<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 16, 1996
REGISTRATION NO. 333-2162
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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PRE-EFFECTIVE AMENDMENT NO. 3
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------------
PCS DEVELOPMENT CORPORATION
(Exact name of Registrant as specified in its charter)
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<S> <C> <C>
DELAWARE 4812 57-1010782
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
</TABLE>
15 SOUTH MAIN STREET, SUITE 810,
GREENVILLE, SOUTH CAROLINA 29601
(864) 235-0940
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
CECIL L. DUFFIE, JR.
VICE CHAIRMAN AND CHIEF EXECUTIVE OFFICER
PCS DEVELOPMENT CORPORATION
15 SOUTH MAIN STREET, STE. 810
GREENVILLE, SOUTH CAROLINA 29601
(864) 235-0940
(864) 235-0841 (FAX)
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
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COPIES TO:
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<S> <C>
H. BRYAN IVES III, ESQ. VINCENT PAGANO, JR., ESQ.
C. MARK KELLY, ESQ. SIMPSON THACHER & BARTLETT
NELSON MULLINS RILEY & SCARBOROUGH, L.L.P. 425 LEXINGTON AVENUE
100 NORTH TRYON STREET, SUITE 3350 NEW YORK, NEW YORK 10017-3954
CHARLOTTE, NORTH CAROLINA 28202 (212) 455-2000
(704) 417-3100
</TABLE>
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933 check the following box. / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
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CALCULATION OF REGISTRATION FEE
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PROPOSED
TITLE OF EACH CLASS OF MAXIMUM AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED OFFERING PRICE(1) REGISTRATION FEE
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<S> <C> <C>
Units(3)....................................................... $165,000,000 $5,173(2)
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% Senior Discount Notes due 2006(3)....................... -- --
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Warrants to purchase Common Stock(3)......................... -- --
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Common Stock issuable upon exercise of the Warrants.......... -- --
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(1) Estimated solely for the purpose of determining the registration fee.
(2) Calculated pursuant to Rule 457 under the Securities Act of 1933, as amended
(the "Securities Act"). A registration fee of $51,724 was previously paid by
the Company.
(3) Each Unit will consist of Senior Discount Notes Due 2006 and Warrants to
purchase Class B Common Stock. The Senior Discount Notes and Warrants will
be offered only in Units.
---------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
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<PAGE> 2
CROSS REFERENCE SHEET
PURSUANT TO ITEM 501 OF REGULATION S-K
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ITEM NUMBER AND CAPTION HEADING IN PROSPECTUS
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<C> <S> <C>
1. Forepart of the Registration Statement and
Outside Front Cover Page of Prospectus... Outside Front Cover Page
2. Inside Front and Outside Back Cover Pages
of Prospectus............................ Inside front and outside back cover pages
of Prospectus
3. Summary Information, Risk Factors and Ratio
of Earnings to Fixed Charges............. Prospectus Summary; Risk Factors; Selected
Consolidated Financial Data
4. Use of Proceeds............................ Prospectus Summary; Use of Proceeds
5. Determination of Offering Price............ Underwriting
6. Dilution................................... Not Applicable
7. Selling Security Holders................... Not Applicable
8. Plan of Distribution....................... Outside Front Cover Page; Underwriting
9. Description of Securities to be
Registered............................... Outside Front Cover Page; Prospectus
Summary; Description of the Units;
Description of the Notes; Description of
the Warrants; Description of Capital
Stock
10. Interests of Named Experts and Counsel..... Legal Matters
11. Information with Respect to the
Registrant............................... Outside Front Cover Page; Prospectus
Summary; Risk Factors; Use of Proceeds;
Dividend Policy; Capitalization; Selected
Consolidated Financial Data; Management's
Discussion and Analysis of Financial
Condition and Results of Operations;
Business; Management; Certain
Transactions; Principal Stockholders;
Description of the Units; Description of
the Notes; Description of the Warrants;
Description of Capital Stock;
Consolidated Financial Statements
12. Disclosure of Commission Position on
Indemnification for Securities Act
Liabilities.............................. Not Applicable
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<PAGE> 3
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY JURISDICTION IN WHICH SUCH OFFER, SOLICITATION OR SALE
WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE
SECURITIES LAWS OF ANY SUCH JURISDICTION.
Subject to Completion, dated July 16, 1996
PROSPECTUS
UNITS
LOGO
$165,000,000 INITIAL ACCRETED VALUE OF % SENIOR DISCOUNT NOTES DUE 2006
WITH
WARRANTS TO PURCHASE SHARES OF CLASS B COMMON STOCK
---------------------------
PCS Development Corporation ("PCSD" or the "Company") is offering (the
"Offering") Units (the "Units"), each consisting of $1,000 principal
amount at maturity of % Senior Discount Notes due 2006 (the "Notes") and
warrants (the "Warrants") to purchase shares of Class B Common
Stock, par value $1.00 per share, of PCSD (the "Class B Common Stock"). The
Notes and the Warrants will not be separately transferable until the
Separability Date (as defined herein) which shall be no later than ,
1996. The Units, the Notes and the Warrants are sometimes collectively referred
to as the "Securities."
The Notes will mature on , 2006. The Notes will be issued at a
substantial discount from their principal amount, and interest will not accrue
on the Notes prior to , 2001. Thereafter, interest on the Notes will
be payable in cash semi-annually on and of each year, commencing
, 2002. The Notes will be redeemable at the option of the Company, in
whole or in part, at any time on or after , 2001, at the redemption
prices set forth herein, plus accrued and unpaid interest, if any, to the date
of redemption. Additionally, prior to , 1999, the Company may on any
one or more occasions redeem up to 33% of the aggregate principal amount of the
Notes at a redemption price of % of the Accreted Value (as defined herein)
thereof with the net proceeds of either (i) one or more public offerings of
common stock of the Company registered under the Securities Act of 1933, as
amended (the "Securities Act") or (ii) a sale by the Company of at least $25.0
million of its Capital Stock (as defined herein) to a Strategic Equity Investor
(as defined herein) in a single transaction. The Notes will not be subject to
any mandatory sinking fund. In the event of a Change of Control (as defined
herein), each holder of the Notes will have the right, at such holder's option,
to require the Company to purchase such holder's Notes at a purchase price equal
to 101% of the Accreted Value thereof, plus accrued and unpaid interest, if any,
to the date of any purchase prior to , 2001 or 101% of the principal
amount thereof, plus accrued and unpaid interest, if any, to the date of any
purchase on or after , 2001. See "Description of the Notes."
The Notes will be senior, unsecured indebtedness of the Company, ranking
pari passu in right of payment with all existing and future unsecured,
unsubordinated obligations of the Company and will be senior in right of payment
to all existing and future subordinated indebtedness of the Company. Although
the Notes are titled "senior" securities, the Company has not issued, and does
not have any current firm arrangements to issue, any significant indebtedness to
which the Notes would be senior, other than the issuance of subordinated
indebtedness of the Company upon the conversion of its Series A Preferred Stock.
The Company is a holding company with no material assets other than the capital
stock of its subsidiary. The Notes will be obligations exclusively of the
Company; none of the Company's direct or indirect subsidiaries will have any
obligation to pay any amounts due with respect to the Notes or to make funds
available therefor. As such, the Notes will be structurally subordinated to all
liabilities of the Company's subsidiaries, including trade payables, capitalized
lease obligations and indebtedness that may be incurred by the Company's
subsidiaries under current or future bank credit facilities. The Offering is
conditioned upon the establishment by a subsidiary of the Company of a $225.0
million Credit Facility (as defined herein). At March 31, 1996, the Notes would
have been structurally subordinated to approximately $76.4 million of
liabilities of the Company's subsidiaries, excluding amounts available under the
Credit Facility. See "Description of the Notes -- Ranking."
Each Warrant will entitle the holder thereof to purchase one share of Class
B Common Stock of the Company, subject to adjustment under certain
circumstances, at an exercise price of $0.01 per share. The Warrants will
entitle the holders thereof initially to purchase, in the aggregate,
approximately 2.0% of the outstanding Common Stock of the Company as of the date
hereof, on a fully-diluted basis immediately after the issuance of the Warrants.
The aggregate number of Warrants set forth herein is an estimate only and is
subject to change prior to issuance. The Warrants will be exercisable on or
after the occurrence of an Exercise Event (as defined herein), which will be no
later than , 2006, and will expire 180 days after becoming
exercisable, but in any event not later than , 2006.
---------------------------
FOR A DISCUSSION OF CERTAIN RISKS TO BE CONSIDERED IN CONNECTION WITH AN
INVESTMENT IN THE SECURITIES, SEE "RISK FACTORS" BEGINNING ON PAGE 11.
---------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
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Price to Underwriting Proceeds to
Public(1) Discount(2) Company(1)(3)
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<S> <C> <C> <C>
Per Unit.................................... $ $ $
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Total....................................... $ $ $
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(1) Plus accreted original issue discount on the Notes, if any, from ,
1996.
(2) The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act. See
"Underwriting."
(3) Before deducting expenses payable by the Company estimated at $1.5 million.
---------------------------
The Units offered by this Prospectus are offered by the Underwriters subject
to prior sale, withdrawal, cancellation or modification of the offer without
notice, to delivery to and acceptance by the Underwriters and to certain further
conditions. It is expected that delivery of the Units will be made in book-entry
form through The Depository Trust Company on or about , 1996.
---------------------------
LEHMAN BROTHERS
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
CHASE SECURITIES INC.
TORONTO DOMINION SECURITIES
, 1996
<PAGE> 4
[INSERT ARTWORK]
The Indenture pursuant to which the Notes will be issued (the "Indenture")
and the Warrant Agreement pursuant to which the Warrants will be issued (the
"Warrant Agreement") will require the Company, and the Company intends, to
distribute to the registered holders of the Notes and the registered holders of
the Warrants annual reports containing audited consolidated financial statements
and a report thereon by the Company's independent public accountants and
quarterly reports containing unaudited condensed consolidated financial data for
the first three quarters of each fiscal year.
---------------------
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE UNITS, NOTES
AND WARRANTS AT LEVELS ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH TRANSACTIONS MAY BE EFFECTED IN THE OVER-THE-COUNTER MARKET OR
OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
---------------------
This Prospectus includes product names and trademarks of the Company and of
other organizations.
<PAGE> 5
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and consolidated financial statements, including the notes thereto,
appearing elsewhere in this Prospectus. Unless the context otherwise requires,
references in this Prospectus to "PCSD" and to the "Company" refer to PCS
Development Corporation and its consolidated subsidiaries. This Prospectus
contains certain forward-looking statements which involve risks and
uncertainties. The Company's actual results could differ materially from the
results anticipated in these forward-looking statements as a result of certain
of the factors set forth under "Risk Factors" and elsewhere in this Prospectus.
THE COMPANY
PCSD intends to become a leading provider of wireless narrowband personal
communications services ("PCS") in the United States. Organized in 1994, the
Company was one of only five bidders in the FCC's 1994 narrowband PCS auctions
that succeeded in acquiring licenses for paired 50 kHz inbound/50 kHz outbound
frequencies covering the entire United States and the U.S. territories,
including Puerto Rico and the U.S. Virgin Islands (the "Licenses"). PCSD intends
to employ the Licenses to offer a full array of two-way wireless advanced
messaging services. These services will include stored voice and data messaging
utilizing state-of-the-art InFLEXion(TM) technology developed by Motorola, Inc.
("Motorola"). The Company believes that its network, utilizing the InFLEXion(TM)
technology, will have significant advantages over traditional one-way paging
networks, including increased capacity, higher transmission speed and two-way
capability (allowing subscriber units to signal their location to the network).
This enhanced technology, in combination with the Company's nationwide coverage,
will enable PCSD to offer stored voice messaging, data messaging and other
services on a local, regional and nationwide basis.
The Company's first service, expected to be commercially available in the
second quarter of 1997, will be a stored voice messaging service. This service
will allow a subscriber to receive a high quality wireless transmission of a
sender's voice on a pager-like subscriber unit where the message can be stored
and retrieved for later playback. No other company currently offers this or any
other type of service commercially using the InFLEXion(TM) technology. Of the
four other companies with licenses for nationwide 50/50 kHz PCS spectrum, only
two, Paging Network, Inc. ("PageNet") and PageMart Nationwide, Inc.
("PageMart"), have announced an intention to offer stored voice messaging
services. Based on industry studies and the Company's proprietary market
research, management believes that stored voice messaging will be one of the
most widely accepted new paging services. A 1994 study conducted by FGI, Inc., a
leading wireless telecommunications market research firm ("FGI"), indicated that
stored voice messaging services could ultimately achieve a 20% penetration of
the U.S. population. Moreover, according to a 1995 Motorola study, approximately
84% of current paging subscribers would consider replacing their existing pager
for a voice messaging unit. A subsequent, more comprehensive market research
study conducted for the Company by FGI in 1996 indicated that 74% of current
paging subscribers are likely (40% somewhat likely and 34% very likely) to
purchase stored voice messaging at costs within the Company's anticipated price
ranges. Finally, management anticipates significant demand for its voice
messaging services based on the growing popularity of answering machines in U.S.
households and voice mail services in office environments. See
"Business -- Potential Market," "Business -- Distribution -- Pricing of Airtime
and Subscriber Units" and "Certain Transactions -- Relationship with FGI."
Following the commercial introduction of its stored voice messaging
service, the Company also plans to introduce in 1998 enhanced InFLEXion(TM) data
services. These services will allow subscribers to receive alphanumeric messages
of up to several thousand characters, compared to the 80 character limit typical
of one-way alphanumeric paging services available today and, eventually, will
enable message recipients to initiate brief alphanumeric responses.
PCSD plans to market local, regional and nationwide services initially
through indirect channels by forming marketing relationships with
telecommunications companies, including established paging companies that have
installed customer bases but that do not have the capability to deliver over
their networks the enhanced services that the Company plans to market. Unlike
the other companies that acquired licenses for
3
<PAGE> 6
nationwide 50/50 kHz PCS spectrum, PCSD does not offer one-way paging services.
Consequently, the Company believes that other paging companies desiring to offer
narrowband PCS services will be more likely to form marketing relationships with
PCSD than with these competitors. Consistent with the Company's indirect
marketing strategy, PCSD has formed marketing alliances with A+ Network, Inc.
("A+ Network") and Arch Communications Group, Inc. ("Arch Communications")
(collectively, the "Paging Company Investors"), which together own 14.5% of the
outstanding capital stock of the Company and have an aggregate of approximately
3 million existing subscribers. In addition, as of July 1, 1996, the Company has
signed memoranda of understanding to form marketing relationships with 19 other
paging companies that have an aggregate of approximately 13 million existing
subscribers. These 16 million subscribers represent approximately one-half of
all pagers currently in service in the United States. In addition, the Company
believes that other telecommunications companies, such as cellular and long
distance service providers, Enhanced Specialized Mobile Radio ("ESMR") operators
and Regional Bell Operating Companies ("RBOCs"), will also distribute the
Company's services together with their existing product offerings.
PCSD is currently designing and constructing its nationwide narrowband PCS
network, and is in the process of securing transmitter and receiver sites and
purchasing network infrastructure equipment from Motorola and Glenayre
Electronics, Inc. ("Glenayre"), two leading providers of paging equipment. The
Company has commenced network buildout in its initial test markets, Boston and
Atlanta, and anticipates that system tests will begin in the third quarter of
1996. The Company expects to have completed the buildout of its InFLEXion(TM)
network in the top ten BTAs (as defined herein) by the time of the commercial
introduction of the Company's stored voice messaging service, which is expected
to occur in the second quarter of 1997, and to have completed its nationwide
network buildout in the first quarter of 1998.
To fund the acquisition of the Licenses, the buildout of its nationwide
narrowband PCS network and the commercial introduction of its services, PCSD
raised approximately $92.7 million in two private equity offerings, obtained
relatively low-cost financing from the Federal Communications Commission
("FCC"), and is in the process of entering into the Credit Facility and issuing
the Units. The Company raised $37.2 million in November 1994 from the sale of
its Common Stock (as defined herein) to the Paging Company Investors and other
financial partners and $55.5 million in November 1995 from the sale of Preferred
Stock (as defined herein) to an investor group which was led by Chase Capital
Partners (formerly Chemical Venture Partners) and which included several of the
Company's initial investors. Because the Company was considered a "Small
Business" for purposes of the FCC narrowband regional PCS auction, the Company
is entitled to pay $72.7 million of the $90.9 million purchase price for the
Licenses over ten years at a 7.5% annual interest rate (the "FCC Obligation").
See "Description of FCC Auction Benefits -- "Designated Entity" Status in FCC
Narrowband PCS Regional Auction" and "Description of Other Indebtedness -- FCC
Obligation." In addition, concurrently with the Offering, a subsidiary of the
Company will establish a secured Credit Facility in the amount of $225.0
million. Upon completion of the Offering, the Company believes that its cash
balances, together with available borrowings under the Credit Facility, will be
adequate to fund the Company's expected capital expenditures necessary to
complete the buildout of its nationwide narrowband PCS network, to fund debt
service and working capital requirements and to fund other operating expenses
until such time as the Company generates sufficient positive cash flow from
operations, which is not expected to occur prior to 1999. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources."
PCSD's strategic objective is to become a leading provider of stored voice
and data messaging services in the United States. To achieve this objective, the
Company intends to offer competitively priced, easy-to-use voice and data
messaging services targeted at broad market segments. Key elements of the
Company's strategy include:
Nationwide spectrum position. Upon acquiring the Licenses, the
Company became one of only five companies with nationwide 50/50 kHz PCS
spectrum, thereby positioning itself to create a nationwide network for
wireless stored voice and enhanced data messaging services. The geographic
scope of the system should enable the Company to achieve significant
economies of scale as it attracts a large customer base by offering local,
regional and nationwide messaging services. In addition, the Company
purchased specialized mobile radio ("SMR") spectrum in 29 major
metropolitan areas during the FCC's
4
<PAGE> 7
900 MHz SMR auction which concluded April 15, 1996 ("SMR Auction Spectrum")
and has purchased or intends to purchase from third parties SMR spectrum or
options to purchase SMR spectrum in nine other metropolitan areas. Together
with the Licenses, the SMR Auction Spectrum and the SMR spectrum purchased
or to be purchased from third parties, the Company's network will have at
least 175 kHz/175 kHz spectrum capacity in 37 of the 50 largest BTAs,
including each of the top nine BTAs.
Services with broad market appeal. The Company's stored voice and
data messaging services will offer the low-cost, long battery life and
portability advantages of current paging services. These services delivered
over the Company's InFLEXion(TM) network will also offer improved
functionality compared to traditional one-way paging such as high quality
transmission of voice messages, confirmation of message receipt to the
network, delivery of significantly longer alphanumeric messages and the
initiation of brief alphanumeric responses.
Established distribution channels. The Company expects to use
existing distribution channels to achieve rapid market penetration and
minimize marketing and selling expenses. PCSD has formed marketing
relationships with established paging companies and cellular operators and
plans to form marketing relationships with (i) other established paging
companies that have installed customer bases, (ii) other telecommunications
companies including cellular and long distance service providers, ESMR
operators and RBOCs, (iii) industry "integrators" such as voice mail and
e-mail system providers, interconnect dealers and computer industry value
added resellers and (iv) consumer mass marketing companies including
national retailers, telemarketing companies and commercial on-line
services.
Rapid network buildout. The Company expects to be among the first to
construct a nationwide narrowband PCS network utilizing InFLEXion(TM)
technology and to offer enhanced stored voice messaging services through
its network on a local, regional and nationwide basis. The Company has
already commenced network buildout in its initial test markets of Atlanta
and Boston and expects to have completed the buildout of its network in the
top ten BTAs by the time of the commercial introduction of the Company's
stored voice messaging service, which is expected to occur in the second
quarter of 1997. The Company plans to complete its nationwide network
buildout in the first quarter of 1998.
Low-cost provider. PCSD's network operation, marketing strategy and
administrative structure have been designed to support the Company's
efforts to be a low cost provider of its services. Management expects that
the capacity benefits of its nationwide network and its use of Motorola's
state-of-the-art InFLEXion(TM) technology will reduce its cost per unit of
network capacity compared to traditional one-way networks. PCSD also
expects its indirect distribution strategy to reduce the costs associated
with recruiting, training, compensating and managing a large in-house
marketing and sales staff. The Company will seek to control administrative
costs through a combination of centralized network management, customer
service, billing, credit, collections and accounting.
The Company has assembled an experienced management team to execute its
business strategy. Members of the senior management team have held managerial
positions with leading wireless telecommunications companies, including AT&T
Corp. ("AT&T"), Dial Page Inc. ("Dial Page"), GeoTek Communications, Inc.
("GeoTek"), MCI Communications, Inc. ("MCI"), Mobile Communications Corporation
of America ("MobileComm"), Motorola, PageNet, RAM Mobile Data, Inc. ("RAM Mobile
Data"), SkyTel Corporation ("SkyTel"), Sprint Corporation ("Sprint") and USA
Mobile Communications Holdings, Inc. ("USA Mobile"). PCSD's executive team
brings to the Company extensive experience in the development, design and
manufacture of wireless products, the construction and operation of wireless
networks and the sale and marketing of wireless services.
The Company's principal executive offices are located at 15 South Main
Street, Suite 810, Greenville, South Carolina 29601, and its telephone number is
(864) 235-0940.
5
<PAGE> 8
THE OFFERING
THE UNITS
Securities Offered......... Units consisting of $ aggregate
principal amount at maturity of % Senior
Discount Notes due 2006 and Warrants to purchase
shares of Class B Common Stock. Each Unit
consists of $1,000 principal amount at maturity of
Notes and Warrants to purchase
shares of Class B Common Stock.
Separability............... The Notes and the Warrants will not be separately
transferable until the Separability Date (as
defined herein), which shall be no later than
, 1996.
Use of Proceeds............ The net proceeds from the Offering are estimated to
be $157.7 million and will be used, together with
borrowings under the Credit Facility and existing
cash, principally to fund capital expenditures in
connection with the buildout of the Company's
nationwide PCS network, including the acquisition
of additional radio spectrum, to fund debt service
requirements, operating expenses, and for working
capital and general corporate purposes. See "Use of
Proceeds."
THE NOTES
Notes Offered.............. $ aggregate principal amount at maturity
($165.0 million initial Accreted Value) of %
Senior Discount Notes due 2006.
Maturity Date.............. , 2006.
Yield and Interest Rate.... % per annum (computed on a semi-annual bond
equivalent basis) calculated from ,
1996. No interest will accrue on the Notes prior to
, 2001. Commencing , 2001,
interest on the Notes will accrue at the rate of
% per annum and will be payable in cash
semi-annually on and ,
commencing , 2002 to holders of
record on the immediately preceding and
. See "Description of the
Notes -- General."
Optional Redemption........ The Notes will be redeemable, in whole or in part,
at the option of the Company at any time on or
after , 2001, at the redemption prices
set forth herein plus accrued and unpaid interest,
if any, to the date of redemption. Additionally,
prior to , 1999, the Company may redeem
up to 33% of the aggregate principal amount of the
Notes at a redemption price of % of the
Accreted Value (as defined herein) thereof, with
the net proceeds of either (A) one or more public
offerings of Common Stock (as defined in the
Indenture) of the Company or (B) a sale by the
Company of at least $25.0 million of its Capital
Stock (as defined herein) to a Strategic Equity
Investor (as defined herein) in a single
transaction; provided in each case that at least
67% of the original aggregate principal amount of
the Notes remains outstanding immediately after the
occurrence of any such redemption. See "Description
of the Notes -- Optional Redemption."
Mandatory Redemption....... None.
6
<PAGE> 9
Ranking.................... The Notes will be senior, unsecured indebtedness of
the Company, ranking pari passu in right of payment
with all existing and future unsubordinated
unsecured indebtedness of the Company and senior in
right of payment to all existing and future
subordinated indebtedness of the Company. Although
the Notes are titled "senior" securities, the
Company has not issued, and does not have any
current firm arrangements to issue, any significant
indebtedness to which the Notes would be senior,
other than the issuance of subordinated
indebtedness of the Company upon conversion of the
Series A Preferred Stock. The Company is a holding
company with no material assets other than the
shares of stock of its direct wholly-owned
subsidiary. The Notes will be obligations
exclusively of the Company; none of the Company's
direct and indirect subsidiaries will have any
obligation to pay any amounts due with respect to
the Notes or to make funds available therefor. As
such, the Notes will be structurally subordinated
to all liabilities of the Company's direct and
indirect subsidiaries, including trade payables,
capitalized lease obligations and indebtedness that
may be incurred by the Company's subsidiaries under
current or future bank credit facilities. At March
31, 1996, the Notes would have been structurally
subordinated to approximately $76.4 million of
liabilities of the Company's subsidiaries,
excluding amounts available under the Credit
Facility. Although the Indenture under which the
Notes will be issued (the "Indenture") contains
certain covenants which limit the ability of the
Company and its subsidiaries to take certain
actions, these covenants permit the Company and its
subsidiaries, in certain circumstances, to incur
additional indebtedness and to grant liens on
certain assets. See "Risk Factors -- Holding
Company Structure; Structural Subordination of the
Notes," "Description of the Notes -- Ranking" and
"Description of the Notes -- Covenants."
Change of Control.......... In the event of a Change of Control (as defined
herein), the holders of the Notes will have the
right to require the Company to purchase their
Notes, in whole or in part, at a price equal to
101% of the Accreted Value thereof, together with
accrued and unpaid interest, if any, to the date of
any purchase prior to , 2001 or 101% of
the principal amount thereof, plus accrued and
unpaid interest, if any, to the date of any
purchase on or after , 2001. See
"Description of the Notes -- Repurchase of Notes
upon a Change of Control."
Certain Covenants.......... The Indenture will contain certain covenants that,
among other things, will limit the ability of the
Company and its Restricted Subsidiaries (as defined
herein) to incur indebtedness, pay dividends, make
investments or other Restricted Payments (as
defined herein), issue or sell stock of Restricted
Subsidiaries, restrict the ability of Restricted
Subsidiaries to pay dividends to the Company,
engage in transactions with shareholders and
affiliates, create liens, sell assets, undertake
sale and leaseback transactions and engage in
mergers and consolidations. All of these
limitations, however, are subject to a number of
important qualifications and exceptions. The term
Restricted Subsidiaries will include all of the
Company's subsidiaries on the date hereof. See
"Corporate Reorganization and Structure" and
"Description of the Notes -- Covenants."
7
<PAGE> 10
Original Issue
Discount................. The Notes will be issued at a substantial discount
from their principal amount and consequently will
be issued at an Original Issue Discount for federal
income tax purposes. Consequently, purchasers of
the Notes generally will be required to include
amounts in gross income for federal income tax
purposes in advance of receipt of the cash payments
attributable to such income. See "Certain Federal
Income Tax Considerations."
Book-Entry; Delivery
and Form................. The Notes will initially be issued in the form of
one or more Global Notes held in book-entry form.
The Global Notes will be deposited with or on
behalf of The Depository Trust Company and
registered in the name of Cede & Co., as nominee
thereof. See "Description of the
Notes -- Book-Entry; Delivery and Form."
For additional information concerning the Notes, see "Description of the
Notes."
THE WARRANTS
Securities Offered......... Warrants which entitle the holders thereof
to acquire shares of Class B Common Stock
(the "Warrant Shares"). Upon consummation of the
Offering, the Class B Common Stock issuable upon
exercise of the Warrants collectively will
represent approximately 2.0% of the Company's
outstanding Class A Common Stock and Class B Common
Stock (collectively, the "Common Stock") on a
fully-diluted basis. The aggregate number of
Warrants is an estimate only and is subject to
change prior to issuance. Holders of the Company's
Class B Common Stock are not entitled to vote at
any meeting of stockholders for the election of
directors. The holders of the Company's Class A
Common Stock are entitled to elect 16 of the 17
members of the Company's Board of Directors and,
therefore, exert substantial control over matters
that are subject to the discretion of the Board of
Directors. However, shares of Class B Common Stock
may be exchanged for an equal number of shares of
Class A Common Stock immediately upon and after the
consummation of an Initial Public Offering (as
defined herein). See "Description of Capital
Stock."
