-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Srx3kwhLp5M59q0J75ZIDGh17Cbl3sgDZ4YNNN8kdexFC0iQeATqeF4c5Meh6Mt9 BNIl2cIWX70QsTz5G9npGA== 0000891020-99-000582.txt : 19990402 0000891020-99-000582.hdr.sgml : 19990402 ACCESSION NUMBER: 0000891020-99-000582 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 9 CONFORMED PERIOD OF REPORT: 19981231 FILED AS OF DATE: 19990331 FILER: COMPANY DATA: COMPANY CONFORMED NAME: WESTERN WIRELESS CORP CENTRAL INDEX KEY: 0000930738 STANDARD INDUSTRIAL CLASSIFICATION: RADIO TELEPHONE COMMUNICATIONS [4812] IRS NUMBER: 911638901 STATE OF INCORPORATION: WA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: SEC FILE NUMBER: 000-28160 FILM NUMBER: 99580701 BUSINESS ADDRESS: STREET 1: 3650 131 ST AVENUE SE STREET 2: SUITE 400 CITY: BELLEVUE STATE: WA ZIP: 98006 BUSINESS PHONE: 4255868700 MAIL ADDRESS: STREET 1: 2001 NW SAMMAMISH RD CITY: ISSAQUAH STATE: WA ZIP: 98027 10-K405 1 EDGAR 10-K405 FOR WESTERN WIRELESS CORPORATION 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 FORM 10-K [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 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 - -------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) WASHINGTON 91-1638901 - ------------------------------------------------ ------------------- (State or other jurisdiction of incorporation or (IRS Employer organization) Identification No.) 3650 131ST AVENUE S.E. BELLEVUE, WASHINGTON 98006 - ---------------------------------------- ------------------- (Address of principal executive offices) (Zip Code) (425) 653-4600 - -------------------------------------------------------------------------------- (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.
Title Shares Outstanding as of March 5, 1999 - ------------------------------------------------------------------------------------------- Class A Common Stock, no par value 42,748,299 Class B Common Stock, no par value 33,591,093
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. 2 WESTERN WIRELESS CORPORATION FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 1998 TABLE OF CONTENTS Part I 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
2 3 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. 3 4 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 4 5 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. 5 6 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.
CELLULAR CELLULAR LICENSE AREA (1) POPULATION LICENSE AREA (1) POPULATION ------------------------------ -------------- -------------------------------- --------------- 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
6 7
CELLULAR CELLULAR LICENSE AREA (1) POPULATION LICENSE AREA (1) POPULATION ------------------------------ ------------- -------------------------------- --------------- 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 --------------- ------------- --------------- Cellular Total 7,602,000 ===============
(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. 7 8 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 8 9 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 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 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:
Number of Category Employees -------- --------- Sales and marketing 1,170 Engineering 149 General and administration, including customer service 818
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 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 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.
MTA/BTA LICENSE AREA POPULATION BLOCK MHZ - -------------------- ---------- ----- ------ 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
13 14
MTA/BTA LICENSE AREA POPULATION BLOCK MHZ - -------------------- ---------- ----- ------ 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
14 15
MTA/BTA LICENSE AREA POPULATION BLOCK MHZ - -------------------- ---------- ----- ------ 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
15 16
MTA/BTA LICENSE AREA POPULATION BLOCK MHZ - -------------------- ---------- ----- ------ 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 ===========
(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 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."
MTA/BTA LICENSE AREA POPULATION BLOCK MHZ - -------------------- ---------- ----- ------ 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 ==========
(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."
MTA/BTA LICENSE AREA POPULATION BLOCK MHZ - -------------------- ---------- ----- ------ 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 =========
17 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.
MTA/BTA LICENSE AREA POPULATION BLOCK MHZ - -------------------- ---------- ----- ------ Wichita Hutchinson................................... 124,000 D 10 MHz Salina....................................... 143,000 D 10 MHz Wichita...................................... 652,000 D 10 MHz ---------- Wichita PCS Total.............................. 919,000 ==========
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."
