULE 5.14. hereto, all
returns, reports and statements currently required to be filed by Seller with
the FCC or with any other Governmental Authority with respect to the System have
been filed and materially complied with and shall continue
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to be filed and be in substantial compliance on a current basis until the
Closing Date. All such reports, returns and statements are (or will be, in the
case of future reports) substantially complete and materially correct as filed.
5.15. Taxes. Seller has paid in full or discharged all Taxes relating
to the ownership and operation of the Assets and all Taxes the non-payment of
which could result in a Lien on the Assets in the hands of the Purchaser,
excepting in each case such Taxes which are not yet due or which are being
contested and for which adequate reserves have been made. No event has occurred
that could impose on Purchaser any liability for any Taxes, due or to become
due, from Seller to any taxing authority.
5.16. No Other Agreements to Sell the System or the Assets. Seller has
no other legal obligation, absolute or contingent, to any other Person to sell,
or offer to sell (including any right of first refusal or other similar
agreement) the Assets or any capital stock of Seller or to effect any merger,
consolidation or other reorganization of Seller or to enter into any contract
with respect thereto.
5.17. Resale and Roaming Agreements. SCHEDULE 5.17. contains a list of
all resale agreements to which Seller is a party, both as reseller and as a
provider of resale services to others. SCHEDULE 5.17. also contains a list of
all roaming agreements to which Seller is a party. All such resale and roaming
agreements are in full force and effect and, subject to rates which may be
imposed upon Seller beyond Seller's control, are on terms reasonable and
customary in the cellular telephone industry.
5.18. Environmental Matters. Except as set forth in SCHEDULE 5.18., to
Seller's knowledge the Operating Sites, and all existing and prior uses of the
Operating Sites, comply and have at all times complied with the Environmental
Laws. Seller has not used, generated manufactured, refined, transported,
treated, stored, leaked, poured, emitted, emptied, released, discharged,
disposed, spilled or Handled any Regulated Substance on or under any Operating
Site. To Seller's knowledge (a) there is and has been no Handling of any
Regulated Substances at, on, or from any Operating Site; (b) there is and has
been no presence of Regulated Substances on or under any Operating Site
regardless of how the Regulated Substance or Regulated Substances came to rest
there; (c) no underground tanks, PCBs or asbestos-containing materials are or
have been located on or under any Operating Site; (d) no Liens have been, or
are, imposed on any of the Assets under any Environmental Laws; (e) no action,
proceeding, revocation proceeding, amendment procedure, writ, injunction or
claim is pending, or threatened concerning any environmental permit, Regulated
Substance or activity related thereto. Neither Seller nor any Person acting on
behalf of Seller has released any other Person from any claims Seller might
have, or have had, for any matter relating to presence or Handling of Regulated
Substances at any Operating Site. Seller has obtained all permits, licenses,
registrations, and other approvals and has made all reports and notifications
required under any Environmental Laws in connection with the Assets, and is in
compliance in all material respects with all applicable Environmental Laws.
There are no present actions, activities, circumstances, conditions, events, or
incidents that would be expected to involve Seller (or any Person whose
liability Seller has retained or assumed, either by contract or operation of
law) in any litigation under the Environmental Laws, or impose upon Seller (or
any Person whose liability Seller has retained or assumed, either by contract or
operation of law) any environmental liability including, without
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limitation, common law tort liability. SCHEDULE 5.18. hereto also contains a
list and brief description of all Environmental Law filings by Seller with,
notices to Seller from, and related reports to all Governmental Authorities
administering Environmental Laws, within three years prior to the date hereof,
including without limitation, filings made, corrective action taken, or
citations received by Seller.
5.19. No Brokers. Neither Seller nor any of its Affiliates has entered
into or will enter into any Contract with any person or firm which will result
in the obligation of Purchaser to pay any finder's fee, brokerage commission or
similar payment in connection with the transactions contemplated hereby.
5.20. No Material Adverse Change. Except as set forth on SCHEDULE 5.20,
since the date of the most recent Financial Statements, there has not been:
5.20.1. any material adverse change in the rate of Seller's
generation of cash flow from operations (as opposed to cash flow from
financing operations and investment activities) after giving effect to
customary seasonal fluctuations of cash flow generation;
5.20.2. any occurrence, assumption or guarantee by Seller of
indebtedness other than pursuant to Contracts in existence on the date
hereof and set forth or described on the Schedules annexed hereto;
5.20.3. any creation by Seller of any Lien or encumbrance on
any material Asset other than pursuant to Contracts in existence on the
date hereof and set forth or described on the Schedules annexed hereto;
5.20.4. any making of any loan, advance or capital
contribution to or investment in any Person by Seller;
5.20.5. any damage, destruction or other casualty loss
affecting the Business or the Assets which, after giving effect to
payments to Seller under applicable insurance policies, has had or is
likely to have a material adverse effect on the financial condition of
Seller or the System; or
5.20.6. any change by Seller in accounting principles or
methods not required by law or year end changes.
5.21. Year 2000 Compliance. Seller has performed the necessary testing
to determine whether all material software and computer systems used in the
operation of the System are Year 2000 Compliant. To the extent that such testing
indicated that Seller's software or computer systems are not Year 2000
Compliant, such software and/or computer systems were modified or will be
modified prior to the Closing Date so they are Year 2000 Compliant. For purposes
of this Section, "Year 2000 Compliant" means that Seller's software or computer
systems receive, record, store, process, rout, transfer or present calendar
dates and any related information falling on or after January 1, 2000 with
similar functionality, in all material respects, as such software or computer
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systems perform such functions for calendar dates and related information
falling prior to January 1, 2000.
5.22. Miscellaneous. No representation or warranty made by Seller in
this Agreement, and no statement made in any schedule, exhibit, certificate or
other document furnished pursuant to this Agreement, contains any untrue
statement of a material fact or knowingly omits or fails to state, or will
knowingly omit or fail to state, any material fact or information necessary to
make such representation or warranty or any such statement not materially
misleading; provided however, that nothing contained in this Section 5.22. shall
alter the standard of those representations or warranties which are made "to
Seller's knowledge" or "to the best of Seller's knowledge" or phrases of similar
import.
ARTICLE 6.
REPRESENTATIONS AND WARRANTIES OF PURCHASER
Purchaser hereby makes the following representations and warranties to
Seller, all of which have been relied upon by Seller in entering into this
Agreement and the truth and accuracy of which shall constitute a condition
precedent to the obligations of Seller hereunder:
6.1. Organization and Standing. Purchaser (a) is a corporation duly
organized, validly existing and in good standing under the laws of the state of
its incorporation, (b) has full corporate power and authority to enter into and
perform this Agreement, to own the Assets, and to carry on the Business upon
consummation of the transactions contemplated by this Agreement, and (c) is duly
qualified to do business and is in good standing as a foreign corporation in
every jurisdiction in which the nature of the business conducted by it requires
such qualification, except where the failure to so qualify would not materially
adversely affect Purchaser or the transactions contemplated by this Agreement.
6.2. Authorization and Binding Obligations. The execution, delivery and
performance by Purchaser of this Agreement has been or will be within ten (10)
business days, duly and validly authorized by all necessary corporate action,
including approval of the entire transaction by the board of directors of
Purchaser and Western. This Agreement has been duly executed and delivered by
Purchaser and constitutes a valid and binding obligation of Purchaser,
enforceable against Purchaser in accordance with its terms except as its
enforceability may be limited by bankruptcy, insolvency, moratorium or other
laws relating to or affecting creditors' rights generally and the exercise of
judicial discretion in accordance with general equitable principles.
6.3. No Contravention. Except as otherwise contemplated hereunder, the
execution, delivery and performance of this Agreement, the consummation of the
transactions contemplated hereby and the compliance with the provisions hereof
by Purchaser will not (a) violate any provisions of the corporate charter or
by-laws of Purchaser, (b) result in the breach of, or constitute a default under
or result in the creation of any Lien upon any assets of Purchaser, under the
provisions of any agreement or other instrument to which Purchaser is a party or
by which the property of Purchaser is bound or affected or (c) with respect to
Purchaser, violate any Applicable Laws.
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6.4. Litigation. Except as set forth on SCHEDULE 6.4., there is no
Action, other than rule-making proceedings affecting the cellular telephone
industry generally, pending or, to the knowledge of Purchaser, threatened or
anticipated against, relating to or affecting Purchaser that would have a
material adverse effect on Purchaser or Purchaser's ability to consummate the
transactions contemplated by this Agreement. Purchaser is not in material
default with respect to any material judgment, order, writ, injunction or decree
of any court or governmental agency, and there are no unsatisfied judgments
against Purchaser. There is not a reasonable likelihood of an adverse
determination of any pending Action which would, individually or in the
aggregate, have a material adverse effect on Purchaser or Purchaser's ability to
consummate the transactions contemplated by this Agreement.
6.5. No Brokers. Neither Purchaser nor any of its Affiliates has
entered into or will enter into any contract, agreement, arrangement or
understanding with any person or firm which will result in the obligation of
Seller to pay any finder's fee, brokerage commission or similar payment in
connection with the transactions contemplated hereby.
6.6. Miscellaneous. No representation or warranty made by Purchaser in
this Agreement, and no statement made in any schedule, exhibit, certificate or
other document furnished pursuant to this Agreement, contains any untrue
statement of a material fact or knowingly omits or fails to state, or will
knowingly omit or fail to state, any material fact or information necessary to
make such representation or warranty or any such statement not materially
misleading; provided however, that nothing contained in this Section 6.6. shall
alter the standard of those representations or warranties which are made "to
Purchaser's knowledge" or "to the best of Purchaser's knowledge" or phrases of
similar import.
ARTICLE 7.
CONDITIONS TO SELLER'S OBLIGATIONS
The obligations of Seller to sell the Assets and to otherwise
consummate the transactions contemplated by this Agreement are subject, in the
discretion of Seller, to the satisfaction, on or prior to the Closing Date, of
each of the following conditions:
7.1. Representations, Warranties and Covenants. All representations and
warranties of Purchaser contained in this Agreement that do not otherwise
reference a specific date shall be true and correct in all material respects at
and as of the Closing Date as if such representations and warranties were made
at and as of the Closing Date, and Purchaser shall have performed in all
material respects all agreements and covenants required hereby to be performed
by Purchaser prior to or at the Closing Date. There shall be delivered to Seller
a certificate (signed by an authorized Officer of Purchaser) to the foregoing
effect ("Purchaser's Closing Certificate").
7.2. Closing Documents. Seller shall have received from Purchaser the
documents and other items to be delivered by Purchaser pursuant to Section 9.2.
of this Agreement.
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7.3. Opinion of Purchaser's Counsel. Purchaser shall have delivered to
Seller an opinion of in-house counsel for Purchaser in substantially the form
attached hereto as SCHEDULE 7.3.
7.4. Opinion of Purchaser's FCC and PUC Counsel. Purchaser shall have
delivered to Seller an opinion or opinions of FCC and, if applicable, PUC
counsel for Purchaser in substantially the form attached hereto as SCHEDULE 7.4.
7.5. Certificates. Purchaser shall furnish Seller with such
certificates of the officers of Purchaser and others to evidence compliance with
the conditions set forth in this Article as may be reasonably requested by
Seller.
7.6. Purchase Price. Seller shall have received payment of the Purchase
Price in accordance with Article 2.
7.7. HSR Waiting Period. Any waiting period required by the HSR Act
shall have lapsed or been terminated, and any investigation of the transactions
contemplated by this Agreement commenced by the Department of Justice and/or the
Federal Trade Commission pursuant to the HSR Act shall have been terminated.
7.8. No Restraint. There shall not be any pending suit or proceeding to
restrain or invalidate, in whole or in part, this Agreement or the transaction
contemplated herein.
7.9. Corporate Authorization. Purchaser shall have delivered evidence,
satisfactory to Seller, that the corporate authorizations contemplated by
Section 6.2 hereof has been timely obtained.
ARTICLE 8.
CONDITIONS TO PURCHASER'S OBLIGATIONS
The obligations of Purchaser to purchase the Assets and to otherwise
consummate the transactions contemplated by this Agreement are subject, in the
discretion of Purchaser, to the satisfaction or waived, on or prior to the
Closing Date, of each of the following conditions:
8.1. Representations, Warranties and Covenants. All representations and
warranties of Seller contained in this Agreement that otherwise do not reference
a specified date shall be true and correct in all material respects at and as of
the Closing Date as if such representations and warranties were made at and as
of the Closing Date, and Seller shall have performed in all material respects
all agreements and covenants required hereby to be performed by Seller prior to
or at the Closing Date. There shall be delivered to Purchaser a certificate
(signed by an authorized officer of Seller) to the foregoing effect ("Seller's
Closing Certificate").
8.2. Consent. The FCC shall have consented to the transfer of the
Assets to Purchaser and such consents shall have become a Final Order.
8.3. Board / Stockholder Approval. The transactions contemplated herein
shall have been approved by the necessary number of stockholders and directors
of Seller.
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8.4. Closing Documents. Purchaser shall have received from Seller the
documents and other items to be delivered by Seller pursuant to Section 9.1.
hereof.
8.5. Opinion of Seller's Counsel. Seller shall have delivered to
Purchaser an opinion or opinions of Seller's in-house counsel for Seller in
substantially the form attached hereto as SCHEDULE 8.5
8.6. Opinion of Seller's FCC and PUC Counsel. Seller shall have
delivered to Purchaser an opinion or opinions of FCC and, if applicable, PUC
counsel for Seller in substantially the form attached hereto as SCHEDULE 8.6
8.7. Certificates. Seller shall furnish Purchaser with such
certificates of the respective officers of Seller and others to evidence
compliance with the conditions set forth in this Article as may be reasonably
requested by Purchaser.
8.8. HSR Waiting Period. Any waiting period required by the HSR Act
shall have lapsed or been terminated, and any investigation of the transactions
contemplated by this Agreement commenced by the DOJ and/or the FTC pursuant to
the HSR Act shall have been terminated.
ARTICLE 9.
THE CLOSING
On the Closing Date at the Closing Place:
9.1. Deliveries by Seller to Purchaser. Seller shall deliver to
Purchaser:
9.1.1. one or more assignments transferring to Purchaser (or
its designee) all of Seller's interest in and to the Authorizations;
9.1.2. one or more instruments of conveyance transferring to
Purchaser (or its designee) all of Seller's interest in and to the Equipment and
the Books and Records;
9.1.3. one or more assignments or other instruments of
conveyance that may be reasonably requested by Purchaser transferring to
Purchaser (or its designee) Seller's interest in and to the Intellectual
Property;
9.1.4. one or more instruments of conveyance transferring to
Purchaser (or its designee) the Contracts in effect on the Closing Date;
9.1.5. one or more executed warranty deeds and assignments in
recordable form, transferring to Purchaser (or its designee) Seller's interest
in and to the Real Property;
9.1.6. one or more instruments of conveyance transferring to
Purchaser (or its designee) any of the other Assets not otherwise conveyed as
provided above;
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9.1.7. the opinions of Seller's counsel referenced in Sections
8.4. and 8.5. hereof;
9.1.8. a lien and judgment search from (a) the offices of the
Secretaries of State of the state of incorporation of Seller and the state in
which Seller is conducting business, and (b) the office of the county clerk of
the applicable counties therein, dated not earlier than fifteen (15) business
days prior to the Closing Date, the results of which are consistent with
Seller's representations in this Agreement;
9.1.9. an affidavit certifying as to Seller's non-foreign
status in accordance with Section 1445(b)(2) of the Code;
9.1.10. copy of the resolutions of the board of directors of
Seller approving the transactions contemplated by this Agreement certified by an
appropriate officer of Seller, together with copies of the Certificate of
Incorporation and By-Laws of Seller, certified by an appropriate officer of
Seller; and
9.1.11. Seller's Closing Certificate.
9.1.12. Executed Escrow Agreement
9.2. Deliveries by Purchaser to Seller. Purchaser shall deliver to
Seller (or its designee):
9.2.1. one or more agreements whereby Purchaser (or its
designee) assumes and agrees to perform Seller's obligations, liabilities and
duties under the Assumed Liabilities;
9.2.2. the opinion of Purchaser's counsel referenced in
Sections 7.3. and 7.4 hereof;
9.2.3. Purchaser's Closing Certificate; and
9.2.4. payment of the Purchase Price.
9.2.5. Executed Escrow Agreement.
ARTICLE 10.
ACTIONS BY THE PARTIES AFTER THE CLOSING
10.1. Further Assurances. On and after the Closing Date, the Parties
will take all appropriate action and execute all documents, instruments or
conveyances of any kind which may be reasonably necessary or advisable to carry
out any of the provisions hereof, including without limitation, putting
Purchaser (or its designee) in possession and operating control of the Assets
and the System.
10.2. Post-Closing Tax Covenant. Seller shall promptly pay Taxes
payable with respect to the operation of the System arising prior to Closing for
which Seller is responsible that become
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due or otherwise have given rise to, or could give rise to, any Lien on the
Assets prior to the Final Settlement.
ARTICLE 11.
INDEMNIFICATION
11.1. Survival. The several representations, warranties, covenants, and
agreements of the Parties contained in this Agreement (or in any document
delivered in connection herewith) shall be (i) deemed to have been made on the
date of this Agreement and on the Closing Date, (ii)shall be deemed to be
material and to have been relied upon by the Parties notwithstanding any
investigation made by the Parties, and (iii) shall survive the Closing Date (the
"Survival Period") for a period of eighteen (18) months following the Closing
Date; provided, however, that the representations, warranties and agreements of
Seller contained in Sections 5.5. (Title to Assets), 5.7. (Authorizations), 5.15
and 10.2 (Taxes), and 5.18. (Environmental Matters) shall continue to survive
for the duration of any applicable statute of limitations. Any claim for breach
of a representation or warranty (an "Indemnity Claim") for which written notice
shall have been provided prior to the termination of the applicable survival
period to the Party which made such representation or warranty shall be deemed
to be timely made within the applicable indemnification period.