Registration Rights........ Following an Exercise Event (as defined herein),
holders of the Warrant Shares will be entitled to
certain demand registration rights. Holders of
Warrant Shares will also have the right to include
such Warrant Shares in any registration statement
under the Securities Act filed by the Company
(other than a registration statement on Form S-4 or
S-8) for sale on the same terms and conditions as
the securities of the Company or any other selling
securityholder included therein. The foregoing
rights will be set forth in the Warrant
Registration Rights Agreement between the
Underwriters and the Company and will be subject to
certain conditions and other provisions.
Separation of Notes
and Warrants; Exercise... The Warrants will not be transferred separately
from the Notes prior to the Separability Date. The
"Separability Date" shall be the earliest of (i)
, 1996, (ii) such earlier date as may be
determined by Lehman Brothers Inc., (iii) the
occurrence of a Change of Control and (iv) in the
event of an Offer to Purchase in connection with
any Asset
8
<PAGE> 11
Sale (each as defined herein), the date the Company
mails notice thereof to the holders of the Notes,
at which time the Notes and the Warrants will
become separately transferable. Each Warrant will
entitle the holder thereof to purchase one share of
Class B Common Stock, subject to adjustment upon
the occurrence of certain events, at an exercise
price of $0.01 per share. The Warrants will be
exercisable upon the occurrence of an Exercise
Event, which shall occur on the earliest of (1) the
occurrence of a Change of Control (as defined under
"Description of the Warrants"), (2) the
consummation of a Public Equity Offering (as
defined herein) after which there shall exist a
Public Market (as defined herein) and (3)
, 2006. See "Description of the
Warrants."
Expiration Date............ The Warrants will expire 180 days after becoming
exercisable, but in any event not later than
, 2006.
Offer to Repurchase........ Upon the occurrence of an Exercise Event, the
Company shall have the right to make an offer to
purchase all outstanding Warrants and Warrant
Shares in cash at a price equal to the Current
Market Value (as defined herein) thereof.
For additional information concerning the Warrants, see "Description of the
Warrants." For additional information concerning the Class B Common Stock, see
"Description of Capital Stock."
9
<PAGE> 12
SUMMARY CONSOLIDATED FINANCIAL DATA
The following table presents summary consolidated financial data for the
Company as of the dates and for the periods indicated. The consolidated
financial data as of December 31, 1994 and 1995 and for the period from
September 21, 1994 (date of incorporation) to December 31, 1994 and for the year
ended December 31, 1995 were derived from the audited consolidated financial
statements of the Company. The consolidated financial data for the Company as of
March 31, 1996 and for the three months ended March 31, 1995 and 1996 have been
derived from unaudited consolidated financial statements of the Company. In the
opinion of management of the Company, such unaudited consolidated financial
statements have been prepared on the same basis as the audited consolidated
financial statements referred to above and include all adjustments necessary for
a fair presentation of the financial information for the interim periods.
Results of operations for the three months ended March 31, 1996 are not
necessarily indicative of the results to be expected for fiscal 1996. The
following data should be read in conjunction with "Use of Proceeds,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," and the Company's consolidated financial statements and related
notes thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
PERIOD FROM THREE MONTHS ENDED
SEPTEMBER 21, 1994 MARCH 31,
(DATE OF INCORPORATION) YEAR ENDED ------------------------
TO DECEMBER 31, 1994 DECEMBER 31, 1995 1995 1996
------------------------ ----------------- --------- ----------
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Operating expenses:
Sales and marketing.......... $ -- $ 796,100 $ -- $ 756,041
Administrative............... 394,918 1,922,163 317,659 1,236,390
Depreciation................. -- 137,374 472 73,217
Amortization................. 4,058 19,479 4,869 4,869
------------------------ ----------------- --------- ----------
398,976 2,875,116 323,000 2,070,517
Interest income(1)............. (23,873) (794,405) (132,613) (414,944)
------------------------ ----------------- --------- ----------
Net loss....................... $ 375,103 $ 2,080,711 $ 190,387 $1,655,573
================= ============= ========= =========
Net loss per common share(2)... $ 10.08 $ 77.34 $ 5.12 $ 81.96
Ratio of earnings to fixed
charges(3)................... -- -- -- --
</TABLE>
<TABLE>
<CAPTION>
MARCH 31, 1996
DECEMBER 31, -----------------------------
---------------------------- AS
1994 1995 ACTUAL ADJUSTED(4)
----------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
BALANCE SHEET DATA:
Current assets..................... $ 786,913 $ 26,783,944 $ 30,882,887 $188,582,887
Total assets....................... 10,053,954 126,698,359 142,099,425 307,099,425
Total debt(5)...................... -- 73,801,260 74,100,260 239,100,260
Redeemable convertible preferred
stock............................ -- 23,112,325 40,107,923 40,107,923
Stockholders' equity............... 9,563,413 28,658,705 25,623,931 25,623,931
</TABLE>
- ---------------
(1) Includes interest income from a related party of $22,190, $526,075, $102,867
and $77,308 for the period from September 21, 1994 (date of incorporation)
to December 31, 1994, for the year ended December 31, 1995 and for the three
months ended March 31, 1995 and 1996, respectively. See "Certain
Transactions."
(2) Net loss attributable to common stockholders of $2,876,910 for the year
ended December 31, 1995 and $3,048,921 for the three months ended March 31,
1996 includes accretion of preferred stock dividends of $796,199 and
$1,393,348, respectively.
(3) Earnings were insufficient to cover fixed charges by $375,103, $7,725,587,
$929,008 and $4,435,788 for the period from September 21, 1994 (date of
incorporation) to December 31, 1994, for the year ended December 31, 1995
and for the three months ended March 31, 1995 and 1996, respectively. The
ratio of earnings to fixed charges is calculated by adding (i) earnings
(loss) before income taxes plus (ii) fixed charges, with the resulting sum
divided by fixed charges. Fixed charges consist of interest on all
indebtedness, accretion of preferred stock dividends, amortization of debt
issuance costs, plus that portion of operating lease rentals representative
of the interest factor.
(4) As adjusted to give effect to the application of the estimated net proceeds
of the Offering prior to allocating the portion of the proceeds of the
Offering attributable to the Warrants. See "Use of Proceeds" and
"Capitalization."
(5) Includes $418,582 and $338,062 at December 31, 1995 and March 31, 1996,
respectively, classified as current portion of long-term debt.
10
<PAGE> 13
RISK FACTORS
In addition to the other information in this Prospectus, the following
factors should be considered carefully in evaluating an investment in the Units
offered hereby.
FUTURE OPERATING LOSSES; NET CASH USED IN OPERATING ACTIVITIES
The Company is a development stage company in a new segment of the wireless
telecommunications industry. It owns five regional narrowband PCS licenses on
the same frequency, having acquired those licenses in an FCC auction. The
Company is now developing a nationwide narrowband PCS wireless network and it
plans to offer wireless stored voice and data messaging services through
existing wireless messaging providers and other channels. At the date of this
Prospectus, however, the Company has not commenced commercial operation. From
its incorporation in 1994 through March 31, 1996, the Company experienced
operating losses and used net cash in operating activities of approximately $5.3
million and $2.6 million, respectively. The Company expects that during the
buildout of its nationwide network and as it seeks market penetration it will
continue to experience operating losses and negative operating cash flow at or
greater than historical levels. The ability to generate positive net income and
operating cash flow in the future is dependent upon many factors, including
general economic conditions, the timely completion of the Company's network
buildout, the level of market acceptance for the Company's services and the
degree of competition encountered by the Company. There can be no assurance when
or if the Company will generate positive operating cash flow or net income. See
"Business -- General," "Business -- Paging Industry Overview" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
IMPLEMENTATION OF NARROWBAND PCS NETWORK SUBJECT TO RISKS OF DEVELOPING
TECHNOLOGY
Much of the technology that the Company intends to use in its nationwide
narrowband PCS network to deliver wireless stored voice and data messaging
services is still undergoing development. While the switches, transmitters and
receivers will be similar to the equipment used in traditional one-way paging,
the InFLEXion(TM) technology and the TENOR(TM) voice messaging unit that the
Company plans to use have never been placed in commercial operation and are
still being tested. There can be no assurance that this technology will be able
to deliver to subscribers marketable wireless stored voice and data messaging
services. In addition, delayed delivery of new technology is not uncommon in the
telecommunications industry. There can be no assurance that the Company's
suppliers will be able to meet their test completion and delivery target dates
for the Company's InFLEXion(TM) infrastructure equipment or TENOR(TM) voice
messaging units. To the extent that technologies required to deliver these
services over the Company's InFLEXion(TM) network are unavailable within the
time frames anticipated by management, the commercial introduction of the
Company's services will be delayed, adversely affecting the Company's financial
condition and results of future operations.
The Company, its distribution partners or their respective subscribers also
might experience technical problems with the system infrastructure or with other
hardware or software, including subscriber units, once the Company's system is
operational. Such problems might discourage customers from using the Company's
services. Extreme problems might require a subscriber unit recall, the cost of
which might be substantial and might be absorbed in whole or in part by the
Company. While management believes that the Company's suppliers have strong
incentives to supply the Company in a timely fashion with reliable technology
and equipment, the Company does not control the performance of its vendors. Any
such untimely delivery or unreliable equipment could adversely impact the
commercial introduction of the Company's services. See "Business -- Network
Buildout."
NETWORK BUILDOUT
The Company is engineering and designing its own network. Part of this
process involves identification of the optimal number of sites to transmit and
receive signals necessary to deliver marketable quality voice and data messaging
services. In this identification process, known as radio frequency ("RF")
propagation analysis, engineers utilize computer software programs to analyze
terrain, topography, building penetration, population concentrations and other
factors. Once sites are identified in the network design process, the Company
must
11
<PAGE> 14
secure leases for the sites upon which it will install antennae, transmitters,
receivers and other infrastructure equipment. The site acquisition process
requires the negotiation of site leases and verification by the Company that the
site owner has obtained the necessary governmental approvals and permits. There
is a limited number of attractive telecommunications sites, particularly in
large metropolitan areas. There can be no assurance that the Company will be
able to secure leases for the sites necessary to construct and operate its
network within its budgeted time frames and costs. In addition to site
identification and acquisition, the implementation of the Company's PCS network
will require equipment installation and systems testing. Each stage involves
various risks and contingencies, many of which are not within the control of the
Company and all of which could adversely affect the implementation of the
Company's proposed PCS network should there be delays or other problems. See
"Business -- Strategy," "Business -- Distribution" and "Business -- Network
Buildout."
UNPROVEN MARKET; DEPENDENCE ON OTHERS FOR MARKETING
The services that the Company intends to offer have not yet been marketed
to the public. With respect to sales of both voice and data services, the
Company intends to target broad market segments with diverse messaging
requirements by providing easy-to-use services at reasonable prices on a local,
regional and nationwide basis. The potential markets for these services include
corporate users, business travelers, portable personal computer users and
household consumers. The Company will employ a variety of direct and indirect
distribution channels to market and sell its PCS services. To speed marketing
and sales and quickly build a broad customer base, the Company intends initially
to distribute its PCS services through its Paging Company Investors and other
distribution partners, which in the aggregate have a significant installed
customer base. The final terms of these arrangements have not yet been
negotiated, although the Company's Common Stockholders Agreement (as defined
herein) with the Paging Company Investors requires them to enter into exclusive
distribution agreements with the Company with respect to those narrowband PCS
services which such Paging Company Investors desire to purchase, provided such
services are competitive in price and quality with similar services that may be
available from others. Failure to negotiate acceptable arrangements, to identify
additional distribution partners or to provide services to the Paging Company
Investors on terms competitive in price and quality with similar services that
may be available from others could adversely affect the Company's financial
condition and results of future operations. See "Business -- Distribution."
INDEBTEDNESS OF THE COMPANY; HIGH DEGREE OF LEVERAGE
After giving effect to the issuance of the Notes, the Company will have a
substantial amount of indebtedness outstanding. After giving effect to the
Offering, at March 31, 1996, total consolidated long-term indebtedness of the
Company would have been approximately $238.8 million, representing approximately
78.4% of the Company's total capitalization. See "Capitalization." In addition,
the accretion of original issue discount on the Notes will cause an increase in
indebtedness of $141.1 million by , 2001 (assuming an interest rate
of 12.75% on the Notes). The Company's subsidiaries also may incur up to $225.0
million of indebtedness under the Credit Facility, subject to the Company's
compliance with certain specified financial and operating covenants. The ability
of the Company and its subsidiaries to make payments of principal and interest
will be largely dependent upon its future performance. Such performance can be
subject to many factors, some of which will be beyond the Company's control,
such as prevailing economic conditions. There can be no assurance that the
Company will be able to generate sufficient cash flow to cover required interest
and principal payments. The level of the Company's indebtedness also could have
other adverse consequences to holders of the Notes including the effect of such
indebtedness on: (i) the Company's ability to fund internally, or obtain
additional debt or equity financing in the future for, capital expenditures,
acquisitions, working capital, operating losses and other purposes; (ii) the
Company's flexibility in planning for, or reacting to, changes to its business
and market conditions; (iii) the Company's ability to compete with less highly
leveraged competitors; and (iv) the Company's financial vulnerability in the
event of a downturn in its business or the general economy. See "Use of
Proceeds," "Management's Discussion and Analysis of Financial Condition and
Results of Operations," "Description of Other Indebtedness -- The Credit
Facility" and "Description of the Notes."
12
<PAGE> 15
HOLDING COMPANY STRUCTURE; STRUCTURAL SUBORDINATION OF THE NOTES
The Notes will be obligations exclusively of the Company. The Company is a
holding company with no material business operations, sources of income or
assets of its own other than the shares of its wholly-owned direct subsidiary
PCSD Financial Corp. Upon completion of the Offering, the Company's operations
will be conducted through its wholly-owned indirect subsidiaries. The Company's
cash flow and, consequently, its ability to meet its debt service obligations,
including payments of principal of, premium, if any, and interest on the Notes,
is dependent upon the cash flow of the Company's subsidiaries and the payment of
funds by the subsidiaries to the Company in the form of loans, dividends, fees
or otherwise. The Company's subsidiaries are separate and distinct legal
entities and will have no obligation, contingent or otherwise, to pay any
amounts due pursuant to the Notes or to make any funds available therefor,
whether in the form of loans, dividends or otherwise. Because the subsidiaries
will not guarantee the payment of principal of or interest on the Notes, any
right of the Company to receive assets of its subsidiaries upon their
liquidation or reorganization (and the consequent right of the holders of the
Notes to participate in the distribution of proceeds from those assets) will be
structurally subordinated to the claims of such subsidiaries' creditors
(including tax authorities, trade creditors and lenders). As of March 31, 1996,
after giving effect to the Reorganization, as defined herein, the Company's
subsidiaries had approximately $76.4 million of indebtedness and other
liabilities outstanding, all of which would have been structurally senior to the
Notes. Upon completion of the Offering, the Company's subsidiaries also will
have approximately $75.0 million of immediate availability under the Credit
Facility, and, upon the achievement and maintenance by the Company of certain
operating results and financial ratios, the Company's subsidiaries will have an
additional $150.0 million of availability under the Credit Facility, all of
which will be structurally senior to the Notes. The Credit Facility will limit
the ability of the Company's subsidiaries to pay dividends or make distributions
to the Company. In addition, although the Indenture limits the ability of the
Company and its subsidiaries to incur additional indebtedness and to enter into
new agreements that restrict their ability to pay dividends or make or repay
loans or other payments to the Company, the subsidiaries will be able to incur
substantial additional indebtedness and will likely do so pursuant to the Credit
Facility. See "Corporate Reorganization and Structure" and "Description of the
Notes."
In addition, the Notes will not be secured by any of the Company's assets.
The obligations of the Company's subsidiaries under the Credit Facility will be
secured by a first priority security interest on equipment purchased from
Glenayre and other vendors, an equal and ratable pledge of all capital stock of
PCSD Financial Corp.'s three subsidiaries, and all accounts receivable,
inventory and subscriber contracts of PCSD Network, Inc. If the Company becomes
insolvent or is liquidated, or if payment under the Credit Facility is
accelerated, the lenders under the Credit Facility would be entitled to exercise
the remedies available to a secured lender under applicable law and pursuant to
the terms of the Credit Facility. Accordingly, any claims of such lenders with
respect to such assets and pledged shares will be prior to any claim of the
holders of the Notes with respect to such assets and pledged shares. See
"Corporate Reorganization and Structure" and "Description of Other
Indebtedness -- The Credit Facility."
SUBSTANTIAL CAPITAL REQUIREMENTS; RESTRICTIONS IMPOSED BY LENDERS
Borrowings under the Credit Facility and the proceeds of the Offering will
be used to purchase infrastructure equipment, to fund capital expenditures
(including the possible acquisition of additional radio spectrum), to fund debt
service requirements and for working capital and general corporate purposes. The
Company believes that the proceeds of the Offering and the availability under
the Credit Facility together with the Company's existing cash will be sufficient
to fund the construction of the Company's network, the acquisition of radio
spectrum currently under contract or purchased at auction and operating losses
until the Company generates sufficient positive cash flow from operations. Given
the risks in an undertaking of this nature and scale, no assurance can be given
that actual cash requirements will not materially exceed the Company's estimated
capital requirements and available capital. Moreover, the Company's ability to
access the total availability of the Credit Facility is dependent on maintaining
certain specified financial and operating covenants, which might not occur.
Thus, despite these arrangements, there can be no assurance that the Company
will have sufficient funds to finance the continued development of the Company's
network buildout and operations. In addition, the amount of capital required
will depend upon a number of factors,
13
<PAGE> 16
including capital costs, growth in the number of subscribers, technological
developments, marketing and sales expense, competitive conditions and the need
for additional spectrum. No assurance can be given that, in the event the
Company were to require additional financing, such additional financing would be
available to the Company or available on terms satisfactory to the Company.
The Credit Facility contains financial and operating covenants including,
among other things, requirements that the Company maintain certain financial
ratios and satisfy certain financial tests and limitations on the Company's
ability to incur other indebtedness, pay dividends, engage in transactions with
affiliates, sell assets and engage in mergers and consolidations and other
acquisitions. If the Company fails to comply with these covenants, the lenders
under the Credit Facility will be able to accelerate the maturity of the
applicable indebtedness. See "Managements Discussion and Analysis of Financial
Condition and Results of Operations -- Liquidity and Capital Resources,"
"Description of Other Indebtedness -- The Credit Facility" and "Description of
the Notes."
COMPETITION AND TECHNOLOGICAL CHANGE
Competition in the wireless telecommunications industry is becoming
increasingly intense. The Company will face competition for its services from
other narrowband PCS service providers and, to a lesser extent, from broadband
PCS, ESMR, cellular, paging and other operators. In addition, competition could
come from certain voice mail applications offered by broadband PCS and cellular
providers. Other companies, including AT&T, PageNet, Mobile Telecommunications
Technologies Corp. ("Mtel") and PageMart have acquired, and will acquire,
narrowband PCS licenses in FCC auctions. Accordingly, the Company will face
direct competition in all of the markets in which it intends to operate. The
presence of multiple direct competitors in some or all of the Company's markets
could result in price reductions for its services, which may adversely affect
its financial condition and results of future operations. The industry includes
major telecommunications companies, including long distance carriers AT&T,
Sprint and MCI, national and regional paging companies and RBOCs. Most of these
companies have much greater resources than the Company, have been in operation
for many years and have large subscriber bases. Such companies may be able to
offer wireless service to customers at prices below those offered by the
Company. The Company understands that Motorola has an agreement with PageNet
pursuant to which Motorola has agreed to refrain from delivering its TENOR(TM)
voice subscriber units for commercial use to customers other than PageNet until
six months after Motorola commences commercial production of the units.
Consequently, the Company's commercial introduction of TENOR(TM) voice
subscriber units in Atlanta, Boston and other markets could be delayed if such
markets are ready for commercial service prior to the expiration of Motorola's
agreement with PageNet.
A variety of wireless two-way communication technologies are under
development and could result in increased competition for the Company. There can
be no assurance that additional competitors will not enter markets that the
Company plans to serve or that the Company will be able to withstand the
competition. Moreover, changes in technology could lower the cost of competitive
services to a level where the Company's services would become less competitive
or where the Company would need to reduce its service prices in order to remain
competitive. See "Business -- Competition."
RELIANCE ON LIMITED NUMBER OF SUPPLIERS
The InFLEXion(TM) infrastructure equipment that the Company intends to
purchase is manufactured only by Motorola and Glenayre. As a result, the Company
will rely exclusively on Motorola and Glenayre for the manufacture of a
substantial portion of the equipment necessary to construct its narrowband PCS
network. The Company's ability to develop, construct and implement its network
on the Company's projected schedule may be adversely affected by Motorola's and
Glenayre's development, manufacturing and delivery capabilities. Motorola is the
only manufacturer of the subscriber equipment necessary to deliver stored voice
messaging services over the Company's InFLEXion(TM) network. While Motorola has
agreed to negotiate to enter into licenses with at least one alternative
manufacturer of subscriber equipment, there can be no assurance that
14
<PAGE> 17
alternate suppliers of subscriber equipment will be available in the future. The
limited number of suppliers for equipment crucial to the delivery of the
Company's services makes the Company vulnerable to development, manufacturing
and delivery delays, as well as to the lack of competitive pricing. See
"Business -- Network Buildout."
POTENTIAL LOSS OF FCC FINANCING AND BIDDING CREDITS
Because the Company qualified as a "Designated Entity" satisfying the
requirements for a "Small Business" and a "Business Owned by Members of Minority
Groups and/or Women" at the time of the FCC's narrowband PCS regional auction,
the Company received bidding credits of approximately $60.6 million toward its
purchase of the Licenses in the auction and became entitled to pay 80% of the
$90.9 million net purchase price for the Licenses over ten years at a 7.5%
annual interest rate, with no payment of principal for the first two years. If
prior to February 3, 2000 the Company ceases to satisfy the criteria applicable
to a Business Owned by Members of Minority Groups and/or Women or transfers
control of the Licenses to an entity which does not qualify as such, then the
Company may be required to pay to the FCC some or all of the $60.6 million in
bidding credits it received. If prior to February 3, 2005, the Company transfers
control of the Licenses to an entity which does not satisfy the Small Business
criteria applicable in the narrowband PCS auction, the Company may be required
to prepay its installment obligation for the Licenses to the FCC. In addition,
if the Company effects an Initial Public Offering (as defined in the Common
Stockholders Agreement) prior to these dates, unjust enrichment payments to the
FCC may be due and installment treatment may be lost unless the Company obtains
a waiver from the FCC. There can be no assurance that such a waiver can be
obtained. See "Principal Stockholders" and "Description of FCC Auction
Benefits -- "Designated Entity" Status in FCC Narrowband PCS Regional Auction."
In order to be considered a Designated Entity in the narrowband PCS
regional auction, the Company was required to have a properly constituted
"Control Group" that owned 50.1% of the voting interests and 25% of the equity
interests in the Company. See "Description of FCC Auction
Benefits -- "Designated Entity" Status in FCC Narrowband PCS Regional Auction."
The Company's Control Group currently consists of Sloan Communications, Inc.
("SCI"), Sloan PCS Limited Partnership ("Sloan LP"), Dobson Family Corp. and the
Sullivan Family Revocable Trust. Upon the issuance of the Company's Series A
Preferred Stock, the Control Group's equity interest was diluted from
approximately 26% to approximately 14.98%, and thus the Company ceased to
satisfy the 25% equity ownership requirement for Designated Entity status. Upon
the issuance of the Units, the Control Group's equity interest will be diluted
to approximately %.
In conjunction with the sale of the Company's Series A Preferred Stock, the
Company received the opinion of its special FCC counsel, Lukas McGowan Nace and
Gutierrez, Chartered ("Lukas McGowan"), that, based upon a ruling obtained from
the FCC staff, the dilution of the Control Group's total equity interest in the
Company as a result of the issuance of the Series A Preferred Stock would not
result in the loss of financial benefits that accrued to the Company due to its
status as a "Designated Entity" in the narrowband PCS regional auction. In
connection with the issuance of the Units, the Company has received the opinion
of Lukas McGowan that the dilution of the Control Group's equity interest as a
result of the issuance and exercise of the Warrants will not result in the loss
of the financial benefits that have accrued to it as a Designated Entity in the
narrowband PCS regional auction and that after the issuance of the Units the
Company will continue to be eligible for such benefits. The Company does not,
however, intend to seek a ruling from the FCC staff on the dilution issue in
connection with the issuance of the Units. Both the FCC staff ruling obtained in
connection with the sale of the Series A Preferred Stock and the opinions of
counsel are subject to certain conditions and qualifications, including the
conditions that the Control Group continue to own 50.1% of the Company's voting
rights and that no investor outside of the Control Group own more than 25% of
the total equity, or more than 15% of the voting equity of the Company. Neither
the FCC staff ruling nor the opinions of counsel are binding on the FCC. There
can be no assurance that the FCC will not successfully contend that the dilution
of the Control Group's equity ownership in the Company in connection with the
sale of the Series A Preferred Stock or the issuance of the Units has caused the
Company to cease to qualify for the bidding credits and installment payment
right it received upon acquisition of the Licenses in the narrowband PCS
regional auction. The Common Stockholders Agreement prohibits the transfer of
stock of
15
<PAGE> 18
the Company, requires each stockholder of the Company to prohibit its
stockholders or owners from transferring their interests in such stockholder,
and prohibits the exercise of any other rights under the Common Stockholders
Agreement if the Company's Designated Entity status would be adversely affected.
While the Company believes that it has adequate legal restrictions to ensure a
properly constituted Control Group consistent with the FCC staff ruling and
opinions of counsel, it is possible that the Company could cease to have a
properly constituted Control Group with the result that the Company would no
longer qualify for the bidding credits and the installment payment right it
received upon the acquisition of the Licenses in the narrowband PCS regional
auction. See "Description of FCC Auction Benefits -- "Designated Entity" Status
in FCC Narrowband PCS Regional Auction."
In addition to the Licenses, the Company was the winning bidder for
specialized mobile radio ("SMR") frequencies in 29 metropolitan areas in the
FCC's 900 MHz auction completed on April 15, 1996 (the "SMR Auction Spectrum").
Because the Company qualified as a "Small Business" under the SMR auction
criteria, it will be allowed a 10% bidding credit ($1.1 million) and be entitled
to pay 90% of the $9.7 million net purchase price over ten years with interest
at the 10-year Treasury note rate plus 250 basis points, with no payment of
principal for the first two years. The Company anticipates that licenses for its
SMR Auction Spectrum will be granted in July 1996. If the Company assigns or
transfers control of its SMR Auction Spectrum to an entity not meeting the Small
Business criteria applicable in the SMR auction within five years of the date of
grant, it will be subject to unjust enrichment payments with respect to its
bidding credit and installment financing for the SMR Auction Spectrum. See
"Description of FCC Auction Benefits -- "Small Business" Status in FCC 900 MHz
SMR Auction."
In the event the Company were to lose the favorable financing terms
provided by the FCC, any refinancing thereof at market rates may have a material
adverse effect on the Company's financial condition and results of future
operations.
The Company may participate in the upcoming FCC narrowband PCS MTA/BTA
auction. Although it is unlikely that the FCC will provide any financial
benefits based upon race or gender classification, the Company currently
anticipates that it may qualify for bidding credits and be permitted to pay for
spectrum acquired at such auction on the installment basis by virtue of the
Company's status as a "Small Business." There can be no assurance, however, that
bidding credits or installment payments will be available to the Company. See
"Business -- Spectrum" and "Description of FCC Auction Benefits -- Status in
Future FCC Narrowband PCS MTA/BTA Auction."