MTA/BTA LICENSE AREA POPULATION BLOCK MHZ - -------------------- ---------- ----- ------ 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 =========
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 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. 19 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 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 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 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:
Number of Category Employees -------- --------- Sales and marketing 771 Engineering 269 General and administration, including customer service 794
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 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 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 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.
NAME AGE POSITION ---- --- -------- 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
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 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 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.
1997 High Low ---- ---- --- First quarter $16 1/8 $12 Second quarter $16 7/8 $10 Third quarter $19 1/8 $13 5/8 Fourth quarter $22 1/4 $16 1/2
1998 High Low ---- ---- --- 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
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 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
YEAR ENDED DECEMBER 31, (Dollars in thousands, except ---------------------------------------------------------------------------- per share data) 1998 1997 1996 1995 1994 ------------ ------------ ------------ ------------ ------------ 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
YEAR ENDED DECEMBER 31, ------------------------------------------------------------------------ (Dollars in thousands) 1998 1997 199 1995 1994 ---------- ---------- ---------- -------- -------- 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
(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 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 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:
(Dollars in thousands) YEAR ENDED DECEMBER 31, ---------------------------------------------------------- 1998 % CHANGE 1997 % CHANGE 1996 -------- -------- -------- -------- -------- 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 ======== ======== ========
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 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 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:
(Dollars in thousands) YEAR ENDED DECEMBER 31, 1998 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
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 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. 34 35 The following table sets forth certain financial data as it relates to VoiceStream's PCS operations:
(Dollars in thousands) YEAR ENDED DECEMBER 31, ------------------------------------------------------------------ 1998 % CHANGE 1997 % CHANGE 1996 --------- -------- --------- ------- --------- 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) ========= ========= =========
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 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:
(Dollars in thousands) YEAR ENDED DECEMBER 31, 1998 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
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 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 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 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 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 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.
EXHIBIT DESCRIPTION - --------- ----------------------------------------------------------------- 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
41 42
EXHIBIT DESCRIPTION - --------- ----------------------------------------------------------------- 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
42 43
EXHIBIT DESCRIPTION - --------- ----------------------------------------------------------------- 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
43 44
EXHIBIT DESCRIPTION - --------- ----------------------------------------------------------------- 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
44 45
EXHIBIT DESCRIPTION - --------- ----------------------------------------------------------------- 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
45 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 47 INDEX TO CONSOLIDATED FINANCIAL STATEMENTS WESTERN WIRELESS CORPORATION CONSOLIDATED FINANCIAL STATEMENTS
Page ---- 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
F-1 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 49 WESTERN WIRELESS CORPORATION CONSOLIDATED BALANCE SHEETS (Dollars in thousands)
As of December 31, --------------------------- 1998 1997 ----------- ----------- 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 =========== ===========
See accompanying notes to consolidated financial statements F-3 50 WESTERN WIRELESS CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS (Dollars in thousands, except per share data)
For the year ended December 31, ---------------------------------------------- 1998 1997 1996 ------------ ------------ ------------ 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) ============ ============ ============
See accompanying notes to consolidated financial statements F-4 51 WESTERN WIRELESS CORPORATION CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (Dollars in thousands)
Common Stock -------------------------------------- Par value Foreign Total Class A Class B and paid-in Deferred currency shareholders' shares shares capital compensation translation Deficit equity ---------- ---------- ----------- ------------ ----------- ---------- ------------- 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 ========== ========== ======== ======= ======= ========= =========
See accompanying notes to consolidated financial statements F-5 52 WESTERN WIRELESS CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS (Dollars in thousands)
For the year ended December 31, ------------------------------------- 1998 1997 1996 --------- --------- --------- 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 ========= ========= =========
See accompanying notes to consolidated financial statements F-6 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 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 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:
(Dollars in thousands) YEAR ENDED DECEMBER, 31 ----------------------------------------------------- 1998 1997 1996 -------------- --------------- -------------- 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
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 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:
(Dollars in thousands) DECEMBER 31, ---------------------------- 1998 1997 --------- --------- 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 ========= =========
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:
(Dollars in thousands) DECEMBER 31, ------------------------------ 1998 1997 --------- --------- 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 ========= =========
Amortization expense was $18.4 million in 1998, $14.4 million in 1997 and $24.8 million in 1996. F-10 57 WESTERN WIRELESS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 5. INVESTMENTS IN AND ADVANCES TO UNCONSOLIDATED AFFILIATES:
(Dollars in thousands) DECEMBER 31, ------------------------ 1998 1997 ------- ------- 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 ======= =======
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 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.