11.2. Seller's Indemnity.
11.2.1. During the indemnification Survival Period (or
thereafter solely with respect to any Indemnity Claim made prior to the
expiration of the applicable Survival Period), Seller and Shareholder shall
indemnify and hold harmless Purchaser and its Affiliates from and against any
and all demands, claims, losses, liabilities, actions or causes of action,
assessments, actual damages (but excluding consequential damages such as lost
profits and punitive damages), fines, Taxes, penalties, reasonable costs and
expenses (including, without limitation, interest, reasonable expenses of
investigation, reasonable fees and disbursements of counsel, accountants and
other experts (whether such reasonable fees and disbursements of counsel,
accountants and other experts relate to claims, actions or causes of action
asserted by Purchaser against Seller or asserted by third parties))
(collectively "Losses") incurred or suffered by Purchaser, its Affiliates, and
their respective officers, directors, employees, agents and Representatives,
arising out of, resulting from, or relating to:
(a) Any breach of any of the representations or
warranties made by Seller in this Agreement or in any agreement, certificate,
exhibit or other instrument delivered by the Seller pursuant to this Agreement;
(b) Any failure by Seller to perform any of its
covenants or agreements contained in this Agreement or in any agreement,
certificate or other instrument delivered by the Seller pursuant to this
Agreement; and
(c) Any claims by third parties (including claims by
other stockholders) arising from, relating to or out of (i) the ownership or
operation of the System or the Assets prior to the Closing Date, or (ii) the
execution or performance of this Agreement by Seller.
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11.2.2. As collateral security for Sellers indemnification
obligations under this Agreement, at the Closing, in accordance with Section 2.2
hereof, Purchaser shall deliver to the Escrow Agent, the Escrow Amount (as
defined in Section 2.2), to be held in an interest bearing account pursuant to
the terms of an escrow agreement, in substantially the form of SCHEDULE 11.2.2
attached hereto (the "Escrow Agreement"). The Escrow Amount shall be held by the
Escrow Agent for a period of eighteen (18) months after the Closing Date upon
the expiration of which time the Escrow Amount, plus any accrued but
undistributed interest, shall be released to Seller, subject to a continuing
hold back of the Escrow Amount for any asserted and outstanding indemnification
claims at such time. Nothing contained in this section 11.2.2 or in the Escrow
Agreement shall limit in any way Seller's indemnification obligations under this
Agreement; it being understood that if the Escrow Amount is not sufficient to
satisfy such indemnifications obligations as set forth in this Agreement, then
Seller shall remain liable for such indemnification obligations until expiration
of the applicable Survival Periods and the absence of any pending Indemnity
Claims.
11.3. Purchaser's Indemnity.
11.3.1. During the Survival Period (or thereafter solely with
respect to any Indemnity Claim made prior to expiration of the applicable
Survival Period),from and after the Closing Date, Purchaser shall indemnify and
hold harmless Seller and its Affiliates from and against any and all Losses
incurred or suffered by Seller, its Affiliates, and their respective officers,
directors, employees, agents and Representatives, arising out of, resulting
from, or relating to:
(a) Any breach of any of the representations or
warranties made by Purchaser in this Agreement or in any agreement, certificate
or other instrument delivered by Purchaser pursuant to this Agreement;
(b) Any failure by Purchaser to perform any of its
covenants or agreements contained in this Agreement or in any agreement,
certificate or other instrument delivered by Purchaser pursuant to this
Agreement;
(c) Any claims by third parties arising from,
relating to or out of the ownership or operation of the System or the Assets
after the Closing Date; or
(d) Any claims with respect to the Assumed
Liabilities.
11.4. Procedure. Notwithstanding anything to the contrary contained in
this Article 11, no Party shall be entitled to make an Indemnification Claim
under this Article 11 for any Losses unless the amount of such Losses in respect
of all such matters, when aggregated, exceeds $250,000, in which event, such
Party shall be entitled to seek indemnification for the entire amount of such
Losses. In the event that any Party hereto shall sustain or incur any Losses in
respect of which indemnification may be sought by such Party pursuant to this
Article 11, the Party seeking such indemnification (the "Indemnitee") shall
assert an Indemnification Claim by giving prompt written notice thereof (the
"Notice") which shall describe in reasonable detail the facts and circumstances
upon which the Indemnification Claim is based along with a copy of the claim or
complaint, to the Party required to provide indemnification (the "Indemnitor")
and shall thereafter keep the Indemnitor reasonably and promptly informed with
respect thereto; provided that failure of the Indemnitee to
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<PAGE> 29
give the Indemnitor prompt notice as provided herein shall not relieve the
Indemnitor of any of its obligations hereunder, except to the extent that the
Indemnitor is materially prejudiced by such failure. For purposes of this
paragraph, any Notice which is sent within 15 days of the date upon which the
Indemnitee obtained actual knowledge of such Loss shall be deemed to have been a
"prompt notice."
11.4.1. If the Indemnitor wishes to defend any claim for any
Losses for which such Indemnitor is or may be liable, and such Indemnitor first
establishes (to the reasonable satisfaction of the Indemnitee) the Indemnitor's
financial ability to pay for any such Losses, then such Indemnitor may, at its
own expense, defend such claim; provided that the Indemnitee may retain counsel
(at the Indemnitee's expense) to monitor the defense of such claim, and may take
over such defense if, during the course thereof, it reasonably appears that the
Indemnitor has lost its ability to pay for any Losses threatened by such claim.
If an Indemnitor assumes the defense of such an action, no compromise or
settlement thereof may be effected by the Indemnitor without the Indemnitee's
consent, which consent shall not be unreasonably withheld. If an Indemnitor
fails, within thirty (30) days after the date of the Notice, to give notice to
the Indemnitee of said Indemnitor's election to assume the defense thereof, said
Indemnitor shall be bound by any determination made in such action or any
compromise or settlement thereof effected by the Indemnitee.
11.4.2. Amounts payable by the Indemnitor to the Indemnitee in
respect of any Losses for which any Party is entitled to indemnification
hereunder shall be payable by the Indemnitor as incurred by the Indemnitee,
unless such Indemnification Claim is reasonably disputed by the Indemnitor.
11.5. Indemnification Payments in Cash. All payments in respect to any
undisputed or resolved Indemnification Claims shall be made in cash.
11.6. Investigations: Waivers. The Survival Periods and rights to
indemnification provided for in this Article 11 shall remain in effect
notwithstanding any investigation at any time by or on behalf of any Party
hereto or any waiver by any Party hereto of any condition to such Party's
obligations to consummate the transactions contemplated hereby.
11.7. Limitation of Liability: Notwithstanding anything in this
Agreement to the contrary, the aggregate amount of Seller's liability under this
Article 11 shall not exceed twenty-five percent (25%) of the amount of the
Purchase Price (the "Indemnification Amount", provided, however, that in the
event of a failure by Seller to deliver good, valid, and unencumbered title to
the Assets, the Indemnification Amount shall be adjusted to an amount equal to
Purchaser's Loss related to such failure, but in no event shall such adjusted
Indemnification Amount exceed the Purchase Price). Notwithstanding anything in
this Agreement to the contrary, the aggregate amount of Purchaser's liability
under this Article 11 shall not exceed the Indemnification Amount.
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<PAGE> 30
ARTICLE 12.
DEFAULT AND REMEDIES
12.1. Opportunity to Cure. If any Party believes that another Party to
be in default hereunder, such Party shall provide the defaulting Party with
written notice specifying in reasonable detail the nature of such default. If
the default has not been cured by the earlier of: (a) the Closing Date, or (b)
within thirty (30) days after delivery of that notice, then the Party giving
such notice may terminate this Agreement and/or exercise the remedies available
to such Party pursuant to this Article 12., subject to the right of the
defaulting Party to contest such action through appropriate proceedings. In the
event that Seller has failed to cure any such breach by the Closing Date,
Purchaser shall have the right to extend the Closing Date until such time that
Seller cures the breach.
12.2. Remedies/Arbitration. (a) Any claim under this Agreement brought
after the Closing Date, and any claim under this Agreement brought prior to the
Closing Date in which the Party bringing the claim is praying solely for
monetary damages, shall be submitted to binding arbitration in accordance with
the commercial arbitration rules of the American Arbitration Association and the
provisions contained herein. The arbitration shall be conducted in Chicago,
Illinois by a panel of three arbitrators. All claims between the parties shall
be arbitrated in a single proceeding, to the full extent practicable.
(b) The Party initiating arbitration shall give the other party written
notice of the matter in dispute and the name of one arbitrator appointed by the
initiating Party. Within 14 days after receipt of such notice, the
non-initiating Party shall give notice to the initiating Party of the arbitrator
appointed by it. If the non-initiating Party fails to designate its arbitrator
within the said 14-day period, the American Arbitration Association shall select
an arbitrator for such Party. Within 14 days after the appointment of the second
arbitrator, the other two arbitrators so appointed shall agree on a third
arbitrator. If the two arbitrators are unable to agree on a third arbitrator
within said 14-day period, then the American Arbitration Association shall
appoint the third arbitrator.
(c) All determinations in the final decision of the arbitration panel
shall be made by majority vote. The fees and expenses of the arbitration panel
shall be awarded by the arbitrators in their discretion as part of their award.
The arbitrators' award will be binding on the Parties hereto and may be entered
in any court of competent jurisdiction.
(d) Notwithstanding the foregoing, the Parties agree that irreparable
damage would occur in the event that any of the provisions of this Agreement
were not performed in accordance with their specific terms or were otherwise
breached. It is accordingly agreed that the Parties shall be entitled to an
injunction or injunctions to prevent breaches or this Agreement and to enforce
specifically the terms and provisions hereof in any court of the United States
or any state having jurisdiction, this being in addition to any other remedy to
which they are entitled at law or in equity. Each Party agrees that it will not
assert, as a defense against a claim for specific performance, that the Party
seeking specific performance has an adequate remedy at law.
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ARTICLE 13.
TERMINATION
13.1. Absence of FCC Consent. In addition to Purchaser's termination
rights in Sections 2.5 and 12.1, this Agreement may be terminated at the option
of Seller or Purchaser upon written notice to the other if the Transfer
Application has not been granted by Final Order within twelve (12) months after
the date of this Agreement. Neither Party may terminate this Agreement pursuant
to this Section if such Party is in material default hereunder, or if a delay in
any decision or determination by the FCC respecting the Transfer Application has
been caused or materially contributed to by such Party's action or inaction with
respect to such Transfer Application. Purchaser shall have the right to extend
the date after which this Agreement may be terminated under this Section 13.1
for an additional 6 months, if the failure to consummate the transactions
contemplated herein results solely from the failure of the FCC to issue a Final
Order regarding the Transfer Application.
13.2. Mutual Consent. This Agreement may be terminated by the mutual
consent of the Parties.
13.3. Delays for Corporate Disputes. Purchaser may elect to terminate
this Agreement upon written notice to Seller if any disputes, litigation, or
other unresolved matters between or among Seller, Celutel, and/or any of their
respective stockholders or directors, or any action by or on behalf of a
stockholder of Celutel, including without limitation, any filing with any
Governmental Authority (a "Dispute") causes the Closing to be delayed beyond the
Closing Date or causes the Closing not to occur, if such Dispute is not resolved
within 30 days after the Closing Date. If this Agreement is terminated pursuant
to this Section 13.3, then Seller shall pay to Purchaser, as a termination fee,
Two-Hundred and Fifty Thousand Dollars ($250,000) (the "Termination Fee").
Purchaser stipulates that the Termination Fee shall be the only obligation of
Seller under this Section 13.3, and Seller shall not be responsible for any
costs incurred by Purchaser arising out of, in connection with, or related to
the transactions contemplated by this Agreement, including, without limitation,
any of Purchaser's fees paid to legal, accounting, financial, and other
professional advisors. Seller and Purchaser understand and agree that this
Section 13.3 shall apply to a termination of this Agreement under Sections 13.1
and 2.5 hereof, but only in the event that such termination is caused by a
Dispute.
ARTICLE 14.
DAMAGE; RISK OF LOSS
14.1. Risk of Loss. The risk of loss or damage to the Assets shall be
upon Seller at all times prior to the Closing Date. In the event of material
loss or damage to the Assets prior to the Closing Date, Seller shall promptly
notify Purchaser thereof and best efforts to repair, replace or restore the lost
or damaged property to its former condition as soon as practicable. If such
repair, replacement, or restoration has not been completed prior to the Closing
Date, Purchaser may, at its option:
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<PAGE> 32
14.1.1. elect to consummate the Closing and make such
arrangements as the Parties may reasonably agree upon to remedy such loss or
damage; or
14.1.2. elect to postpone the Closing Date, with prior consent
of the FCC if necessary, for such reasonable period of time (not to exceed
ninety (90) days) as is necessary for Seller to repair, replace, or restore (or
to cause to be repaired, replaced or restored) the lost or damaged property to
its former condition. If, after the expiration of that extension period, the
lost or damaged property has not been adequately repaired, replaced or restored,
Purchaser may terminate this Agreement or elect to consummate the Closing as
provided in Section 14.1.1.
For purposes of this Section, loss or damage shall be deemed "material"
if the reasonable cost to repair, replace, or restore the lost or damaged
property exceeds $100,000.00.
14.2. Resolution of Disagreements. If the Parties are unable to agree
upon the extent of any loss or damage, the cost to repair, replace or restore
any lost or damaged property, the adequacy of any repair, replacement, or
restoration of any lost or damaged property, or any other matter arising under
this Section, the disagreement shall be referred to a qualified consulting
communications engineer mutually acceptable to Seller and Purchaser who is a
member of the Association of Federal Communications Consulting Engineers, whose
decision shall be final, and whose fees and expenses shall be paid one-half by
Seller and one-half by Purchaser.
ARTICLE 15.
EMPLOYEES
15.1. Employees. For purposes of this Article 15, the term "Employees"
shall include all full-time and part-time employees, employees on workers'
compensation, military leave, maternity leave, leave under the Family and
Medical Leave Act of 1993, short-term and long-term disability (including a
disability pension), non-occupational disability, on layoff with recall rights,
and employees on other approved leaves of absence with a legal or contractual
right to reinstatement. The Parties agree to use their good faith efforts to
provide for a transition of Employees to be hired by Purchaser in a manner that
is consistent with the letter agreement dated ___________, 1999 between the
Parties.
15.2. Responsibility for Employees on or Before the Closing. All
medical, dental, vision, travel accident, accidental death and dismemberment,
and life insurance expenses incurred by Employees and their dependents on or
before the Closing Date, pursuant to any employee plan, irrespective of the time
such claims are presented, shall be the responsibility of Seller on the Closing
Date. Seller shall be responsible for any medical, dental or life insurance
coverage due to any Employees and their dependents who retired on or before the
Closing Date. Seller agrees to fulfill its obligations under continuation
coverage rules of COBRA with respect to a "qualifying event," with the meaning
or Section 4980B(f) of the Code or Section 603 or ERISA, occurring on or before
the Closing Date with respect to any Employees who are not hired by Purchaser
and their dependents. All short-term, long-term and extended disability benefits
payable to Employees and their dependents who became disabled on or before the
Closing Date are the responsibility of Seller
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<PAGE> 33
and shall be paid directly by Seller or their insurance carrier to such
Employees and their dependents. If any Employee is terminated from employment on
or before the Closing Date by Seller as result of the transactions contemplated
by this Agreement or otherwise, any obligations arising out of such termination,
including severance, accrued vacation pay, COBRA obligations, employment
discrimination complaints, unfair labor practice charges, grievance under any
collective bargaining agreement, wrongful termination and related tort claims
and breach of contract claims shall be the sole responsibility of Seller.
Purchaser shall have the sole responsibility for the items listed in the
preceding sentences for Purchaser's actions it takes with respect to Employees
it hires after the Closing Date. Seller agrees that until expiration of all
applicable statutes of limitation, to indemnify, hold harmless and defend
Purchaser and its Affiliates from and against any and all claims, damages,
liabilities and expenses including reasonable attorneys' fees and disbursements,
incurred by Purchaser or any of its Affiliates arising from or in connection
with any failure of Seller to discharge its responsibilities under this Section
15.2 with respect to Employees arising from or relating to the period through
the Closing Date.
ARTICLE 16.
MISCELLANEOUS
16.1. Assignment. Neither this Agreement nor any of the rights or
obligations hereunder may be assigned by Seller or Purchaser without the prior
written consent of the others, except that Purchaser may, without such consent,
assign its right, title and interest in, to and under this Agreement to an
Affiliate. In addition, the Seller may assign this Agreement upon prior written
notice to the other Party, without the other Party's consent to effect an
Exchange. Subject to the foregoing, this Agreement shall be binding upon and
inure to the benefit of the Parties hereto and their respective successors and
assigns, and no other person shall have any right, benefit or obligation
hereunder.
16.2. Guaranty of Western. Western, as an affiliate of Purchaser,
agrees that it shall ensure performance by Purchaser (or its assignee) of the
obligations of Purchaser (or its assignees) under this Agreement, including the
payment of the Purchaser Price on the same terms and conditions as are contained
in this Agreement. Except as expressly stated in this Section 16.2, Western
shall have no other obligation or responsibility under this Agreement.
16.3. Notices. Unless otherwise provided herein, any notice, request,
instruction or other document to be given hereunder by any Party to the other
shall be in writing and delivered in person or by courier, telegraphed, telexed
or by facsimile transmission or mailed by registered or certified mail, postage
prepaid, return receipt requested or overnight courier, as follows:
If to Purchaser:
Scott Hopper
Western Wireless Corporation
3650 - 131st Avenue
Bellevue, Washington 98006
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With a copy to:
Stokes Lawrence, P.S.