FCC DEBT OBLIGATIONS
Because the Company qualified as a "Designated Entity" satisfying the FCC's
requirements for a "Small Business" and a "Business Owned by Members of Minority
Groups and/or Women" at the time of the FCC's narrowband PCS regional auction,
the Company received bidding credits of approximately $60.6 million toward its
purchase of the Licenses in the auction and became entitled to pay 80% of the
$90.0 million net purchase price for the Licenses through two 10% deposits that
were made in late 1994 and early 1995, with the balance payable to the FCC over
ten years at a 7.5% annual interest rate, with no payment of principal the first
two years (the "FCC Obligation"). At March 31, 1996, the FCC Obligation was
$72.7 million. In the event that the Company becomes unable to make its payments
under the FCC Obligation, the FCC could take a variety of actions, including
requiring immediate repayment of all amounts under the FCC Obligation, repayment
of some or all of the $60.6 million in bidding credits the Company received,
revoking the Company's Licenses and/or fining the Company. There can be no
assurance that the Company will be able to make its payments under the FCC
Obligation or, in the event the Company fails to make such payments, that the
FCC will not take the actions described above. See also "-- Potential Loss of
FCC Financing and Bidding Credits," "-- Government Regulation; Possible Loss of
Licenses," "Description of FCC Auction Benefits" and "Description of Other
Indebtedness -- FCC Obligation."
16
<PAGE> 19
GOVERNMENT REGULATION; POSSIBLE LOSS OF LICENSES
The Company and the wireless telecommunications industry are subject to
federal, state and local legislation, as well as regulations promulgated by the
FCC and various state and municipal regulatory agencies, with respect to
licensing, service standards, land use and other matters. There can be no
assurance that governmental authorities will not propose or adopt legislation or
regulations that would have a materially adverse impact on the financial
condition, results of future operations or business prospects of the Company.
Under existing FCC regulations, nationwide narrowband PCS licensees are
generally required, at the risk of license forfeiture, to construct networks
that serve 37.5% of the U.S. population within five years of the initial license
grant date (February 3, 2000, in the case of the Company) and serve 75% of the
U.S. population within ten years of the license grant date (February 3, 2005, in
the case of the Company). The Company's network buildout plan anticipates that
these requirements will be met well in advance of such dates, but such
compliance cannot be assured. Under existing regulations, operating licenses are
issued for ten-year terms, subject to renewal by application upon expiration of
their initial terms. Renewal is not automatic, although current FCC regulations
provide that renewal applications may be denied only for specific causes. The
exercise of the Warrants (and the ownership of Class B Common Stock issuable
upon the exercise thereof) may also be limited by the Company in order to ensure
compliance with the FCC's rules and regulations, and the Warrants will not be
exercisable by any holder if such exercise would cause the Company to be in
violation of the Communications Act of 1934, as amended (the "Communications
Act") or the FCC rules. See "Regulation."
SUBSTANTIAL DISCRETION OF MANAGEMENT CONCERNING USE OF PROCEEDS
The Company has allocated approximately $115.1 million of the net proceeds
of this Offering for specific purposes, with the remainder of approximately
$42.6 million to be used for operating expenses, working capital and general
corporate purposes. Accordingly, management will have substantial discretion in
spending a large percentage of the proceeds to be received by the Company. See
"Use of Proceeds."
LIMITED VOTING RIGHTS OF CLASS B STOCKHOLDERS
If an Exercise Event occurs prior to the Company's consummation of a Public
Equity Offering (as defined in the Warrant Agreement), the Warrants will be
exercisable to purchase shares of the Company's Class B Common Stock. Holders of
the Company's Class B Common Stock are not entitled to vote at any meeting of
stockholders for the election of directors. The holders of the Company's Class A
Common Stock are entitled to elect a majority of the Company's Board of
Directors and, therefore, exert substantial control over matters that are
subject to the discretion of the Board of Directors. Upon an Initial Public
Offering (as defined in the Common Stockholders Agreement), the holders of the
Class B Common Stock may exchange their Class B Common Stock for an equal number
of shares of Class A Common Stock. See "Description of Capital Stock -- Common
Stock."
ANTI-TAKEOVER EFFECTS OF CERTAIN PROVISIONS OF THE RESTATED CERTIFICATE OF
INCORPORATION, BYLAWS AND DELAWARE LAW
Certain provisions of the Company's Restated Certificate of Incorporation
and Bylaws, as amended, as well as provisions of the Delaware General
Corporation Law, may have the effect of delaying or preventing transactions
involving a change of control of the Company, including transactions in which
stockholders might otherwise receive a substantial premium for their shares over
then current market prices, and may limit the ability of stockholders to approve
transactions that they may deem to be in their best interests. In addition,
under the Restated Certificate of Incorporation, the Board of Directors is
authorized to issue one or more classes of preferred stock having such
designations, rights and preferences as may be determined by the Board. See
"Description of Capital Stock."
17
<PAGE> 20
ABSENCE OF DIVIDENDS
The Company has never declared or paid dividends on its capital stock,
including the Class B Common Stock for which the Warrants may be exercised. The
Company currently intends to retain any earnings to finance its operations,
capital expenditures and future growth. No dividends can be paid on the
Company's Common Stock without the consent of the holders of at least 50% of the
Company's Preferred Stock. In addition, the Credit Facility and the Indenture
prohibit or limit the Company's ability to pay dividends. See "Dividend Policy,"
"Description of Other Indebtedness -- The Credit Facility" and "Description of
the Notes -- Covenants -- Limitation on Restricted Payments."
CURRENT REGISTRATION OR EXEMPTION REQUIRED TO EXERCISE WARRANTS
Upon an Exercise Event, purchasers of the Units will be able to exercise
the Warrants at any time that a registration statement relating to the Warrant
Shares is then in effect or if the exercise of such Warrants is exempt from the
registration requirements of the Securities Act, and only if such securities are
then qualified for sale or exempt from qualification under the applicable
securities laws of the states in which the various holders of the Warrants
reside. The Company, however, has no obligation to update this Prospectus; any
offering of Warrant Shares pursuant to the following sentence will be made by a
separate prospectus. Although the Warrant Agreement requires the Company to use
its best efforts to cause to be effective a shelf registration statement
covering the Warrant Shares by the Exercisability Date, there can be no
assurance that the Company will be able to fulfill such obligation or comply
with such agreement. The Company will be unable to issue shares of Common Stock
to those persons desiring to exercise their Warrants if a registration statement
covering the Warrant Shares is not then effective (unless the issuance of shares
upon the exercise of such Warrants is exempt from the registration requirements
of the Securities Act) or if such securities are not qualified or exempt from
qualification in the states in which the holders of the Warrants reside. See
"Description of the Warrants."
CHANGE OF CONTROL
A Change of Control, as defined in the Indenture, would entitle the holders
of the Notes to require that the Company offer to purchase the Notes at a
purchase price of 101% of the Accreted Value thereof plus accrued and unpaid
interest, if any, to the date of any purchase prior to , 2001 or
101% of the principal amount thereof, plus accrued and unpaid interest, if any,
to the date of any purchase on or after , 2001. The Credit Facility
may, however, prohibit the repurchase of the Notes by the Company in the event
of such a Change of Control, unless and until such time as the borrowings under
the Credit Facility are repaid in full. The inability to repay indebtedness
under the Credit Facility, if required, and to purchase all of the tendered
Notes, would also constitute an event of default under the Indenture, which
could have adverse consequences to the Company and holders of the Notes and the
Warrants. Generally, the acquisition by any person or group (other than
companies with debt securities rated investment grade) of beneficial ownership
of capital stock of the Company having a majority of the combined voting power
of the Company's capital stock would constitute a Change of Control under the
Indenture. There can be no assurance that in the event of a Change of Control,
in which the Company was required to repay or refinance its debt obligations,
the Company would have sufficient assets or borrowing ability to satisfy all of
its obligations under the Indenture and the Credit Facility. The Credit Facility
will also contain certain provisions regarding a change of control. See
"Description of Other Indebtedness -- The Credit Facility" and "Description of
the Notes."
ORIGINAL ISSUE DISCOUNT CONSEQUENCES
The Notes will be issued at a substantial discount from their principal
amount at maturity. Although interest will not accrue on the Notes prior to
, 2001, and there will be no periodic payments of interest on the
Notes prior to , 2002, original issue discount (the difference
between the stated redemption price at maturity and the issue price of the
Notes) will accrue from the issue date of the Notes. Consequently, purchasers of
Notes generally will be required to include amounts in gross income for United
States federal income tax purposes in advance of their receipt of the cash
payments attributable to such income. Such amounts in the aggregate will be
equal to the difference between the stated redemption price at
18
<PAGE> 21
maturity (inclusive of stated interest on the Notes) and the issue price of the
Notes. See "Certain Federal Income Tax Considerations" for a more detailed
discussion of the federal income tax consequences of the purchase, ownership and
disposition of the Notes. See "Certain Federal Income Tax Consequences --
Notes -- Original Issue Discount."
If a bankruptcy case is commenced by or against the Company under the
United States Bankruptcy Code after the issuance of the Notes, the claim of a
holder of Notes may be limited to an amount equal to the sum of (i) the initial
offering price and (ii) that portion of the original issue discount which is not
deemed to constitute "unmatured interest" for purposes of the Bankruptcy Code.
Any original issue discount that was not amortized as of the date of any such
bankruptcy filing would constitute "unmatured interest." To the extent that the
Bankruptcy Code differs from the Internal Revenue Code in determining the method
of amortization of original issue discount, a holder of Notes may realize
taxable gain or loss upon payment of such holder's claim in bankruptcy.
ABSENCE OF PUBLIC MARKET; POSSIBLE VOLATILITY OF MARKET PRICE FOR THE NOTES
Prior to the Offering of the Units (including the Notes and the Warrants)
hereby, there has been no existing trading market for the Units, the Notes or
the Warrants, nor has there been any existing trading market for the Company's
Common Stock. The Company does not intend to have the Units, the Notes, the
Warrants or the Common Stock listed for trading on any securities exchange or
quoted on any automated dealer quotation system. Although each Underwriter has
advised the Company that it presently intends to make a market in the Units
(prior to separation), the Notes and the Warrants, it is not obligated to do so
and any such market-making may be discontinued at any time without notice.
Accordingly, there can be no assurance as to the prices or liquidity of, or
trading markets for, the Units, the Notes or the Warrants. The offering price of
the Units was determined by negotiations between the Company and the
Underwriters and is not necessarily related to the Company's book value, net
worth or any other established criteria of value. The liquidity of any market
for the Units, the Notes or the Warrants will depend upon the number of holders
of such Units, Notes or Warrants, the interest of securities dealers in making a
market in the Units, the Notes or the Warrants and other factors. The absence of
an active market for Units, the Notes or the Warrants offered hereby could
adversely affect their market price and liquidity. The liquidity of, and trading
markets for, the Notes may also be adversely affected by general declines in the
market for noninvestment grade debt. Such declines may adversely affect the
liquidity of, and trading markets for, the Notes independent of the financial
performance of, or prospects for, the Company.
Historically, the market for noninvestment grade debt has been subject to
disruptions that have caused substantial volatility in the prices of securities
similar to the Notes. There can be no assurance that the market for the Notes
will not be subject to similar disruptions. Any such disruptions may have an
adverse effect on the value of the Notes.
CORPORATE REORGANIZATION AND STRUCTURE
Immediately prior to the consummation of the Offering, the Company will
effect a corporate reorganization (the "Reorganization") by creating an
intermediate holding company, PCSD Financial Corp., which will, in turn, create
three wholly-owned subsidiaries, PCSD Spectrum, Inc., SGI Communications, Inc.
and PCSD Network, Inc. PCSD Spectrum, Inc. will own all of the FCC Licenses,
subject to the FCC Obligation. SGI Communications, Inc. will acquire and own all
real estate leasehold interests in transmitter and receiver sites for the
network, and PCSD Network, Inc. will own all of the other assets of the Company
and will operate the business of the Company. PCSD Financial Corp. will enter
into the Credit Facility and its three subsidiaries will guarantee its
obligations thereunder. Following the Reorganization, the Notes will be
obligations exclusively of the Company and the Company will not have any other
significant indebtedness to which the Notes will be senior, other than the
subordinated indebtedness of the Company upon the conversion of its Series A
Preferred Stock after November 10, 2004. See "Description of Capital
Stock -- Preferred Stock-Conversion into Subordinated Notes."
19
<PAGE> 22
USE OF PROCEEDS
The net proceeds to the Company from the sale of the Units offered hereby
will be approximately $157.7 million, after deducting estimated discounts,
commissions and offering expenses. The Company intends to use (i) approximately
$60.6 million of the net proceeds from the Offering to fund capital expenditures
in connection with the buildout of the Company's nationwide PCS network,
including approximately $21.0 million to finance the acquisition of additional
radio spectrum currently under contract (see "Business -- Spectrum"), (ii)
approximately $29.9 million of the net proceeds of the Offering to repay amounts
due on the FCC Obligation (which is payable quarterly over ten years at a 7.5%
annual interest rate, with no payment of principal in the first two years) (see
"Description of Other Indebtedness -- FCC Obligation"), (iii) approximately $3.5
million of the net proceeds of the Offering to repay amounts due on the $8.7
million obligation which will be due the FCC in connection with the SMR Auction
Spectrum (which is payable quarterly over ten years at an interest rate equal to
the 10-year U.S. Treasury note rate plus 2.5% per annum, with no payment of
principal in the first two years) (see "Business -- Spectrum"), (iv)
approximately $21.1 million of the net proceeds of the Offering to pay fees in
connection with the Credit Facility and to pay interest due under the $75.0
million Glenayre Facility (which is payable quarterly at a variable rate which
will not exceed, at the Company's option, 3% per annum over a base lending rate
or 4% per annum over a eurodollar rate) (see "Description of Other
Indebtedness -- Credit Facility") and (v) approximately $42.6 million of net
proceeds of the Offering, together with approximately $37.4 million of existing
cash, for operating expenses, working capital requirements and general corporate
purposes (see "Management's Discussion and Analysis of Financial Condition and
Results of Operations").
The Company estimates capital expenditures for 1996, 1997 and 1998 in
connection with the buildout of its nationwide PCS network (including spectrum
acquisitions) to total approximately $71.6 million, $79.1 million and $38.5
million, respectively. The Company estimates that debt service requirements on
the FCC Obligation and the FCC obligation with respect to the SMR Auction
Spectrum and fees and debt service requirements on the Credit Facility will
approximate $12.6 million in 1996, $19.1 million in 1997 and $22.7 million in
1998. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
The $225.0 million Credit Facility will consist of a Glenayre Facility
providing for term loans in an amount not to exceed $75.0 million (the "Glenayre
Facility"), a Tranche A Facility providing for revolving loans in an amount not
to exceed $35.0 million (the "Tranche A Facility"), and a Tranche B Facility
providing for revolving loans in an amount not to exceed $115.0 million (the
"Tranche B Facility"). Borrowings under the Glenayre Facility will be used to
acquire equipment and related services from Glenayre in connection with the
buildout of the Company's nationwide PCS network. When available, the Tranche A
Facility will be used principally to fund additional capital expenditure needs
of the Company, and the Tranche B Facility will be used to repay maturing loans
under the Glenayre Facility and the Tranche A Facility and to fund other working
capital and capital expenditure needs.
DIVIDEND POLICY
The Company has never declared or paid dividends on its capital stock,
including the Class B Common Stock for which the Warrants may be exercised, and
the Company does not anticipate paying dividends in the foreseeable future. It
is the present policy of the Company's Board of Directors to retain earnings to
finance the Company's operations, capital expenditures and future growth. In
addition, no dividends can be paid on the Company's Common Stock without the
consent of the holders of at least 50% of the Company's Preferred Stock.
Therefore, the payment of dividends on Common Stock in the future will be at the
discretion of the Board of Directors and the holders of the Company's Preferred
Stock. Certain provisions of the Credit Facility and the Indenture will further
prohibit or limit the Company's ability to pay dividends. See "Description of
Other Indebtedness -- The Credit Facility" and "Description of the
Notes -- Covenants -- Limitation on Restricted Payments."
20
<PAGE> 23
CAPITALIZATION
The following table sets forth as of March 31, 1996 the actual
capitalization of the Company and the capitalization of the Company as adjusted
to reflect the sale by the Company of the Units offered hereby and the
application of the net proceeds therefrom. This information should be read in
conjunction with the consolidated financial statements and notes thereto
appearing elsewhere in this Prospectus.
<TABLE>
<CAPTION>
AS OF MARCH 31, 1996
-------------------------------
ACTUAL AS ADJUSTED
------------ ------------
<S> <C> <C>
Cash and cash equivalents..................................... $ 29,865,057 $187,565,057(1)
=========== ===========
Long-term debt:
Credit facility(2).......................................... $ -- $ --
% Senior discount notes due 2006.......................... -- 165,000,000(3)
FCC obligation(4)........................................... 72,741,121 72,741,121
Other....................................................... 1,021,077 1,021,077
------------ ------------
Total long-term debt................................ 73,762,198 238,762,198
------------ ------------
Redeemable convertible preferred stock(5)..................... 40,107,923 40,107,923
------------ ------------
Stockholders' equity:
Common stock:
Class A, par value $1.00 per share, 300,000 shares
authorized, 8,718 shares issued and outstanding........ 8,718 8,718
Class B, par value $1.00 per share, 200,000 shares
authorized, 28,482 shares issued and outstanding....... 28,482 28,482
Common stock additional paid-in capital..................... 34,973,253 34,973,253
Deficit accumulated during development stage................ (4,111,387) (4,111,387)
------------ ------------
30,899,066 30,899,066
Less notes receivable from stockholder...................... (5,275,135) (5,275,135)
------------ ------------
Total stockholders' equity.......................... 25,623,931 25,623,931
------------ ------------
Total capitalization................................ $139,494,052 $304,494,052
=========== ===========
</TABLE>
- ---------------
(1) Reflects the net proceeds from the sale of the Units.
(2) Concurrently with the Offering, a subsidiary of the Company will establish
the Credit Facility in the amount of $225.0 million, approximately $75.0
million of which will be available at the closing of the Offering and the
balance of which will be available upon the achievement and maintenance by
the Company of certain operating results and financial ratios. See
"Description of Other Indebtedness -- The Credit Facility."
(3) Reflects the aggregate initial Accreted Value of the Notes prior to
allocating the portion of the proceeds of the Offering attributable to the
Warrants.
(4) See "Description of Other Indebtedness -- FCC Obligation."
(5) Excludes approximately $15.1 million of Preferred Stock subscriptions
receivable which have been collected as of April 25, 1996. See "Description
of Capital Stock -- Preferred Stock."
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<PAGE> 24
SELECTED CONSOLIDATED FINANCIAL DATA
The following table sets forth certain selected consolidated financial
information for the Company as of the dates and for the periods indicated. The
consolidated financial data as of December 31, 1994 and 1995 and for the period
from September 21, 1994 (date of incorporation) to December 31, 1994 and for the
year ended December 31, 1995 were derived from the audited consolidated
financial statements of the Company. The consolidated financial data for the
Company as of March 31, 1996 and for the three months ended March 31, 1995 and
1996 have been derived from unaudited consolidated financial statements of the
Company. In the opinion of management of the Company, such unaudited
consolidated financial statements have been prepared on the same basis as the
audited consolidated financial statements referred to above and include all
adjustments necessary for a fair presentation of the financial information for
the interim periods. Results of operations for the three months ended March 31,
1996 are not necessarily indicative of the results to be expected for fiscal
1996. The following data should be read in conjunction with "Use of Proceeds,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the Company's consolidated financial statements and related
notes thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
PERIOD FROM
SEPTEMBER 21, 1994 THREE MONTHS ENDED MARCH
(DATE OF INCORPORATION) YEAR ENDED 31,
TO DECEMBER 31, DECEMBER 31, ------------------------
1994 1995 1995 1996
--------------------------- ------------ --------- ----------
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Operating expenses:
Sales and marketing........... $ -- $ 796,100 $ -- $ 756,041
Administrative................ 394,918 1,922,163 317,659 1,236,390
Depreciation.................. -- 137,374 472 73,217
Amortization.................. 4,058 19,479 4,869 4,869
----------- ------------ --------- ----------
398,976 2,875,116 323,000 2,070,517
Interest income(1).............. (23,873) (794,405) (132,613) (414,944)
----------- ------------ --------- ----------
Net loss........................ $ 375,103 $2,080,711 $ 190,387 $1,655,573
=================== ========== ========= =========
Net loss per common share(2).... $ 10.08 $ 77.34 $ 5.12 $ 81.96
Ratio of earnings to fixed
charges(3).................... -- -- -- --
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31, 1996
-------------------------------- -----------------------------
1994 1995 ACTUAL AS ADJUSTED(4)
----------- ------------ ------------ --------------
<S> <C> <C> <C> <C>
BALANCE SHEET DATA:
Current assets...................... $ 786,913 $ 26,783,944 $ 30,882,887 $ 188,582,887
Total assets........................ 10,053,954 126,698,359 142,099,425 307,099,425
Total debt(5)....................... -- 73,801,260 74,100,260 239,100,260
Redeemable convertible preferred
stock............................. -- 23,112,325 40,107,923 40,107,923
Stockholders' equity................ 9,563,413 28,658,705 25,623,931 25,623,931
</TABLE>
- ---------------
(1) Includes interest income from a related party of $22,190, $526,075, $102,867
and $77,308 for the period from September 21, 1994 (date of incorporation)
to December 31, 1994, for the year ended December 31, 1995, and for the
three months ended March 31, 1995 and 1996, respectively. See "Certain
Transactions."
(2) Net loss attributable to common stockholders of $2,876,910 for the year
ended December 31, 1995 and $3,048,921 for the three months ended March 31,
1996 includes accretion of preferred stock dividends of $796,199 and
$1,393,348, respectively.
(3) Earnings were insufficient to cover fixed charges by $375,103, $7,725,587,
$929,008 and $4,435,788 for the period from September 21, 1994 (date of
incorporation) to December 31, 1994, for the year ended December 31, 1995,
and for the three months ended March 31, 1995 and 1996, respectively. The
ratio of earnings to fixed charges is calculated by adding (i) earnings
(loss) before income taxes plus (ii) fixed charges, with the resulting sum
divided by fixed charges. Fixed charges consist of interest on all
indebtedness, accretion of preferred stock dividends, amortization of debt
issuance costs, plus that portion of operating lease rentals representative
of the interest factor.
(4) As adjusted to give effect to the application of the estimated net proceeds
of the Offering prior to allocating the portion of the proceeds of the
Offering attributable to the Warrants. See "Use of Proceeds" and
"Capitalization."
(5) Includes $418,582 and $338,062 at December 31, 1995 and March 31, 1996,
respectively, classified as current portion of long-term debt.
22
<PAGE> 25
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with
the Company's consolidated financial statements and notes thereto appearing
elsewhere in this Prospectus.
GENERAL
The Company is a development stage company incorporated for the purpose of
establishing, constructing and operating a nationwide network for the delivery
of narrowband PCS wireless telecommunications services. By acquiring five
regional licenses on the same frequency at the FCC's November 1994 narrowband
PCS auction, the Company has strategically positioned itself to develop a
narrowband PCS network covering the entire United States and the U.S.
territories, including Puerto Rico and the U.S. Virgin Islands.
The Company's strategic objective is to become a leading provider of
two-way wireless advanced messaging services in the United States. Based upon
industry surveys and the Company's proprietary research, management believes its
service offerings, which are expected to include stored voice messaging in the
second quarter of 1997 and data messaging in 1998, will have significant market
appeal. The Company believes that the geographic scope of its network, which
will enable it to offer local, regional and nationwide messaging services, will
allow the Company to attract a broad customer base and that its distribution
through established channels will allow it to achieve rapid market penetration
while minimizing marketing and selling expenses.
The Company's operating losses during the period from September 21, 1994
(date of incorporation) to December 31, 1994 (the "1994 Period"), during the
year ended December 31, 1995 and during the three months ended March 31, 1995
and 1996, respectively, resulted from expenses incurred in connection with its
development stage activities such as the formation of the Company's
administrative structure and management team, market research and the initial
development of its network. The Company reported net losses of $375,000, $2.1
million, $190,000 and $1.7 million, respectively, for the 1994 Period, for the
year ended December 31, 1995 and for the three months ended March 31, 1995 and
1996. The Company has not yet generated operating revenue and, as a result, it
has not generated EBITDA. The degree to which the Company generates revenue and
EBITDA will be dependent on a number of business factors, including future
levels of market demand for the Company's services and future developments in
the telecommunications industry. The Company anticipates that operating expenses
and capital expenditures will increase in connection with the expansion of the
Company's network. Once the Company begins generating revenue, it expects that
average revenue per subscriber will decline over time as a result of increased
competition, which will affect the pricing of its services to its customers,
including the Paging Company Investors and the other established paging
companies. The Company believes the effect of this trend on the Company's
earnings will be mitigated by corresponding increases in the number of
subscribers of narrowband PCS services.
As used herein, "EBITDA" represents earnings before other income (expense),
taxes, depreciation and amortization. Other income (expense) consists primarily
of interest expense. EBITDA is a standard measure of financial performance in
the paging industry and is also similar to one of the financial measures used to
calculate whether the Company and its subsidiaries are in compliance with
certain covenants under the Indenture and the Credit Facility. EBITDA is not a
term defined under generally accepted accounting principles and it should not be
construed as an alternative to operating income, cash flows from operating
activities or other measures of liquidity determined in accordance with
generally accepted accounting principles.
RESULTS OF OPERATIONS
Three Months Ended March 31, 1995 compared to Three Months Ended March 31,
1996.
Sales and marketing expenses consist of all salaries, benefits, equipment
and costs incurred in developing a marketing staff and the professional fees
associated with market research projects and public relations programs. Sales
and marketing expenses were $756,000 for the three months ended March 31, 1996.
The sales
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and marketing department had not yet been formed at March 31, 1995; therefore,
no sales and marketing expenses were incurred during the three months ended
March 31, 1995.
Administrative expenses are comprised of all salaries, benefits and
expenses of administrative personnel, including the executive officers, in
addition to the ancillary expenses of the Company such as rent, professional
fees, taxes and general office expenses. Administrative expense increased
$919,000 from $318,000 for the three months ended March 31, 1995 to $1.2 million
for the three months ended March 31, 1996 reflecting additional costs to support
the increased activity of the Company.
Depreciation for the three months ended March 31, 1996 was $73,000. Minimal
depreciation was recorded for the three months ended March 31, 1995 as the
Company had not yet accumulated significant fixed assets.
Interest income increased $282,000 from $133,000 for the three months ended
March 31, 1995 to $415,000 for the three months ended March 31, 1996. Interest
income is comprised of the interest on idle cash and interest received from a
$9.2 million loan to a stockholder who purchased shares of Common Stock of the
Company. Approximately $5.3 million of this loan was outstanding at March 31,
1996. On April 18, 1996 and April 30, 1996, the stockholder made repayments on
this loan aggregating approximately $3.9 million, thereby reducing the
outstanding amount to approximately $1.7 million. The Company expects this
amount, plus all accrued and unpaid interest, to be paid on its due date, April
30, 1997. See "Certain Transactions -- Stockholder Loan." Due to the Preferred
Stock offering in November 1995, the collection of $3.9 million of notes
receivable and the collections of subscriptions receivable throughout 1995, the
average cash balance available to earn interest increased $23.9 million from
$3.3 million for the three months ended March 31, 1995 to $27.2 million for the
three months ended March 31, 1996.
The 1994 Period compared to year ended December 31, 1995.
Sales and marketing expense was $796,000 for the year ended December 31,
1995. No sales and marketing expense was incurred during the 1994 Period.
Administrative expense, which was $395,000 for the 1994 Period, increased by
$1.5 million to $1.9 million for the year ended December 31, 1995, representing
a 36.0% increase over the annualized administrative expense for the 1994 Period.
This increase was primarily due to additional costs to support the formation of
the Company's administrative structure and management team, market research,
development of its network and the administrative costs associated with
increases in the total number of employees. The Company increased total
employees from three at December 31, 1994 to 33 at December 31, 1995.
Depreciation for the year ended December 31, 1995 was $137,000. No
depreciation was recorded for the 1994 Period as the amount was nominal. The
increase in depreciation expense is directly related to capital expenditures of
$2.5 million for the year ended December 31, 1995.
Interest income increased $770,000 to $794,000 for the year ended December
31, 1995 from $24,000 for the 1994 Period. Interest income is comprised of the
interest on idle cash and interest received from a $9.2 million loan to a
stockholder who purchased shares of Common Stock of the Company. Approximately
$5.3 million of this loan was outstanding at December 31, 1995. See "Certain
Transactions -- Stockholder Loan."