(Dollars in thousands) DECEMBER 31, ------------------------- Combined Balance Sheet Data: 1998 1997 --------- --------- 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) ========= =========
6. ACCRUED LIABILITIES:
(Dollars in thousands) DECEMBER 31, ------------------------ 1998 1997 -------- -------- 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 ======== ========
F-12 59 WESTERN WIRELESS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 7. LONG-TERM DEBT:
(Dollars in thousands) DECEMBER 31, -------------------------- 1998 1997 ---------- ---------- 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 ========== ==========
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 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 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): Year ending December 31, 1999 $ 0 2000 0 2001 63,000 2002 100,250 2003 159,250 Thereafter 1,262,500 ---------- $1,585,000 ==========
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): Year ending December 31, 1999 $ 40,442 2000 37,346 2001 31,297 2002 20,185 2003 14,002 Thereafter 34,797 --------- $ 178,069 ==========
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 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:
(Dollars in thousands) DECEMBER 31, ------------------------ 1998 1997 --------- --------- 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 ========= =========
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 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 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:
(Dollars in thousands, except per share data) YEAR ENDED DECEMBER 31, --------------------------------------------- 1998 1997 1996 ----------- ----------- ----------- 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)
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:
1998 1997 1996 ------ ------ ------ 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
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:
YEAR ENDED DECEMBER 31, (In thousands, except ------------------------------------------------------------------ pricing information) 1998 1997 1996 ------------------------------------------------------------------ Weighted Weighted Weighted average average average Shares price Shares price Shares price ----- --------- ----- --------- ----- --------- 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
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 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:
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 - ------------------------ ----------- ----------- -------- ----------- --------- $ 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 =========== ===========
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 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:
(Dollars in thousands, except per share data) BASIC LOSS TOTAL PER COMMON QUARTER ENDED REVENUES OPERATING LOSS NET LOSS SHARE - ------------------ -------- -------------- -------- ---------- 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)
F-20 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.
(Dollars in thousands) CELLULAR PCS OTHER(a) OPERATIONS OPERATIONS OPERATIONS CONSOLIDATED ----------- ----------- ----------- ----------- 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
(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 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.
----------------------------------------------- (Dollars in thousands, unaudited) DECEMBER 31, 1998 ----------------------------------------------- PROFORMA CONDENSED BALANCE SHEET: HISTORICAL PROFORMA PROFORMA PRESENTATION ADJUSTMENTS RESULTS ----------- ----------- ----------- 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) =========== ===========
F-22 69 WESTERN WIRELESS CORPORATION SCHEDULE I - CONDENSED FINANCIAL INFORMATION (PARENT COMPANY ONLY) (Dollars in thousands)
COMBINED BALANCE SHEETS DATA: As of December 31, --------------------------- 1998 1997 --------- --------- 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 ========= =========
COMBINED STATEMENTS OF OPERATIONS DATA: For the year ended December 31, ----------------------------------- 1998 1997 1996 --------- --------- --------- 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 ========= ========= =========
See notes to condensed financial information S-1 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): Year ending December 31, $ 1999 0 2000 0 2001 46,000 2002 68,750 Thereafter 930,250 ---------- $1,045,000 ==========
S-2 71 WESTERN WIRELESS CORPORATION SCHEDULE II VALUATION AND QUALIFYING ACCOUNTS ACCOUNTS RECEIVABLE ALLOWANCE FOR DOUBTFUL ACCOUNTS (Dollars in thousands)
Balance at Charged to Charged beginning of costs and to other Deductions Balance at Description period expenses accounts(1) (2) end of period ----------- ------------ ---------- ----------- ---------- ------------- 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 ======== ======== ======== ======== ========
(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 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.