800 Fifth Avenue, Suite 4000
Seattle, WA 98104-3199
Attention: James H. Feldman, Esq.
If to Seller or Celutel:
100 Century Park Drive
Monroe, Louisiana 71203
Attention: R.Stewart Ewing
Stacey W. Goff, Esq.
With a copy to:
Boles Boles & Ryan
1805 Tower Drive
Monroe, Louisiana 71201
Attention: William R. Boles, Jr., Esq.
Fax: 318-329-9150
or to such other place and with such other copies as a Party may designate as to
itself by written notice to the others. All such notices and communications
shall be deemed to have been duly given at the time of receipt.
16.4. Choice of Law. This Agreement shall be construed, interpreted and
the rights of the Parties determined in accordance with the laws of the State of
Delaware, except with respect to matters of law concerning the internal
corporate affairs of any corporate entity which is a party to or the subject of
this Agreement, and as to those matters the law of the jurisdiction under which
the respective entity derives its powers shall govern.
16.5. Entire Agreement; Amendments and Waivers. This Agreement,
together with all exhibits and schedules hereto, constitutes the entire
agreement among the Parties pertaining to the subject matter hereof and
supersedes all prior agreements, understandings, negotiations and discussions,
whether oral or written, of the Parties. No supplement, modification or waiver
of this Agreement shall be binding unless executed in writing by the party to be
bound thereby. No waiver of any of the provisions of this Agreement shall be
deemed or shall constitute a waiver of any other provision hereof (whether or
not similar), nor shall such waiver constitute a continuing waiver unless
otherwise expressly provided.
16.6. Section 1031 Exchange. The purchase or sale (as applicable) of
the Assets contemplated by this Agreement may be consummated as part of a non
taxable "exchange" pursuant to Section 1031 of the Code ("Exchange") provided
that: (a) the Closing shall not be delayed or affected by reason of the Exchange
nor shall the consummation or accomplishment of an Exchange be a condition
precedent or condition subsequent to the exchanging Party's obligations under
this Agreement; (b) the exchanging Party shall effect its Exchange through an
assignment of this Agreement, or its rights under this Agreement, to a qualified
intermediary as defined in Treas. Reg. Section 1.1031(k)-1(g)(4); (c) neither
Seller nor Purchaser shall be required to take an assignment of this Agreement
for relinquished or replacement property or be required to acquire or hold title
to
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any property for purposes of consummating an Exchange desired by the other
Party; and (d) the exchanging Party shall pay any additional costs that would
not otherwise have been incurred by the non-exchanging Party had the exchanging
Party not consummated the transaction through an Exchange. Neither Seller nor
Purchaser shall by this Agreement or acquiescence to an Exchange desired by the
other Party have its rights under this Agreement affected or diminished in any
manner or be responsible for compliance with or be deemed to have warranted to
the exchanging Party that its Exchange in fact complies with Section 1031 of the
Code.
16.7. Allocation of the Value of Assets. (a) Purchaser and Seller agree
that the aggregate fair market value of the Assets will be appraised at Seller's
expense by an appraisal firm that Seller selects and which is reasonably
acceptable to Purchaser (the "Appraiser"). Seller shall cause the Appraiser to
forward a preliminary draft of the appraisal of the Assets, which such appraisal
shall allocate the aggregate fair market value among the Assets (the
"Appraisal"), to Purchaser and Seller simultaneously for their comment and
approval, which approval shall not be withheld unreasonably.
(b) Purchaser and Seller agree that they will use the Appraisal for all
purposes relating to the calculation, payment or reimbursement of Taxes. Each of
Purchaser and Seller agree that it will report the sale of the Assets on all
federal, state, local tax returns and tax forms that are filed for the tax year
in which the Closing occurs in a manner consistent with the information that is
set forth in the Appraisal. Each of Seller and Purchaser shall make available to
the other Party all filings and reports required under Section 1060 of the Code.
(c) Notwithstanding any other provision of this Agreement, the
provisions of this Section 16.7 shall survive the Closing without limitation.
16.8. Bulk Sales. Purchaser and Seller each waive any obligation of the
other Party which may arise under the provision of any applicable "Bulk Sales"
laws.
16.9. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
16.10. Invalidity. In the event that any one or more of the provisions
contained in this Agreement or in any other instrument referred to herein,
shall, for any reason, be held to be invalid, illegal or unenforceable in any
respect, such invalidity, illegality or unenforceability shall not affect any
other provision of this Agreement or any other such instrument.
16.11. Headings. The headings of the Articles and Sections herein are
inserted for convenience of reference only and are not intended to be a part of
or to affect the meaning or interpretation of this Agreement.
16.12. Expenses. Except as otherwise expressly provided herein,
Purchaser shall pay the cost of any sales and transfer Taxes, recording and
transfer fees arising from the purchase and sale of the Assets pursuant to this
Agreement. Except as otherwise provided in this Agreement, Seller and Purchaser
will each be liable for its own expenses incurred in connection with the
negotiation,
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<PAGE> 36
preparation, execution or performance of this Agreement. Seller shall pay the
costs associated with obtaining the title commitments and surveys described
above, and for the costs of purchasing the Title Policies.
16.13. Schedules and Exhibits. The Schedules and Exhibits to this
Agreement are a material part hereof and shall be treated as if fully
incorporated into the body of the Agreement.
16.14. Publicity. Except as required by Applicable Law or on advice of
counsel, no Party shall issue any press release or make any public statement
regarding the transactions contemplated hereby without the prior approval of the
other Party.
16.15. Confidential Information. The Parties acknowledge that the
transaction described herein is of a confidential nature and shall not be
disclosed except to Representatives, advisors and Affiliates, or as required by
law, until such time as the Parties make a public announcement regarding the
transaction as provided in Section 16.14. The Parties shall not make any public
disclosure of the specific terms of this Agreement, except as required by law.
In connection with the negotiation of this Agreement and the preparation for the
consummation of the transactions contemplated hereby, the Parties acknowledges
that they will have access to confidential information relating to the other
Parties. Each Party shall treat such information as confidential, preserve the
confidentiality thereof and not duplicate or use such information, except to
Representatives, consultants and Affiliates in connection with the transactions
contemplated hereby provided such advisors, Representatives and Affiliates also
agree to keep such information confidential. In the event of the termination of
this Agreement for any reason whatsoever, each Party shall return to the others
all documents, work papers and other material (including all copies thereof)
obtained in connection with the transactions contemplated hereby and will use
all reasonable efforts, including instructing any of its Employees and others
who have had access to such information, to keep confidential and not to use any
such information, unless such information is now, or is hereafter disclosed,
through no act or omission of such Party, in any manner making it available to
the general public.
16.16. Interpretation. The Parties agree that this Agreement and each
of the provisions have been fully negotiated and neither this Agreement nor any
provision contained herein shall be construed against or in favor of any party.
(END OF TEXT)
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<PAGE> 37
IN WITNESS WHEREOF, the Parties hereto have caused this Agreement to be
duly executed on its behalf by its officer thereunto duly authorized as of the
day and year first above written.
MCALLEN CELLULAR TELEPHONE COMPANY,
INC.
By /s/ R. Stewart Ewing, Jr.
---------------------------------------------
Its Senior Vice President
GCC LICENSE CORPORATION
By /s/ Cregg Baumbaugh
---------------------------------------------
Its Senior Vice President
CELUTEL, INC.
By /s/ R. Stewart Ewing, Jr.
---------------------------------------------
Its Senior Vice President
WESTERN WIRELESS CORPORATION
By /s/ Cregg Baumbaugh
---------------------------------------------
Its Senior Vice President
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<TABLE>
<S> <C> <C>
Schedules:
Excluded Assets and Excluded Operations - Schedule 1
Insurance - Schedule 4.1.11
Tangible Assets - Schedule 5.5.1.
Real Property - Schedule 5.5.2.
Authorizations - Schedule 5.7.
Contracts - Schedule 5.8.
Intellectual Property - Schedule 5.9.
Employees - Schedule 5.10.
Financial Statements and Operating Data Statements - Schedule 5.11.
Litigation - Schedule 5.12.
Reports - Schedule 5.14.
Taxes - Schedule 5.15.
Resale and Roaming Agreements - Schedule 5.17.
Environmental Matters - Schedule 5.18.
Purchaser's Counsel's Opinion - Schedule 7.3.
Seller's Counsel's Opinion - Schedule 8.5
Seller's FCC Opinion - Schedule 8.6
Escrow Agreement - Schedule 11.2.2
</TABLE>
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<PAGE> 1
EXHIBIT 10.84
ASSET PURCHASE AGREEMENT
This Asset Purchase Agreement (this "Agreement") is entered into as of
January 26, 1999 by and among Brownsville Cellular Telephone Company, Inc., a
Delaware corporation ("Seller"), GCC License Corporation, a Delaware corporation
("Purchaser"), Celutel, Inc., a Delaware corporation ("Celutel" or
"Shareholder"), and Western Wireless Corporation, a Delaware Corporation, as
guarantor pursuant to Section 16.2 ("Western"). Purchaser, Seller, Celutel and
Western are sometimes referred to herein collectively as the "Parties" and each
as a "Party."
RECITALS
WHEREAS, Purchaser desires to purchase non-wireline cellular radio
telephone systems, including the licenses necessary to operate such systems, in
both the Brownsville/Harlingen, Texas Metropolitan Statistical Area (the
"Brownsville MSA") and the McAllen, Texas Metropolitan Statistical Area (the
"McAllen MSA");
WHEREAS, Seller is the holder of the non-wireline cellular radio
telephone license granted by the Federal Communications Commission (the "FCC")
and certain assets necessary for the operation of the non-wireline cellular
radio telephone system in the Brownsville MSA (the "System")and the McAllen MSA;
WHEREAS, the Parties desire that Purchaser acquire from Seller all of
the assets of the System including, among other things, all of the
authorizations issued by the FCC for the operation of the System, all in
accordance with the terms and conditions set forth in this Agreement;
WHEREAS, concurrent with the execution of this Agreement, Purchaser is
entering into a separate Asset Purchase Agreement with The McAllen Cellular
Telephone Co., Inc. ("McAllen"), which is the holder of the non-wireline
cellular radio telephone license granted by the FCC for the McAllen MSA (the
"McAllen Transaction"), and certain provisions of this Agreement (as provided
herein) are conditioned upon Purchaser's ability to consummate the McAllen
Transaction (the "McAllen Closing");
WHEREAS, Celutel is the owner of 78.4% of the issued and outstanding
common stock of Seller and 69.5% of the issued and outstanding common stock of
McAllen;
WHEREAS, the Parties have determined that it would further the
development of competitive, non-wireline cellular systems in the United States
to consummate the transactions contemplated hereby; and
WHEREAS, subject to the terms of this Agreement, Purchaser and Seller
may effectuate the transfer of the Assets in a transaction qualifying as an
exchange (the "Exchange") by the Seller of "like kind" property to the extent
permitted under Section 1031 of the Internal Revenue Code of 1986, as amended
(the "Code").
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<PAGE> 2
NOW, THEREFORE, in consideration of the mutual covenants and promises
contained herein and for other good and valuable consideration, the receipt and
adequacy of which are hereby acknowledged, the Parties hereto agree as follows:
ARTICLE 1.
DEFINITIONS
As used herein, the terms below shall have the following meanings:
(a) "Action" shall have the meaning set forth in Section 5.12.
(b) "Affiliate" of a Person shall mean any Person which directly or
indirectly, through one or more intermediaries, owns, controls, or is controlled
by, or is under common control with, such Person. The term "control" (including,
with correlative meaning, the terms "controlling", "controlled by" and "under
common control with"), as used with respect to any Person, shall mean the
possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of such Person, whether through the
ownership of voting securities, by contract or otherwise.
(c) "Applicable Laws" shall mean all federal, state and local statutes,
ordinances, rules, and regulations, of any Governmental Authority that govern,
regulate or otherwise apply to the Assets, the Business or operation of the
System.
(d) "Appraiser" shall have the meaning set forth in Section 16.7
hereof.
(e) "Appraisal" shall have the meaning set forth in Section 16.7
hereof.
(f) "Assets" shall mean all assets, properties and rights, both
tangible and intangible, that are owned by, leased or licensed to Seller for use
in the System, and are otherwise necessary for the operation of the Business in
a manner consistent with the present operations and with past practices of the
System, including, without limitation, the Real Property, Equipment,
Authorizations, Contracts, Subscriber Agreements, Intellectual Property and
Books and Records; provided, however, that the Assets shall not include the
Excluded Assets, or any assets used exclusively in connection with the Excluded
Operations.
(g) "Assumed Liabilities" shall have the meaning set forth in Section
3.1.2. hereof.
(h) "Auditor" shall have the meaning set forth in Section 2.4.4.
hereof.
(i) "Authorizations" shall mean the approvals, consents,
authorizations, permits and licenses issued to Seller by any Governmental
Authority relating to the System.
(j) "Books and Records" shall mean all the books and records related to
the Assets, the Business and the System, including without limitation, (a) books
and records relating to the purchase
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of materials and supplies, invoices, Subscriber lists, supplier lists, personnel
records, and Subscriber information, and (b) computer software (to the extent
such software is included in the Assets)and data in computer readable and/or
human readable form used to maintain such books and records together with the
media on which such software and data are stored and all documentation relating
thereto, but shall not include books and records relating to the Excluded Assets
or Seller's corporate books and records or stock ledgers.
(k) "Brownsville MSA" shall have the meaning set forth in the first
Recital herein.
(l) "Business" shall mean all of the business and operations relating
to the System as currently conducted by Seller; provided however, that the
Business shall not include the Excluded Operations.
(m) "Celutel" shall mean Celutel, Inc., a Delaware Corporation.
(n) "CERCLA" shall have the meaning set forth in Section 1(y) hereof.
(o) "Closing Date" shall mean the date which is the last business day
of the month in which the issuance of FCC Consent by Final Order occurs, unless
that date would occur less than six (6) business days before the last business
day of such month, in which case the Closing Date shall be the last business day
of the month following such month of the issuance of FCC Consent by Final Order.
(p) "Closing Place" shall mean such location agreed upon by the Parties
or, in the absence of such an agreement, the offices of Stokes Lawrence, P.S.,
800 Fifth Avenue, Suite 4000, Seattle, Washington 98104-3179.
(q) "Closing" shall mean the consummation of the assignment, transfer,
conveyance and delivery of the Assets and the Purchase Price as contemplated
hereunder.
(r) "Code" shall mean the Internal Revenue Code of 1986, as amended.
(s) "Consents" shall mean any and all consents, approvals,
authorizations or waivers of any Governmental Authority, including, without
limitation, the FCC Consent, and any and all consents, approvals or waivers from
parties to Contracts that are (i) required for the consummation of the
transactions contemplated by this Agreement or (ii) necessary or desirable in
order that Purchaser (or its designee) can conduct the Business after the
Closing Date substantially in the same manner as before the Closing Date.
(t) "Contracts" shall mean all leases, contracts, commitments, and
other binding agreements relating to the System to which Seller is a party and
which are set forth on SCHEDULE 5.8., whether written or oral.
(u) "Disclosure Statement" shall mean the document to be delivered by
Seller to Purchaser within 10 business days of the date of this Agreement which
shall contain, in the form of schedules attached thereto, certain information
and disclosures as required to be made and referenced
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in this Agreement. All schedules attached to the Disclosure Statement shall be
numbered to correspond to the applicable sections of this Agreement and shall
form the basis for the Schedules to be attached to this Agreement.
(v) "Disputes" shall have the meaning set forth in Section 13.3.
hereof.
(w) "DOJ" shall mean the United States Department of Justice.
(x) "Due Diligence Notice"shall have the meaning set forth in Section
4.1.2. hereof.
(y) "Employees" shall mean all persons employed on a full or part-time
basis together with all persons retained as "independent contractors."
(z) "Environmental Laws" shall mean Applicable Laws relating to
pollution, the environment or the Handling of Regulated Substances, including
without limitation, the Comprehensive Environmental Response, Compensation and
Liability Act of 1980 ("CERCLA").
(aa) "Equipment" shall mean all of the furniture, fixtures,
furnishings, machinery, computer hardware, antennas, transmitters, and other
personal property used in connection with the Business and the System.
(bb) "ERISA" shall have the meaning set forth in Section 5.10. hereof.
(cc) "Escrow Agent" shall mean the Trust Department of Regions Bank, an
Alabama banking corporation.
(dd) "Escrow Agreement" shall have the meaning set forth in Section
11.2.2. hereof.
(employee) "Escrow Amount" shall have the meaning set forth in Section
2.2. hereof.
(ff) "Exchange" shall have the meaning set forth in Section 16.6
hereof.
(gg) "Excluded Assets" shall mean those assets set forth on SCHEDULE
1(GG) hereto.
(hh) "Excluded Operations" shall mean the operations of, and the
services provided by Seller or to Seller, for businesses or operations that are
not exclusively related to the Business or the System, or that are provided
outside the Brownsville MSA and set forth on SCHEDULE 1(HH) hereto.
(ii) "FCC" shall mean the Federal Communications Commission.
(jj) "FCC Consent" shall mean the action of the FCC granting its
consent to the transfer of control of the FCC Authorization from Seller to
Purchaser.
(kk) "FCC Authorization" shall mean the Authorizations from the FCC
relating to the operation of the System.
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(ll) "FTC" shall mean the Federal Trade Commission.