LIQUIDITY AND CAPITAL RESOURCES
The Company's net cash used in operating activities was $971,000 and $1.6
million for the three month period ended March 31, 1996 and for the year ended
December 31, 1995, respectively, and consisted primarily of operating losses
offset, in part, by increases in accounts payable and accrued liabilities. The
Company's net cash provided by operating activities was $21,000 during the 1994
Period. The Company's net cash used in investing activities totaled $10.3
million for the three months ended March 31, 1996 and primarily related to the
acquisition of several SMR licenses held by third parties. The Company's net
cash used in investing activities totaled $17.6 million for the year ended
December 31, 1995 and consisted of $15.6 million in payments for the Licenses,
including $4.8 million in capitalized interest, $1.5 million in equipment and
fixture
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purchases and $500,000 in deposits placed with the FCC enabling the Company to
participate in radio frequency auctions. The Company's net cash used in
investing activities for the 1994 Period totaled $9.2 million and primarily
related to the down payment made to the FCC for the Licenses acquired in the
November 1994 regional narrowband PCS auctions.
The Company's net cash provided by financing activities was $15.2 million,
$44.4 million and $9.9 million for the three months ended March 31, 1996, the
year ended December 31, 1995 and for the 1994 Period, respectively. The
Company's business strategy requires substantial capital to finance the buildout
of its nationwide PCS network, fund purchases of radio spectrum currently under
contract or purchased at auction, fund debt service requirements on a portion of
its indebtedness and fund operating and working capital requirements. Costs
associated with the network buildout include expenditures on switches, radio
frequency controllers, transmitters, receivers and ancillary equipment such as
coaxial cable and antennas. Management estimates capital and spectrum
expenditures relating to the initial buildout of the network, which is expected
to be completed in the first quarter of 1998, will total approximately $189.2
million (approximately $71.6 million in 1996, $79.1 million in 1997 and $38.5
million in 1998).
In order to help meet its future capital requirements, the Company has
raised approximately $92.7 million in two private equity offerings. A portion of
the net proceeds from the private equity offerings was used to fund the down
payment on the Licenses and commence development activities for the Company's
business, and the balance will be used to fund capital expenditures, spectrum
acquisitions and working capital needs. The Company has also incurred an
approximately $72.7 million obligation to the FCC, which represents the
remaining unpaid purchase price for the Licenses granted to the Company in
February 1995. The Company also expects to incur an additional $8.7 million
obligation to the FCC, which will represent the remaining unpaid purchase price
for the SMR Auction Spectrum purchased by the Company in the April 15, 1996 FCC
auction. The Company anticipates that it may incur additional obligations to the
FCC in connection with the PCS MTA/BTA auction anticipated to occur in late 1996
or early 1997. See "Business -- Spectrum" and "Description of FCC Auction
Benefits -- Status in Future FCC Narrowband PCS MTA/BTA Auction." The Company
expects net proceeds of the Offering to approximate $157.7 million.
The Company's subsidiary, PCSD Financial Corp., has obtained a commitment
from Chase Securities Inc. to arrange the establishment of a new Credit Facility
in the aggregate amount of $225.0 million effective upon the closing of the
Offering. PCSD Financial Corp. anticipates having available approximately $75.0
million of borrowing capacity under the Credit Facility immediately with the
balance available upon the achievement and maintenance by PCSD Financial Corp.
of certain operating results and financial ratios. See "Description of Other
Indebtedness -- The Credit Facility."
The Credit Facility will consist of (i) a Glenayre Facility providing for
term loans in an amount not to exceed $75.0 million (the "Glenayre Facility") to
be made available by Glenayre for the purpose of financing the acquisition of
equipment and technical services from Glenayre, (ii) a Tranche A Facility
providing for revolving loans in an amount not to exceed $35.0 million (the
"Tranche A Facility") to be made available by a syndicate of banks, financial
institutions and other entities (the "Syndicate"), including The Chase Manhattan
Bank ("Chase"), for the purpose of financing the working capital and capital
expenditure needs of PCSD Financial Corp. and its subsidiaries in the ordinary
course of business, and (iii) a Tranche B Facility providing for revolving loans
in an amount not to exceed $115.0 million (the "Tranche B Facility") to be made
available by the Syndicate, including Chase, for the purpose of (x) financing
the working capital and capital expenditure needs of PCSD Financial Corp. and
its subsidiaries in the ordinary course of business and (y) repaying maturing
loans under the Glenayre Facility and Tranche A Facility. Glenayre has committed
to provide the Glenayre Facility. Chase has committed to provide the entire
$150.0 million of the Tranche A Facility and the Tranche B Facility. The
availability of the Credit Facility will be conditioned upon among other things
PCSD Financial Corp. having entered into equipment supply contracts with
Motorola and Glenayre containing satisfactory terms and conditions.
Borrowings under the Glenayre Facility and Tranche A Facility will be
available from the closing date of the Credit Facility to the date which is
three and one half years thereafter, at which time all of the loans outstanding
will be repayable in two equal installments on March 31, 2000 and June 30, 2000.
Availability under the Tranche B Facility will commence on the closing date of
the Credit Facility and end on June 30,
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2004, except that if the initial borrowing thereunder is not made on or before
June 30, 2000, such facility will automatically terminate on such date. The
Tranche B Facility will be reduced in fourteen consecutive quarterly
installments, beginning on March 31, 2001 and ending on June 30, 2004.
The making of each loan under the Glenayre Facility will be subject to the
satisfaction of certain customary closing conditions which the Company expects
to satisfy prior to or simultaneously with the Offering. The making of each loan
under the Tranche A Facility will be subject to the satisfaction of certain
conditions, including expending certain amounts received from the issuance of
common stock by PCSD Financial Corp. to the Company, borrowing the full amount
under the Glenayre Facility, having a minimum number of "qualified pagers in
service" (pagers in service for more than 60 days) and maintaining a minimum
level of average monthly revenue per subscriber unit. The Company expects to
satisfy the conditions to the Tranche A Facility by the third quarter of 1998.
The making of each loan under the Tranche B Facility will be subject to the
satisfaction of certain conditions, including expending certain amounts received
from the issuance of common stock by PCSD Financial Corp. to the Company and
maintaining a maximum ratio of total debt to "qualified pagers in service" and a
maximum ratio of total debt to operating cash flow. The Company anticipates that
the conditions to the Tranche B Facility will be met by the third quarter of
1999. In addition, certain mandatory prepayments of loans extended under the
Credit Facility are to be made from (i) subject to certain exceptions to be
agreed upon, 50% of the net proceeds of any sale or issuance of equity or
incurrence of indebtedness after the closing date of the Credit Facility by the
Company, PCSD Financial Corp. or any of its subsidiaries, (ii) 100% of the net
proceeds of (x) certain sales or other dispositions by PCSD Financial Corp. or
any of its subsidiaries of material assets or (y) certain insurance or
condemnation recoveries and (iii) 75% of Excess Cash Flow (as defined in the
Credit Facility) when the Leverage Ratio (as defined in the Credit Facility) is
greater than 3:1 and 50% of Excess Cash Flow when such Ratio is less than 3:1
but greater than 2:1, for each fiscal year, commencing with the fiscal year
ending December 31, 1998.
PCSD Financial Corp. may elect that all or a portion of the borrowings
under the Credit Facility bear interest at a rate per annum equal to either (i)
Chase's Base Rate plus the Applicable Margin or (ii) Chase's Eurodollar Rate
plus the Applicable Margin. In the case of borrowings under the Glenayre
Facility and the Tranche A Facility, the Applicable Margin will be (a) 3% per
annum when applying the Base Rate, or (b) 4% per annum when applying the
Eurodollar Rate. In the case of borrowings under the Tranche B Facility, the
Applicable Margin will be (x) 2% per annum (when the Debt to Operating Cash Flow
Ratio (as such terms are defined in the Credit Facility) is equal to or greater
than 5:1) or 1 1/2% per annum (when such Ratio is less than 5:1), in each case
when applying the Base Rate, or (y) 3% per annum (when such Ratio is equal to or
greater than 5:1) or 2 1/2% per annum (when such Ratio is less than 5:1), in
each case when applying the Eurodollar Rate. As used herein, "Base Rate" means
the higher of (i) Chase's prime rate and (ii) the federal funds effective rate
from time to time plus 1/2% per annum. As used herein, "Eurodollar Rate" means
the rate at which eurodollar deposits for one, two, three and six months (as
selected by PCSD Financial Corp.) are offered to Chase in the interbank
eurodollar market in the approximate amount of Chase's share of the relevant
loan.
Upon completion of the Offering, the Company believes that its cash
balances, together with available borrowings under the Credit Facility, will be
adequate (i) to fund the Company's expected capital expenditure requirements of
approximately $189.2 million necessary to complete the buildout of its
nationwide narrowband PCS network (including spectrum expenditures) and (ii) to
fund debt service requirements of approximately $54.4 million (approximately
$12.6 million in 1996, $19.1 million in 1997 and $22.7 million in 1998) until
such time as the Company generates sufficient positive cash flow from
operations, which is not expected to occur prior to 1999. Management believes
the Company will generate positive cash flow from operations beginning in 1999.
However, no assurance can be or is given as to when or if the Company will
generate positive cash flow from operations.
INFLATION
Inflation is not currently a material factor affecting the Company's
business. General operating expenses such as salaries, employee benefits and
occupancy costs are subject to normal inflationary pressures.
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ACCOUNTING STANDARDS
In March 1995 the Financial Accounting Standards Board (FASB) issued
Statement No. 121 "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of" ("SFAS No. 121"). SFAS No. 121, which is
effective for fiscal years beginning after December 15, 1995, requires that
certain long-lived assets and intangible assets be reviewed for impairment
whenever events or changes in circumstances indicate that the carrying amount of
an asset may not be recoverable. The Company is not aware of any events or
changes in circumstances that will result in a material effect on its financial
statements upon the Company's 1996 adoption of SFAS No. 121.
In October 1995 the FASB issued Statement No. 123 "Accounting for
Stock-Based Compensation" ("SFAS No. 123"). SFAS No. 123, which is also
effective for fiscal years beginning after December 15, 1995, allows companies
either to continue to measure compensation cost based on the method prescribed
by Accounting Principles Board Opinion No. 25 ("APB No. 25") or adopt a "fair
value" method of accounting for all employee stock-based compensation. The
Company has elected to continue utilizing the accounting for stock issued to
employees prescribed by APB No. 25 and, therefore, the required adoption of SFAS
No. 123 will have no impact on the financial position or results of operations
of the Company.
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BUSINESS
GENERAL
PCSD intends to become a leading provider of narrowband PCS wireless
telecommunications services in the United States. Organized in 1994 as a
Delaware corporation, the Company was one of only five bidders in the FCC's 1994
narrowband PCS auctions that succeeded in acquiring licenses for paired 50 kHz
inbound/50 kHz outbound frequencies covering the entire United States and the
U.S. territories, including Puerto Rico and the U.S. Virgin Islands. PCSD
intends to employ the Licenses to offer a full array of two-way wireless
advanced messaging services. These services will include stored voice and data
messaging utilizing Motorola's state-of-the-art InFLEXion(TM) technology. The
Company believes that its network, utilizing the InFLEXion(TM) technology, will
have significant advantages over traditional one-way paging networks, including
increased capacity, higher transmission speed and two-way capability. This
enhanced technology, in combination with the Company's nationwide spectrum
coverage, will enable PCSD to offer stored voice messaging, data messaging and
other services on a local, regional and nationwide basis.
The Company's first service, expected to be commercially available in the
second quarter of 1997, will be a stored voice messaging service. This service
will allow a subscriber to receive a high quality wireless transmission of a
sender's voice on a pager-like subscriber unit where the message can be stored
and retrieved for later playback. Of the four other companies with licenses for
nationwide 50/50 kHz PCS spectrum, only PageNet and PageMart have announced an
intention to offer stored voice messaging services. Based on paging industry
studies and surveys of potential subscribers, as well as the popularity of
telephone answering machines in the home and the growth of voice mail in office
environments, the Company believes that there will be significant demand for a
mobile stored voice messaging service when it becomes available. A 1994 study
conducted by FGI indicated that stored voice messaging could achieve a 20%
penetration of the U.S. population. Moreover, according to a 1995 Motorola
survey, approximately 84% of current paging subscribers would consider replacing
their existing subscriber unit with a stored voice messaging unit. A subsequent,
more comprehensive market research study conducted for the Company by FGI in
1996 indicated that 74% of current paging subscribers are likely (40% somewhat
likely and 34% very likely) to purchase stored voice messaging at costs within
the Company's anticipated price ranges. See "Potential Market" and
"Distribution -- Pricing of Airtime and Subscriber Units." Following the
commercial introduction of its stored voice messaging service, the Company also
plans to introduce in 1998 enhanced InFLEXion(TM) data services allowing
subscribers to receive alphanumeric messages of up to several thousand
characters, compared to the 80 character limit typical of one-way alphanumeric
paging service available today, and eventually, enabling message recipients to
initiate brief alphanumeric responses.
PCSD plans to market local, regional and nationwide services initially
through indirect channels by forming marketing relationships with
telecommunications companies, including established paging companies that have
installed customer bases but that do not have the capability to deliver over
their own networks the enhanced services that the Company plans to market.
Unlike the other companies that acquired licenses for nationwide 50/50 kHz PCS
spectrum, PCSD does not offer one-way paging services. Consequently, the Company
believes that other paging companies desiring to offer enhanced PCS services
will be more likely to form a marketing relationship with PCSD than with these
competitors. Consistent with this strategy, PCSD has formed marketing alliances
with its two Paging Company Investors, which together have an aggregate of
approximately 3 million existing subscribers, and through July 1, 1996, has
signed memoranda of understanding to form marketing relationships with 19 other
paging companies, which together have an aggregate of approximately 13 million
subscribers. These 16 million subscribers represent approximately one-half of
all pagers currently in service in the United States.
PCSD is currently designing and constructing its nationwide narrowband PCS
network and is in the process of securing transmitter and receiver sites and
purchasing network infrastructure equipment from Motorola and Glenayre, two
leading providers of paging equipment. By the time the Company anticipates that
its stored voice messaging service will be commercially available in the second
quarter of 1997, the Company expects to have completed the buildout of its
InFLEXion(TM) network in the top ten BTAs, which are New York City, Los Angeles,
Chicago, San Francisco, Philadelphia, Detroit, Dallas, Boston, Washington, D.C.
and
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Houston, and to have completed its nationwide network buildout in the first
quarter of 1998. A BTA or "basic trading area" is one of 493 specified
geographical areas surrounding a city in the United States, its territories and
possessions (as opposed to the 51 MTAs, each of which consists of at least 2
BTAs), as set forth in the Rand McNally Commercial Atlas & Marketing Guide
(124(th)ed. 1993), which the FCC has recognized in the licensing of PCS radio
frequencies.
To fund the acquisition of the Licenses, the buildout of its nationwide
narrowband PCS network and the commercial introduction of its services, PCSD
raised approximately $92.7 million in two private equity offerings, obtained
relatively low-cost financing from the FCC and is in the process of entering
into the Credit Facility and issuing the Units. The Company raised $37.2 million
in November 1994 from the sale of its Common Stock to the Paging Company
Investors and other financial investors and raised $55.5 million in November
1995 from the sale of Preferred Stock to an investor group which was led by
Chase Capital Partners (formerly, Chemical Venture Partners) and which included
several of the Company's initial financial investors. Because it was considered
a "Designated Entity" under the FCC rules applicable to the narrowband PCS
regional auction, the Company is entitled to pay $72.7 million of the $90.9
million purchase price for the Licenses over ten years at a 7.5% annual interest
rate. See "Description of FCC Auction Benefits -- "Designated Entity" Status in
FCC Narrowband PCS Regional Auction" and "Description of Other
Indebtedness -- FCC Obligation." In addition, concurrently with the Offering,
the Company will establish a secured Credit Facility of approximately $225.0
million. Upon completion of the Offering, the Company believes that its cash
balances, together with available borrowings under the Credit Facility, will be
adequate to fund the Company's expected capital expenditures necessary to
complete the buildout of its nationwide narrowband PCS network and fund
operating requirements, including debt service, until such time as the Company
generates sufficient positive cash flow from operations, which is not expected
to occur prior to 1999. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Liquidity and Capital Resources" and
"Description of Other Indebtedness -- The Credit Facility."
The Company has assembled an experienced management team to execute its
business strategy. Members of PCSD's management team have held managerial
positions with leading wireless and other telecommunications companies,
including AT&T, Dial Page, GeoTek, MCI, MobileComm, Motorola, PageNet, RAM
Mobile Data, SkyTel, Sprint and USA Mobile. PCSD's executive team brings to the
Company extensive experience in the development, design and manufacture of
wireless products, the construction and operation of wireless networks and the
sale and marketing of wireless services and products.
STRATEGY
PCSD's strategic objective is to become a leading provider of stored voice
and data messaging services in the United States. To achieve this objective, the
Company intends to offer competitively priced, easy-to-use stored voice and data
messaging services targeted at broad market segments. Key elements of the
Company's strategy include:
Nationwide spectrum position. Upon acquiring the Licenses, the
Company became one of only five companies with nationwide 50/50 kHz PCS
spectrum, thereby positioning itself to create a nationwide network for
wireless stored voice and data messaging services. The geographic scope of
the system should enable the Company to achieve significant economies of
scale as it attracts a large customer base by offering local, regional and
nationwide messaging services. In addition, the Company purchased
specialized mobile radio ("SMR") spectrum in 29 major metropolitan areas
during the FCC's 900 MHz SMR auction which concluded April 15, 1996 ("SMR
Auction Spectrum") and has purchased or intends to purchase from third
parties SMR spectrum or options to purchase SMR spectrum in nine other
metropolitan areas. Together with the Licenses, the SMR Auction Spectrum
and the SMR spectrum purchased or to be purchased from third parties, the
Company's network will have at least 175 kHz/175 kHz spectrum capacity in
37 of the 50 largest BTAs, including each of the top nine BTAs.
Services with broad market appeal. Narrowband PCS stored voice and
data messaging services will offer the low-cost, long battery life and
portability advantages of current paging services. These services delivered
over the Company's InFLEXion(TM) network will offer improved functionality
compared to
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traditional one-way paging services, such as the high quality transmission
of messages in the sender's own voice and confirmation of receipt of
messages to the network. It is anticipated that InFLEXion(TM) data services
will enable the delivery of significantly longer alphanumeric messages and
the initiation of brief alphanumeric responses. Based on the growing use of
voice mail in office environments and telephone answering machines in
homes, as well as the growing number of one-way paging subscribers, manage-
ment expects that the Company's services will generate demand by offering
an attractive, mobile alternative to these answering services. Management
believes, based on market research conducted by Motorola, FGI and the
Company's own market research personnel, that enhanced voice messaging will
be one of the most widely accepted new paging services, with the potential
to penetrate 20% or more of the U.S. population.
Established distribution channels. The Company expects to use
existing distribution channels to achieve rapid market penetration and to
minimize marketing and selling expense. Consistent with this strategy,
through July 1, 1996, the Company has formed marketing relationships with
the Paging Company Investors as well as 19 other paging companies, which
together have an aggregate of approximately 16 million subscribers,
pursuant to which these paging companies have indicated their intention to
sell the Company's stored voice messaging services to their customers. The
Paging Company Investors have agreed to contract exclusively with the
Company for the purchase of narrowband PCS services rendered by the Company
which such Paging Company Investors desire to purchase, provided the
Company's services are competitive in price and quality with similar
services that may be available from others. The 19 other paging companies
currently have entered into memoranda of understanding with the Company
pursuant to which they have stated their intentions to sell PCSD's advanced
messaging services to their subscribers, if those services are competitive
in price and quality. These 16 million subscribers represent approximately
one-half of all pagers currently in service in the United States. The
Company believes that other telecommunications companies, such as cellular
and long distance service providers, ESMR operators and RBOCs, will also
package the Company's services with their product offerings.
Rapid network buildout. The Company expects to be among the first to
construct a nationwide narrowband PCS network utilizing InFLEXion(TM)
technology and to offer enhanced stored voice messaging services through
its network on a local, regional and nationwide basis. By utilizing its
proprietary market research, the Company will target initial buildout and
marketing in areas projected to have high demand for stored voice services.
The Company has already commenced network buildout in its initial test
markets, Boston and Atlanta, and anticipates that system tests will begin
in the third quarter of 1996 with commercial introduction of its voice
messaging service beginning in the second quarter of 1997. By this time,
the Company expects to have completed the buildout of its network in the
top ten BTAs, and expects its nationwide network buildout to be completed
in the first quarter of 1998.
Low-cost provider. PCSD's network operation, marketing strategy and
administrative structure have been designed to support the Company's
efforts to be a low-cost provider of its services. Management expects that
the capacity benefits of its nationwide network and its use of Motorola's
state-of-the-art InFLEXion(TM) technology will reduce its cost per unit of
network capacity compared to traditional one-way networks. The Company
intends to maximize the number of subscribers on its network by utilizing
the distribution channels of the Paging Company Investors and other paging
company partners, as well as other existing distribution channels. PCSD
also expects this distribution strategy to reduce the costs associated with
recruiting, training, compensating and managing a large in-house marketing
and sales staff. The Company will seek to control administrative costs
through a combination of centralized network management, customer service,
billing, credit, collections and accounting.
MARKET POTENTIAL
Upon completion of its nationwide narrowband PCS network, the Company
expects to have the capacity to offer a broad variety of advanced messaging
services. Industry sources estimate that customer reception of narrowband PCS
services and traditional paging services will exceed the demand for both
broadband PCS and
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cellular services. In a 1994 report, the Personal Communications Industry
Association ("PCIA") forecasts 56.2 million narrowband PCS and traditional
paging subscribers in 2000, as compared to 14.8 million and 46.9 million
subscribers in 2000 for broadband PCS and cellular services, respectively.
Moreover, industry sources estimate that there were more than 30 million pagers
in service at December 31, 1995 and that the number of pagers in service will
grow at an annual rate of approximately 15% for the next five years, to over 60
million subscribers by the end of 2000. According to the 1994 PCIA report, the
number of narrowband PCS and traditional paging subscribers will continue to
grow and will total approximately 92 million in 2005.
The Company's first service, expected to be commercially available in the
second quarter of 1997, will deliver stored voice messages wirelessly to a
pager-like subscriber unit. Based on industry studies and the Company's
proprietary market research, management believes that there will be significant
demand for such a service. In 1994 FGI conducted a study of 750 households and
500 businesses in order to assess the demand for voice paging and estimated that
stored voice messaging services could ultimately achieve a 20% penetration of
the U.S. population. Moreover, according to a 1995 Motorola study, approximately
84% of current paging subscribers would consider replacing their existing pager
with a voice messaging unit. A subsequent, more comprehensive market research
study conducted for the Company by FGI in 1996 indicated that 74% of current
paging subscribers are likely (40% somewhat likely and 34% very likely) to
purchase stored voice messaging at costs within the Company's anticipated price
ranges. Finally, management anticipates significant demand for its voice
messaging services based on the estimated penetration of answering machines in
U.S. households of approximately 63% according to a 1995 International Mass
Retail Association poll, and the popularity of voice mail services in office
environments. Management believes that consumers will view the stored voice
product as a convenient alternative to answering machines and voice mail.
SERVICES
The Company's planned service offerings will be delivered to a pocket-sized
subscriber unit containing a transmitter, enabling it to send a signal
identifying its location to the Company's network. Thus, unlike current one-way
paging in which all transmitters in the coverage area must simultaneously
broadcast the message, PCSD's InFLEXion(TM) network will be able to transmit the
message to the subscriber unit from the network's nearest transmitter, thus
dramatically increasing the network's capacity and efficiency. Management
estimates that the Company's stored voice messaging services and enhanced
alphanumeric services (each of which is described in more detail below) will be
offered to customers at monthly prices competitive with current one-way
alphanumeric paging services in similar service areas. The Company's service
offerings are expected to include:
Voice Messaging. The Company's first major offering will be an
entirely new class of messaging service -- a wireless stored voice
messaging product utilizing Motorola's state-of-the-art InFLEXion(TM)
technology to deliver a high quality stored transmission of the sender's
voice to the subscriber unit. The unit will store up to four minutes of
voice messages, which the subscriber will be able to play, fast-forward,
rewind and delete, much like an answering machine or voice mailbox. If the
subscriber unit is full, the sender's message will be stored in a network
server. The network will then transmit a "message waiting" notification to
the subscriber unit. The subscriber can delete old messages to enable the
unit to receive immediately messages stored by the network. While the
subscriber will not be able to respond directly to the caller by speaking
into the unit, the subscriber unit will acknowledge receipt of the voice
message to the network. The subscriber unit will have a volume control to
allow the subscriber to listen to messages privately, or to play them aloud
for others to hear.
Enhanced Alphanumeric Messaging. The alphanumeric messaging service
which the Company expects to offer will enable the subscriber to receive
alphanumeric messages of up to several thousand characters in length
(compared to the approximately 80 characters in traditional one-way
alphanumeric messaging) which will be input by either a computer or other
device with the proper software and a modem that can access the Company's
network or by a dispatch operator. As in the case of the Company's voice
messaging service, the Company's network will be designed to seek out the
subscriber unit until the subscriber unit acknowledges to the Company's
network that it has received the message.
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The Company believes that penetration of alphanumeric service has been
limited to date due to the reluctance of many one-way paging operators to
promote the service because of its relatively high use of system capacity
during transmission. The Licenses and InFLEXion(TM) technology will offer
significant increases in capacity and delivery speed over the spectrum and
technology currently delivering alphanumeric messaging services. The
Company expects that its alphanumeric service will improve upon traditional
service by permitting longer messages, by guaranteeing and acknowledging
delivery and, eventually, by permitting the subscriber to initiate limited
data responses. Management believes that these service enhancements, along
with its competitive pricing, will appeal to subscribers of traditional
alphanumeric messaging services and to cost conscious customers who have
not previously subscribed to such services.
Other InFLEXion(TM) Services. Over time, the Company intends to
participate in the growth of wireless data messaging services by working
with software companies and electronic component manufacturers in the
development of additional data messaging services. In addition to
pocket-sized pagers, the Company expects that wireless data transmissions
will be received by computers or Personal Digital Assistants ("PDAs")
equipped with two-way radio frequency modems or built-in radio frequency
capability. It is anticipated that a limited response by the computer or
PDA will be possible.
The Company may package one or more of the above services with cellular,
ESMR and broadband PCS applications, as well as with e-mail, facsimile, location
determination, credit card verification, PDA information delivery and broadcast
data applications. The Company also anticipates that future technological
advances will eventually enable the Company's network to deliver both stored
voice and data transmissions to a single subscriber unit.
DISTRIBUTION
The Company intends to offer its services to a broad variety of business
and consumer segments through both indirect and, over time, direct distribution
channels. Distribution support will be tailored to specific distribution
channels and will include market research, product and sales training and
promotional materials. The Company also will have the flexibility to accommodate
bulk billing to resellers, as well as direct billing to end users. Initially,
the Company intends to market its stored voice and data messaging services
indirectly by forming marketing relationships with resellers, such as one-way
paging operators and other third-party distributors. The Company's planned
distribution strategy is detailed below.
Indirect Distribution
The Company believes that utilizing existing distribution channels will be
a rapid and cost-effective method of establishing market share. Management has
identified three indirect distribution channels that together should give the
Company access to the widest possible group of end users.
Established Telecommunications Companies. This category includes
one-way paging operators and other providers of telecommunications
services. PCSD is forming marketing relationships with established paging
companies that have installed customer bases but that do not have the
capability to deliver the Company's wireless stored voice or data messaging
products over their existing networks. Consistent with this strategy,
through July 1, 1996, the Company has entered into arrangements with its
Paging Company Investors as well as 19 other paging companies, which
together have an aggregate of approximately 16 million subscribers,
pursuant to which these paging companies have indicated their intention to
sell the Company's stored voice services to their customers. The Common
Stockholders Agreement (as defined herein) provides that the Paging Company
Investors must enter into exclusive operating agreements with the Company
with respect to those narrowband PCS services rendered by the Company which
such Paging Company Investors desire to purchase, provided such services
are competitive in price and quality with comparable services offered by
others. The Paging Company Investors have indicated that they plan to
market the Company's services directly to their subscribers through their
own sales forces. On May 16, 1996, A+ Network announced that, subject to
certain conditions, it had agreed to be acquired by Metrocall, Inc.