Signatures Title ---------- ----- /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
73 EXHIBIT INDEX
EXHIBIT DESCRIPTION - --------- ----------------------------------------------------------------- 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
74
EXHIBIT DESCRIPTION - --------- ----------------------------------------------------------------- 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
75
EXHIBIT DESCRIPTION - --------- ----------------------------------------------------------------- 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
76
EXHIBIT DESCRIPTION - --------- ----------------------------------------------------------------- 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
43 77
EXHIBIT DESCRIPTION - --------- ----------------------------------------------------------------- 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
(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). 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. EX-10.80 2 AMENDMENT NO.1 TO THE GENERAL AGREEMENT 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 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- 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 [ * ]:
Engineering 5ESS [ * ] 5ESS CDX or VCDX [ * ] IMS [ * ]
* 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- 4 ECP [ * ] OMP [ * ]
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- 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. 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 ------------------------------------ ---------------------------------
* 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- EX-10.81 3 AMENDMENT NO.2 TO PURCHASE AGREEMENT 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 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 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 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 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 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 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 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 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 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 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 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. 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 ------------------------------ -----------------------------------
12 EX-10.82 4 AMENDMENT NO.3 TO PURCHASE AGREEMENT 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. 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: [ * ] 1996 [ * ] 1997 [ * ] 1998 [ * ] 1999 [ * ] 2000 [ * ] [ * ] 1996 [ * ] 1997 [ * ] 1998 [ * ] 1999 [ * ] 2000 [ * ]
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- 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. 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 ------------------------------ ------------------------------------
-3- EX-10.83 5 ASSET PURCHASE AGREEMENT MCALLEN CELLULAR 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"). 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 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 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 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 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 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 7 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. 8 9 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 9 10 (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 10 11 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 11 12 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 12 13 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 13 14 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 14 15 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. 15 16 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 16 17 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 17 18 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 18 19 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 19 20 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 20 21 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 21 22 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. 22 23 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. 23 24 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. 24 25 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; 25 26 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 26 27 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. 27 28 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 28 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. 29 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. 30 31 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: 31 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 32 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 33 34 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 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 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 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 37 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 EX-10.84 6 ASSET PURCHASE AGREEMENT BROWNSVILLE CELLULAR 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"). 1 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 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 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 3 4 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. 4 5 (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, 5 6 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. 6 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 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 7 8 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. 8 9 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 9 10 (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 10 11 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 11 12 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 12 13 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 13 14 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 14 15 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. 15 16 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 16 17 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 17 18 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 18 19 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 19 20 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 20 21 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 21 22 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. 22 23 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. 23 24 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. 24 25 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; 25 26 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 26 27 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. 27 28 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 28 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. 29 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. 30 31 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: 31 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 32 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 33 34 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 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 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 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 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 EX-21.1 7 LIST OF SUBSIDIARIES 1 EXHIBIT 21.1 SUBSIDIARIES
ENTITY NAME: ORGANIZED IN: D/B/A - ------------ ------------- ----- 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
2 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
EX-23.1 8 CONSENT OF ARTHUR ANDERSON LLP 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 EX-27.1 9 FINANCIAL DATA SCHEDULE
5 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. 1,000 12-MOS DEC-31-1998 JAN-01-1998 DEC-31-1998 10,249 0 83,437 13,344 28,976 124,255 1,251,781 360,184 1,958,194 202,356 1,585,000 0 0 800,631 (707,371) 1,958,194 55,189 584,582 110,220 707,946 144,740 28,554 126,345 (224,069) 0 (224,069) 0 0 0 (224,069) (2.95) (2.95)
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