(mm) "Final Order" shall mean a Preliminary Order which is not
reversed, stayed, enjoined, set aside, annulled, or suspended, and with respect
to which no timely request for stay, motion or petition for reconsideration or
rehearing, application or request for review, or notice of appeal or other
judicial petition for review is pending, and as to which the time for filing any
such request, motion, petition, application, appeal, or notice, and for the
entry of an order staying, reconsidering, or reviewing on the FCC's or other
regulatory authorities' own motion, has expired. A Preliminary Order which is
not reversed, stayed, enjoined, set aside, annulled, or suspended, and with
respect to which no timely request for stay, motion or petition for
reconsideration or rehearing, application or request for review, or notice of
appeal or other judicial petition for review is pending, and as to which the
time for filing any such request, motion, petition, application, appeal, or
notice, and for the entry of an order staying, reconsidering or reviewing on the
FCC's or other regulatory authorities' own motion has expired, but which is
subject to conditions is not (and shall not be deemed) a Final Order unless and
until the Purchaser has notified Seller in writing of Purchaser's willingness to
accept such conditions.
(nn) "Final Settlement" shall have the meaning set forth in Section
2.4.3 hereof.
(oo) "Financial Statements" shall have the meaning set forth in Section
5.11. hereof.
(pp) "Governmental Authority" shall mean any court or any federal,
state, county, local or foreign governmental, legislative or regulatory body,
agency, department, authority, instrumentality or other subdivision thereof,
including, without limitation, the FCC and the PUC.
(qq) "Handling" shall mean the production, use, generation, storage,
treatment, recycling, disposal, discharge, release, or other handling or
disposition at any time on or prior to the Closing Date of any Regulated
Substance either in, on, or under any Operating Site.
(rr) "HSR Act" shall mean the Hart-Scott-Rodino Antitrust Improvements
Act of 1976, as amended.
(ss) "Intellectual Property" shall mean all patents, trademarks,
service marks, trade names, copyrights, licenses, formulas, computer software,
advertising slogans, know-how, data and other intellectual property rights or
intangible property rights of Seller which are used or intended for use in
connection with the System.
(tt) "Inventory" shall mean all merchandise owned and intended for
resale in connection with the Business, whether or not located on the premises,
on consignment to a third party, or in transit or storage.
(uu) "Liabilities" shall mean liabilities, obligations or commitments
of any nature, absolute, accrued, contingent or otherwise, known or unknown,
whether matured or unmatured.
(vv) "Lien" shall mean any contract for sale (except for the sale of
cellular telephone service and rentals of cellular telephone equipment to
Subscribers), claim, lien, pledge, option,
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charge, covenant, restriction, encroachment, easement, security interest,
mortgage, deed of trust, right-of-way, encumbrance or adverse interest of any
kind or character of any other Person.
(ww) "Losses" shall have the meaning set forth in Section 11.2.1.
hereof.
(xx) "McAllen Closing" shall have the meaning set forth in the fourth
Recital hereof.
(yy) "McAllen Transaction" shall have the meaning set forth in the
fourth Recital hereof.
(zz) "Operating Data Statements" shall have the meaning set forth in
Section 5.11. hereof.
(aaa) "Operating Site" shall mean any real property or facility owned,
leased or used at any time by Seller in connection with the System.
(bbb) "Owned Real Property" shall have the meaning set forth in Section
4.1.16. hereof.
(ccc) "Person" shall mean an individual, a corporation, a partnership,
an association, a joint-stock company, a trust, any unincorporated organization,
or a government or a political subdivision thereof.
(ddd) "Preliminary Order" shall mean an action by the FCC and other
applicable state regulatory authority consenting to or authorizing the transfer
of control of the FCC Authorization to Purchaser (or its designee), which action
has not yet become a Final Order.
(eee) "PUC" shall mean the Texas Public Utilities Commission.
(fff) "Purchase Price" shall have the meaning set forth in Section 2.2.
hereof
(ggg) "Purchaser's Closing Certificate" shall have the meaning set
forth in Section 7.1. hereof.
(hhh) "Real Property" shall mean all real property owned or leased by
or used, or intended by Seller for use, in connection with the System, together
with all buildings, improvements, fixtures, easements, licenses, options,
insurance proceeds and condemnation awards and all other rights of Seller in or
appurtenant thereto.
(iii) "Regulated Substance" shall mean (i) any "hazardous substance" as
defined in CERCLA, (ii) any petroleum or petroleum substance, and (iii) any
other pollutant, waste, contaminant, or other substance regulated under
Environmental Laws.
(jjj) "Representative" shall mean any officer, director, principal,
attorney, agent, employee or other representative of any Person.
(kkk) "Seller's Closing Certificate" shall have the meaning set forth
in Section 8.1 hereof.
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(lll) "Service" shall mean the provision of the System's cellular
telephone service to Subscribers.
(mmm)"Subscribers" shall mean customers of Seller that subscribe to the
Service.
(nnn) "Subscriber Agreements" shall mean Contracts whereby Seller has
agreed to provide Service.
(ooo) "Survival Period" shall have the meaning set forth in Section
11.1 hereof.
(ppp) "Taxes" shall mean all taxes, charges, fees, levies or other
assessments or changes of any kind whatsoever, including without limitation,
income, excise, use, transfer, payroll, occupancy, property, sales, franchise,
unemployment and withholding taxes, imposed by any Governmental Authority, and
any assessments against Real Property together with any interest, penalties or
additional taxes attributable to such taxes and other assessments.
(qqq) "Title Commitment" shall have the meaning set forth in Section
4.1.16. hereof.
(rrr) "Title Policy" shall have the meaning set forth in Section
4.1.16. hereof.
(sss) "To the knowledge" or "knowledge" of a Party (or similar phrases)
shall mean (i) with respect to Seller, to the extent of matters which are
actually known by any of the individuals set forth on SCHEDULE (SSS) or which,
based on facts of which such parties are aware, would be known to a reasonable
Person in similar circumstances and (ii) with respect to Purchaser, to the
extent of matters which are actually known by any of the individuals set forth
on SCHEDULE (SSS)(B), or which, based on facts of which such parties are aware,
would be known to a reasonable Person in similar circumstances.
(ttt) "Transfer Application" shall mean that joint application filed
with the FCC relating to the transfer of the Assets to Purchaser in the manner
contemplated by this Agreement.
ARTICLE 2.
PURCHASE OF ASSETS
2.1. Transfer of Assets. Subject to the terms and upon satisfaction of
the conditions contained in this Agreement, at the Closing, Seller shall sell,
convey, transfer, assign and deliver to Purchaser (or its designee), and
Purchaser (or its designee) will accept and acquire, the Assets.
2.2. Purchase Price. Subject to the transactions contemplated hereby
being consummated as an Exchange, the purchase price for the Assets shall be
THIRTY SIX MILLION FIVE-HUNDRED SEVENTY-FIVE THOUSAND DOLLARS ($36,575,000.00),
subject to adjustment pursuant to this Article 2 (the "Purchase Price"), which
shall be paid by Purchaser to Seller (or its designee) on the Closing Date as
follows: (i) Three Million Dollars ($3,000,000) of such Purchase Price (the
"Escrow Amount") shall be delivered to the Escrow Agent as defined in Section
11.2.2 and held pursuant to
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the terms of Section 11.2.2; and (ii) the balance of such Purchase Price shall
be paid by Purchaser either (x) to Seller by wire transfer of immediately
available funds; or (y) to a "qualified intermediary" (as such term is defined
in the Code) designated by Seller.
2.3. Exchange Adjustment. (a) On the Closing Date, in addition to the
Purchase Price, Purchaser shall deliver to Seller (in the same manner as the
Escrow Amount)Three Hundred Eighty-Five Thousand Dollars ($385,000.00), which
amount shall represent an upward adjustment of the Purchase Price if Seller is
unable to structure and complete the disposition of the Assets as an Exchange
(the "Exchange Adjustment").
(b) Seller shall return the Exchange Adjustment to Purchaser within ten
(10) business days of Seller's successful completion of an Exchange. If Seller
fails to consummate an Exchange within 180 days of the Closing Date, then the
Exchange Adjustment shall be retained in full by Seller as part of the Purchase
Price.
2.4. Other Adjustments and Prorations.
2.4.1. The Purchase Price shall be adjusted in accordance with
the following:
(a) The Purchase Price shall be increased by an
amount equal to any cash, adjusted accounts receivable, Inventory, prepaid
expenses and any other current assets transferred to Purchaser. For the purposes
of this section the "adjusted accounts receivable" shall equal the sum of the
following:
(i) 100% of the accounts receivable from carriers and
resellers.
(ii) 100% of the amount of all Subscriber accounts
receivable which remain unpaid by Subscribers
("Outstanding") for less than 31 days from the date
of billing; plus
(iii) 75% of the amount of all Subscriber accounts
receivable that are Outstanding for more than 30 days
but less than 61 days from the date of billing; and
(iv) 60% of the amount of all Subscriber accounts
receivable that are Outstanding for more than 60
days, but less than 90 days from the date of billing;
plus
(v) There shall be no adjustment (i.e. 0%) for the amount
of any Subscriber accounts receivable that are
Outstanding more than 90 days.
(b) The Purchase Price shall be decreased by an
amount equal to (x) the Assumed Liabilities, and (y) amounts collected by Seller
from Subscribers on or prior to the Closing Date (net of deferred access revenue
included in such amounts), which relate to Services provided after the Closing
Date (hereinafter referred to as "Advance Receipts"), and (z) deferred access
revenue assumed by Purchaser.
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2.4.2. All revenues and all expenses arising from the Business
and ownership of the Assets prior to the Closing Date, including resale charges
and other expenses payable in respect to Service, utility charges, Taxes levied
against the Assets, property and equipment rentals, sales and service charges,
Taxes (except for Taxes arising from the transfer of the Assets ), and similar
prepaid and deferred items, shall be prorated between Seller and Purchaser in
accordance with the principle that Seller shall receive the benefit of all
revenues, and be responsible for all expenses, costs, obligations and
Liabilities allocable to the Business and the ownership of the Assets for the
period prior to the Closing Date, and Purchaser shall receive the benefit of all
revenues, and be responsible for all expenses, costs, obligations and
Liabilities allocable to the Business and the ownership of the Assets on and
after the Closing Date.
2.4.3. A final settlement (the "Final Settlement") of all
adjustments or prorations made under this Section, with payment being made by
the appropriate Party in cash (but without any interest thereon), shall occur no
later than ninety (90) days after the Closing Date.
2.4.4. In the event that the Parties cannot agree on the
amount of the Final Settlement, the determination shall be made by a mutually
agreed upon national accounting firm selected jointly by Purchaser and Seller
that has not, during the prior three (3) years, been employed by any of the
Parties (the "Auditor"). The Auditor shall make its determination of the Final
Settlement based on the express provisions of this Agreement; provided, however,
that if the Auditor finds that the express terms of this Agreement are not
sufficient to resolve any issue or issues, the Auditor shall rely upon generally
accepted accounting principles then in effect. Any Party may invoke the use of
the Auditor by notifying the other Party in writing, provided that a Party may
not invoke the use of the Auditor to determine the Final Settlement earlier than
forty (40) days after the Closing Date. The Auditor shall be required to render
a decision within twenty-one (21) days after the Auditor is requested to render
a determination under this Section 2.4.4. The decision of the Auditor shall be
binding on the Parties and not subject to any judicial challenge by the Parties.
Within five (5) business days after the Auditor provides the determination to
the Parties, the payment of the Final Settlement shall be made in accordance
with that determination. The expenses of the Auditor shall be paid by Seller and
Purchaser in proportion to the Auditor's determination with respect to the
allocation to Seller and Purchaser of the amount in disagreement. For example,
if the amount in disagreement is One Hundred Thousand Dollars ($100,000) and the
Auditor determines that the Seller should receive Seventy Thousand Dollars
($70,000) and the Purchaser should receive Thirty Thousand Dollars ($30,000),
then Seller shall pay thirty percent (30%) of the Auditor's expenses, and
Purchaser shall pay seventy percent (70%).
2.5. Failure or Delay of McAllen Closing.
2.5.1. In the event that the McAllen Closing does not occur, for any
reason other than a breach by Purchaser (or Purchaser's designee with respect to
the McAllen Transaction), on or before thirty (30) days from the specified
Closing Date for this transaction, Purchaser shall have the right to:
(a) elect to delay the Closing until such later date that will allow
for a concurrent McAllen Closing; and/or
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(b) elect to terminate this Agreement and the McAllen Transaction at
any time prior to the issuance of a Preliminary Order for the McAllen
Transaction.
ARTICLE 3.
ASSUMED OBLIGATIONS
3.1. No Assumption of Liabilities by Purchaser, Exceptions.
3.1.1. Except as set forth in Section 3.1.2. below, Purchaser
expressly does not, and shall not, assume or be deemed to have assumed under
this Agreement or by reason of any transactions contemplated hereunder, any
Liabilities of any nature whatsoever relating to the System or of Seller, or any
of Seller's stockholders or partners, as the case may be.
3.1.2. At the Closing, Purchaser shall assume and shall timely
pay, perform, fulfill and discharge all of Seller's liabilities and obligations
due after the Closing Date on those Contracts and Liabilities set forth on
SCHEDULE 3.1.2. (the "Assumed Liabilities").
ARTICLE 4.
COVENANTS AND AGREEMENTS
4.1. Covenants of Seller. Seller and Shareholder jointly and severally
covenant and agree that from the time of the execution and delivery of this
Agreement until (and including) the Closing Date:
4.1.1. Consummate Transactions. Seller shall use its best
efforts to cause the transactions contemplated by this Agreement to be
consummated in accordance with the terms hereof, and, without limiting the
generality of the foregoing, use best efforts to obtain all necessary approvals,
consents, permits, licenses and other authorizations required in connection with
this Agreement and the transactions contemplated hereby from Governmental
Authorities, and to make all filings with and to give all notices to third
parties, which may be necessary or reasonably required of Seller in order to
consummate the transactions contemplated hereby.
4.1.2. Full Access and Purchaser Due Diligence. (a) Seller
shall allow Purchaser and its agents and representatives (including, without
limitation, its independent auditors and attorneys) reasonable access during
normal business hours to all of Seller's personnel, premises, properties,
assets, financial statements and records, books, contracts, documents and
commitments of or relating to the Business, and shall furnish Purchaser and its
agents and representatives with all such information concerning the affairs of
the System as Purchaser may reasonably request. The Parties understand and agree
that the purpose of the due diligence review process is to provide Purchaser
with the opportunity to investigate the Assets, System and Business operations
to determine if they comport with the representation and warranties made in this
Agreement and the information
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contained in the Disclosure Statement, and if any amendments with respect to the
terms and conditions of this Agreement would be required to make this
transaction acceptable to Purchaser.
(b) Purchaser has provided Seller with a Due Diligence Outline
requesting specific information regarding the operations of the System. Seller
will provide Purchaser with written notice when all information requested in the
outline has been provided to Purchaser. Purchaser shall have 30 days from
receipt of such notice to notify Seller in writing of any issues uncovered as a
result of its due diligence review that Purchaser deems to be reasonably
unacceptable ("Due Diligence Notice"). Purchaser and Seller agree to negotiate
in good faith to resolve such issues in a mutually acceptable manner within ten
(10) business days from the date of Seller's receipt of the Due Diligence
Notice. In the event that Purchaser does not provide Seller with a Due Diligence
Notice within the 30 day time period, Purchaser will be deemed to have waived
the conditions of Section 4.1.2(d) with respect to the Due Diligence Notice.
(c) Purchaser shall have 30 days from receipt of the Disclosure
Statement to notify Seller in writing of any matters that are contained in the
Disclosure Statement that Purchaser deems to be reasonably unacceptable
("Disclosure Statement Notice"). Purchaser and Seller agree to negotiate in good
faith to resolve such issues in a mutually acceptable manner within ten (10)
business days from the date of Seller's receipt of the Disclosure Statement
Notice. In the event that Purchaser does not provide Seller with a Disclosure
Statement Notice within the 30 day time period, Purchaser will be deemed to have
accepted the Disclosure Statement and to have waived the conditions of Section
4.1.2(d) with respect to the Disclosure Statement.
(d) In the event the Parties are not able to resolve the issues
outlined in either the Due Diligence Notice or the Disclosure Statement Notice
within the applicable 10 day period, Purchaser shall have the right to terminate
this Agreement upon written notice to Seller.
4.1.3. Ordinary Course. Seller shall cause the Business and
affairs of the System to be conducted only in the ordinary course and consistent
with past practices. Without limiting the foregoing, Seller shall continue to
pay its bills and other obligations, all in the ordinary course of business
consistent with past practices, but shall not, without the prior written consent
of Purchaser:(a) incur any material Liability other than obligations to Seller's
brokers, attorneys and accountants, all of which shall be paid by Seller; (b)
assume, guarantee, change any existing guarantee, endorse, act as an
accommodation party, or otherwise become responsible for, the obligations of any
other Person; (c) make any loans or advances to any Person; (d) sell, transfer,
convey, mortgage, pledge, hypothecate or place any Liens on any of the Assets;
(e) waive or compromise any right or claim for any amount; (f) cancel any note,
loan or other material obligation owing to Seller; (g) enter into any Contract
with any Person, including, without limitation, the stockholders of Seller or
any of its Affiliates, consultants, agents or assigns; (h)except as set forth in
Seller's salary administration review project (the results of which have been
disclosed to Purchaser) or as otherwise provided in this Agreement, increase or
modify compensation of any type currently paid to any of its employees,
officers, directors, agents or consultants,; (i) make any new arrangement for
any profit-sharing plan, retirement plan, bonus plan, severance arrangement,
employee benefit plan, or any similar plan except for modifications of existing
plans that are required by law, or contemplated to be implemented at the time of
the execution of this Agreement; (j) except as required by law, enter into any
collective bargaining agreement, or make any commitment
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whatsoever to any union or other representative or party which intends to
represent any of Seller's employees subsequent to the Closing; (k) except as
permitted under Section 5.10 hereof, hire any employees; (l) except as required
by law, enter into any additional reseller agreements; or (m) enter into any
Contract involving payments, assets, or liabilities with a value greater than
$32,500 individually or $100,000 in the aggregate, excluding noncapital
expenditures incurred in the ordinary course of business consistent with past
practices. Notwithstanding the foregoing, nothing in this Section 4.1.3 shall
prevent Seller from taking appropriate action as may be necessary to maintain
its ability to control and manage the System and to comply with the rules,
regulations or directives of any Governmental Authority.