("Metrocall"), one of the other paging
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companies that has entered into a memorandum of understanding with the
Company. The Company expects that Metrocall, as the successor to the rights
and obligations of A+ Network under the Common Stockholders Agreement, will
enter into an exclusive operating agreement with the Company as outlined
above upon the consummation of the merger of A+ Network into Metrocall. The
19 other paging companies currently have nonbinding memoranda of
understanding with the Company pursuant to which they have stated their
intention to sell PCSD's advanced messaging services to their subscribers
if those services are competitive in price and quality. The Company is
currently in the process of presenting marketing proposals and definitive
contracts to the paging companies and expects definitive contracts to be
concluded by the fall of 1996. The Company believes that these established
paging companies will be likely to offer stored voice messaging services to
their subscribers even though such services may be viewed as competitive
with traditional paging services because of the expected market demand for
stored voice messaging services by current and future paging subscribers.
The Company also believes that other telecommunications companies, such as
cellular and long distance service providers, ESMR operators and the RBOCs,
will package the Company's services together with their existing product
offerings. Management is currently negotiating with several such providers
for the distribution of the Company's wireless stored voice messaging
services.
Industry Integrators. The second indirect distribution channel that
management expects to pursue includes industry "integrators" such as voice
mail and e-mail providers, interconnect dealers and computer industry
value-added resellers. Such companies control access to large, diversified
customer bases and, through this channel, the Company expects to distribute
its wireless stored voice and data messaging services to the mobile
computer user market. Management expects that PCSD's network functions,
such as transmission of e-mail, facsimile, PDA information delivery and
broadcast data applications, will be complementary to many of the
multimedia-based software applications currently being developed. In
addition to the mobile computer user, the Company believes that its
services will also appeal to subscribers of business voice mail services.
Management expects that its stored voice messaging service will enhance
passive voice mail systems by providing immediate notification of receipt
of messages and eliminating the need to call into a fixed voice mail system
to retrieve messages.
Consumer Mass Marketing Companies. The third indirect marketing
channel that the Company expects to utilize consists of a broad array of
consumer mass marketing companies, including national chain retailers,
telemarketing companies and commercial on-line services, among others.
Management expects this channel to be the most cost-effective way to reach
the "retail consumer." The Company expects retailers to sell units to end
users who will call one of PCSD's toll-free operators for service
activation and billing. The Company expects to provide sales incentives and
advertising support, and will emphasize the training of sales personnel to
enhance the retailers' effectiveness and to ensure the customer is well
educated regarding the Company's services. The Company expects to develop a
national "brand name" for use in marketing its services through these mass
retailers.
Direct Distribution
While the indirect distribution channel is expected to account initially
for substantially all of the Company's subscriber additions, the Company is
currently developing direct marketing programs and alliances to supplement its
indirect distribution and to provide customized, higher-value-added products to
select customer segments. The Company will endeavor to sell "applications"
designed to address specific customer segments and needs. These applications
could include multimedia (voice and data) messaging services integrated with
portable computers, digital organizers and other hand-held computing devices.
Successfully selling these applications will require the establishment of
strategic alliances and direct marketing programs with technology partners and
computer industry distribution partners. Management believes that the sale of
applications could generate enhanced margins that would more than offset the
costs associated with direct marketing and sales.
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PRICING OF AIRTIME AND SUBSCRIBER UNITS
Currently, monthly airtime charges for subscribers to traditional one-way
local paging services range from approximately $8 to $12 for digital service and
$15 to $20 for alphanumeric service. One-way paging subscribers either purchase
their pagers at prices ranging from approximately $50 to $120 for numeric pagers
and $150 to $250 for alphanumeric pagers, or lease their pagers for monthly
charges ranging from approximately $1 to $7 depending on the term of the lease.
The Company is still developing its airtime pricing strategies and
subscriber unit sale and rental options. As discussed above, the Company's
initial plan is to market its stored voice messaging service indirectly through
resellers. The Company will not control the airtime or subscriber unit prices
charged by its resellers to the end user subscribers. The Company anticipates,
however, that the pricing packages it will offer its volume resellers will
enable them to offer PCSD's local stored voice messaging services, including
subscriber unit rental, at prices ranging from $18 to $20 per month. The Company
anticipates that these pricing packages will enable the Company to generate
positive cash flow from operations beginning in 1999. However, no assurance can
be or is given as to when or if the Company will generate positive cash flow
from operations.
The stored voice messaging subscriber unit is expected initially to cost
approximately $250, with volume purchase discounts potentially available.
Management's present intention is to sell the subscriber units to its resellers
at cost. The resellers will have the flexibility to either resell the units to
the end user subscribers on a customer-owned-and-maintained ("COAM") basis or
lease the subscriber unit. Thus, from the Company's perspective, the majority of
the subscriber units will be COAM but from the resellers' perspective, the units
may be either COAM or leased to the end user. As the Company's direct sales
grow, however, it is likely that the Company will lease an increasing portion of
subscriber units directly to end users. As this occurs, management will attempt
to optimize profitability by determining the proper blend of COAM and leased
subscriber units.
SPECTRUM
The Company's nationwide spectrum consists of five regional 50/50 kHz
narrowband radio frequency licenses acquired at the November 1994 FCC auction
(the "Licenses"). The FCC granted the Licenses to the Company on February 3,
1995, and that grant became nonappealable by final order on March 15, 1995. The
Licenses are on the same frequency, which allows the Company to create a
seamless nationwide network covering the United States and its territories,
including Puerto Rico and the U.S. Virgin Islands.
Management believes that the Licenses give the Company adequate capacity to
execute its business plan for the provision of services on a local, regional and
nationwide basis. If demand for the Company's services exceeds the Company's
expectations, the Company could increase network capacity by adding more
transmitters and receivers or by acquiring additional spectrum. Anticipating
that the acquisition of additional spectrum in major metropolitan areas would be
a cost-effective alternative to adding more network infrastructure, the Company
participated in the FCC's 900 MHz specialized mobile radio ("SMR") auction that
concluded on April 15, 1996 (the "SMR Auction"). The Company was the winning
bidder in the SMR Auction for SMR licenses in 29 major metropolitan areas (the
"SMR Auction Spectrum"). The Company's winning bids (net of a 10% bidding
credit) totaled $9.7 million. Because the Company satisfied "small business"
criteria applicable in the SMR Auction, it was entitled to a 10% bidding credit
and is entitled to pay 90% of the net price for SMR Auction Spectrum over the
ten-year term of the licenses, with interest only payable for the first two
years and the remaining principal and interest payable quarterly over the
remaining eight years. See "Description of FCC Auction Benefits -- "Small
Business" Status in FCC 900 MHz SMR Auction." The Company expects that the
licenses for its SMR Auction Spectrum will be granted in July 1996, which grants
will become nonappealable by final order in September 1996, unless challenged.
The Company is fully qualified to hold the SMR Auction Spectrum and expects that
its applications for this spectrum will be granted in the ordinary course. The
interest rate on the installment payments will be set at 250 basis points in
excess of the 10-year U.S. Treasury note rate as of the date of grant.
In addition to its SMR Auction Spectrum, the Company has purchased or has
contracts or letters of intent to purchase from third parties SMR spectrum in
five other metropolitan areas for an aggregate purchase
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price of approximately $15.6 million. Additionally, the Company has options or
is actively negotiating to acquire options on SMR spectrum in four metropolitan
areas, the option fees under which are approximately $3.5 million and the total
purchase price for which (inclusive of the option fees) is expected to be
approximately $11.4 million if the options are exercised. The options are long
term options, the shortest of which expires June 30, 2000 if not earlier
exercised. The purchase prices and option fees for these pending acquisitions
will be funded from a combination of the proceeds of the Units, existing cash
balances and seller financing. The SMR licenses typically consist of ten
channels with 125 kHz inbound and a 125 kHz outbound capacity. Together with the
Licenses, the SMR Auction Spectrum and the SMR spectrum purchased or under
contract or option with third parties, the Company's network will have at least
175 kHz/175 kHz spectrum capacity in 37 of the 50 largest BTAs, including each
of the top nine BTAs.
The Company anticipates that it may acquire or may obtain options to
acquire additional SMR spectrum from private owners. Moreover, the Company may
acquire additional narrowband PCS spectrum in the FCC narrowband PCS MTA/BTA
auction anticipated to occur in late 1996 or early 1997. See "Description of FCC
Auction Benefits -- Status in Future FCC Narrowband PCS MTA/BTA Auction." These
additional acquisitions would be funded through FCC financing that may be
available (in the case of spectrum acquired through auction), seller financing
(including deferred payments for spectrum under option), sales or exchanges of
spectrum owned by the Company or other financing.
In order to utilize SMR spectrum to deliver its stored voice messaging and
other narrowband PCS services over the Company's InFLEXion(TM) network, it will
be necessary for the InFLEXion(TM) infrastructure equipment and TENOR(TM)
subscriber unit to be type-accepted by the FCC for use with SMR spectrum. Such
acceptance, required under Part 15 of the FCC rules, involves routine laboratory
testing of transmission equipment to determine that such equipment operates
within appropriate specifications. Motorola and Glenayre have indicated to the
Company that they will seek such approval from the FCC with respect to the
equipment manufactured by them and that they know of no reason why such approval
cannot be obtained. See "Business -- Network Buildout."
In addition to its United States spectrum, the Company intends to enter
into a joint venture arrangement to acquire radio frequency for the purpose of
providing stored voice messaging services in Canada.
NARROWBAND PCS PROTOCOLS
Paging networks use various "protocols" to provide seamless communication
between the various components which make up a paging network. Protocols
regulate the format and flow of messages which are transmitted over the network.
Motorola has developed, and licensed to Glenayre, several protocols, including
FLEX(TM), ReFLEX(TM) and InFLEXion(TM). Of the three protocols, ReFLEX(TM) and
InFLEXion(TM) both permit two-way alphanumeric messaging, but only InFLEXion(TM)
has the capability to offer cost-efficient stored voice messaging,
very-high-speed data delivery and the transmission of data to the subscriber
unit from the network's nearest transmitter, thus allowing greater "frequency
reuse." AT&T has also developed a proprietary protocol, "Personal Air
Communications Technology," or pACT(TM), for two-way wireless transmission of
voice and alphanumeric messages. Management believes, however, that the
InFLEXion(TM) protocol is superior to pACT(TM) in terms of cost-efficient stored
voice messaging and very-high-speed data delivery.
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Various protocols have different transmission speed and capacity
characteristics. Consequently, the ability to deliver various types of wireless
messaging services, including stored voice messaging, on a cost-efficient basis
is dependent upon the protocol used. The following table illustrates certain
characteristics of various protocols based on current publicly available
information.
<TABLE>
<CAPTION>
INFLEXION(TM) REFLEX 50(TM) REFLEX 25(TM) PACT(TM)
<S> <C> <C> <C> <C>
Outbound Transmission Speed per 6,400 bits per 6,400 bits per 8,000 bits per
Channel 16,000 bits per second second second
second
Number of Channels(1) 7 4 2 3
Outbound Throughput(1) 112,000 bits per 25,600 bits per 12,800 bits per 24,000 bits per
second second second second
Frequency Reuse Nearest All Regional All Regional Nearest
Transmitter Transmitters Transmitters Transmitter
Message Acknowledgement Yes Yes Yes Yes
Limited Alphanumeric Message Response Yes Yes Yes Yes
Stored Voice Messaging(2) Yes No No Yes
Subscriber Unit Size 5.5 oz 5.5 oz 5.5 oz (3)
Estimated Initial Subscriber Unit
Price $250 $400 $300 (3)
Typical Battery Life 45 days 30 days 30 days (3)
</TABLE>
- ---------------
(1) Based on narrowband PCS networks with 50 kHz outbound frequency.
(2) Though the ReFLEX 50(TM) and ReFLEX 25(TM) protocols technically have the
ability to support these service offerings, management believes that neither
of these protocols can cost-effectively support these service offerings.
(3) Not disclosed in publicly available information.
As indicated in the table above, the InFLEXion(TM) protocol is a superior
alternative to other protocols in terms of transmission speed and network
capacity. The InFLEXion(TM) protocol has the ability to support outbound (i.e.
the message from the sender to the subscriber) transmission speeds of up to
16,000 bits per second, or approximately twice that of its nearest competitor.
Further, its utilization of seven outbound channels allows the InFLEXion(TM)
protocol to maximize the amount of data which can be transmitted over the
network over a given period of time ("outbound throughput"). The InFLEXion(TM)
protocol allows for outbound throughput of up to 112,000 bits per second (or
16,000 bits per second multiplied by seven channels).
Networks utilizing the InFLEXion(TM) protocol are able to realize greater
capacity through the protocol's ability to optimize frequency transmission. With
both ReFLEX(TM) and InFLEXion(TM) protocols, when a caller sends a message to a
subscriber, the network will broadcast a brief message over the outbound channel
signaling the subscriber unit to register its location on the network. Once the
unit registers its location, the network transmits the message to the unit. In
the case of ReFLEX(TM), the network has the ability to transmit the message from
a regional group of transmitters. In the case of InFLEXion(TM), however, the
network has the ability to transmit the message from the transmitter closest to
the unit. In doing so, the InFLEXion(TM) protocol frees the other transmitters
within a regional group to send and receive other messages, dramatically
increasing network capacity compared to a ReFLEX(TM) network.
NETWORK BUILDOUT
The Company is designing and constructing its own nationwide narrowband PCS
network and plans to provide coverage in the top ten BTAs by the time of the
commercial introduction of the Company's stored voice messaging service, which
is expected to occur in the second quarter of 1997, and to complete its
nationwide network buildout in the first quarter of 1998. The key elements of
the network buildout are as follows:
Design. The design of the Company's nationwide narrowband PCS network
is based upon Motorola's InFLEXion(TM) technology with its frequency reuse
capability in order to achieve more efficient use of the Company's spectrum
and to accommodate a greater number of subscribers. The design process
requires extensive radio frequency planning, which involves the selection
of specific sites for the placement of transmitters and receivers. As part
of the design process, the Company's engineers are identifying sites using
the Company's proprietary database (as well as other sources), which
contains
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specific information about available sites throughout the nation. Sites are
chosen on the basis of their coverage and on frequency propagation
characteristics, such as terrain, topography, building penetration and
population density. Radio frequency plans for the initial implementation of
the networks in Atlanta and Boston are substantially complete and
preliminary radio frequency plans are currently being formulated by the
Company's engineers for the buildout of the nation's largest population
centers. The Company's engineers are currently projecting that the
Company's nationwide narrowband PCS network will consist of approximately
2,000 transmitter/receiver sites and approximately 600 stand-alone receiver
sites in 1998 when the network is expected to be completed.
Site Acquisition. The Company also has commenced its site acquisition
process. The Company is in the process of leasing sites for terms of
varying lengths. One of PCSD's objectives is to reduce the risk of delays
during the buildout of the network while maintaining the integrity of the
system design. Where feasible, the Company plans to use existing site
locations occupied by other communications service providers such as
paging, cellular, SMR and radio and television broadcasters, and other
sites where zoning approvals and other necessary permits are likely to be
easily obtained.
Equipment. The infrastructure of the Company's InFLEXion(TM) network
will consist of radio transmitters and receivers, switches, radio frequency
controllers and ancillary equipment, such as coaxial cable and antennae.
The switch is the "keeper" of the core data base which stores subscriber
data, as well as the coordination unit for all system parameters and
diagnostics. This infrastructure equipment (other than the ancillary
equipment) which the Company intends to purchase is manufactured only by
two industry leaders, Motorola and Glenayre. Management expects that each
component of the network infrastructure will be available for purchase from
either technology vendor and that these components will be interchangeable.
The Company has entered into purchase agreements covering the
acquisition of infrastructure equipment and TENOR(TM) subscriber units from
Motorola and infrastructure equipment from Glenayre. The purchase
agreements require each manufacturer to assist the Company in the buildout
and testing of its network in the Company's initial over-the-air test
markets with a view to supplying the Company with the infrastructure
equipment for the construction of its nationwide network. Glenayre has
agreed to finance the acquisition of equipment and related services by the
Company. See "Description of Other Indebtedness -- The Credit Facility."
The purchase agreement with Motorola covers the acquisition and
testing of both infrastructure equipment and TENOR(TM) subscriber units.
Motorola will provide infrastructure equipment and TENOR(TM) subscriber
units to the Company for initial over-the-air testing in metropolitan
Atlanta to commence in the fall of 1996. In consideration of Motorola's
agreement to advance funds to cover the Company's monthly costs for site
leases, telco lines, ancillary equipment and similar costs for the Atlanta
test system and delayed payment terms on the over-the-air test site
equipment, the Company has agreed to purchase from Motorola at least 25% of
its infrastructure equipment requirements in each year for a three year
period beginning in June 1996; provided that Motorola is competitive
overall on price, quality and delivery.
The Company has committed to an initial order of commercial quantities
of TENOR(TM) subscriber units, which the Company expects to receive in the
second quarter of 1997. See "Competition." The purchase agreement provides
that Motorola shall enter into good faith negotiations to license an
alternative provider of subscriber units. Motorola and potential Motorola
licensees will be the only providers of TENOR(TM) subscriber units.
Pursuant to the Glenayre purchase agreement, the Company will purchase
from Glenayre infrastructure equipment and Glenayre will cooperate in
over-the-air testing of its equipment in metropolitan Boston scheduled to
commence in the fall of 1996. The Company has agreed to purchase from
Glenayre $75.0 million of its infrastructure equipment requirements through
June 1999, which Glenayre has agreed to finance by participating in the
Credit Facility. Glenayre has agreed to provide the Company with pricing on
its infrastructure equipment that is no less favorable than prices provided
to other customers purchasing the same equipment in similar quantities.
Both Motorola and Glenayre have agreed to
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cooperate with the Company to confirm the compatibility of each
manufacturer's equipment with the other for use on the Company's network.
Motorola and Glenayre also have committed to pursue FCC type-approval of
their equipment for use with the SMR spectrum.
The design of the Company's alphanumeric data messaging subscriber
unit has not yet been determined, but it is expected that such data will be
delivered over the Company's InFLEXion(TM) network utilizing a pager-like
device similar to the TENOR(TM) unit.
System Testing. Motorola has conducted successful over-the-air
testing of its InFLEXion(TM) technology, infrastructure equipment and
TENOR(TM) subscriber units in its factory in Fort Worth, Texas as well as
live field testing in the metropolitan Fort Worth area. While the factory
and Fort Worth field tests do not take into account all factors the Company
will encounter in the design and buildout of its nationwide network such as
variable terrain, topography, building penetration and population density,
Motorola's factory and field tests have established that the technology and
equipment can deliver a wireless voice message to a TENOR(TM) subscriber
unit under controlled circumstances and to date support the commercial
viability of the Company's proposed stored voice messaging services.
The Company has selected metropolitan Atlanta and Boston for its
initial over-the-air tests of its wireless stored voice messaging service.
These test markets reflect management's view of the optimal mix of three
factors: variety of technical characteristics, population density and
proximity to customers of the Company's Paging Company Investors. The
Company has substantially completed the initial system design phase for the
buildout of its Atlanta and Boston test network systems and is currently
acquiring transmitter/receiver sites and installing ancillary equipment.
Management plans to conduct over-the-air testing with Motorola
infrastructure equipment in Atlanta and Glenayre infrastructure equipment
in Boston in the fall of 1996. Motorola has agreed to provide a sufficient
number of TENOR(TM) subscriber units to complete these tests
notwithstanding Motorola's agreement with PageNet. Motorola has also
indicated that commercial quantities of TENOR(TM) subscriber units will be
deliverable to PCSD in the second quarter of 1997. Thus, PCSD's commercial
introduction of wireless voice messaging services is planned for the second
quarter of 1997. See "Competition."
PAGING INDUSTRY OVERVIEW
Industry sources indicate that, as of December 31, 1995, there were
estimated to be over 30 million pagers in service in the United States, which
represents a penetration rate in excess of 10% of the population, and that the
number of pagers in domestic service has grown at an annual rate of
approximately 20% since 1989. This growth is expected to continue at a rate of
15% for the next five years. Factors contributing to historical and projected
growth include: (i) a continuing shift toward a service-based economy; (ii)
increasing awareness of the benefits of mobile communication among the
population at large; (iii) the relatively high cost of traditional two-way
mobile communication, such as cellular telephone service; (iv) significant
price, performance and coverage area improvements in paging services; (v)
improved paging product functionality; and (vi) proliferation of retail
distribution outlets. While paging subscribers have traditionally been business
users, pager use among other consumers is increasing.
The paging industry has existed since 1949, when the FCC allocated a group
of radio frequencies for use in providing one-way mobile communication service.
Historically, the industry has been highly fragmented, being characterized by a
large number of small, local operators. During the 1990's, however,
consolidation increased significantly as some paging companies grew rapidly,
either internally or by acquisition. As a result, industry sources have reported
that over 50% of the estimated number of pagers in service in the United States
are now provided by the five companies with the largest subscriber bases.
Several hundred small licensed domestic paging companies nevertheless remain in
existence. Many of them provide only local paging service.
Basic Paging Service. Paging is a method of wireless communication that
uses an assigned radio frequency to contact a subscriber virtually anywhere
within a local, regional or nationwide service area. The subscriber carries the
pager, which receives messages by the broadcast of a one-way radio signal. To
page a
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subscriber, a caller first dials the subscriber's designated telephone number.
The call is routed to a central paging terminal, which prompts the caller to
enter a message (usually a telephone number) with a tone (usually a series of
"beeps"). After hearing the tone, the caller uses the key pad of a touch-tone
phone to enter the message (telephone number) into the paging terminal. Within
seconds, the paging terminal sends the caller's input to radio transmitters in
the subscriber's service area. Depending upon the topography of the service
area, the operating radius of a typical paging transmitter is from 3 to 20
miles. Each of the transmitters in the service area simultaneously broadcasts
the signal to the pager. As the pager receives the broadcast from the nearest
transmitter, it alerts the subscriber with a beep or vibration and
simultaneously displays and stores the broadcast message.
The Company believes that paging is the most cost-effective form of mobile
wireless communication. The equipment and "air time" required to transmit an
average message cost much less than the equipment and air time required for
cellular telephone calls. The majority of paging subscribers in the United
States pay $13.00 or less for virtually unlimited monthly local numeric service,
while cellular telephone subscribers pay multiples of this amount for limited
monthly service. Some consumers use pagers in lieu of, or in conjunction with,
cellular telephones in order to screen incoming calls and thereby lower or
eliminate the expense of cellular telephone service. Pagers also are smaller and
lighter and have longer battery lives than cellular telephones.
Advanced Messaging Services. While paging has historically been a one-way
communications service, technological advances are now providing a two-way
capability for wireless messaging. In 1994 the FCC enhanced the potential for
two-way messaging by allocating and auctioning new frequencies for two-way
paging services. By the end of 1994 the FCC had successfully auctioned
frequencies for both nationwide and regional two-way services. With the advent
of two-way narrowband PCS technology, management believes that it will be able
to provide its customers with inexpensive voice and/or data acknowledgement
paging services complementary to cellular, broadband PCS and ESMR.
The newly-auctioned narrowband PCS spectrum is expected to allow greater
functionality than traditional paging spectrum because it has broader bandwidth
and offers both "inbound" and "outbound" spectrum, allowing efficient two-way
communication. With two-way transmission capability, a subscriber unit will be
able to indicate its location to the network. As a result, the message can be
broadcast from the closest transmission site, rather than from all transmission
sites in the entire national, regional or local network, as is the case with
existing paging systems. This should enable more efficient use of the spectrum
in a given geographic area and should greatly increase overall system capacity.
Advanced messaging services are likely to be delivered through several
kinds of subscriber equipment and technology such as Motorola's voice messaging
product (which will deliver voice messages to a pocket-sized pager-like device),
enhanced alphanumeric subscriber units, PC plug-in cards for laptop computers,
palmtop computers and PDAs allowing these devices to receive and acknowledge
data messages. Eventually these capabilities may be "built in," obviating the
need to purchase add-on devices such as PC cards. In addition, it is expected
that the enhanced functionality of two-way messaging will attract new
subscribers through value-added services such as voice messaging, wireless
origination and delivery of e-mail, integration of wireless devices into
corporate wide area and local area networks, database access and transaction
services.
COMPETITION
The Company expects competition from several direct and indirect sources,
including: other companies that won nationwide and regional narrowband PCS
licenses in the FCC's 1994 auctions; local service providers who may obtain
MTA/BTA licenses in subsequent FCC auctions of narrowband PCS spectrum;
cellular, ESMR and broadband PCS providers; and, to some degree, one-way paging
providers. Management expects to compete on the basis of product quality, price
of service and breadth of geographic coverage.
Other Narrowband PCS Licensees. In addition to the Company, the only
companies that were awarded 50/50 kHz narrowband PCS licenses with nationwide
coverage in the FCC auctions were PageNet, AT&T, Mtel and PageMart. Both PageNet
and AT&T have two nationwide 50/50 kHz narrowband PCS licenses. PageNet,
PageMart and Mtel also have unpaired 50 kHz outbound channels in addition to
their 50/50 kHz paired channels.
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PageNet and PageMart have announced their intentions to market voice
messaging products using the same Motorola InFLEXion(TM) technology that the
Company will employ. Mtel has announced that it will use its license for data
products utilizing Motorola's ReFLEX(TM) technology and has introduced its
two-way data product known as "SkyTel 2-Way." AT&T has announced its plans to
introduce a data-oriented system utilizing its proprietary pACT(TM) technology
and a subscriber unit manufactured by Ericsson, Inc. AT&T has not yet announced
plans for a voice messaging product, but no assurances may be given that it will
not compete in that product line. Unlike the other companies that acquired
licenses for nationwide 50/50 kHz PCS spectrum, PCSD does not offer one-way
paging services. Consequently, the Company believes that other paging companies
desiring to offer enhanced PCS services will be more likely to form marketing
relationships with PCSD than with these competitors.
The Company understands that Motorola has an agreement with PageNet
pursuant to which Motorola has agreed to refrain from delivering its TENOR(TM)
voice subscriber units for commercial use to customers other than PageNet until
six months after Motorola commences commercial production of the units. Motorola
has agreed to provide PCSD with TENOR(TM) subscriber units for testing purposes
prior to the expiration of the six month period. Thus, the Company's ability to
complete and test its Atlanta and Boston systems and to complete its buildout in
other cities should not be affected by the PageNet/Motorola agreement.
Management expects that PageNet's agreement with Motorola will allow PageNet to
commence commercial service of its stored voice product in New York, San
Francisco and Dallas prior to the Company commencing its services; however, the
Company anticipates that it will receive TENOR(TM) voice subscriber units for
commercial use from Motorola by the second quarter of 1997 thereby allowing the
Company to provide commercial service of its stored voice service in Atlanta and
Boston prior to PageNet and its other competitors and allowing the Company to be
one of the first to provide commercial service in the other BTAs and throughout
the U.S.
In addition to the companies with 50/50 kHz PCS licenses with nationwide
coverage, AirTouch, Mtel, MobileMedia Corporation and Advanced Wireless
Messaging each own 50/12.5 kHz nationwide narrowband PCS licenses. Several other
companies have regional 50/12.5 kHz coverage. The companies that own these
licenses will compete with the Company in enhanced alphanumeric and basic
acknowledgment paging services, but the Company does not currently expect those
companies to offer stored voice messaging services unless they acquire more
spectrum. This is because the Company believes that the only currently available
technology for the cost effective delivery of wireless stored voice messaging is
the InFLEXion(TM) protocol utilizing greater spectrum capacity than 50/12.5 kHz.
The FCC is expected to hold auctions for narrowband PCS licenses for 51
MTAs and 493 BTAs in late 1996 or early 1997. Each MTA consists of at least two
BTAs. It is anticipated that in each MTA three 50/12.5 kHz paired licenses, two
50/50 kHz paired licenses and two 50 kHz unpaired licenses will be available. It
is anticipated that in each BTA two 50/12.5 kHz paired licenses will be
available. Management believes that persons acquiring 50/50 kHz paired licenses
in the MTA/BTA auctions could, after building or obtaining access to network
facilities, compete with the Company in the geographic area covered by their
licenses with respect to both voice, enhanced alphanumeric and basic
acknowledgement paging. The Company believes that those persons acquiring
50/12.5 kHz licenses in BTAs or MTAs would be unlikely voice paging competitors
so long as cost effective delivery of such a service requires an InFLEXion(TM)
protocol using greater spectrum capacity than 50/12.5 kHz.
Cellular, ESMR and Broadband PCS. While cellular, ESMR and broadband PCS
networks will offer extensive wireless services, management believes that most
of the Company's service offerings will complement those services rather than
compete directly with them. Cellular, ESMR and broadband PCS have approximately
100 to 300 times the bandwidth of narrowband PCS and therefore can provide
real-time two-way voice communications and long data transmissions with file
transfer capability. The higher broadband PCS infrastructure and spectrum cost,
along with the cost of relocating existing users of the spectrum (as required by
FCC rules), will likely result in higher prices to the end-user of broadband
PCS. In contrast, narrowband PCS will allow providers to offer short stored
voice and data messaging services coupled with message receipt acknowledgement.
Due to the smaller amount of spectrum used in narrowband PCS, there will be a
lower infrastructure cost to cover the same area. Also, unlike broadband PCS,
the narrowband PCS spectrum is clear of existing users, thus eliminating the
need for costly relocation of incumbent users.
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During the FCC broadband PCS auctions completed on March 13, 1995, 99
broadband PCS licenses in 51 MTAs were auctioned for a total of approximately
$7.7 billion. These licenses cover approximately 253 million POPs, POPs being
the number of persons within the licensed coverage area based on 1990 U.S.
Census data. The average spectrum cost per POP in the 1995 broadband auctions
was approximately $15.29. On May 6, 1996, the FCC completed an auction of
broadband spectrum in various BTAs to so-called "entrepreneurs" in its "C Block"
auction. At the close of the auction, the net bid price (after allowing for a
25% bid credit) was $39.88 per POP. These broadband spectrum costs compare to
the $90.9 million, or $0.36 per POP, that the Company paid for its nationwide
narrowband PCS spectrum. In addition to the spectrum cost, the estimated cost to
build a narrowband PCS network is significantly lower than the estimated cost to
build a broadband PCS network. Management expects that the cost to build its
nationwide network, including site acquisition, purchase of transmitters and
receivers and other expenditures, will approximate $0.55 to $0.65 per POP,
compared to approximately $25.00 per POP in network buildout costs for broadband
PCS based on recent industry estimates.
Both cellular and broadband PCS networks currently offer voice mail as a
complement to their mobile telephone services. Due to the design characteristics
of an InFLEXion(TM) narrowband PCS network, the Company's management believes
that the stored voice messaging service to be offered by PCSD will be superior
to cellular and broadband voice mail applications in three respects:
Service Cost. Because the spectrum and buildout costs for cellular and
broadband networks are significantly higher than the cost of PCSD's
narrowband spectrum and buildout, management does not believe that cellular
and broadband networks can offer cost-effective alternatives to PCSD's
stored voice messaging service. For example, assuming an average of 100
messages per month and service rates of $0.30 per minute, a cellular or
broadband PCS subscriber would pay $30.00 per month in incremental air time
for stored voice messaging service, which is more than twice what
subscribers to narrowband stored voice messaging services are likely to be
charged to receive up to several hundred messages per month.
Coverage. PCSD's InFLEXion(TM) network will offer nationwide coverage and
in-building penetration comparable to current one-way paging networks.
Broadband telephone services will be available in BTAs and MTAs, and, like
cellular services, will require roaming agreements with various carriers to
permit subscribers to use their broadband phone outside their home BTA or
MTA. Due to cost considerations, cellular and broadband telephone networks
are not currently designed to achieve in-building penetration comparable to
paging networks. Thus, management does not believe that cellular or
broadband mobile telephone voice mail applications can cost effectively
offer the level and quality of coverage that PCSD's nationwide stored voice
services will offer.
Battery Life. The TENOR(TM) subscriber units that will receive PCSD's
stored voice messages will use disposable nine volt batteries and have an
anticipated battery life of 45 days. Cellular and broadband telephones use
rechargeable batteries which currently offer less than one-tenth of the
battery life anticipated for PCSD's voice subscriber unit before requiring
recharging.
Because of these factors, management does not believe that cellular and
broadband mobile telephone networks will compete with PCSD's stored voice
messaging service to a significant degree. Rather, the Company believes that
PCSD's service offerings will complement cellular and broadband telephone
services and expects that companies offering such services could serve as
additional distribution outlets for PCSD. The Company believes that the number
of large telecommunications companies, including AT&T, AirTouch, Ameritech
Corp., BellSouth Corporation and Telephone and Data Systems, Inc., that have
acquired both broadband and narrowband PCS spectrum demonstrates that narrowband
PCS technologies will offer services quite distinct from cellular and broadband
telephone services.
The Company understands that at least one firm is attempting to develop
technology to utilize excess spectrum capacity on existing cellular systems to
deliver a wireless voice messaging product to subscribers at prices less than
cellular telephone prices. The Company believes that such a system depends on
the efficient and timely capture of cellular spectrum capacity that is not then
being used for cellular telephone communications. Because the Company's
narrowband PCS network spectrum capacity will be devoted entirely to wireless
voice and data messaging, the Company believes that its stored voice messaging
service will offer higher quality and more timely
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message delivery than services that depend on finding "excess" spectrum over
networks principally devoted to other uses. Nevertheless, should such a
technology be successfully developed and should the cellular systems used to
deliver the product have sufficient spectrum regularly available, such a service
could be competitive with PCSD's two-way wireless voice messaging product.
One-Way Paging. While management believes that the Company's services will
offer significant functional advantages over existing one-way services,
inevitably PCSD's products will compete to some extent with traditional one-way
paging systems and devices. While price-sensitive customers may continue to use
one-way paging because of its expected lower pricing, management believes that
many or most customers will prefer the convenience and features of the Company's
services. Motorola's market research indicates that approximately 84% of current
one-way paging subscribers would consider converting to voice units when such
units are available, and FGI estimates that stored voice services could achieve
a 20% market penetration of the U.S. population.
REGULATION
The construction, operation and acquisition of PCS systems in the U.S. are
subject to regulation by the FCC under the Communications Act. In addition,
pursuant to congressional authorization granted to the FCC in the 1993 Omnibus
Budget Reconciliation Act (the "Budget Act"), the FCC has been charged with
conducting spectrum auctions to determine how PCS licenses, for which mutually
exclusive applications were filed initially, will be awarded. In preparation for
such auctions, the FCC adopted comprehensive rules that (i) outline the bidding
process, (ii) describe the bidding application and payment process, (iii)
establish penalties for bid withdrawal, default and disqualification, (iv)
establish regulatory safeguards and (v) define the regulatory treatment of
Designated Entities. Designated Entities are entitled to special treatment. See
"Description of FCC Auction Benefits."
The FCC's national and regional narrowband auctions were completed in 1994.
The Company was awarded the Licenses pursuant to the regional auctions concluded
in November 1994. Other companies obtained narrowband PCS licenses in the
national and regional auctions. See "Competition." The FCC is anticipated to
hold MTA and BTA auctions in late 1996 or early 1997. The Company may
participate in those auctions as well. See "Competition."
The Company was granted its Licenses on February 3, 1995, which grant
became a nonappealable final order on March 15, 1995. Because the Company
qualified as a "Designated Entity" in participating in the regional auctions, it
received certain financial benefits which are subject to repayment if the
Company fails in certain respects to retain that status. See "Description of FCC
Auction Benefits -- "Designated Entity" Status in FCC Narrowband PCS Regional
Auction." In addition, every narrowband PCS licensee must construct facilities
that offer coverage to 37.5% of the population of its service areas within five
years of its initial license grant and to 75% of the population within ten
years. Licensees that fail to meet the coverage requirements will be subject to
revocation of their licenses. The Company's buildout plan is designed to meet
these requirements by the close of 1998.
All narrowband PCS licenses expire automatically ten years after their
initial grant date; thus, the Company's Licenses will expire on February 3,
2005. The Company expects that the FCC will grant it and other licensees
renewals of the narrowband PCS licenses upon their expiration provided such
licensees have complied with the FCC's rules and regulations in all material
respects.
Commercial Mobile Radio Service Regulation
The Company's provision of PCS will be regulated by the FCC as a commercial
mobile radio service, or a CMRS, which is a new class of service created by the
Budget Act. While the FCC's rules relating to certain aspects of the operational
and technical regulation of such services are not yet final, PCS, when offered
as a for-profit interconnected service to the public, will be subject to certain
common-carrier type regulations at the federal level. PCS providers will be
required to provide service upon reasonable request to any customer and are
prohibited from unjust or unreasonable discrimination in charges, practices,
classifications, regulations, facilities or services for or in connection with
like communications services. From time to time, legislation
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which could potentially effect the Company, either beneficially or adversely,
may be proposed by federal and state legislators. On February 8, 1996, the
Telecommunications Act of 1996 was signed into law, revising the Communications
Act to eliminate unnecessary regulation and to increase competition among
providers of communications services. The Company cannot predict the future
impact of this or other legislation on its operations.
Commercial Mobile Radio Spectrum Limit
The FCC has imposed a limit on the amount of spectrum certain categories of
CMRS can aggregate in a given geographic area. The total amount of broadband
PCS, cellular and SMR spectrum in which a single entity may have an attributable
interest in a given area is 45 Mhz. Although the Company's interest in its
narrowband PCS spectrum is not included in this spectrum aggregation cap, the
FCC does prohibit a narrowband PCS licensee from holding an ownership interest
in more than three of the 26 channels allocated for narrowband PCS.
Foreign Ownership Restrictions
The Communications Act restricts foreign investment in and ownership of
certain FCC licensees, including common carrier PCS licensees. Among other
things, aliens or corporations otherwise subject to domination or control by
aliens may not own more than 20% of a common carrier PCS licensee directly or
more than 25% of the parent of a common carrier PCS licensee. Aliens may not
serve as officers of a common carrier PCS licensee or as members of a common
carrier PCS licensee's board of directors, although up to one-fourth of the
board of directors of a common carrier licensee's parent may be aliens. The FCC
has authority to permit a licensee to exceed the 25% limit if it finds that the
public interest would be served.
State Regulations
The FCC has ruled that PCS providers presumptively will be considered CMRS
providers, which are exempt from state rate and entry regulation under the
Budget Act. The Budget Act allows states to seek to initiate rate regulation by
showing that existing market conditions cannot protect consumers from
unreasonable and unjust rates or that the service is a replacement for
traditional wireline telephone service for a substantial portion of the wireline
service within the state. The Budget Act also allows states that regulated CMRS
rates as of June 1, 1993 to petition the FCC to continue such regulation by
making the same showing. States are not, however, prohibited from regulating
other terms and conditions of CMRS. Several states petitioned the FCC to
continue such regulation, but the FCC denied all such petitions. As a result,
appeals are now pending on the FCC's denial of the states' petitions.
International Considerations
The Company's use of spectrum in certain areas of the United States
adjoining Canada and Mexico may be limited pursuant to arrangements between the
FCC and Canadian and Mexican regulatory authorities. In September 1994,
representatives of the FCC and Industry Canada (the Canadian regulatory body)
concluded discussions for an interim sharing arrangement for narrowband PCS in
the Detroit/Windsor and Toronto/Buffalo regions. This arrangement provides for
the use of spectrum for narrowband PCS near the border between the United States
and Canada. Among other things, the arrangement specifies which narrowband
channels are available for use by each of the FCC and Industry Canada within 75
miles of the border. The FCC reached a similar agreement with Mexico's
Secretaria de Communicaciones y Transportes (the Mexican regulatory body) in May
1995. Management is confident that these arrangements will have no material
adverse effect on the Company. One-way paging companies have dealt with this
issue satisfactorily as they built their industry into its present position.
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FACILITIES AND EMPLOYEES
The Company currently occupies approximately 13,000 square feet of leased
space and has options to lease an additional 11,000 square feet in Greenville,
South Carolina. All of the Company's management functions occupy this new
facility, which should be adequate for such purposes for the foreseeable future.
Additional facilities will be needed eventually to house customer service and
network monitoring personnel. Management believes that the Company will be able
to lease office space as needed on acceptable terms. The Company also will lease
space for transmitter/receivers as it constructs its nationwide network.
Portions of existing towers and rooftops of buildings will be leased for the
great majority of sites.
At December 31, 1995, the Company employed 33 full-time personnel, none of
whom is represented by a labor union. Management believes that the Company's
employee relations are excellent. The Company anticipates that the development
of its nationwide narrowband PCS system and the delivery of its services will
require the hiring of a substantial number of new employees.
TRADEMARKS
The Company does not currently own any trademarks, service marks or
patents. However, the Company expects to apply for and develop trademarks and
service marks in the ordinary course of business.
LEGAL PROCEEDINGS
The Company is not currently party to any legal proceeding that is material
to the Company's business or its financial condition.
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MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The Company's directors and executive officers and their positions with the
Company are as follows:
<TABLE>
<CAPTION>
NAME POSITION
- ---------------------------------------------------------- ----------------------------------
<S> <C>
Maceo K. Sloan(1)......................................... Chairman of the Board
Cecil L. Duffie, Jr.(1)................................... Vice Chairman of the Board, Chief
Executive Officer and Director
William D. deKay.......................................... President and Director
Harry L. Latham III....................................... Senior Vice President of Sales and
Marketing
Jerome C. Leonard......................................... Senior Vice President for
Engineering and Network
Operations
Mark A. Moore............................................. Senior Vice President of Finance,
Treasurer and Chief Financial
Officer
C.E. Baker, Jr.(1)(2)..................................... Director
Justin F. Beckett......................................... Director
R. Schorr Berman.......................................... Director
James E. Daverman(1)...................................... Director
Richard D. Frisbie........................................ Director
Jeffery C. Garvey(1)...................................... Director
James D. Kallman(1)....................................... Director
Steven J. Lerner.......................................... Director
Malcolmn Pryor............................................ Director
Stan F. Sech.............................................. Director
Pamela R. Simmons......................................... Director
Elliott H. Singer(3)...................................... Director
</TABLE>
- ---------------
(1) Member of Finance Committee. See "Description of Capital Stock -- Common
Stock -- Common Stockholders Agreement -- Finance Committee."
(2) Mr. Baker is Arch Communications' designee to the Board of PCSD. On or about
May 20, 1996, Arch Communications acquired the stock of Westlink Holdings,
Inc. ("Westlink") which owns 49.9% of the outstanding stock of Benbow PCS
Ventures, Inc., ("Benbow"), which owns two 50 kHz/12.5 kHz regional
narrowband PCS licenses. Westlink also has a five-year management agreement
with Benbow under which Westlink is responsible for the day-to-day
operations of Benbow. In addition, Arch Communications has notified the
Company that it plans to transfer all of the Common Stock of the Company
owned by Arch Communications to its wholly-owned subsidiary, Arch
Communications Enterprises, Inc. ("ACE"). As a result of the closing of the
Westlink acquisition and the transfer of the PCSD Common Stock to ACE, Arch
Communications has lost its right to designate a director to PCSD's Board
and Mr. Baker is required to resign from PCSD's Board. Under the Common
Stockholders Agreement, open Board seats created by the termination of a
Paging Company Investor's right to designate a director shall be filled by
an individual designated by the Board who is employed by or associated with
the remaining Paging Company Investor, if any, or another person otherwise
experienced in the telecommunications industry.
(3) Mr. Singer is A+ Network's designee to the Board of PCSD. A+ Network has
entered into a definitive agreement to be acquired by Metrocall that will
result in the merger of A+ Network into Metrocall. Under the Common
Stockholders Agreement, a stockholder who has the right to designate a
director and who sells, assigns, conveys or otherwise transfers its Common
Stock by operation of law or otherwise loses its right to designate a
director. Accordingly, upon the consummation of the merger of A+ Network
into Metrocall, A+ Network will lose its right to designate a director to
PCSD's Board. Under the Common Stockholders Agreement, open board seats
created by the termination of a Paging Company Investor's
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right to designate a director shall be filled by an individual designated by
the Board who is employed by or associated with the remaining Paging Company
Investor, if any, or another person otherwise experienced in the
telecommunications industry.
BACKGROUND OF DIRECTORS AND EXECUTIVE OFFICERS
Maceo K. Sloan, age 46, has been the Chairman of the Board of the Company
since its inception in 1994. He is also Chairman, President and Chief Executive
Officer of SCI and Sloan Financial Group, Inc., a holding company for various
investment advisory, research and financial services organizations. The largest
of these is NCM Capital Management Group, Inc., an SEC-registered investment
advisor that Mr. Sloan founded in 1986 and that currently has more than $3
billion in assets under management. Mr. Sloan serves as Chairman, President,
Chief Executive Officer and Chief Investment Officer of NCM Capital Management
Group, Inc. Before founding NCM Capital Management Group, Inc., Mr. Sloan spent
13 years with North Carolina Mutual Life Insurance Company and its subsidiary,
NCM Life Communications, Inc., which had holdings in cable, cellular and radio
telecommunications.
Cecil L. Duffie, Jr., age 47, has been the Vice Chairman, Chief Executive
Officer and a director of the Company since its inception in 1994. He was a
co-founder of Dial Page Inc. in 1982 and served as a director of Dial Page until
March 1994. Mr. Duffie was the President and Chief Executive Officer of Dial
Page from July 1983 through September 1986 and was Chairman from August 1989
through August 1990. Mr. Duffie provided consulting services to Dial Page from
January 1993 through March 1994 in conjunction with the formation of the Dial
Page subsidiary that merged with Nextel Communications, Inc. His other business
experience includes serving as Chairman, President and Chief Executive Officer
of Beverage Properties, Inc., a producer and distributor of soft drinks, from
1991 through 1994.
William D. deKay, age 40, has been the President and a director of the
Company since its organization in 1994. He joined the Company from Dial Page,
having been employed by Dial Page since 1985, except for one year (January 1988
through January 1989) when he served as Chief Operating Officer of Providence
Journal Telecommunications, Inc., a cellular telephone company. At Dial Page,
Mr. deKay served from September 1990 until July 1994 as Executive Vice President
of Business Development, Vice Chairman of the Board of Directors and Secretary.
From January 1989 to September 1990 he served as Vice President and Chief
Operating Officer of Dial Page, and from October 1985 until January 1988 he was
Vice President of Marketing of Dial Page. Prior to that time, he held various
marketing and sales positions for Sprint and AT&T Long Lines.
Harry L. Latham III, age 35, joined the Company as its Senior Vice
President of Sales and Marketing in April 1995. He served from October 1992 to
April 1995 as Vice President of Marketing at SkyTel, where he was responsible
for Product Development, Marketing Strategy, Marketing Alliances, Distribution
Development and Communications. Prior to joining SkyTel in October 1992, Mr.
Latham spent approximately eight years in the Consumer Package Goods Industry
and brand management with the Nabisco Foods Group and the Quaker Oats
Corporation.
Jerome C. Leonard, age 58, joined the Company as its Senior Vice President
for Engineering and Network Operations in March 1995. For 33 years before
joining the Company he was employed by Motorola, where he served in several key
management positions. From March 1992 until March 1995 he was Motorola's
Corporate Vice President and General Manager of Strategic Programs for the
Messaging, Information and Media Sector, which focused during this period on
narrowband and broadband PCS. From 1981 to 1993 Mr. Leonard held key management
positions in Paging Operations, including six years as General Manager of two
major Paging Products Divisions with responsibilities including manufacturing,
research, design and sales.
Mark A. Moore, age 35, is the Company's Chief Financial Officer and Senior
Vice President of Finance. He served as USA Mobile's Controller from May 1990
through February 1992, as its Vice President of Finance from February 1992
through November 1993 and as its Chief Financial Officer, Vice President of
Finance and Secretary from November 1993 until he joined the Company in May
1995. From 1984 through 1990, Mr. Moore held various management positions with
the Paging Division of Graphic Scanning Corporation.
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C.E. Baker, Jr., age 45, has been a director of the Company since November
1994. He has also served as President, Chief Executive Officer and a director of
Arch Communications since 1988 and became Chairman of the Board of Arch
Communications in May 1989.
Justin F. Beckett, age 32, has been a director of the Company since May
1995. He serves as President and a director of Sloan Communications, Inc., where
he has been employed in various executive capacities during the past five years.
He is also President and Chief Executive Officer of New Africa Advisers, Inc., a
wholly-owned subsidiary of Sloan Financial Group. Mr. Beckett is also Executive
Vice President of Sloan Financial Group.
R. Schorr Berman, age 47, has been a director of the Company since November
1994. He has also been a director of Arch Communications since 1986. Since 1987,
he has been the President and Chief Executive Officer of MDT Advisers, Inc. and
was an investment officer at Memorial Drive Trust from 1984 to 1988.
James E. Daverman, age 46, has been a director of the Company since
November 1994. He has served as Managing General Partner of Marquette Venture
Partners, a venture capital firm, for the past five years.
Richard D. Frisbie, age 46, has been a director of the Company since
November 1994. He has been Managing General Partner of Battery Ventures I, II
and III since he founded it in 1984. He serves on a number of Board of Directors
of privately owned companies.
Jeffery C. Garvey, age 47, has been a director of the Company since
November 1994. He has been General Partner of Austin Ventures during the past
five years.
James D. Kallman, age 33, has been a director of the Company since November
10, 1995. He has been a Principal of Chase Capital Partners (formerly Chemical
Venture Partners) since January 1, 1992. From January 1990 until December 1991,
he served as the president of M.H. Capital Partners, Inc.
Steven J. Lerner, age 41, has been a director of the Company since May
1995. He also serves as Vice President and a director of Sloan Communications,
Inc. He has been the Chairman of FGI and CMS, Inc. since he co-founded them in
1982 and 1990, respectively. FGI and CMS, Inc. are marketing companies
headquartered in Chapel Hill, North Carolina.
Malcolmn Pryor, age 49, has been a director of the Company since November
1995. During the past five years he has served as Chairman of Pryor, McLendon,
Counts & Co., Inc., an investment advisory firm.
Stan F. Sech, age 52, has been a director of the Company since November
1994. Mr. Sech was the President and Chief Operating Officer of USA Mobile
Communications, Inc. from 1990 until September 1995 and continues to be employed
by such company in an executive capacity.
Pamela R. Simmons, age 45, has been a director of the Company since May
1995. She is Vice President and General Counsel of Sloan Financial Group and NCM
Capital Management Group, Inc. and serves as Vice President and Secretary of
SCI. From 1990 until she joined Sloan Financial Group in 1994, she worked as a
Senior Attorney with the Land Loss Prevention Project.
Elliott H. Singer, age 54, has been a director of the Company since
November 1994. He also has been Chairman of the Board and Chief Executive
Officer of A+ Network since its formation in 1985. Mr. Singer was the owner and
Chief Executive Officer of A+ Network predecessor entities, through which he had
been engaged in the telemessaging service business since 1974 and in the paging
business since 1983.
BOARD OF DIRECTORS
All directors hold office by virtue of their designation by certain
stockholders pursuant to the terms of the Common Stockholders Agreement, as
defined herein. There are no family relationships between any of the directors
or executive officers of the Company. See "Common Stockholders
Agreement -- Board of Directors."
The Company's Board of Directors has established a Finance Committee which
is responsible for developing the Company's annual business plans. The Board of
Directors has also established a Compensation
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Committee which is responsible for making recommendations to the Board of
Directors regarding compensation arrangements for key employees of the Company.
See "Common Stockholders Agreement -- Finance Committee."
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The members of the Compensation Committee are R. Schorr Berman, Steven J.
Lerner, Stan F. Sech and Elliott H. Singer, who were also the sole members of
the Compensation Committee during the Company's last fiscal year. No member is
or has ever been an employee of the Company.
DIRECTORS' COMPENSATION
Directors do not receive any compensation or reimbursement of expenses
incurred by them in connection with their attendance at Board meetings.
The Company has issued warrants to Austin Ventures and to Marquette
Ventures and has paid FGI to perform marketing services on the Company's behalf.
None of these arrangements, however, were to compensate Mr. Jeffery Garvey, a
Board designee of Austin Ventures, Mr. James Daverman, a Board designee of
Marquette Ventures, or Mr. Steven Lerner, a Board designee of SCI and Sloan LP,
in connection with their role as directors of the Company. See "Certain
Transactions -- Option Agreements; Warrant Agreements" and "Relationship with
FGI."
EXECUTIVE COMPENSATION
Summary Compensation of Executive Officers. The following table sets forth
certain information regarding the compensation of the Company's Chief Executive
Officer and the Company's three other most highly compensated executive officers
other than the Chief Executive Officer whose total salary and bonus exceeded
$100,000 during the year ended December 31, 1995 (the "Named Executives").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION(1)
---------------
ANNUAL COMPENSATION SECURITIES
---------------------------- UNDERLYING
NAME AND PRINCIPAL POSITION SALARY BONUS OTHER(2) OPTIONS (#)
- --------------------------------------------------- -------- ------- ------- ---------------
<S> <C> <C> <C> <C>
Cecil L. Duffie, Jr................................ $122,436 $24,487 $ 3,500 --
Chief Executive Officer
William D. deKay................................... 122,436 24,487 3,500 --
President
Harry L. Latham, III............................... 102,846 18,761 35,500 200
Senior Vice President of Sales and Marketing
Jerome C. Leonard.................................. 184,615 30,011 50,692 400
Senior Vice President for Engineering & Network
Operations
</TABLE>
- ---------------
(1) Options to acquire shares of Class B Common Stock.
(2) Amounts related to the reimbursement of relocation expenses and car
allowances.
48
<PAGE> 51
Option Grants in Last Fiscal Year. The following table summarizes options
to acquire shares of Class B Common Stock granted to the Named Executives during
1995. No options to acquire Class A Common Stock were granted to the Named
Executives in 1995 and no options were granted in the last fiscal year to any of
the Named Executives which are not listed in the following table.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS POTENTIAL REALIZABLE
-------------------------------------------------- VALUE AT ASSUMED
NUMBER OF PERCENTAGE OF ANNUAL RATES OF STOCK
SECURITIES TOTAL PRICE APPRECIATION
UNDERLYING OPTIONS EXERCISE FOR OPTION TERM(1)
OPTIONS GRANTED TO PRICE EXPIRATION -----------------------
NAME GRANTED EMPLOYEES ($/SHARE) DATE 5% 10%
- ---------------------------- --------- ------------- --------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Harry L. Latham
III(2)(3)(4).............. 200 2.7 1,000 04/15/2005 125,800 318,800
Jerome C.
Leonard(2)(3)(4).......... 400 5.4 1,000 03/01/2005 251,600 637,600
</TABLE>
- ---------------
(1) Potential realizable value illustrates the respective values that might be
realized upon exercise of the options immediately prior to the expiration
of their term assuming the respective indicated compounded rates of
appreciation of the value of the Company's Common Stock over the term of
the options. The prices of Common Stock at the end of the ten-year term of
the options would be $1,629 assuming 5% annual appreciation and $2,594
assuming 10% annual appreciation. Such amounts represent assumed rates of
appreciation only. Actual gains, if any, on stock option exercises will
depend on the future performance of the Common Stock and overall market
conditions.
(2) All options were granted pursuant to Stock Option Agreements between the
Company and each of the Named Executives. The exercise price is greater
than the fair market value of the Company's Class B Common Stock on the
date of grant. See "-- The Employment Agreements; Option and Warrant
Agreements."
(3) No options may be exercised until the first to occur of several specified
events. See "-- The Employment Agreements; Option and Warrant Agreements."
(4) The options vest 20% on the first anniversary date of employment, and in 5%
quarterly increments thereafter, and thus become fully vested after five
years of employment. All options, unless previously vested, will
automatically vest upon a "Change in Control" of the Company, as defined
below.