4.1.4. Retention of Records. On the Closing Date, Seller shall
deliver to Purchaser all such Books and Records as are reasonably requested by
Purchaser. In addition, for a period of four (4) years after the Closing Date,
Seller shall make available to Purchaser copies of any documents not theretofore
delivered to Purchaser relating to System or the Assets.
4.1.5. No Amendments or Issuance of Additional Shares. Seller
shall not and Shareholder shall not cause or permit Seller to amend its charter,
by-laws, or comparable governing instrument, which amendment would have a
material adverse effect on the Assets, the Business or the transactions
contemplated by this Agreement or which would require any additional consents or
approvals of the transactions contemplated by this Agreement. Seller shall not
and Shareholder shall not permit Seller to issue or sell any shares of its
capital stock or other securities, or issue options, warrants or rights of any
kind to acquire, or any securities convertible into, exchangeable for or
representing a right to purchase or receive, any stock-based or stock-related
awards or other equity-based awards, shares of its capital stock or other equity
or other securities, or enter into any arrangement or contract with respect to
the purchase or voting of shares of its capital stock or other equity, or
adjust, split, combine or reclassify any of its securities, or make any other
changes in its capital structure, if any such issuance, sale, contract, plan,
understanding, arrangement, adjustment, split, combination, reclassification or
changes would require any additional approvals of the transactions contemplated
by this Agreement or would otherwise have a material adverse effect on the
transactions contemplated by this Agreement.
4.1.6. No Termination or Settlement. Without the prior written
consent of Purchaser, which consent shall not be unreasonably withheld Seller
shall not terminate any agent, or settle any dispute with any agent if such
termination or settlement would cause Purchaser to have any continuing
obligation after the Closing with respect thereto.
4.1.7. Preserve Business and Goodwill. Seller shall use its
diligent efforts to keep the System intact, to preserve and maintain the Assets,
to preserve the Business and to preserve the goodwill of suppliers, Subscribers
and others dealing with Seller.
4.1.8. Compliance with Law. Seller shall comply in all
material respects with Applicable Laws.
4.1.9. Approvals; Consents. Seller shall obtain and maintain
in full force and effect, and shall not take any action which might have a
material adverse effect on, any Authorizations that are required for the
operation of the Business as presently conducted, except where such
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Authorizations are administrative in nature, and the failure to obtain or
maintain such Authorizations would not adversely impact the continued operation
of any part of the System or any component thereof, as currently operated. The
Parties shall consult with one another as to the approach to be taken with any
Governmental Authority with respect to obtaining any Authorization to the
transactions contemplated hereby, and each of the Parties shall keep each other
Party reasonably informed as to the status of any such communications with any
Governmental Authority. Seller shall not make any material commitments with
respect to any Authorizations without Purchaser's prior written consent.
4.1.10. Insurance. From the date hereof through the Closing
Date, Seller shall maintain in full force and effect (including necessary
renewals thereof) all of the insurance policies that Seller currently maintains
relating to System, which are set forth on SCHEDULE 4.1.10. From and after the
Closing Date, Seller shall take all actions that may be necessary to cause the
coverage under such policies to continue in full force and effect after the
Closing Date with respect to liability occurrences prior to the Closing Date and
shall take all actions necessary to preserve or protect rights under any such
policies with respect to any claim against Seller arising out of the Assets or
Business of Seller prior to the Closing Date. Seller will provide Purchaser with
information and records regarding all claims pending with respect to the Assets
or Business of Seller and agrees to provide to Purchaser any additional
information and records Purchaser may reasonably require regarding such claims.
4.1.11. Books and Records. Seller shall continue to maintain
the Books and Records in the manner and on a basis consistent with prior years.
4.1.12. Notice of Claims. Seller shall give written notice to
Purchaser promptly upon the commencement of any action, investigation,
arbitration or proceeding (including any proceeding before any Governmental
Authority), or promptly upon obtaining knowledge of any facts giving rise to a
threat of any such action, investigation, arbitration or proceeding which would,
if adversely determined, would have a material adverse effect on (a) Seller's
ability to consummate the transactions contemplated hereby; (b) the Business; or
(c) the Assets.
4.1.13. Notice of Breaches. Seller shall promptly after
obtaining knowledge of the occurrence of, or the impending or threatened
occurrence of, any event which would cause or constitute a breach of any
warranties, representations, covenants or agreements of the Seller contained in
this Agreement, give notice in writing of such event or occurrence or impending
or threatened event or occurrence, to Purchaser and use its diligent efforts to
prevent or to promptly remedy such breach.
4.1.14. Notice of Change. Except for events occurring in the
communications industry generally, Seller shall notify Purchaser promptly in
writing of any event, condition or state of facts, which has had or would
reasonably be expected to have a material adverse effect on the System, the
Business or on the Assets or on the transaction contemplated by this Agreement.
4.1.15. Training / Transition Assistance. (a) At the request
of Purchaser, Seller hereby agrees to use commercially reasonable efforts to
instruct Purchaser's employees and agents in the use of Seller's billing system.
Such instruction will be provided at Seller's premises at
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mutually convenient times so as not to disrupt the operation of Seller's
businesses and shall be provided at no cost to Purchaser.
(b) The Parties agree to use diligent efforts and to direct their
respective employees, agents, and subcontractors to cooperate in the conversion
and transfer of the Subscribers to Purchaser's billing system so that upon the
Closing Date, or as soon thereafter as is reasonably practicable, all of the
System's customer billing information shall have been transferred and converted
to Purchaser's billing system. The costs associated with converting and
transferring the information to Purchaser's billing system shall be the sole
responsibility of Purchaser.
4.1.16. Title Insurance.
(a) With respect to all Real Property owned by Seller ("Owned
Real Property"), Seller will obtain and deliver to Purchaser (i) as soon as
practicable after the date of this Agreement, a title commitment disclosing the
condition of title to such Owned Real Property and all easements, rights of way,
and restrictions of record with respect thereto, as of a date not earlier that
the date of this Agreement, accompanied by copies of all available instruments
evidencing the scope and extent of all such easements, rights of way, and
restrictions of record ("Title Commitment") and (ii) at or prior to Closing, an
ALTA Owner's Policy of Title Insurance on a form customarily used in the state
in which the Real Property is located, issued by First American Title Insurance
Company, in an amount equal to the fair market value of the Real Property (as
reasonably determined by Purchaser and submitted by Purchaser to Seller on the
date hereof), insuring title to such property to be in the name of a party
designated by Purchaser, subject only to Permitted Encumbrances (each a "Title
Policy").
(b) Each Title Policy obtained and delivered to Purchaser
pursuant to this Agreement shall, except to the extent that title insurers in
the state in which the applicable property is located are not lawfully permitted
to issue such policies (i) insure title to the property described in the policy
and all recorded easements benefiting such property, (ii) contain an "extended
coverage endorsement" or similar modification insuring over or otherwise
eliminating the general exceptions customarily contained in title policies,
(iii) contain an endorsement insuring that the property described in the policy
is the same real estate shown in the survey delivered with respect to such
property, (iv) contain a "contiguity" endorsement with respect to any property
consisting of more than one record parcel, (v) provide full coverage against
mechanics' and materialmen's liens arising out of the construction, repair or
alteration of any of the Owned Real Property, (vi) contain any special
endorsements reasonably required by Purchaser, including, without limitation, an
endorsement insuring that the improvements included in the Real Property are a
permitted use under the zoning designation applicable to the Owned Real
Property, and (vii) not be subject to any exception for matters disclosed by any
survey delivered with respect to such property other than matters which do not
constitute a breach of the representations and warranties contained in this
Agreement.
(c) With respect to each Owned Real Property interest as to
which a Title Policy is to be procured pursuant to this Agreement, Seller will
obtain and deliver to Purchaser as soon as practicable after the date of this
Agreement a current survey of the relevant parcel, prepared and certified to
Purchaser and to the title insurer of such Owned Real Property interest by a
licensed
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surveyor and conforming to current ALTA Minimum Detail Requirements for Land
Title Surveys, disclosing the location of all improvements, easements, party
walls, sidewalks, roadways, utility lines, and other matters customarily shown
on such surveys, and showing access affirmatively to public streets and roads.
4.1.17. Interim Financial Statements and Statistical
Summaries. Between the date of this Agreement and the Closing Date, Seller shall
deliver to Purchaser (i) as soon as practicable, but no later than forty-five
(45) days after the end of each calender month, unaudited financial statements
("Interim Financial Statements") for the most recent month and the interim
period then ended, and (ii) within ten (10) Business Days after the end of each
calender month, interim operating data summaries (the "Interim Operating Data
Statements") for the most recent month and interim period then ended, which
summaries will be in scope and format substantially identical to the Operating
Data Statements.
4.1.18. Material Contracts. Seller shall not (a) default in
any material respect under, or breach any term or provision of, or suffer or
permit to exist any condition or event which, after notice or lapse of time, or
both, would constitute a material default under, any material Contract, or (b)
cause or permit the termination, modification or amendment of any material
Contract of Seller.
4.1.19. Condition of Assets. Seller shall use diligent efforts
to preserve its assets intact and, from time to time, make all necessary repairs
thereto, so that the Business may be conducted in the ordinary course consistent
with past practices.
4.2. Covenants of Purchaser. Purchaser covenants and agrees that from
the time of the execution and delivery of this Agreement until (and including)
the Closing Date:
4.2.1. Consummate Transaction. Purchaser shall use its best
efforts to cause the transactions contemplated by this Agreement to be
consummated in accordance with the terms hereof, and, without limiting the
generality of the foregoing, to assist Seller in obtaining all necessary
Authorizations of third parties, including, without limitation, the approval of
this Agreement and the transactions contemplated hereby as required by any
Governmental Authority, and to make all filings with and to give all notices to
third parties which may be necessary or reasonably required of Purchaser in
order to consummate the transactions contemplated hereby.
4.2.2. Purchaser Not to Control. Notwithstanding any provision
of this Agreement that may be construed to the contrary, pending the
consummation of the Closing, Seller shall maintain actual (de facto) and legal
(de jure) control over the System. Specifically, and without limitation, the
responsibility for the operation of the Business and the System shall, pending
the Closing Date, reside with the Board of Directors and management of Seller,
including, but not limited to, responsibility for the following matters: (1)
access to and the use of the facilities of and equipment owned by Seller; (2)
control of the daily operation of the System; (3) creation and implementation of
policy decisions; (4) employment and supervision of employees; (5) payment of
financing obligations and expenses incurred in the operation of the System; (6)
receipt and distribution of monies and profits derived from the operation of the
System; and (7) execution and approval of all contracts and applications
prepared and filed before Governmental Authorities.
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4.3. Mutual Covenants of Seller and Purchaser. Seller and Purchaser
covenant and agree that following the execution hereof, and until (and including
) the Closing Date that they will file with the FCC, and, if necessary, will
file with the PUC or any other Governmental Authority, as soon as practicable
following the date hereof, joint applications requesting the approval of the
transfer of control of the System to Purchaser, and, if applicable, will file
all necessary applications with the DOJ and/or the FTC pursuant to the HSR Act.
Seller and Purchaser agree to use their best efforts to make all such filings
within ten (10) business days of the execution of this Agreement. Seller and
Purchaser shall diligently take or cooperate in the taking of all steps which
are necessary or appropriate to expedite the prosecution and favorable
consideration of such applications. Purchaser shall the pay the filing fees
associated with the filings required by this Section 4.3. Seller and Purchaser
covenant and agree to undertake all actions and file such material as shall be
necessary or required to obtain any necessary waivers or other authority in
connection with the foregoing applications.
4.4 Covenants of Celutel. Celutel covenants and agrees that from the
time of the execution and delivery of this Agreement until (and including) the
Closing Date:
4.4.1. Voting of Shares. It will affirmatively exercise its rights as a
stockholder of Seller to vote, its shares of common stock of Seller (whether at
a meeting or by written consent) upon any matter arising under this Agreement,
properly submitted to a vote of the stockholders in favor of the transactions
contemplated by this Agreement.
4.4.2. No Transfer or Encumbrance of Shares. It will not sell,
transfer, encumber, or otherwise dispose of its shares of common stock of
Seller.
ARTICLE 5.
REPRESENTATIONS AND WARRANTIES OF SELLER
Seller and Shareholder hereby jointly and severally make the following
representations and warranties to Purchaser, all of which have been relied upon
by Purchaser in entering into this Agreement and the truth and accuracy of which
shall constitute a condition precedent to the obligations of Purchaser
hereunder:
5.1. Organization and Standing. Seller (a) is a corporation duly
organized, validly existing and in good standing under the laws of the state of
Delaware, (b) has full corporate power and authority to enter into and perform
this Agreement, to own and lease the Assets, and operate the System and to carry
on the Business as now being conducted and proposed to be conducted by it, and
(c) is duly qualified to do business and is in good standing as a foreign
corporation in every jurisdiction in which the nature of the business conducted
by it requires such qualification, except where the failure to so qualify would
not have a material adverse effect on the System, the Business or the Assets.
5.2. Authorization and Binding Obligations. The execution, delivery and
performance of this Agreement by each of Seller and Shareholder has been duly
and validly authorized by all necessary corporate action, including approval of
the entire transaction by the requisite vote of their
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Boards of Directors and the Board of Directors of Century Telephone Enterprises,
Inc. This Agreement has been duly executed and delivered by Seller and
Shareholder and constitutes a valid and binding obligation of Seller enforceable
against it in accordance with its terms, except as its enforceability may be
limited by bankruptcy, insolvency, moratorium or other laws relating to or
affecting creditors' rights generally and the exercise of judicial discretion in
accordance with general equitable principles.
5.3. No Contravention. Except as otherwise contemplated hereunder, the
execution, delivery and performance of this Agreement, the consummation of the
transactions contemplated hereby and the compliance with the provisions hereof
by Seller and Shareholder will not (a) violate any provisions of the corporate
charter or by-laws of Seller and Shareholder, (b) result in the breach of, or
constitute a default under, or result in the creation of any Lien, upon any of
the Assets under the provisions of any agreement or other instrument to which
Seller is a party or by which any Asset is bound or affected or (c) with respect
to Seller, violate any Applicable Laws.
5.4. Compliance with Law. Seller and Shareholder shall comply in all
material respects with Applicable Laws relating to the System, the Business and
the Assets.
5.5. Title to Assets.
5.5.1. SCHEDULE 5.5.1. is a list of all tangible personal
property included in the Assets. Seller has good and marketable title to all the
tangible personal property to be transferred by it hereunder, free and clear of
all Liens, charges or any other encumbrances, except for and subject only to
liens for Taxes not yet due or payable ("Permitted Liens").
5.5.2. SCHEDULE 5.5.2. is a list of all the Real Property.
Seller has good and marketable title to all of the Real Property to be
transferred by it hereunder, free and clear of all Liens, and without
reservation or exclusion of any mineral, timber or other rights or interests,
except for and subject only to (a) Permitted Liens, (b) those matters set forth
in SCHEDULE 5.5.2. including the leases listed thereon (whether as lessor or
lessee), none of which is violated by existing structures or impairs Seller's
use and none of which materially impairs or pursuant to its terms would
materially impair the present operations of the System or the present use of
such property, and (c) those Liens set forth in SCHEDULE 5.5.2. The Liens set
forth on SCHEDULE 5.5.2 will be removed on or prior to the Closing Date.
5.5.3. The Assets include all assets (except the Excluded
Assets and any assets used solely in connection with the Excluded Operations)
which are used to conduct the Business and operations of the System as presently
conducted .
5.6. Condition of the Assets. All tangible Assets are in reasonable
operating condition and repair, ordinary wear and tear excepted, are reasonably
suitable for the uses and purposes for which they are being used, and are in
compliance with all Applicable Laws, except where failure of such compliance
would not have a material adverse effect on the Assets, and Seller has no
knowledge and has received no notice that it or the present use of the Assets is
in violation in any material respect of any Applicable Laws. Notwithstanding the
foregoing, the Equipment is being sold on an "as
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is - where is" basis, and Seller is making no representations with respect to
the condition of the Equipment forming part of the Assets.
5.7. Authorizations. The Authorizations listed on SCHEDULE 5.7. are all
of the Authorizations necessary to operate the System, the Business and the
Assets as they are now operated. The Authorizations are validly issued in the
name of Seller and are in full force and effect. Except as set forth on SCHEDULE
5.7, the Authorizations are unimpaired by any acts or omissions of Seller (or
any of its Representatives) and the Authorizations are free and clear of any
restrictions which might limit the full operation of the System. All ownership
reports, employment reports, and other documents required to be filed by Seller
with the FCC with respect to the System have been filed or the time period for
such filing has not lapsed. All such reports and documents since the date that
Seller acquired the System are correct in all material respects. The FCC actions
granting the current FCC Authorization to operate the System together with all
underlying construction permits have not been reversed, stayed, enjoined, set
aside, annulled, or suspended, and no timely request for stay, motion or
petition for reconsideration or rehearing, application or request for review, or
notice of appeal or other judicial petition for review is pending. The time for
filing any such request, motion, petition, application, appeal, or notice, and
for the entry of an order staying, reconsidering, or reviewing on the FCC's or
other regulatory authorities' own motion, has expired.