Option Exercises and Holdings. During the year ended December 31, 1995, no
stock options were exercised by the Named Executives. The following table sets
forth information with respect to each of the Named Executives concerning the
value of all unexercised options held by such individuals at December 31, 1995.
FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS AT
OPTIONS AT FISCAL YEAR-END FISCAL YEAR-END
NAME EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE(A)
- --------------------------------------------- -------------------------- ------------------------------
<S> <C> <C>
Cecil L. Duffie, Jr.......................... 0/2,626 $0/2,232,100
William D. deKay............................. 0/2,626 0/2,232,100
Harry L. Latham III.......................... 0/200 0/170,000
Jerome C. Leonard............................ 0/400 0/340,000
</TABLE>
- ---------------
(a) Represents the difference between the exercise price per share and the
market value of the Common Stock at December 31, 1995.
49
<PAGE> 52
THE EMPLOYMENT AGREEMENTS; OPTION AND WARRANT AGREEMENTS
The Company has entered into an Employment Agreement with each Named
Executive (collectively, the "Employment Agreements"). It also has entered into
an Option Agreement with each Named Executive and with certain other employees
(collectively, the "Option Agreements"). In addition, the Company has entered
into a Warrant Agreement (collectively, the "Warrant Agreements") with each of
Austin Ventures III-A, L.P., Austin Ventures III-B, L.P., Austin Ventures IV-A,
L.P. and Austin Ventures IV-B, L.P. (collectively, "Austin Ventures") and
Marquette Venture Partners II, L.P. and MVP II Affiliates Fund L.P.
(collectively, "Marquette Ventures"). The following summary of these agreements
is qualified in its entirety by reference to the complete texts of such
agreements, copies of which are available from the Company upon request.
Each Employment Agreement provides that the relevant Named Executive will
receive a base salary and bonus to be set by the Board of Directors and contains
certain noncompetition, nonsolicitation and confidentiality covenants. Under the
Option Agreements with Messrs. Duffie and deKay, the Company has granted each of
them options to purchase from the Company up to 2,626 shares of Class B Common
Stock, in each case at an exercise price of $1,000 per share, subject to
adjustments for stock splits and stock dividends. Options held by Messrs. Duffie
and deKay to purchase 1,313 shares of Class B Common Stock are currently vested,
and, subject to certain conditions, the remainder of the options will vest 20%
on each June 1 beginning June 1, 1996 and ending on June 1, 2000, whereupon they
will be fully vested until they expire on October 31, 2004. The Company also has
an Option Agreement with Mr. Latham dated March 31, 1995, as amended, under
which it has granted options covering an additional 200 shares of Class B Common
Stock exercisable at $1,000 per share and 200 shares of Class B Common Stock
exercisable at $1,850 per share. The Option Agreement between Mr. Leonard and
the Company entered into on January 13, 1995 granted options to purchase 400
shares of Class B Common Stock exercisable at $1,000 per share. The options
granted to the Named Executives (other than to Messrs. Duffie and deKay) will
vest 20% on the first anniversary of employment, and in 5% quarterly increments
thereafter, and will expire ten years after the date of commencement of
employment.
Prior to the incorporation of the Company in September of 1994, Messrs.
Duffie and deKay incorporated and organized another corporation ("First Corp.")
in early 1994 to investigate and pursue potential business opportunities in the
advanced wireless messaging industry. Austin Ventures and Marquette Ventures
committed to fund up to $1.2 million of start-up and organizational expenses of
First Corp. with the understanding that they would receive a 58% equity interest
in First Corp. as consideration for their funding. Pursuant to this commitment,
Austin Ventures and Marquette Ventures advanced approximately $232,000 to First
Corp. When additional investors were attracted in the fall of 1994, the Company
was incorporated and organized and acquired the rights, benefits and intangible
value attendant to the start-up activities of First Corp. The acquired assets
included First Corp.'s proprietary business plans, strategies, market research,
furniture and fixtures, and supplies. The Company acquired these assets by
reimbursing approximately $193,000 to First Corp. and by entering into certain
special rights agreements in the nature of stock appreciation rights with Austin
Venture and Marquette Ventures effective October 31, 1994. After receiving the
reimbursement from the Company, First Corp. returned approximately $141,000 to
Austin Ventures and Marquette Ventures. In the summer of 1995, in substitution
for the special rights agreements, the Company granted Austin Ventures and
Marquette Ventures warrants to acquire up to 692 and 621 shares of Class B
Common Stock, respectively, in each case at a price of $1,360.49 per share.
Subject to certain conditions, the warrants will vest over a period beginning on
February 1, 1995 and ending on November 1, 1997, and will expire on October 31,
2004. The warrants granted to Austin Ventures and Marquette Ventures, as well as
the options granted to the Named Executives unless previously vested, will
automatically vest upon a Change in Control of the Company. For purposes of the
Warrant Agreements and the Option Agreements, a "Change in Control" shall be
deemed to have occurred if any person or group of related persons (other than
the stockholders of the Company as of November 10, 1995) shall acquire in any
transaction or series of transactions (X) all or substantially all of the assets
of the Company, (Y) beneficial ownership (within the meaning of Section 13(d) of
the Securities Exchange Act of 1934, as amended) of more than 50% of the sum of
(i) all shares of Common Stock then outstanding and (ii) all shares of Common
Stock then underlying
50
<PAGE> 53
outstanding shares of stock (other than Common Stock) or (Z) beneficial
ownership of that number of outstanding stock of any corporate successor to the
Company by merger or consolidation sufficient to elect a majority of the
directors of such successor or sufficient equity interests in any non-corporate
successor to the Company to control its affairs (within Section 13 of the
Securities Act). Pursuant to the terms of the Option Agreements and Warrant
Agreements, the rights to purchase shares do not come into existence, regardless
of whether the rights have otherwise vested, until the first to occur of: (i)
the Company receives an opinion of FCC counsel, in form and substance reasonably
satisfactory to the Company, to the effect that exercise will not result in the
loss of or materially jeopardize the Company's Designated Entity status, (ii)
the Company consummates a public offering at a price of $10.00 or more per share
in an underwritten transaction registered under the Securities Act and realizes
gross proceeds of $10.0 million or more or (iii) the first date after which the
failure of the Company to qualify for "Designated Entity" status as a "Business
Owned by Members of Minority Groups and/or Women" would not result in the loss
of material benefits by the Company, provided, however, if such date is later
than February 3, 2000, the Optionee shall have the right by written notice to
the Company to cause the Company to reinstate the Optionees' special
compensation rights under its Employment Agreement.
CERTAIN TRANSACTIONS
STRATEGIC ALLIANCES WITH CERTAIN STOCKHOLDERS
As part of their strategic alliance with the Company, each of the Paging
Company Investors has entered into a subscription agreement and the Common
Stockholders Agreement with the Company. In particular, while the Paging Company
Investors are not entitled to purchase services from the Company at prices less
than those available to non-stockholders, the Paging Company Investors as well
as the Company's other current stockholders are entitled to the best rates
available to non-stockholders based on comparable type and volume of service and
other contractual provisions. The Paging Company Investors, however, are
required to purchase narrowband PCS services exclusively from the Company,
provided that the Company's services are competitive in price and quality with
comparable services offered by others. The Paging Company Investors and the
Company also have agreed to negotiate in good faith to enter into mutually
acceptable intercarrier network access and similar agreements. The Company has
agreed that, in the event of a merger of the Company or a sale of its assets or
business, any agreements that the Company may have with the Paging Company
Investors that may enable them to offer narrowband PCS services over a broader
geographic area must remain in effect. The details of these strategic alliances
are expected to be documented as the Company develops its business.
OPTION AGREEMENTS; WARRANT AGREEMENTS
The Company has entered into the Option Agreements with the Named
Executives and with certain other management employees and has entered into the
Warrant Agreements with Austin Ventures and Marquette Ventures. Austin Ventures
owns 714, 4,110 and 889 shares of Class A Common Stock, Class B Common Stock and
Series A Preferred Stock, respectively, representing approximately 9.07% of all
classes and series of the Company's capital stock, assuming the exercise of all
outstanding options, warrants and convertible securities. Mr. Jeffery Garvey, a
director of the Company, is a general partner of AV Partners III, L.P. and AV
Partners IV, L.P., the general partners of Austin Ventures.
Marquette Ventures owns 640, 3,685 and 889 shares of the Class A Common
Stock, Class B Common Stock and Series A Preferred Stock, respectively,
representing approximately 8.26% of all classes and series of the Company's
capital stock, assuming the exercise of all outstanding options, warrants and
convertible securities. Mr. James Daverman, a director of the Company, is a
general partner of JED Limited Partnership, which is the general partner of
Marquette General II, L.P., the general partner of Marquette Ventures. See
"Management -- The Employment Agreements; Option and Warrant Agreements."
51
<PAGE> 54
STOCKHOLDER LOAN
SCI, one of the Company's original shareholders and a member of its
"Control Group" for purposes of FCC "Designated Entity" status, purchased 4,200
shares of Class A Common Stock and 5,100 shares of Class B Common Stock in the
Company for $9.3 million in October 1994, in part with the proceeds of a $9.2
million loan from the Company (the "Sloan Loan"). Messrs. Sloan and Beckett,
directors of the Company, own all of the outstanding stock of SCI. Each advance
under the Sloan Loan bears interest at 6% per annum for the first year and 10%
per annum thereafter. In the event of a default, the interest rate increases on
all outstanding principal and unpaid accrued interest to 15% for the first six
months of the default, 20% for months seven through 12, and 25% thereafter. The
largest amount due the Company under the Sloan Loan in 1995 was approximately
$9.8 million.
In connection with the formation and capitalization of Sloan LP, a limited
partnership organized in order to own SCI's shares in the Company, SCI
transferred 4,211 shares (1,895 Class A and 2,316 Class B) of the Company's
Common Stock to Sloan LP, and Sloan LP assumed approximately $4.4 million of the
Sloan Loan attributable thereto. Sloan LP repaid that $4.4 million portion of
the Sloan Loan with the proceeds of the sale of limited partnership interests in
Sloan LP. In April 1996, SCI transferred an additional 3,519 shares (1,583 Class
A and 1,936 Class B) of the Company's Common Stock to Sloan LP. Sloan LP assumed
approximately $3.9 million of the Sloan Loan attributable thereto and repaid
that $3.9 million portion of the Sloan Loan with the proceeds of the sale of
additional limited partnership interests in Sloan LP.
As a result of these transactions, the Sloan Loan currently has a principal
balance of approximately $1.7 million and is secured by a pledge of 1,570 shares
of Common Stock. While the Sloan Loan is a recourse obligation of SCI, SCI's
only assets are the pledged shares of Common Stock and its general partner
interest in Sloan LP. The Sloan Loan is due on April 30, 1997.
RELATIONSHIP WITH CHASE
The Chase Manhattan Bank ("Chase") has committed to act as the
administrative agent and the manager of the Credit Facility and as a lender
under the Tranche A and Tranche B Facilities (as defined herein). Chase is an
affiliate of Chase Manhattan Capital Corporation and Chase Venture Capital
Associates, L.P. Chase Manhattan Capital Corporation and Chase Venture Capital
Associates, L.P. own 3.60% and 18.02%, respectively, of the Series A Preferred
Stock.
RELATIONSHIP WITH FGI
FGI has been engaged as a marketing consultant to the Company. The Company
has formulated its business plan in reliance upon market research, analysis and
recommendations, some of which has been performed and made by FGI. The Company
paid FGI $69,000 and $116,500 in 1995 and 1996, respectively, for marketing
services rendered. FGI became a stockholder in the Company subsequent to its
1994 study but prior to the 1996 study. See "Prospectus Summary -- The Company,"
"Business -- General" and "Business -- Market Potential." FGI owns 15 and 85
shares of Class A and Class B Common Stock, respectively, of the Company,
representing approximately .14% of all classes and series of the Company's
capital stock, assuming the exercise of all outstanding options, warrants and
convertible securities. Mr. Steven Lerner is the Chairman of FGI and a director
of the Company.
SECURITIES SALES
In October 1994 the Company sold 37,200 shares of Common Stock for $1,000
per share to various parties, including certain executive officers and directors
of the Company and parties who are beneficial holders of more than four percent
of a class of the Company's voting securities. In November 1995, the Company
sold 24,667 shares of Series A Preferred Stock for $2,250 per share to various
parties, including certain executive officers and directors of the Company and
parties who are beneficial holders of more than four percent of a class of the
Company's voting securities. These purchases are reflected in the beneficial
ownership table under "Principal Stockholders."
52
<PAGE> 55
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information as of March 31, 1996,
regarding (i) the amount and nature of the beneficial ownership of each class of
the Company's equity securities owned by directors, Named Executives and all of
the Company's directors and executive officers as a group, (ii) the ownership of
the Company's Class A Common Stock and Series A Preferred Stock, which are the
only two classes of the Company's securities that have the right to vote for the
election of Directors, by each person or entity known to the Company to be the
beneficial owner of more than five percent of any class of such voting
securities, and (iii) the percent of all of the Company's equity securities
considered as a single class owned beneficially by each person, entity or group
named in the table.
<TABLE>
<CAPTION>
SERIES A
CONVERTIBLE PERCENT OF
CLASS A CLASS B ALL EQUITY
COMMON STOCK(1) COMMON STOCK(1) PREFERRED STOCK(1) SECURITIES
-------------------- ----------------------- -------------------- CONSIDERED
NUMBER PERCENT NUMBER PERCENT NUMBER PERCENT AS A SINGLE
OF SHARES OF CLASS OF SHARES OF CLASS(2) OF SHARES OF CLASS CLASS
--------- -------- --------- ----------- --------- -------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
SCI(3).................................. 4,200 48.18% -- -- -- -- 15.03%
Sloan LP(4)............................. 3,478 39.89 -- -- -- -- 12.49
Arch Communications(5).................. 962 11.03 -- -- -- -- 10.51
Austin Ventures III-A, L.P.(6).......... 714 8.19 -- -- -- -- 9.23
Austin Ventures III-B, L.P.(6).......... 714 8.19 -- -- -- -- 9.23
Austin Ventures IV-A, L.P.(6)........... 714 8.19 -- -- -- -- 9.23
Austin Ventures IV-B, L.P.(6)........... 714 8.19 -- -- -- -- 9.23
Battery Ventures III, L.P.(7)........... 518 5.94 -- -- -- -- 5.66
Chancellor Capital Management,
Inc.(8)............................... -- -- -- -- 2,223 9.01 3.59
Chase Manhattan Capital
Corporation(9)........................ -- -- -- -- 5,334 21.62 8.62
Chase Venture Capital Associates,
L.P.(10).............................. -- -- -- -- 5,334 21.62 8.62
Eos Partners, SBIC, L.P.(11)............ -- -- -- -- 1,289 5.23 2.08
Fayez Sarofim(12)....................... -- -- -- -- 1,289 5.23 2.08
Kingdon Capital Management Corp.(13).... -- -- -- -- 2,223 9.01 3.59
MVP II Affiliates Fund, L.P.(14)........ 640 7.34 -- -- -- -- 8.43
Marquette Venture Partners II,
L.P.(14).............................. 640 7.34 -- -- -- -- 8.43
Toronto Dominion Investments,
Inc.(15).............................. -- -- -- -- 2,223 9.01 3.59
Maceo K. Sloan(3)(16)................... 4,200 48.18 5,100 17.91 -- -- 15.03
Cecil L. Duffie, Jr.(17)................ 26 0.30 149 0.52 -- -- .28
William D. deKay(17).................... 26 0.30 149 0.52 -- -- .28
Harry L. Latham III(17)................. -- -- -- -- -- -- --
Jerry Leonard(17)....................... -- -- -- -- -- -- --
C.E. Baker, Jr.(5)...................... -- -- -- -- -- -- --
Justin F. Beckett(4).................... -- -- -- -- -- -- --
R. Schorr Berman(18).................... 370 4.24 2,825 9.02 695 2.82 5.16
James E. Daverman(14)................... 640 7.34 4,574 15.57 889 3.62 8.43
Richard D. Frisbie(19).................. 518 5.94 2,982 10.47 -- -- 5.66
Jeffery C. Garvey(6).................... 714 8.19 4,999 17.02 889 3.62 9.23
James D. Kallman(20).................... -- -- 5,334 15.77 5,334 21.62 8.62
Steven J. Lerner(21).................... 15 .17 85 .30 -- -- .16
Malcolmn Pryor(22)...................... -- -- -- -- -- -- --
Stan F. Sech(23)........................ -- -- -- -- -- -- --
Pamela R. Simmons(4).................... -- -- -- -- -- -- --
Elliott H. Singer(24)................... -- -- -- -- -- -- --
All directors and executive officers as
a group (17 persons).................. 6,509 71.51 26,197 68.04 7,807 31.65 52.85
</TABLE>
- ---------------
(1) The holders of the Class A shares have the right to elect 16 of the
Company's 17 directors. Pursuant to the Common Stockholders Agreement, such
holders have agreed to elect these directors from designees selected by the
stockholders of the Company as prescribed in the Common Stockholders
Agreement. See "Description of Capital Stock -- Common Stock -- Common
Stockholders Agreement -- Directors." The holders of the Class B shares do
not elect directors of the Company. So long as no less than one-third of
the Series A shares remain outstanding, the holders of the Series A shares
have the right to
53
<PAGE> 56
elect one member to the Company's Board of Directors. See "Description of
Capital Stock -- Preferred Stock -- Voting Rights." The holders of the
Class A shares are entitled to one vote for each share held on all matters
as to which stockholders are entitled to vote. Shares of Class B confer on
the holders thereof no right to vote except with respect to each of the
matters listed in the Company's Restated Certificate of Incorporation, as
to which each holder is entitled to one vote for each share held, voting as
a single class with the Class A shares. The holders of the Series A shares
will vote together with the Common Stockholders as though part of such
class on those specific matters as to which the holders of the Class B
shares are entitled to vote.
(2) In accordance with Rule 13d-3 under the Securities Exchange Act of 1934, a
person is deemed to be the beneficial owner for purposes of this table of
any shares of stock if such person has or shares voting power or investment
power with respect to such security, or has the right to acquire beneficial
ownership at any time within 60 days from March 31, 1996. Accordingly, the
table gives effect to (i) the conversion of Series B Preferred Stock held
by Toronto Dominion Investments, Inc. into the Series A Preferred Stock and
(ii) the conversion of Series A Preferred Stock of each Named Executive and
the directors into Class B Common Stock and assumes, for purposes of the
calculations under (ii) above, that the Series A Preferred Stock of the
other holders remain outstanding and are not converted into Class B Common
Stock. Unless otherwise indicated, to the Company's knowledge each of the
shareholders listed above has sole voting and investment power with respect
to the shares beneficially owned.
(3) Includes 3,478 Class A and 4,252 Class B shares owned by Sloan LP, of which
SCI is the general partner.
(4) The address of this person is 103 West Main Street, 4th Floor, Durham, NC
27701-3638.
(5) Arch Communications has advised the Company that Arch Communications
proposes to transfer all of its Class A and Class B shares to its
wholly-owned subsidiary, ACE. The address of this person is 1800 West Park
Drive, Ste. 350, Westborough, MA 01581.
(6) Includes all Class A shares and Series A shares owned by Austin Ventures.
AV Partners III, L.P. is a general partner of Austin Ventures III-A, L.P.
and Austin Ventures III-B, L.P. AV Partners IV, L.P. is a general partner
of Austin Ventures IV-A, L.P. and Austin Ventures IV-B, L.P. All of these
shares are deemed to be beneficially owned by Mr. Garvey because he is a
general partner of AV Partners III, L.P. and AV Partners IV, L.P. Mr.
Garvey disclaims beneficial ownership of these shares. The address of this
person is 114 West 7th Street, Suite 1300, Austin, Texas 78701.
(7) The address of this person is 200 Portland Street, Boston, MA 02114.
(8) Chancellor Capital Management Inc. is the investment manager for various
fiduciary accounts which own Series A shares and it has voting and
dispository power over such shares. The address of this person is 1166
Avenue of the Americas, New York, NY 10036.
(9) Includes 4,445 Series A shares owned of record by Chase Venture Capital
Associates, L.P. The address of this person is 380 Madison Avenue, 12th
Floor, New York, NY 10017.
(10) Includes 889 Series A shares owned of record by Chase Manhattan Capital
Corporation. The address of this person is 380 Madison Avenue, 12th Floor,
New York, NY 10017.
(11) The address of this person is 520 Madison Avenue, New York, NY 10022.
(12) Includes 645 Series A shares owned of record by FSI Corporation. Mr.
Sarofim has voting power and investment power over such shares. The address
of this person is Two Houston Center, Ste. 2907, Houston, TX 77010.
(13) Kingdon Capital Management Corp. is a general partner of various fiduciary
accounts which own Series A shares and it has voting and dispository power
over such shares. The address of this person is 152 West 57th St., New
York, NY 10019.
(14) Includes 18 Class A shares owned of record by MVP II Affiliates Fund, L.P.
and 622 Class A shares owned of record by Marquette Venture Partners II,
L.P., both of which Marquette General II, L.P. is a general partner. All of
these shares are deemed to be beneficially owned by Mr. Daverman because he
is a general partner of JED, Limited Partnership, which is the general
partner of Marquette Venture Partners II, L.P. Mr. Daverman disclaims
beneficial ownership of these shares. The address of this person is 520
Lake Cook Rd., Ste. 450, Deerfield, IL 60015.
54
<PAGE> 57
(15) Includes 1,067 Series B shares which are convertible into 1,067 Series A
shares at the option of the holder. The address of this person is 31 West
52nd St., New York, NY 10019.
(16) Includes all shares owned of record by SCI, of which Mr. Sloan owns
two-thirds of the equity securities, and all shares owned by Sloan LP, of
which SCI is the general partner. The address of this person is 103 West
Main St., 4th Floor, Durham, NC 27701-3638.
(17) The address of this person is 15 S. Main St., Ste. 810, Greenville, SC
29601.
(18) Includes 370 Class A, 2,825 Class B and 695 Series A shares owned by
Memorial Drive Trust. Mr. Berman is the administrator and Chief Executive
Officer of Memorial Drive Trust. Mr. Berman disclaims beneficial ownership
of the shares owned by Memorial Drive Trust. The address of this person is
125 Cambridge Park Drive, Cambridge, MA 02140-2314.
(19) Includes 518 Class A and 2,982 Class B shares owned of record by Battery
Ventures III, L.P., of which Battery Partners III, L.P. is a general
partner. Mr. Frisbie is a managing partner of Battery Partners III, L.P.
Mr. Frisbie disclaims beneficial ownership of these shares. The address of
this person is 200 Portland Street, Boston, MA 02114.
(20) Includes 4,445 Series A shares owned by Chase Venture Capital Associates,
L.P., and 889 Series A shares owned by Chase Manhattan Capital Corporation.
Mr. Kallman is a principal of Chase Capital Partners, the general partner
of Chase Venture Capital Associates, L.P. Chase Manhattan Capital
Corporation has agreed to grant to Chase Capital Partners a voting proxy
with respect to all shares of the Company owned by Chase Manhattan Capital
Corporation. The address of Chase Capital Partners is 380 Madison Avenue,
12th Floor, New York, NY 10017.
(21) Includes 15 Class A shares and 85 Class B shares owned by FGI, of which Mr.
Lerner is Chairman. The address of this person is 206 West Franklin Street,
Chapel Hill, NC 27516.
(22) The address of this person is 1515 Market Street, 819, Philadelphia, PA
19102.
(23) The address of this person is 11300 Cornell Park Drive, Suite 200,
Cincinnati, OH 45242.
(24) A+ Network has entered into a definitive agreement to be acquired by
Metrocall. The address of this person is 24165 Hillsboro Road, Nashville,
TN 37212.
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DESCRIPTION OF FCC AUCTION BENEFITS
"DESIGNATED ENTITY" STATUS IN FCC NARROWBAND PCS REGIONAL AUCTION
Because the Company satisfied FCC eligibility requirements for "Designated
Entity" status as both a "Small Business" and as a "Business Owned by Members of
Minority Groups and/or Women," as those terms are defined by the FCC for
purposes of the narrowband PCS regional auction in which the Company acquired
the Licenses, the Company received both bidding credits and installment payment
options that were not available to all auction participants. Thus, while the
Company's winning bids for the Licenses totalled $151.5 million, the total
purchase price was only $90.9 million due to the 40%, or $60.6 million, bidding
credit received from the FCC because of the Company's status as a "Designated
Entity" satisfying the requirements for a "Business Owned by Members of Minority
Groups and/or Women." Due to the auction dynamics, however, the bidding credit
did not enable the Company to purchase its Licenses for an amount less than
other companies that acquired nationwide licenses in the auctions. Specifically,
in the narrowband PCS regional auction there were two 50kHz/50kHz radio
frequency licenses auctioned in each of the five regions of the United States
(in addition to four 50kHz/12.5kHz licenses in each region). Designated Entity
bidders that qualified as a "Business Owned by Members of Minority Groups and/or
Women" could bid on either of the two 50/50 kHz licenses, but could use their
40% bidding credits only on one of the two 50/50 kHz licenses auctioned in each
region that was designated as eligible for the bidding credits (the "Bid Credit
License"). Thus, for example, a bid by a Designated Entity of $30 million for
the Bid Credit License was equivalent to a bid of $18 million for the other
50/50 kHz license. Any bid by a Designated Entity for the Bid Credit License at
a price less than $30 million would attract bids of other Designated Entities
who would find the Bid Credit License (net of the bid credit) less expensive
than an $18 million bid for the other license. Thus, because Designated Entities
could bid on both the Bid Credit Licenses and the other licenses, the bids for
the Bid Credit Licenses net of the bidding credit tended to approximate the bids
for the other licenses. Moreover, the average price paid for nationwide
50kHz/50kHz licenses in the FCC's narrowband PCS nationwide auction concluded in
July of 1994 was $83.4 million, while the Company's net price after bidding
credits to acquire the same coverage in the PCS regional auctions concluded in
November 1994 was $90.9 million.
In addition to the bidding credits, as a Designated Entity that satisfied
the requirements for a "Small Business" applicable in the narrowband PCS
regional auction, the Company was entitled to pay the $90.9 million purchase
price for the Licenses through two 10% deposits that were made in late 1994 and
early 1995, with the $72.7 million balance payable to the FCC over ten years at
a 7.5% annual interest rate, with no payment of principal for the first two
years.
In order to be considered a Designated Entity under the rules governing the
narrowband PCS regional auction as both a Small Business and a Business Owned by
Members of Minority Groups and/or Women, it was necessary that the Company have
a "Control Group" that owned at least 50.1% of the Company's voting rights
(including the right to elect a majority of the directors) and at least 25% of
the Company's total equity on a fully diluted basis. In addition, no other
equity investor or related group of investors is permitted to own more than 25%
of the total equity in the Company, or more than 15% of the voting equity of the
Company. The Company's Control Group currently consists of SCI, Sloan LP, the
Sullivan Family Revocable Trust and Dobson Family Corp. Such shareholders
together own approximately 53% of the Company's Class A Common Stock and,
pursuant to the terms of the Company's Common Stockholders' Agreement, are
entitled to designate nine of the Company's 17 directors. Prior to the closing
of the issuance of the Company's Series A Preferred Stock, the members of the
Control Group owned 26% of the Company's total equity on a fully diluted basis.
Upon the issuance of the Series A Preferred Stock on November 30, 1995, the
Control Group's total equity interest in the Company was diluted to
approximately 14.98%. As a result of this dilution PCSD ceased to satisfy the
requirements for Designated Entity status because the members of its Control
Group owned on a fully diluted basis less than 25% of the Company's equity. In
conjunction with the closing of the sale of the Company's Series A Preferred
Stock, the Company, through Lukas McGowan, its special FCC counsel, obtained a
written ruling from the FCC staff that the dilution of the Control Group's
equity interest in the Company as a result of the issuance of the Series A
Preferred Stock would not result in the loss of the financial benefits that
accrued to the Company due to its status as a Designated Entity in the
narrowband PCS regional auction. This finding was based on the assumption that
the Control Group would continue its
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ownership of 50.1% of the voting equity of the Company and that no investor
outside of the Control Group would hold more than 25% of the total equity of the
Company, or more than 15% of the total voting equity of the Company. The members
of the Control Group may transfer their interests in the Company before February
3, 2000 only if no transfer of control of the Company occurs and if the Control
Group continues to satisfy the ownership requirements.