5.8. Contracts. SCHEDULE 5.8. is a list of all Contracts other than
Subscriber Agreements and Contracts with Seller's Affiliates which will not
survive the Closing. Each such Contract is in full force and effect, paid
currently, and has not been materially impaired by any acts or omissions of
Seller or any of its Representatives. Except as set forth on SCHEDULE 5.8., no
Contract requires the consent of any other contracting party to the transactions
contemplated by this Agreement. Seller is not (and, to the best of its
knowledge, no other party is) in material breach or violation of, or default
under any of the Contracts. Seller is not aware of any intent by any party to
any Contract to terminate or amend the terms thereof or to refuse to renew any
Contract upon expiration of its term.
5.9. Intellectual Property. SCHEDULE 5.9. is a list of all Intellectual
Property. No person has a right to receive a royalty or similar payment in
respect of any Intellectual Property other than as indicated on SCHEDULE 5.9.
Seller has no licenses granted by or to it, or any other agreements to which it
is a party, relating in whole or in part to any of the Intellectual Property
other than as indicated on SCHEDULE 5.9. To Seller's knowledge, Seller's use of
the Intellectual Property is not infringing upon or otherwise violating the
rights of any third party, and no proceedings have been instituted against or
notices received by Seller alleging that such use of its Intellectual Property
infringes upon or otherwise violates any rights of a third party.
5.10. Employees; Employment Obligations. Seller and/or the System
currently employs those persons in those positions and at those salaries
(including benefits) as are listed on SCHEDULE 5.10. Seller shall hire no
further employees without the prior written consent of Purchaser, provided that
Seller may, as the need arises, hire employees to replace existing employees
without the consent of Purchaser. Except as otherwise set forth on such SCHEDULE
5.10., Seller and the System are not bound, and at no time have been bound, by
any oral or written collective bargaining agreement, severance, pension,
retirement, profit-sharing, 401(k), "employee benefit plan" (within the meaning
of Section 3(3) of the Employee Retirement Income Security Act of 1974, as
amended ("ERISA")), or other employment agreement (other than any agreements
terminable on 30 days' or less notice
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without penalty or severance obligation) with any officer, employee or
consultant, nor does Seller or the System have any liability under any such
agreement which was terminated previously. Seller has complied in all material
respects with all applicable laws, rules and regulations which relate to prices,
wages, hours, discrimination in employment and collective bargaining and is not
liable for any arrears of wages or any taxes or penalties for failure to comply
with any of the foregoing. With respect to each "employee benefit plan," if any,
within the meaning of Section 3(3) of ERISA, which is now, or ever has been,
maintained, contributed to, or required to be contributed to by Seller, such
employee benefit plan has been established and maintained in all material
respects in accordance with its terms and in material compliance with all
applicable laws, statutes, orders, rules and regulations, including but not
limited to ERISA. Seller is not a party to, and is not affected by or threatened
with, any dispute or controversy with a union or with respect to unionization or
collective bargaining involving the Employees of Seller or the System.
5.11. Financial Statements. Attached hereto as SCHEDULE 5.11. are the
audited and unaudited financial statements of Seller for the periods indicated
on such Schedule (the "Financial Statements"). SCHEDULE 5.11. also lists key
statistical summary information and other documents which set forth the
subscriber history for the last three years and local and roaming minutes of use
data of the System (since 1996 through the date of this Agreement) (the
"Operating Data Statements"). All Financial Statements are true and correct in
all material respects, have been prepared from the Books and Records and fairly
represent the financial position of Seller in a manner consistent with the prior
periods prepared in accordance with generally accepted accounting principles. To
Seller's knowledge, Seller has not incurred nor is it subject to any
Liabilities, whether accrued or absolute, which are not disclosed in the
Financial Statements or elsewhere in this Agreement. All Operating Data
Statements listed on such SCHEDULE 5.11. are accurate in all material respects.
5.12. Litigation. Except as set forth on SCHEDULE 5.12., there is no
action, order, writ, injunction, judgment or decree outstanding or claim, suit,
litigation, proceeding, or labor dispute ("Action"), other than rule-making
proceedings affecting the cellular telephone industry generally, pending or, to
the knowledge of Seller, threatened, relating to or affecting (a) Seller, (b)
the Assets, (c) the Business, or (d) the transactions contemplated by this
Agreement which if adversely determined, could have a material adverse effect on
the Business.. Seller is not in default with respect to any judgment, order,
writ, injunction or decree of any court or governmental agency, and there are no
unsatisfied judgments against Seller or the Assets. There is not a reasonable
likelihood of an adverse determination of any pending Action which would,
individually or in the aggregate, have a material adverse effect on the Assets
or the Business or the financial condition of Seller.
5.13. Complaints. There is not, to the best of Seller's knowledge, any
FCC investigation, notice of apparent liability or order of forfeiture pending
or outstanding against Seller or the System respecting any violation, or
allegation thereof, of any FCC rule, regulation or policy, or, to the best of
Seller's knowledge, any complaint before the FCC as a result of which an
investigation, notice of apparent liability or order of forfeiture may issue
from the FCC relating to the System.
5.14. Reports. Except as set forth in SCHEDULE 5.14. hereto, all
returns, reports and statements currently required to be filed by Seller with
the FCC or with any other Governmental Authority with respect to the System have
been filed and materially complied with and shall continue
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to be filed and be in substantial compliance on a current basis until the
Closing Date. All such reports, returns and statements are (or will be, in the
case of future reports) substantially complete and materially correct as filed.
5.15. Taxes. Seller has paid in full or discharged all Taxes relating
to the ownership and operation of the Assets and all Taxes the non-payment of
which could result in a Lien on the Assets in the hands of the Purchaser,
excepting in each case such Taxes which are not yet due or which are being
contested and for which adequate reserves have been made. No event has occurred
that could impose on Purchaser any liability for any Taxes, due or to become
due, from Seller to any taxing authority.
5.16. No Other Agreements to Sell the System or the Assets. Seller has
no other legal obligation, absolute or contingent, to any other Person to sell,
or offer to sell (including any right of first refusal or other similar
agreement) the Assets or any capital stock of Seller or to effect any merger,
consolidation or other reorganization of Seller or to enter into any contract
with respect thereto.
5.17. Resale and Roaming Agreements. SCHEDULE 5.17. contains a list of
all resale agreements to which Seller is a party, both as reseller and as a
provider of resale services to others. SCHEDULE 5.17. also contains a list of
all roaming agreements to which Seller is a party. All such resale and roaming
agreements are in full force and effect and, subject to rates which may be
imposed upon Seller beyond Seller's control, are on terms reasonable and
customary in the cellular telephone industry.
5.18. Environmental Matters. Except as set forth in SCHEDULE 5.18., to
Seller's knowledge the Operating Sites, and all existing and prior uses of the
Operating Sites, comply and have at all times complied with the Environmental
Laws. Seller has not used, generated manufactured, refined, transported,
treated, stored, leaked, poured, emitted, emptied, released, discharged,
disposed, spilled or Handled any Regulated Substance on or under any Operating
Site. To Seller's knowledge (a) there is and has been no Handling of any
Regulated Substances at, on, or from any Operating Site; (b) there is and has
been no presence of Regulated Substances on or under any Operating Site
regardless of how the Regulated Substance or Regulated Substances came to rest
there; (c) no underground tanks, PCBs or asbestos-containing materials are or
have been located on or under any Operating Site; (d) no Liens have been, or
are, imposed on any of the Assets under any Environmental Laws; (e) no action,
proceeding, revocation proceeding, amendment procedure, writ, injunction or
claim is pending, or threatened concerning any environmental permit, Regulated
Substance or activity related thereto. Neither Seller nor any Person acting on
behalf of Seller has released any other Person from any claims Seller might
have, or have had, for any matter relating to presence or Handling of Regulated
Substances at any Operating Site. Seller has obtained all permits, licenses,
registrations, and other approvals and has made all reports and notifications
required under any Environmental Laws in connection with the Assets, and is in
compliance in all material respects with all applicable Environmental Laws.
There are no present actions, activities, circumstances, conditions, events, or
incidents that would be expected to involve Seller (or any Person whose
liability Seller has retained or assumed, either by contract or operation of
law) in any litigation under the Environmental Laws, or impose upon Seller (or
any Person whose liability Seller has retained or assumed, either by contract or
operation of law) any environmental liability including, without
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limitation, common law tort liability. SCHEDULE 5.18. hereto also contains a
list and brief description of all Environmental Law filings by Seller with,
notices to Seller from, and related reports to all Governmental Authorities
administering Environmental Laws, within three years prior to the date hereof,
including without limitation, filings made, corrective action taken, or
citations received by Seller.
5.19. No Brokers. Neither Seller nor any of its Affiliates has entered
into or will enter into any Contract with any person or firm which will result
in the obligation of Purchaser to pay any finder's fee, brokerage commission or
similar payment in connection with the transactions contemplated hereby.
5.20. No Material Adverse Change. Except as set forth on SCHEDULE 5.20,
since the date of the most recent Financial Statements, there has not been:
5.20.1. any material adverse change in the rate of Seller's
generation of cash flow from operations (as opposed to cash flow from
financing operations and investment activities) after giving effect to
customary seasonal fluctuations of cash flow generation;
5.20.2. any occurrence, assumption or guarantee by Seller of
indebtedness other than pursuant to Contracts in existence on the date
hereof and set forth or described on the Schedules annexed hereto;
5.20.3. any creation by Seller of any Lien or encumbrance on
any material Asset other than pursuant to Contracts in existence on the
date hereof and set forth or described on the Schedules annexed hereto;
5.20.4. any making of any loan, advance or capital
contribution to or investment in any Person by Seller;
5.20.5. any damage, destruction or other casualty loss
affecting the Business or the Assets which, after giving effect to
payments to Seller under applicable insurance policies, has had or is
likely to have a material adverse effect on the financial condition of
Seller or the System; or
5.20.6. any change by Seller in accounting principles or
methods not required by law or year end changes.
5.21. Year 2000 Compliance. Seller has performed the necessary testing
to determine whether all material software and computer systems used in the
operation of the System are Year 2000 Compliant. To the extent that such testing
indicated that Seller's software or computer systems are not Year 2000
Compliant, such software and/or computer systems were modified or will be
modified prior to the Closing Date so they are Year 2000 Compliant. For purposes
of this Section, "Year 2000 Compliant" means that Seller's software or computer
systems receive, record, store, process, rout, transfer or present calendar
dates and any related information falling on or after January 1, 2000 with
similar functionality, in all material respects, as such software or computer
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systems perform such functions for calendar dates and related information
falling prior to January 1, 2000.
5.22. Miscellaneous. No representation or warranty made by Seller in
this Agreement, and no statement made in any schedule, exhibit, certificate or
other document furnished pursuant to this Agreement, contains any untrue
statement of a material fact or knowingly omits or fails to state, or will
knowingly omit or fail to state, any material fact or information necessary to
make such representation or warranty or any such statement not materially
misleading; provided however, that nothing contained in this Section 5.22. shall
alter the standard of those representations or warranties which are made "to
Seller's knowledge" or "to the best of Seller's knowledge" or phrases of similar
import.
ARTICLE 6.
REPRESENTATIONS AND WARRANTIES OF PURCHASER
Purchaser hereby makes the following representations and warranties to
Seller, all of which have been relied upon by Seller in entering into this
Agreement and the truth and accuracy of which shall constitute a condition
precedent to the obligations of Seller hereunder:
6.1. Organization and Standing. Purchaser (a) is a corporation duly
organized, validly existing and in good standing under the laws of the state of
its incorporation, (b) has full corporate power and authority to enter into and
perform this Agreement, to own the Assets, and to carry on the Business upon
consummation of the transactions contemplated by this Agreement, and (c) is duly
qualified to do business and is in good standing as a foreign corporation in
every jurisdiction in which the nature of the business conducted by it requires
such qualification, except where the failure to so qualify would not materially
adversely affect Purchaser or the transactions contemplated by this Agreement.
6.2. Authorization and Binding Obligations. The execution, delivery and
performance by Purchaser of this Agreement has been or will be within ten (10)
business days, duly and validly authorized by all necessary corporate action,
including approval of the entire transaction by the board of directors of
Purchaser and Western. This Agreement has been duly executed and delivered by
Purchaser and constitutes a valid and binding obligation of Purchaser,
enforceable against Purchaser in accordance with its terms except as its
enforceability may be limited by bankruptcy, insolvency, moratorium or other
laws relating to or affecting creditors' rights generally and the exercise of
judicial discretion in accordance with general equitable principles.
6.3. No Contravention. Except as otherwise contemplated hereunder, the
execution, delivery and performance of this Agreement, the consummation of the
transactions contemplated hereby and the compliance with the provisions hereof
by Purchaser will not (a) violate any provisions of the corporate charter or
by-laws of Purchaser, (b) result in the breach of, or constitute a default under
or result in the creation of any Lien upon any assets of Purchaser, under the
provisions of any agreement or other instrument to which Purchaser is a party or
by which the property of Purchaser is bound or affected or (c) with respect to
Purchaser, violate any Applicable Laws.
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6.4. Litigation. Except as set forth on SCHEDULE 6.4., there is no
Action, other than rule-making proceedings affecting the cellular telephone
industry generally, pending or, to the knowledge of Purchaser, threatened or
anticipated against, relating to or affecting Purchaser that would have a
material adverse effect on Purchaser or Purchaser's ability to consummate the
transactions contemplated by this Agreement. Purchaser is not in material
default with respect to any material judgment, order, writ, injunction or decree
of any court or governmental agency, and there are no unsatisfied judgments
against Purchaser. There is not a reasonable likelihood of an adverse
determination of any pending Action which would, individually or in the
aggregate, have a material adverse effect on Purchaser or Purchaser's ability to
consummate the transactions contemplated by this Agreement.
6.5. No Brokers. Neither Purchaser nor any of its Affiliates has
entered into or will enter into any contract, agreement, arrangement or
understanding with any person or firm which will result in the obligation of
Seller to pay any finder's fee, brokerage commission or similar payment in
connection with the transactions contemplated hereby.
6.6. Miscellaneous. No representation or warranty made by Purchaser in
this Agreement, and no statement made in any schedule, exhibit, certificate or
other document furnished pursuant to this Agreement, contains any untrue
statement of a material fact or knowingly omits or fails to state, or will
knowingly omit or fail to state, any material fact or information necessary to
make such representation or warranty or any such statement not materially
misleading; provided however, that nothing contained in this Section 6.6. shall
alter the standard of those representations or warranties which are made "to
Purchaser's knowledge" or "to the best of Purchaser's knowledge" or phrases of
similar import.
ARTICLE 7.
CONDITIONS TO SELLER'S OBLIGATIONS
The obligations of Seller to sell the Assets and to otherwise
consummate the transactions contemplated by this Agreement are subject, in the
discretion of Seller, to the satisfaction, on or prior to the Closing Date, of
each of the following conditions:
7.1. Representations, Warranties and Covenants. All representations and
warranties of Purchaser contained in this Agreement that do not otherwise
reference a specific date shall be true and correct in all material respects at
and as of the Closing Date as if such representations and warranties were made
at and as of the Closing Date, and Purchaser shall have performed in all
material respects all agreements and covenants required hereby to be performed
by Purchaser prior to or at the Closing Date. There shall be delivered to Seller
a certificate (signed by an authorized Officer of Purchaser) to the foregoing
effect ("Purchaser's Closing Certificate").
7.2. Closing Documents. Seller shall have received from Purchaser the
documents and other items to be delivered by Purchaser pursuant to Section 9.2.
of this Agreement.
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7.3. Opinion of Purchaser's Counsel. Purchaser shall have delivered to
Seller an opinion of in-house counsel for Purchaser in substantially the form
attached hereto as SCHEDULE 7.3.
7.4. Opinion of Purchaser's FCC and PUC Counsel. Purchaser shall have
delivered to Seller an opinion or opinions of FCC and, if applicable, PUC
counsel for Purchaser in substantially the form attached hereto as SCHEDULE 7.4.
7.5. Certificates. Purchaser shall furnish Seller with such
certificates of the officers of Purchaser and others to evidence compliance with
the conditions set forth in this Article as may be reasonably requested by
Seller.
7.6. Purchase Price. Seller shall have received payment of the Purchase
Price in accordance with Article 2.
7.7. HSR Waiting Period. Any waiting period required by the HSR Act
shall have lapsed or been terminated, and any investigation of the transactions
contemplated by this Agreement commenced by the Department of Justice and/or the
Federal Trade Commission pursuant to the HSR Act shall have been terminated.
7.8. No Restraint. There shall not be any pending suit or proceeding to
restrain or invalidate, in whole or in part, this Agreement or the transaction
contemplated herein.
7.9. Corporate Authorization. Purchaser shall have delivered evidence,
satisfactory to Seller, that the corporate authorizations contemplated by
Section 6.2 hereof has been timely obtained.
ARTICLE 8.
CONDITIONS TO PURCHASER'S OBLIGATIONS
The obligations of Purchaser to purchase the Assets and to otherwise
consummate the transactions contemplated by this Agreement are subject, in the
discretion of Purchaser, to the satisfaction or waived, on or prior to the
Closing Date, of each of the following conditions:
8.1. Representations, Warranties and Covenants. All representations and
warranties of Seller contained in this Agreement that otherwise do not reference
a specified date shall be true and correct in all material respects at and as of
the Closing Date as if such representations and warranties were made at and as
of the Closing Date, and Seller shall have performed in all material respects
all agreements and covenants required hereby to be performed by Seller prior to
or at the Closing Date. There shall be delivered to Purchaser a certificate
(signed by an authorized officer of Seller) to the foregoing effect ("Seller's
Closing Certificate").
8.2. Consent. The FCC shall have consented to the transfer of the
Assets to Purchaser and such consents shall have become a Final Order.
8.3. Board / Stockholder Approval. The transactions contemplated herein
shall have been approved by the necessary number of stockholders and directors
of Seller.
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8.4. Closing Documents. Purchaser shall have received from Seller the
documents and other items to be delivered by Seller pursuant to Section 9.1.
hereof.
8.5. Opinion of Seller's Counsel. Seller shall have delivered to
Purchaser an opinion or opinions of Seller's in-house counsel for Seller in
substantially the form attached hereto as SCHEDULE 8.5
8.6. Opinion of Seller's FCC and PUC Counsel. Seller shall have
delivered to Purchaser an opinion or opinions of FCC and, if applicable, PUC
counsel for Seller in substantially the form attached hereto as SCHEDULE 8.6
8.7. Certificates. Seller shall furnish Purchaser with such
certificates of the respective officers of Seller and others to evidence
compliance with the conditions set forth in this Article as may be reasonably
requested by Purchaser.
8.8. HSR Waiting Period. Any waiting period required by the HSR Act
shall have lapsed or been terminated, and any investigation of the transactions
contemplated by this Agreement commenced by the DOJ and/or the FTC pursuant to
the HSR Act shall have been terminated.
ARTICLE 9.
THE CLOSING
On the Closing Date at the Closing Place:
9.1. Deliveries by Seller to Purchaser. Seller shall deliver to
Purchaser:
9.1.1. one or more assignments transferring to Purchaser (or
its designee) all of Seller's interest in and to the Authorizations;
9.1.2. one or more instruments of conveyance transferring to
Purchaser (or its designee) all of Seller's interest in and to the Equipment and
the Books and Records;
9.1.3. one or more assignments or other instruments of
conveyance that may be reasonably requested by Purchaser transferring to
Purchaser (or its designee) Seller's interest in and to the Intellectual
Property;
9.1.4. one or more instruments of conveyance transferring to
Purchaser (or its designee) the Contracts in effect on the Closing Date;
9.1.5. one or more executed warranty deeds and assignments in
recordable form, transferring to Purchaser (or its designee) Seller's interest
in and to the Real Property;
9.1.6. one or more instruments of conveyance transferring to
Purchaser (or its designee) any of the other Assets not otherwise conveyed as
provided above;
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9.1.7. the opinions of Seller's counsel referenced in Sections
8.4. and 8.5. hereof;
9.1.8. a lien and judgment search from (a) the offices of the
Secretaries of State of the state of incorporation of Seller and the state in
which Seller is conducting business, and (b) the office of the county clerk of
the applicable counties therein, dated not earlier than fifteen (15) business
days prior to the Closing Date, the results of which are consistent with
Seller's representations in this Agreement;
9.1.9. an affidavit certifying as to Seller's non-foreign
status in accordance with Section 1445(b)(2) of the Code;
9.1.10. copy of the resolutions of the board of directors of
Seller approving the transactions contemplated by this Agreement certified by an
appropriate officer of Seller, together with copies of the Certificate of
Incorporation and By-Laws of Seller, certified by an appropriate officer of
Seller; and
9.1.11. Seller's Closing Certificate.
9.1.12. Executed Escrow Agreement
9.2. Deliveries by Purchaser to Seller. Purchaser shall
deliver to Seller (or its designee):
9.2.1. one or more agreements whereby Purchaser (or its
designee) assumes and agrees to perform Seller's obligations, liabilities and
duties under the Assumed Liabilities;
9.2.2. the opinion of Purchaser's counsel referenced in
Sections 7.3. and 7.4 hereof;
9.2.3. Purchaser's Closing Certificate; and
9.2.4. payment of the Purchase Price.
9.2.5. Executed Escrow Agreement.
ARTICLE 10.
ACTIONS BY THE PARTIES AFTER THE CLOSING
10.1. Further Assurances. On and after the Closing Date, the Parties
will take all appropriate action and execute all documents, instruments or
conveyances of any kind which may be reasonably necessary or advisable to carry
out any of the provisions hereof, including without limitation, putting
Purchaser (or its designee) in possession and operating control of the Assets
and the System.
10.2. Post-Closing Tax Covenant. Seller shall promptly pay Taxes
payable with respect to the operation of the System arising prior to Closing for
which Seller is responsible that become
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due or otherwise have given rise to, or could give rise to, any Lien on the
Assets prior to the Final Settlement.
ARTICLE 11.
INDEMNIFICATION
11.1. Survival. The several representations, warranties, covenants, and
agreements of the Parties contained in this Agreement (or in any document
delivered in connection herewith) shall be (i) deemed to have been made on the
date of this Agreement and on the Closing Date, (ii)shall be deemed to be
material and to have been relied upon by the Parties notwithstanding any
investigation made by the Parties, and (iii) shall survive the Closing Date (the
"Survival Period") for a period of eighteen (18) months following the Closing
Date; provided, however, that the representations, warranties and agreements of
Seller contained in Sections 5.5. (Title to Assets), 5.7. (Authorizations), 5.15
and 10.2 (Taxes), and 5.18. (Environmental Matters) shall continue to survive
for the duration of any applicable statute of limitations. Any claim for breach
of a representation or warranty (an "Indemnity Claim") for which written notice
shall have been provided prior to the termination of the applicable survival
period to the Party which made such representation or warranty shall be deemed
to be timely made within the applicable indemnification period.
11.2. Seller's Indemnity.
11.2.1. During the indemnification Survival Period (or
thereafter solely with respect to any Indemnity Claim made prior to the
expiration of the applicable Survival Period), Seller and Shareholder shall
indemnify and hold harmless Purchaser and its Affiliates from and against any
and all demands, claims, losses, liabilities, actions or causes of action,
assessments, actual damages (but excluding consequential damages such as lost
profits and punitive damages), fines, Taxes, penalties, reasonable costs and
expenses (including, without limitation, interest, reasonable expenses of
investigation, reasonable fees and disbursements of counsel, accountants and
other experts (whether such reasonable fees and disbursements of counsel,
accountants and other experts relate to claims, actions or causes of action
asserted by Purchaser against Seller or asserted by third parties))
(collectively "Losses") incurred or suffered by Purchaser, its Affiliates, and
their respective officers, directors, employees, agents and Representatives,
arising out of, resulting from, or relating to:
(a) Any breach of any of the representations or
warranties made by Seller in this Agreement or in any agreement, certificate,
exhibit or other instrument delivered by the Seller pursuant to this Agreement;
(b) Any failure by Seller to perform any of its
covenants or agreements contained in this Agreement or in any agreement,
certificate or other instrument delivered by the Seller pursuant to this
Agreement; and
(c) Any claims by third parties (including claims by
other stockholders) arising from, relating to or out of (i) the ownership or
operation of the System or the Assets prior to the Closing Date, or (ii) the
execution or performance of this Agreement by Seller.
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11.2.2. As collateral security for Sellers indemnification
obligations under this Agreement, at the Closing, in accordance with Section 2.2
hereof, Purchaser shall deliver to the Escrow Agent, the Escrow Amount (as
defined in Section 2.2), to be held in an interest bearing account pursuant to
the terms of an escrow agreement, in substantially the form of SCHEDULE 11.2.2
attached hereto (the "Escrow Agreement"). The Escrow Amount shall be held by the
Escrow Agent for a period of eighteen (18) months after the Closing Date upon
the expiration of which time the Escrow Amount, plus any accrued but
undistributed interest, shall be released to Seller, subject to a continuing
hold back of the Escrow Amount for any asserted and outstanding indemnification
claims at such time. Nothing contained in this section 11.2.2 or in the Escrow
Agreement shall limit in any way Seller's indemnification obligations under this
Agreement; it being understood that if the Escrow Amount is not sufficient to
satisfy such indemnifications obligations as set forth in this Agreement, then
Seller shall remain liable for such indemnification obligations until expiration
of the applicable Survival Periods and the absence of any pending Indemnity
Claims.
11.3. Purchaser's Indemnity.
11.3.1. During the Survival Period (or thereafter solely with
respect to any Indemnity Claim made prior to expiration of the applicable
Survival Period),from and after the Closing Date, Purchaser shall indemnify and
hold harmless Seller and its Affiliates from and against any and all Losses
incurred or suffered by Seller, its Affiliates, and their respective officers,
directors, employees, agents and Representatives, arising out of, resulting
from, or relating to:
(a) Any breach of any of the representations or
warranties made by Purchaser in this Agreement or in any agreement, certificate
or other instrument delivered by Purchaser pursuant to this Agreement;
(b) Any failure by Purchaser to perform any of its
covenants or agreements contained in this Agreement or in any agreement,
certificate or other instrument delivered by Purchaser pursuant to this
Agreement;
(c) Any claims by third parties arising from,
relating to or out of the ownership or operation of the System or the Assets
after the Closing Date; or
(d) Any claims with respect to the Assumed
Liabilities.
11.4. Procedure. Notwithstanding anything to the contrary contained in
this Article 11, no Party shall be entitled to make an Indemnification Claim
under this Article 11 for any Losses unless the amount of such Losses in respect
of all such matters, when aggregated, exceeds $250,000, in which event, such
Party shall be entitled to seek indemnification for the entire amount of such
Losses. In the event that any Party hereto shall sustain or incur any Losses in
respect of which indemnification may be sought by such Party pursuant to this
Article 11, the Party seeking such indemnification (the "Indemnitee") shall
assert an Indemnification Claim by giving prompt written notice thereof (the
"Notice") which shall describe in reasonable detail the facts and circumstances
upon which the Indemnification Claim is based along with a copy of the claim or
complaint, to the Party required to provide indemnification (the "Indemnitor")
and shall thereafter keep the Indemnitor reasonably and promptly informed with
respect thereto; provided that failure of the Indemnitee to
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give the Indemnitor prompt notice as provided herein shall not relieve the
Indemnitor of any of its obligations hereunder, except to the extent that the
Indemnitor is materially prejudiced by such failure. For purposes of this
paragraph, any Notice which is sent within 15 days of the date upon which the
Indemnitee obtained actual knowledge of such Loss shall be deemed to have been a
"prompt notice."
11.4.1. If the Indemnitor wishes to defend any claim for any
Losses for which such Indemnitor is or may be liable, and such Indemnitor first
establishes (to the reasonable satisfaction of the Indemnitee) the Indemnitor's
financial ability to pay for any such Losses, then such Indemnitor may, at its
own expense, defend such claim; provided that the Indemnitee may retain counsel
(at the Indemnitee's expense) to monitor the defense of such claim, and may take
over such defense if, during the course thereof, it reasonably appears that the
Indemnitor has lost its ability to pay for any Losses threatened by such claim.
If an Indemnitor assumes the defense of such an action, no compromise or
settlement thereof may be effected by the Indemnitor without the Indemnitee's
consent, which consent shall not be unreasonably withheld. If an Indemnitor
fails, within thirty (30) days after the date of the Notice, to give notice to
the Indemnitee of said Indemnitor's election to assume the defense thereof, said
Indemnitor shall be bound by any determination made in such action or any
compromise or settlement thereof effected by the Indemnitee.
11.4.2. Amounts payable by the Indemnitor to the Indemnitee in
respect of any Losses for which any Party is entitled to indemnification
hereunder shall be payable by the Indemnitor as incurred by the Indemnitee,
unless such Indemnification Claim is reasonably disputed by the Indemnitor.
11.5. Indemnification Payments in Cash. All payments in respect to any
undisputed or resolved Indemnification Claims shall be made in cash.
11.6. Investigations: Waivers. The Survival Periods and rights to
indemnification provided for in this Article 11 shall remain in effect
notwithstanding any investigation at any time by or on behalf of any Party
hereto or any waiver by any Party hereto of any condition to such Party's
obligations to consummate the transactions contemplated hereby.
11.7. Limitation of Liability: Notwithstanding anything in this
Agreement to the contrary, the aggregate amount of Seller's liability under this
Article 11 shall not exceed twenty-five percent (25%) of the amount of the
Purchase Price (the "Indemnification Amount", provided, however, that in the
event of a failure by Seller to deliver good, valid, and unencumbered title to
the Assets, the Indemnification Amount shall be adjusted to an amount equal to
Purchaser's Loss related to such failure, but in no event shall such adjusted
Indemnification Amount exceed the Purchase Price). Notwithstanding anything in
this Agreement to the contrary, the aggregate amount of Purchaser's liability
under this Article 11 shall not exceed the Indemnification Amount.
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ARTICLE 12.
DEFAULT AND REMEDIES
12.1. Opportunity to Cure. If any Party believes that another Party to
be in default hereunder, such Party shall provide the defaulting Party with
written notice specifying in reasonable detail the nature of such default. If
the default has not been cured by the earlier of: (a) the Closing Date, or (b)
within thirty (30) days after delivery of that notice, then the Party giving
such notice may terminate this Agreement and/or exercise the remedies available
to such Party pursuant to this Article 12., subject to the right of the
defaulting Party to contest such action through appropriate proceedings. In the
event that Seller has failed to cure any such breach by the Closing Date,
Purchaser shall have the right to extend the Closing Date until such time that
Seller cures the breach.
12.2. Remedies/Arbitration. (a) Any claim under this Agreement brought
after the Closing Date, and any claim under this Agreement brought prior to the
Closing Date in which the Party bringing the claim is praying solely for
monetary damages, shall be submitted to binding arbitration in accordance with
the commercial arbitration rules of the American Arbitration Association and the
provisions contained herein. The arbitration shall be conducted in Chicago,
Illinois by a panel of three arbitrators. All claims between the parties shall
be arbitrated in a single proceeding, to the full extent practicable.
(b) The Party initiating arbitration shall give the other party written
notice of the matter in dispute and the name of one arbitrator appointed by the
initiating Party. Within 14 days after receipt of such notice, the
non-initiating Party shall give notice to the initiating Party of the arbitrator
appointed by it. If the non-initiating Party fails to designate its arbitrator
within the said 14-day period, the American Arbitration Association shall select
an arbitrator for such Party. Within 14 days after the appointment of the second
arbitrator, the other two arbitrators so appointed shall agree on a third
arbitrator. If the two arbitrators are unable to agree on a third arbitrator
within said 14-day period, then the American Arbitration Association shall
appoint the third arbitrator.
(c) All determinations in the final decision of the arbitration panel
shall be made by majority vote. The fees and expenses of the arbitration panel
shall be awarded by the arbitrators in their discretion as part of their award.
The arbitrators' award will be binding on the Parties hereto and may be entered
in any court of competent jurisdiction.
(d) Notwithstanding the foregoing, the Parties agree that irreparable
damage would occur in the event that any of the provisions of this Agreement
were not performed in accordance with their specific terms or were otherwise
breached. It is accordingly agreed that the Parties shall be entitled to an
injunction or injunctions to prevent breaches or this Agreement and to enforce
specifically the terms and provisions hereof in any court of the United States
or any state having jurisdiction, this being in addition to any other remedy to
which they are entitled at law or in equity. Each Party agrees that it will not
assert, as a defense against a claim for specific performance, that the Party
seeking specific performance has an adequate remedy at law.
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ARTICLE 13.
TERMINATION
13.1. Absence of FCC Consent. In addition to Purchaser's termination
rights in Sections 2.5 and 12.1, this Agreement may be terminated at the option
of Seller or Purchaser upon written notice to the other if the Transfer
Application has not been granted by Final Order within twelve (12) months after
the date of this Agreement. Neither Party may terminate this Agreement pursuant
to this Section if such Party is in material default hereunder, or if a delay in
any decision or determination by the FCC respecting the Transfer Application has
been caused or materially contributed to by such Party's action or inaction with
respect to such Transfer Application. Purchaser shall have the right to extend
the date after which this Agreement may be terminated under this Section 13.1
for an additional 6 months, if the failure to consummate the transactions
contemplated herein results solely from the failure of the FCC to issue a Final
Order regarding the Transfer Application.
13.2. Mutual Consent. This Agreement may be terminated by the mutual
consent of the Parties.
13.3. Delays for Corporate Disputes. Purchaser may elect to terminate
this Agreement upon written notice to Seller if any disputes, litigation, or
other unresolved matters between or among Seller, Celutel, and/or any of their
respective stockholders or directors, or any action by or on behalf of a
stockholder of Celutel, including without limitation, any filing with any
Governmental Authority (a "Dispute") causes the Closing to be delayed beyond the
Closing Date or causes the Closing not to occur, if such Dispute is not resolved
within 30 days after the Closing Date. If this Agreement is terminated pursuant
to this Section 13.3, then Seller shall pay to Purchaser, as a termination fee,
Two-Hundred and Fifty Thousand Dollars ($250,000) (the "Termination Fee").
Purchaser stipulates that the Termination Fee shall be the only obligation of
Seller under this Section 13.3, and Seller shall not be responsible for any
costs incurred by Purchaser arising out of, in connection with, or related to
the transactions contemplated by this Agreement, including, without limitation,
any of Purchaser's fees paid to legal, accounting, financial, and other
professional advisors. Seller and Purchaser understand and agree that this
Section 13.3 shall apply to a termination of this Agreement under Sections 13.1
and 2.5 hereof, but only in the event that such termination is caused by a
Dispute.
ARTICLE 14.
DAMAGE; RISK OF LOSS
14.1. Risk of Loss. The risk of loss or damage to the Assets shall be
upon Seller at all times prior to the Closing Date. In the event of material
loss or damage to the Assets prior to the Closing Date, Seller shall promptly
notify Purchaser thereof and best efforts to repair, replace or restore the lost
or damaged property to its former condition as soon as practicable. If such
repair, replacement, or restoration has not been completed prior to the Closing
Date, Purchaser may, at its option:
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14.1.1. elect to consummate the Closing and make such
arrangements as the Parties may reasonably agree upon to remedy such loss or
damage; or
14.1.2. elect to postpone the Closing Date, with prior consent
of the FCC if necessary, for such reasonable period of time (not to exceed
ninety (90) days) as is necessary for Seller to repair, replace, or restore (or
to cause to be repaired, replaced or restored) the lost or damaged property to
its former condition. If, after the expiration of that extension period, the
lost or damaged property has not been adequately repaired, replaced or restored,
Purchaser may terminate this Agreement or elect to consummate the Closing as
provided in Section 14.1.1.
For purposes of this Section, loss or damage shall be deemed "material"
if the reasonable cost to repair, replace, or restore the lost or damaged
property exceeds $100,000.00.
14.2. Resolution of Disagreements. If the Parties are unable to agree
upon the extent of any loss or damage, the cost to repair, replace or restore
any lost or damaged property, the adequacy of any repair, replacement, or
restoration of any lost or damaged property, or any other matter arising under
this Section, the disagreement shall be referred to a qualified consulting
communications engineer mutually acceptable to Seller and Purchaser who is a
member of the Association of Federal Communications Consulting Engineers, whose
decision shall be final, and whose fees and expenses shall be paid one-half by
Seller and one-half by Purchaser.
ARTICLE 15.
EMPLOYEES
15.1. Employees. For purposes of this Article 15, the term "Employees"
shall include all full-time and part-time employees, employees on workers'
compensation, military leave, maternity leave, leave under the Family and
Medical Leave Act of 1993, short-term and long-term disability (including a
disability pension), non-occupational disability, on layoff with recall rights,
and employees on other approved leaves of absence with a legal or contractual
right to reinstatement. The Parties agree to use their good faith efforts to
provide for a transition of Employees to be hired by Purchaser in a manner that
is consistent with the letter agreement dated ___________, 1999 between the
Parties.
15.2. Responsibility for Employees on or Before the Closing. All
medical, dental, vision, travel accident, accidental death and dismemberment,
and life insurance expenses incurred by Employees and their dependents on or
before the Closing Date, pursuant to any employee plan, irrespective of the time
such claims are presented, shall be the responsibility of Seller on the Closing
Date. Seller shall be responsible for any medical, dental or life insurance
coverage due to any Employees and their dependents who retired on or before the
Closing Date. Seller agrees to fulfill its obligations under continuation
coverage rules of COBRA with respect to a "qualifying event," with the meaning
or Section 4980B(f) of the Code or Section 603 or ERISA, occurring on or before
the Closing Date with respect to any Employees who are not hired by Purchaser
and their dependents. All short-term, long-term and extended disability benefits
payable to Employees and their dependents who became disabled on or before the
Closing Date are the responsibility of Seller
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and shall be paid directly by Seller or their insurance carrier to such
Employees and their dependents. If any Employee is terminated from employment on
or before the Closing Date by Seller as result of the transactions contemplated
by this Agreement or otherwise, any obligations arising out of such termination,
including severance, accrued vacation pay, COBRA obligations, employment
discrimination complaints, unfair labor practice charges, grievance under any
collective bargaining agreement, wrongful termination and related tort claims
and breach of contract claims shall be the sole responsibility of Seller.
Purchaser shall have the sole responsibility for the items listed in the
preceding sentences for Purchaser's actions it takes with respect to Employees
it hires after the Closing Date. Seller agrees that until expiration of all
applicable statutes of limitation, to indemnify, hold harmless and defend
Purchaser and its Affiliates from and against any and all claims, damages,
liabilities and expenses including reasonable attorneys' fees and disbursements,
incurred by Purchaser or any of its Affiliates arising from or in connection
with any failure of Seller to discharge its responsibilities under this Section
15.2 with respect to Employees arising from or relating to the period through
the Closing Date.
ARTICLE 16.
MISCELLANEOUS
16.1. Assignment. Neither this Agreement nor any of the rights or
obligations hereunder may be assigned by Seller or Purchaser without the prior
written consent of the others, except that Purchaser may, without such consent,
assign its right, title and interest in, to and under this Agreement to an
Affiliate. In addition, the Seller may assign this Agreement upon prior written
notice to the other Party, without the other Party's consent to effect an
Exchange. Subject to the foregoing, this Agreement shall be binding upon and
inure to the benefit of the Parties hereto and their respective successors and
assigns, and no other person shall have any right, benefit or obligation
hereunder.
16.2. Guaranty of Western. Western, as an affiliate of Purchaser,
agrees that it shall ensure performance by Purchaser (or its assignee) of the
obligations of Purchaser (or its assignees) under this Agreement, including the
payment of the Purchaser Price on the same terms and conditions as are contained
in this Agreement. Except as expressly stated in this Section 16.2, Western
shall have no other obligation or responsibility under this Agreement.
16.3. Notices. Unless otherwise provided herein, any notice, request,
instruction or other document to be given hereunder by any Party to the other
shall be in writing and delivered in person or by courier, telegraphed, telexed
or by facsimile transmission or mailed by registered or certified mail, postage
prepaid, return receipt requested or overnight courier, as follows:
If to Purchaser:
Scott Hopper
Western Wireless Corporation
3650 - 131st Avenue
Bellevue, Washington 98006
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With a copy to:
Stokes Lawrence, P.S.
800 Fifth Avenue, Suite 4000
Seattle, WA 98104-3199
Attention: James H. Feldman, Esq.
If to Seller or Celutel:
100 Century Park Drive
Monroe, Louisiana 71203
Attention: R.Stewart Ewing
Stacey W. Goff, Esq.
With a copy to:
Boles Boles & Ryan
1805 Tower Drive
Monroe, Louisiana 71201
Attention: William R. Boles, Jr., Esq.
Fax: 318-329-9150
or to such other place and with such other copies as a Party may designate as to
itself by written notice to the others. All such notices and communications
shall be deemed to have been duly given at the time of receipt.
16.4. Choice of Law. This Agreement shall be construed, interpreted and
the rights of the Parties determined in accordance with the laws of the State of
Delaware, except with respect to matters of law concerning the internal
corporate affairs of any corporate entity which is a party to or the subject of
this Agreement, and as to those matters the law of the jurisdiction under which
the respective entity derives its powers shall govern.
16.5. Entire Agreement; Amendments and Waivers. This Agreement,
together with all exhibits and schedules hereto, constitutes the entire
agreement among the Parties pertaining to the subject matter hereof and
supersedes all prior agreements, understandings, negotiations and discussions,
whether oral or written, of the Parties. No supplement, modification or waiver
of this Agreement shall be binding unless executed in writing by the party to be
bound thereby. No waiver of any of the provisions of this Agreement shall be
deemed or shall constitute a waiver of any other provision hereof (whether or
not similar), nor shall such waiver constitute a continuing waiver unless
otherwise expressly provided.
16.6. Section 1031 Exchange. The purchase or sale (as applicable) of
the Assets contemplated by this Agreement may be consummated as part of a non
taxable "exchange" pursuant to Section 1031 of the Code ("Exchange") provided
that: (a) the Closing shall not be delayed or affected by reason of the Exchange
nor shall the consummation or accomplishment of an Exchange be a condition
precedent or condition subsequent to the exchanging Party's obligations under
this Agreement; (b) the exchanging Party shall effect its Exchange through an
assignment of this Agreement, or its rights under this Agreement, to a qualified
intermediary as defined in Treas. Reg. Section 1.1031(k)-1(g)(4); (c) neither
Seller nor Purchaser shall be required to take an assignment of this Agreement
for relinquished or replacement property or be required to acquire or hold title
to
34
<PAGE> 35
any property for purposes of consummating an Exchange desired by the other
Party; and (d) the exchanging Party shall pay any additional costs that would
not otherwise have been incurred by the non-exchanging Party had the exchanging
Party not consummated the transaction through an Exchange. Neither Seller nor
Purchaser shall by this Agreement or acquiescence to an Exchange desired by the
other Party have its rights under this Agreement affected or diminished in any
manner or be responsible for compliance with or be deemed to have warranted to
the exchanging Party that its Exchange in fact complies with Section 1031 of the
Code.
16.7. Allocation of the Value of Assets. (a) Purchaser and Seller agree
that the aggregate fair market value of the Assets will be appraised at Seller's
expense by an appraisal firm that Seller selects and which is reasonably
acceptable to Purchaser (the "Appraiser"). Seller shall cause the Appraiser to
forward a preliminary draft of the appraisal of the Assets, which such appraisal
shall allocate the aggregate fair market value among the Assets (the
"Appraisal"), to Purchaser and Seller simultaneously for their comment and
approval, which approval shall not be withheld unreasonably.
(b) Purchaser and Seller agree that they will use the Appraisal for all
purposes relating to the calculation, payment or reimbursement of Taxes. Each of
Purchaser and Seller agree that it will report the sale of the Assets on all
federal, state, local tax returns and tax forms that are filed for the tax year
in which the Closing occurs in a manner consistent with the information that is
set forth in the Appraisal. Each of Seller and Purchaser shall make available to
the other Party all filings and reports required under Section 1060 of the Code.
(c) Notwithstanding any other provision of this Agreement, the
provisions of this Section 16.7 shall survive the Closing without limitation.
16.8. Bulk Sales. Purchaser and Seller each waive any obligation of the
other Party which may arise under the provision of any applicable "Bulk Sales"
laws.
16.9. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
16.10. Invalidity. In the event that any one or more of the provisions
contained in this Agreement or in any other instrument referred to herein,
shall, for any reason, be held to be invalid, illegal or unenforceable in any
respect, such invalidity, illegality or unenforceability shall not affect any
other provision of this Agreement or any other such instrument.
16.11. Headings. The headings of the Articles and Sections herein are
inserted for convenience of reference only and are not intended to be a part of
or to affect the meaning or interpretation of this Agreement.
16.12. Expenses. Except as otherwise expressly provided herein,
Purchaser shall pay the cost of any sales and transfer Taxes, recording and
transfer fees arising from the purchase and sale of the Assets pursuant to this
Agreement. Except as otherwise provided in this Agreement, Seller and Purchaser
will each be liable for its own expenses incurred in connection with the
negotiation,
35
<PAGE> 36
preparation, execution or performance of this Agreement. Seller shall pay the
costs associated with obtaining the title commitments and surveys described
above, and for the costs of purchasing the Title Policies.
16.13. Schedules and Exhibits. The Schedules and Exhibits to this
Agreement are a material part hereof and shall be treated as if fully
incorporated into the body of the Agreement.
16.14. Publicity. Except as required by Applicable Law or on advice of
counsel, no Party shall issue any press release or make any public statement
regarding the transactions contemplated hereby without the prior approval of the
other Party.
16.15. Confidential Information. The Parties acknowledge that the
transaction described herein is of a confidential nature and shall not be
disclosed except to Representatives, advisors and Affiliates, or as required by
law, until such time as the Parties make a public announcement regarding the
transaction as provided in Section 16.14. The Parties shall not make any public
disclosure of the specific terms of this Agreement, except as required by law.
In connection with the negotiation of this Agreement and the preparation for the
consummation of the transactions contemplated hereby, the Parties acknowledges
that they will have access to confidential information relating to the other
Parties. Each Party shall treat such information as confidential, preserve the
confidentiality thereof and not duplicate or use such information, except to
Representatives, consultants and Affiliates in connection with the transactions
contemplated hereby provided such advisors, Representatives and Affiliates also
agree to keep such information confidential. In the event of the termination of
this Agreement for any reason whatsoever, each Party shall return to the others
all documents, work papers and other material (including all copies thereof)
obtained in connection with the transactions contemplated hereby and will use
all reasonable efforts, including instructing any of its Employees and others
who have had access to such information, to keep confidential and not to use any
such information, unless such information is now, or is hereafter disclosed,
through no act or omission of such Party, in any manner making it available to
the general public.
16.16. Interpretation. The Parties agree that this Agreement and each
of the provisions have been fully negotiated and neither this Agreement nor any
provision contained herein shall be construed against or in favor of any party.
(END OF TEXT)
36
<PAGE> 37
IN WITNESS WHEREOF, the Parties hereto have caused this Agreement to be
duly executed on its behalf by its officer thereunto duly authorized as of the
day and year first above written.
BROWNSVILLE CELLULAR TELEPHONE
COMPANY
By /s/ R. Stewart Ewing, Jr.
------------------------------------------
Its Senior Vice President
GCC LICENSE CORPORATION
By /s/ Cregg Baumbaugh
------------------------------------------
Its Senior Vice President
CELUTEL, INC.
By /s/ R. Stewart Ewing, Jr.
------------------------------------------
Its Senior Vice President
WESTERN WIRELESS CORPORATION
By /s/ Cregg Baumbaugh
------------------------------------------
Its Senior Vice President
37
<PAGE> 38
Schedules:
Excluded Assets and Excluded Operations - Schedule 1
Insurance - Schedule 4.1.11
Tangible Assets - Schedule 5.5.1.
Real Property - Schedule 5.5.2.
Authorizations - Schedule 5.7.
Contracts - Schedule 5.8.
Intellectual Property - Schedule 5.9.
Employees - Schedule 5.10.
Financial Statements and Operating Data Statements - Schedule 5.11.
Litigation - Schedule 5.12.
Reports - Schedule 5.14.
Taxes - Schedule 5.15.
Resale and Roaming Agreements - Schedule 5.17.
Environmental Matters - Schedule 5.18.
Purchaser's Counsel's Opinion - Schedule 7.3.
Seller's Counsel's Opinion - Schedule 8.5
Seller's FCC Opinion - Schedule 8.6
Escrow Agreement - Schedule 11.2.2
38
<PAGE> 1
EXHIBIT 21.1
SUBSIDIARIES
<TABLE>
<CAPTION>
ENTITY NAME: ORGANIZED IN: D/B/A
- ------------ ------------- -----
<S> <C> <C>
WWC Holding Co., Inc. Delaware Cellular One
Western Paging I Corporation Washington Telewaves
Wireless Systems Purchasing Corporation Delaware n/a
Eclipse Communications Corporation Delaware Business Services by Cellular One
Minnesota Cellular Corporation Delaware Cellular One
General Cellular Corporation Delaware n/a
General Cellular Holdings, Inc. Delaware n/a
GCC License Corporation Delaware Cellular One
PNC of Billings Montana n/a
Billings Cellular Corporation Montana Cellular One
WWC Texas RSA Limited Partnership Delaware Cellular One
Texas RSA Holding Co., Inc. Delaware n/a
Sioux Falls Cellular Communications, Inc. Delaware n/a
Cellular Corporation of Sioux Falls Delaware Cellular One
Odessa Cellular Corporation Texas n/a
Odessa Cellular License Corporation Delaware n/a
Odessa Cellular Telephone Company, L.P. Delaware Cellular One
Midland Cellular Corporation Delaware n/a
Midland Cellular Holdings Corporation Delaware n/a
Midland Cellular Telephone Company, L.P. Delaware Cellular One
Midland Cellular License Corporation Delaware n/a
VoiceStream Wireless Corporation Delaware n/a
Western PCS Holding Corporation Delaware n/a
Western PCS I Corporation Delaware VoiceStream
Western PCS I License Corporation Delaware n/a
</TABLE>
<PAGE> 2
<TABLE>
<S> <C> <C>
Western PCS II Corporation Delaware VoiceStream
Western PCS II License Corporation Delaware n/a
Western PCS III Corporation Delaware VoiceStream
Western PCS III License Corporation Delaware n/a
PCS Wireless Systems Purchasing Corporation Delaware n/a
Western PCS BTA Corporation Delaware n/a
Western PCS I Iowa Corporation Delaware n/a
Western PCS BTA I License Corporation Delaware n/a
Western PCS BTA I Corporation Delaware VoiceStream
Western PCS BTA Development Corporation Delaware VoiceStream
Western SMR Corporation Delaware n/a
Western PCS LMDS Corporation Delaware n/a
Western Wireless International Corporation Delaware n/a
Western Wireless International Haiti Corporation Delaware n/a
Western Wireless International Ghana Corporation Delaware n/a
Western Wireless International Latvia Corporation Delaware n/a
Western Wireless International Georgia Corporation Delaware n/a
Western Wireless International Iceland Corporation Delaware n/a
Western Wireless International Venezuela Corporation Delaware n/a
Western Wireless International Ireland Corporation Delaware n/a
Western Wireless International Ivory Coast Corporation Delaware n/a
Western Wireless International Croatia Corporation Delaware n/a
CCIH, LLC Delaware n/a
ACG Telesystems Ghana LLC Delaware n/a
Meteor Mobile Communications Dublin, Ireland n/a
</TABLE>
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of
our report included in this Form 10-K, into Western Wireless Corporation's
previously filed Registration Statements, File No. 333-10421, File No. 333-18137
and File No. 333-28959.
/s/ Arthur Andersen LLP
Seattle, Washington,
March 30, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM WESTERN
WIRELESS CONSOLIDATED BALANCE SHEET AND STATEMENT OF OPERATIONS AS OF AND FOR
THE TWELVE MONTHS ENDED DECEMBER 31, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH 10-K.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 10,249
<SECURITIES> 0
<RECEIVABLES> 83,437
<ALLOWANCES> 13,344
<INVENTORY> 28,976
<CURRENT-ASSETS> 124,255
<PP&E> 1,251,781
<DEPRECIATION> 360,184
<TOTAL-ASSETS> 1,958,194
<CURRENT-LIABILITIES> 202,356
<BONDS> 1,585,000
0
0
<COMMON> 800,631
<OTHER-SE> (707,371)
<TOTAL-LIABILITY-AND-EQUITY> 1,958,194
<SALES> 55,189
<TOTAL-REVENUES> 584,582
<CGS> 110,220
<TOTAL-COSTS> 707,946
<OTHER-EXPENSES> 144,740
<LOSS-PROVISION> 28,554
<INTEREST-EXPENSE> 126,345
<INCOME-PRETAX> (224,069)
<INCOME-TAX> 0
<INCOME-CONTINUING> (224,069)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (224,069)
<EPS-PRIMARY> (2.95)
<EPS-DILUTED> (2.95)
</TABLE>