Upon the issuance of the Units, it is anticipated that the Control Group's
equity interest will be further diluted from approximately 14.98% to
approximately %, but that the Company will continue to satisfy the other
three percentage tests. In connection with the issuance of the Units the Company
has received the opinion of Lukas McGowan that the dilution of the Control
Group's equity interest as a result of the issuance and exercise of the Warrants
will not result in the loss of the financial benefits that have accrued to it as
a Designated Entity in the narrowband PCS regional auction and that after the
issuance of the Units the Company will continue to be eligible for the benefits
that have accrued to it as a Designated Entity.
In order to qualify as a "Small Business", the Company and certain of its
owners had to satisfy certain gross income and total asset limitations.
Specifically, neither the Company, any affiliate of the Company, any person with
an attributable interest in the Company, nor any of the affiliates of such
person could have a net worth in excess of $40 million, and those persons taken
together could not have in excess of $40 million in average gross revenues for
the three preceding years. The Company will not lose its Small Business status
if the thresholds are exceeded due to events occurring with respect to those
persons after the grant of the License, including permitted equity investments,
revenue from operations, business development or expanded operations.
Should the Company, prior to February 3, 2000, lose its status as a
Business Owned by Members of Minority Groups and/or Women (other than as a
result of the dilution of the Control Group's equity interest that occurred upon
the issuance of the Series A Preferred Stock or that will occur upon the
issuance of the Units), the Company may be required to make an "unjust
enrichment" payment to the FCC to reimburse the FCC for all or a portion of the
value of the bidding credit received by the Company, plus interest thereon at a
rate of 7.5% per annum. Such a payment would also be due if the Company assigned
or transferred its Licenses prior to February 3, 2000 to another entity that did
not qualify as a Business Owned by Members of Minority Groups and/or Women. The
amount of any penalty depends upon when the status is lost or the transfer
occurs and the value of the bidding credit. A loss of status or transfer in the
first two years of the License term will result in a forfeiture of 100% of the
value of the bidding credit; in year three of the license term, the penalty will
be 75%; in year four the penalty will be 50%; and in year five the penalty will
be 25% of the bidding credit, after which there is no penalty. It is unclear
whether the value of the bidding credit for unjust enrichment purposes will be
the entire amount of the bidding credit ($60.6 million) or some lesser amount
that would take into account that the bidding credit did not permit the Company
to acquire the Licences for a price any less than comparable licenses acquired
by persons who did not receive bidding credits.
Should the Company, prior to February 3, 2005, transfer control of its
Licenses to an entity which does not qualify as a Small Business under the
criteria applicable for the narrowband PCS regional auction, the balance due to
the FCC with respect to the installment financing received by the Company in
connection with the acquisition of the Licenses would then become due and
payable. The FCC conducts random audits to ensure that licensees are in
compliance with the applicable rules. If the Company is unable to make the
unjust enrichment payments or pay the balance of the purchase price in the event
of the loss of installment treatment, the FCC could revoke the Company's
Licenses. Because the regulatory penalty for failure to comply with applicable
Designated Entity rules is the unjust enrichment payment, failure to comply with
the Designated Entity rules will not itself provide a basis for the revocation
of the Licenses, absent aggravating circumstances such as misrepresentation or
bad faith.
In the event of an Initial Public Offering (as defined below under
"Description of the Capital Stock -- Preferred Stock -- Conversion into Class B
Common Stock"), the Common Stockholders Agreement will be terminated and the
Company's Class B Common Stock will be convertible into Class A Common Stock. In
such a case, it is likely that the Company's existing Control Group will cease
to be entitled to elect a majority of the Company's directors. If this occurs
prior to February 3, 2000, the Company will be subject to unjust
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enrichment payments to the FCC with respect to its bidding credits unless it
receives a waiver from the FCC. If this occurs prior to February 3, 2005, the
Company will be required to prepay its FCC installment obligations unless it
receives a waiver from the FCC. There can be no assurance that the Company can
receive such waivers.
Affirmative action programs, such as the one applicable in the narrowband
PCS regional auction in which the Company obtained its Licenses, have come under
increased scrutiny in Congress and in the courts. As a result of the June 12,
1995 decision by the United States Supreme Court in Adarand Constructors, Inc.
v. Pena, which subjected all federal race based classifications to "strict
scrutiny," the FCC eliminated race and gender based preferences in the auctions
of certain broadband PCS licenses that commenced on December 18, 1995. However,
the FCC granted the Licenses to the Company on February 3, 1995 and those grants
became nonappealable by Final Order on March 15, 1995. Thus, the grants of the
narrowband PCS Licenses to the Company are final and those grants are beyond
administrative and judicial review and the Company has been advised by Lukas
McGowan that the Company's ownership and use of the Licenses could not be
adversely affected by the Adarand decision. It is likely, however, that the
Company's Designated Entity status as a "Business owned by Members of Minority
Groups and/or Women" will not provide advantages in any future FCC auctions of
radio frequency spectrum.
"SMALL BUSINESS" STATUS IN FCC 900 MHZ SMR AUCTION
Because the Company satisfied FCC eligibility requirements for a "Small
Business" applicable in the FCC's 900 MHz SMR auction, the Company received a
10% bidding credit, reducing the total cost of its SMR Auction Spectrum from
$10.8 million to $9.7 million. See "Business -- Spectrum." In addition, this
status will permit the Company to pay 90% of $9.7 million net purchase price in
quarterly installments over ten years with interest at the 10-year Treasury note
rate plus 250 basis points, with no payment of principal for the first two
years. The Company qualified as a "Small Business" in the SMR auction because
the Company's average gross revenues for the preceeding three years, together
with the average gross revenues of its affiliates, persons that hold
attributable interests in the Company and affiliates of such persons did not
exceed $15 million. If the Company assigns or transfers control of the licenses
for its SMR Auction Spectrum within the first five years after the licenses are
granted, it will be subject to unjust enrichment provisions similar to those
applicable to its narrowband PCS Licenses requiring prepayment of all or a
portion of the value of its bidding credits and requiring prepayment of its
installment obligations.
There were no race or gender preferences, Control Group requirements or net
worth limitations applicable to the Company in the SMR auction.
STATUS IN FUTURE FCC NARROWBAND PCS MTA/BTA AUCTION
The Company may participate in the FCC's narrowband PCS MTA/BTA auction
anticipated to occur in late 1996 or early 1997. See "Business -- Spectrum."
While the rules for this auction have not yet been issued, the Company
anticipates that there will be no race or gender preferences, but there could
well be bidding credits and installment payment options based on small business
status.
Depending upon the timing of the auction relative to the Company's
generation of revenues and the revenue thresholds that may be applicable in
determining small business status, the Company may qualify for bidding credits
and installment payments that may be available should it choose to participate
in that auction.
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DESCRIPTION OF OTHER INDEBTEDNESS
THE CREDIT FACILITY
The Company's wholly-owned direct subsidiary, PCSD Financial Corp., has
obtained a commitment from Chase Securities Inc., as Arranger, to arrange the
establishment of senior credit facilities in the amount of $225.0 million
effective upon the closing of the Offering (the "Credit Facility"). PCSD
Financial Corp. will have approximately $75.0 million immediately available at
the Closing Date for borrowing under the Credit Facility.
The Credit Facility will consist of (i) a Glenayre Facility providing for
term loans in an amount not to exceed $75.0 million (the "Glenayre Facility") to
be made available by Glenayre for the purpose of financing the acquisition of
equipment and technical services from Glenayre, (ii) a Tranche A Facility
providing for revolving loans in an amount not to exceed $35.0 million (the
"Tranche A Facility") to be made available by a syndicate of banks, financial
institutions and other entities (the "Syndicate"), including The Chase Manhattan
Bank ("Chase"), for the purpose of financing the working capital and capital
expenditure needs of PCSD Financial Corp. and its subsidiaries in the ordinary
course of business, and (iii) a Tranche B Facility providing for revolving loans
in an amount not to exceed $115.0 million (the "Tranche B Facility") to be made
available by the Syndicate, including Chase, for the purpose of (x) financing
the working capital and capital expenditure needs of PCSD Financial Corp. and
its subsidiaries in the ordinary course of business and (y) repaying maturing
loans under the Glenayre Facility and the Tranche A Facility. Chase has
committed to provide the entire $150.0 million of the Tranche A Facility and
Tranche B Facility. The availability of the Credit Facility will be conditioned
upon among other things PCSD Financial Corp. having entered into equipment
supply contracts with Glenayre and Motorola containing satisfactory terms and
conditions.
Borrowings under the Glenayre Facility and the Tranche A Facility will be
available from the closing date of the Credit Facility to the date which is
three and one half years thereafter, at which time all of the loans outstanding
will be repayable in two equal installments on March 31, 2000 and on June 30,
2000. Availability under the Tranche B Facility will commence on such closing
date and end on June 30, 2004, except that if the initial borrowing thereunder
is not made on or before June 30, 2000, such facility will automatically
terminate on such date. The Tranche B Facility will be reduced in fourteen
consecutive quarterly installments, beginning on March 31, 2001 and ending on
June 30, 2004. The making of each loan under the Tranche A Facility will be
subject to the satisfaction of certain conditions, including expending certain
amounts received from the issuance of common stock by PCSD Financial Corp. to
the Company, borrowing the full amount under the Glenayre Facility, having a
minimum number of "qualified pagers in service" (pagers in service for more than
60 days) and maintaining a minimum level of average monthly revenue per
subscriber unit. The making of each loan under the Tranche B Facility will be
subject to the satisfaction of certain conditions, including expending certain
amounts received from the issuance of common stock by PCSD Financial Corp. to
the Company and maintaining a maximum ratio of total debt to "qualified pagers
in service" and a maximum ratio of total debt to operating cash flow. In
addition, certain mandatory prepayments of loans extended under the Credit
Facility are to be made from (i) subject to certain exceptions to be agreed
upon, 50% of the net proceeds of any sale or issuance of equity or incurrence of
indebtedness after the closing date of the Credit Facility by the Company, PCSD
Financial Corp. or any of its subsidiaries, (ii) 100% of the net proceeds of (x)
certain sales or other dispositions by PCSD Financial Corp. or any of its
subsidiaries of material assets or (y) certain insurance or condemnation
recoveries and (iii) 75% of Excess Cash Flow (as defined in the Credit Facility)
when the Leverage Ratio (as defined in the Credit Facility) is greater than 3:1
and 50% of Excess Cash Flow when such Ratio is less than 3:1 but greater than
2:1, for each fiscal year of PCSD Financial Corp., commencing with the fiscal
year ending December 31, 1998.
Borrowings by PCSD Financial Corp. will be unconditionally guaranteed by
each of PCSD Financial Corp.'s three direct subsidiaries, and such borrowings
will be secured by an equal and ratable pledge of all of the capital stock of
such subsidiaries and a first priority security interest on (i) the equipment
purchased from Glenayre with the proceeds of the Glenayre Facility and (ii) all
accounts receivable, inventory and subscriber contracts of PCSD Network, Inc.
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PCSD Financial Corp. may elect that all or a portion of the borrowings
under the Credit Facility bear interest at a rate per annum equal to either (i)
Chase's Base Rate plus the Applicable Margin or (ii) Chase's Eurodollar Rate
plus the Applicable Margin. In the case of borrowings under the Glenayre
Facility and the Tranche A Facility, the Applicable Margin will be (a) 3% per
annum when applying the Base Rate, or (b) 4% per annum when applying the
Eurodollar Rate. In the case of borrowings under the Tranche B Facility, the
Applicable Margin will be (x) 2% per annum (when the Debt to Operating Cash Flow
Ratio (as such terms are defined in the Credit Facility) is equal to or greater
than 5:1) or 1 1/2% per annum (when such Ratio is less than 5:1), in each case
when applying the Base Rate, or (y) 3% per annum (when such Ratio is equal to or
greater than 5:1) or 2 1/2% per annum (when such Ratio is less than 5:1), in
each case when applying the Eurodollar Rate. As used herein, "Base Rate" means
the higher of (i) Chase's prime rate and (ii) the federal funds effective rate
from time to time plus 1/2% per annum. As used herein, "Eurodollar Rate" means
the rate at which eurodollar deposits for one, two, three and six months (as
selected by PCSD Financial Corp.) are offered to Chase in the interbank
eurodollar market in the approximate amount of Chase's share of the relevant
loan. At any time when PCSD Financial Corp. is in default in the payment of any
amount due under the Credit Facility, the principal of all loans made under the
Credit Facility will bear interest at 3% per annum above the rate otherwise
applicable thereto.
PCSD Financial Corp. will pay a commitment fee on the unused amounts under
the Credit Facility calculated at a rate of 1/2 of 1% per annum, payable
quarterly in arrears. PCSD Financial Corp. will also pay to the Arranger a
customary structuring, syndication and agency fee.
The Credit Facility will contain a number of significant covenants that,
among other things, limit the ability to incur additional indebtedness and
guarantee obligations, create liens and other encumbrances, make certain
payments, investments, loans and advances, pay dividends or make other
distributions in respect of common stock, sell or otherwise dispose of assets,
make capital expenditures, merge or consolidate with another entity, make
amendments to the charter and by-laws, transact with affiliates, make certain
sales and leasebacks, change the line of business, or change the holding company
status of the Company. In addition, the Credit Facility will require the
maintenance of certain specified financial and operating covenants, including,
minimum interest and fixed charge coverage ratios, a maximum ratio of total debt
to "qualified pagers in service" and a maximum ratio of total debt to operating
cash flow.
The Credit Facility will contain representations, warranties, covenants and
events of default customary for senior credit facilities of similar size and
nature.
FCC OBLIGATION
As a Designated Entity satisfying the FCC's requirements for a "Small
Business," the Company is entitled to pay the $90.9 million purchase price for
the Licenses through two 10% deposits that were made in late 1994 and early
1995, with the $72.7 million balance payable to the FCC over ten years at a 7.5%
annual interest rate, with no payment of principal the first two years (the "FCC
Obligation").
On , 1996 the Company transferred the Licenses to its
wholly-owned indirect subsidiary, PCSD Spectrum, Inc. following the FCC's grant
of consent to such transfer, which became a nonappealable final order on May 15,
1996. In connection with such transfer, PCSD Spectrum, Inc. assumed all
obligations to repay the FCC Obligation. At March 31, 1996, the FCC Obligation
was $72.7 million.
Should the Company or PCSD Spectrum, Inc., prior to February 3, 2005,
transfer control of the Licenses to an entity that does not qualify as a "Small
Business," the entire principal amount of the FCC Obligation would become
immediately due and payable, together with accrued and unpaid interest thereon.
See "Description of FCC Auction Benefit -- "Designated Entity" Status in FCC
Narrowband PCS Regional Auctions."
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DESCRIPTION OF THE UNITS
Each Unit offered hereby consists of a $1,000 principal amount Note and
Warrants to purchase initially shares of Class B Common
Stock. The Notes and the Warrants will not be separately transferable until the
"Separability Date," which shall be the earliest of (i) , 1996,
(ii) such earlier date as may be determined by Lehman Brothers Inc. and
specified to the Company, the Trustee, the Warrant Agent and the Unit Agent in
writing, (iii) the occurrence of a Change of Control and (iv) in the event of an
Offer to Purchase in connection with any Asset Sale (each as defined herein),
the date the Company mails notice thereof to the holders of the Notes, at which
time the Notes and the Warrants will become separately transferable.
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DESCRIPTION OF THE NOTES
The Notes are to be issued under an Indenture, to be dated as of the
Closing Date (the "Indenture"), between the Company and United States Trust
Company of New York, as trustee (the "Trustee"). The terms of the Notes include
those stated in the Indenture and those made part of the Indenture by reference
to the Trust Indenture Act as in effect on the date of the Indenture. The Notes
are subject to all such terms, and holders of Notes are referred to the
Indenture and the Trust Indenture Act for a statement thereof. The following
summary of certain provisions of the Notes and the Indenture does not purport to
be complete and is subject to, and is qualified in its entirety by reference to,
all the provisions of the Notes and the Indenture, including the definitions of
certain terms therein and those terms made a part thereof by the Trust Indenture
Act.
GENERAL
The Notes will be unsecured senior obligations of the Company, limited to
$ million aggregate principal amount ($165 million aggregate initial
Accreted Value), and will mature on , 2006. Interest on the Notes
will accrue at the rate shown on the front cover of this Prospectus from
, 2001 or from the most recent Interest Payment Date to which
interest has been paid or provided for, payable semiannually (to Holders of
record at the close of business on the and immediately
preceding the Interest Payment Date) on and of each year,
commencing , 2002. Interest will be computed on the basis of a
360-day year comprised of twelve 30-day months.
Although for U.S. federal income tax purposes a significant amount of
original issue discount, taxable as ordinary income, will be recognized by a
Holder of Notes as such discount is amortized from the date of issuance of the
Notes, Holders of Notes will not receive any cash payments of interest on the
Notes until , 2002. See "Certain Federal Income Tax Considerations."
Principal of, premium, if any, and interest on the Notes will be payable,
and the Notes may be exchanged or transferred, at the office or agency of the
Company (which initially will be the corporate trust office of the Trustee in
New York, New York); provided that, at the option of the Company, payment of
interest may be made by check mailed to the address of the Holders as such
address appears in the Security Register.
The Notes will be issued only in fully registered form, without coupons, in
denominations of $1,000 of principal amount at maturity and any integral
multiple thereof. See "Description of the Notes -- Book-Entry, Delivery and
Form."
OPTIONAL REDEMPTION
The Notes will be redeemable, at the Company's option, in whole or in part,
at any time and from time to time, on or after , 2001 and prior to
maturity, upon not less than 30 nor more than 60 days' prior notice mailed by
first class mail to each Holders' last address as it appears in the Security
Register, at the following Redemption Prices (expressed in percentages of
principal amount at maturity), plus accrued and unpaid interest, if any, to the
Redemption Date (subject to the right of Holders of record on the relevant
Regular Record Date that is on or prior to the Redemption Date to receive
interest due on an Interest Payment Date), if redeemed during the 12-month
period commencing on of the years set forth below:
<TABLE>
<CAPTION>
REDEMPTION
YEAR PRICE
---------------------------------------------------------------- ----------
<S> <C>
2001............................................................ %
2002............................................................ %
2003............................................................ %
2004 and thereafter............................................. 100.000%
</TABLE>
Notwithstanding the foregoing, prior to , 1999, the Company may
on any one or more occasions redeem up to 33% of the aggregate principal amount
of the Notes at a redemption price of % of the Accreted Value thereof with
the net proceeds of either (A) one or more public offerings of Common Stock of
the Company registered under the Securities Act or (B) a sale by the Company of
at least $25.0 million of its Capital Stock (other than Redeemable Stock or
Preferred Stock) to a Strategic Equity
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Investor in a single transaction; provided in each case that at least 67% of the
aggregate principal amount at maturity of the Notes remains outstanding
immediately after the occurrence of any such redemption; and provided, further,
that any such redemption shall occur within 90 days of the date of the closing
of any such public offering of common stock or sale to Strategic Equity Investor
of Capital Stock (other than Redeemable Stock or Preferred Stock) of the
Company, as the case may be.
In the case of any partial redemption, selection of the Notes for
redemption will be made by the Trustee in compliance with the requirements of
the principal national securities exchange, if any, on which the Notes are
listed or, if the Notes are not listed on a national securities exchange, on a
pro rata basis or by lot; provided that redemptions shall be made in $1,000
principal amount increments. If any Note is to be redeemed in part only, the
notice of redemption relating to such Note shall state the portion of the
principal amount thereof to be redeemed. A new Note in principal amount equal to
the unredeemed portion thereof will be issued in the name of the Holder thereof
upon cancellation of the original Note.
The Notes will not have the benefit of any sinking fund.
RANKING
The Notes will be senior, unsecured Indebtedness of the Company, ranking
pari passu in right of payment with all existing and future unsubordinated
unsecured Indebtedness of the Company and senior in right of payment to all
existing and future subordinated Indebtedness of the Company, but will be
structurally subordinated to all existing and future obligations of the
Company's Subsidiaries. The Company is a holding company with no material assets
other than the shares of stock of its Subsidiary. The Notes will be obligations
exclusively of the Company; none of the Company's Subsidiaries will have any
obligation to pay any amounts due with respect to the Notes or to make funds
available therefor. The Notes will be structurally subordinated to all
liabilities of the Company's Subsidiaries, including trade payables, capitalized
lease obligations and indebtedness that may be incurred by the Company's
Subsidiaries under current or future bank credit facilities. At March 31, 1996,
the Notes would have been structurally subordinated to approximately $76.4
million of liabilities of the Company's Subsidiaries, excluding amounts
available under the Credit Facility. Upon completion of the Offering, the
Company's Subsidiaries also will have approximately $75.0 million of immediate
availability under the Credit Facility, and, upon the achievement and
maintenance by the Company's Subsidiaries of certain operating results and
financial ratios, the Company's Subsidiaries will have an additional $150.0
million of availability under the Credit Facility, all of which will be
structurally senior to the Notes. The obligations of the Company's Subsidiaries
under the Credit Facility will be secured by substantially all of their assets
(other than the Licenses) including the proceeds of any disposition of the
Licenses. In addition, the obligations of PCSD Financial Corp. under the Credit
Facility will be guaranteed by PCSD Operations, Inc. and PCSD Spectrum, Inc. The
Notes will be effectively subordinated to such security interests to the extent
of such security interests. See "Risk Factors -- Indebtedness of the Company;
High Degree of Leverage" and "-- Holding Company Structure; Structural
Subordination of the Notes."
COVENANTS
The Indenture will contain, among others, the following covenants:
Limitation on Indebtedness
Under the terms of the Indenture, the Company will not, and will not permit
any of its Restricted Subsidiaries to, Incur any Indebtedness (other than the
Notes and Indebtedness existing on the Closing Date); provided that the Company
or any Restricted Subsidiary may Incur Indebtedness if, after giving effect to
the Incurrence of such Indebtedness and the receipt and application of the net
proceeds therefrom, the Indebtedness to EBITDA Ratio would be greater than zero
and less than 5.5:1.
Notwithstanding the foregoing, the Company, and (except as specified below)
any Restricted Subsidiary, may Incur each and all of the following: (i)
Indebtedness of the Company or any Restricted Subsidiary under one or more
commercial bank credit facilities in an aggregate principal amount not to exceed
at any time
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$20.0 million, less up to an equal amount of Indebtedness permanently repaid as
provided under the "Limitation on Asset Sales" covenant described below; (ii)
Indebtedness of the Company or any Restricted Subsidiary to the Company or any
of its Wholly Owned Restricted Subsidiaries; provided that any subsequent
issuance or transfer of any Capital Stock which results in any such Wholly Owned
Restricted Subsidiary ceasing to be a Wholly Owned Restricted Subsidiary or any
subsequent transfer of such Indebtedness (other than to the Company or another
Wholly Owned Restricted Subsidiary) shall be deemed, in each case, to constitute
an Incurrence of such Indebtedness not permitted by this clause (ii); (iii)
Refinancing Indebtedness; (iv) Indebtedness of the Company or any Restricted
Subsidiary (A) in respect of performance, surety or appeal bonds provided in the
ordinary course of business, (B) under Interest Rate Agreements, provided that
such Interest Rate Agreements do not increase the Indebtedness of the obligor
outstanding at any time other than as a result of fluctuations in interest rates
or by reason of fees, indemnities and compensation payable thereunder; and (C)
arising from agreements providing for indemnification, adjustment of purchase
price or similar obligations, or from Guarantees or letters of credit, surety
bonds or performance bonds securing any obligations of the Company or any of its
Restricted Subsidiaries pursuant to such agreements, in any case Incurred in
connection with the disposition of any business, assets or Restricted Subsidiary
of the Company (other than Guarantees of Indebtedness Incurred by any Person
acquiring all or any portion of such business, assets or Restricted Subsidiary
for the purpose of financing such acquisition), in a principal amount not to
exceed the gross proceeds actually received by the Company or any Restricted
Subsidiary in connection with such disposition; (v) Indebtedness of the Company
(or of any Restricted Subsidiary to the extent and only to the extent that such
Indebtedness is Spectrum Acquisition Debt and is a direct obligation owing to
the FCC), not to exceed, at any one time outstanding, an amount equal to 2.0
times the amount of Net Cash Proceeds received by the Company after the Closing
Date from the issuance and sale of its Capital Stock or rights to purchase its
Capital Stock (in each case other than Redeemable Stock or Preferred Stock) to a
Person that is not a Subsidiary of the Company, less the amount of any
Investments made pursuant to clause (vi) of the second paragraph of the
"Limitation on Restricted Payments" covenant; provided that such Indebtedness
(other than such Spectrum Acquisition Debt) does not mature prior to the Stated
Maturity of the Notes and has an Average Life longer than the remaining Average
Life of the Notes; (vi) Indebtedness of the Company or any Restricted Subsidiary
(including, without limitation, Indebtedness under the Credit Facility) Incurred
solely for the purpose of financing the cost (including the cost of design,
development, site acquisition, construction, installation or integration) of PCS
systems or other wireless telecommunications networks for which the Company or
any Restricted Subsidiary has obtained the applicable licenses or authorizations
to utilize the radio frequencies necessary for the operation of such systems or
networks; (vii) Spectrum Acquisition Debt of the Company or any Restricted
Subsidiary outstanding at any time in an aggregate principal amount not to
exceed $25.0 million; and (viii) Indebtedness of the Company or any Restricted
Subsidiary outstanding at any time in an aggregate amount not to exceed $20.0
million, less up to an equal amount of Indebtedness permanently repaid as
provided under the "Limitation on Asset Sales" covenant described below.
For purposes of determining any particular amount of Indebtedness under
this "Limitation on Indebtedness" covenant, Guarantees, Liens or obligations
with respect to letters of credit supporting Indebtedness otherwise included in
the determination of such particular amount shall not be included. For purposes
of determining compliance with this "Limitation on Indebtedness" covenant, in
the event that an item of Indebtedness meets the criteria of more than one of
the types of Indebtedness described in the above clauses, the Company, in its
sole discretion, shall classify such item of Indebtedness and only be required
to include the amount and type of such Indebtedness in one of such clauses.
The Indenture further provides that, notwithstanding any other provision of
this "Limitation on Indebtedness" covenant, the Company will not, and will not
permit any Restricted Subsidiary to, Incur any Guarantee of Indebtedness of any
Unrestricted Subsidiary.
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Limitation on Restricted Payments
So long as any of the Notes are outstanding, the Company will not, and will
not permit any Restricted Subsidiary to, directly or indirectly, (i) declare or
pay any dividend or make any distribution on its Capital Stock (other than
dividends or distributions payable solely in shares of the Company's Capital
Stock (other than Redeemable Stock) of the same class held by such holders or in
options, warrants or other rights to acquire such shares of Capital Stock) held
by Persons other than the Company or any of its Wholly Owned Restricted
Subsidiaries (and other than pro rata dividends or distributions on common stock
of Restricted Subsidiaries), (ii) purchase, redeem, retire or otherwise acquire
for value any shares of Capital Stock of the Company or any Subsidiary
(including options, warrants or other rights to acquire such shares of Capital
Stock) held by Persons other than the Company or any of its Wholly Owned
Restricted Subsidiaries, (iii) make any voluntary or optional principal payment,
or voluntary or optional redemption, repurchase, defeasance or other acquisition
or retirement for value, of Indebtedness of the Company that is subordinated in
right of payment to the Notes, or (iv) make any Investment, other than a
Permitted Investment, in any Person (such payments or any other actions
described in clauses (i) through (iv) being collectively "Restricted Payments")
if, at the time of, and after giving effect to, the proposed Restricted Payment:
(A) a Default or Event of Default shall have occurred and be continuing, (B) the
Company could not Incur at least $1.00 of Indebtedness under the first paragraph
of the "Limitation on Indebtedness" covenant or (C) the aggregate amount
expended for all Restricted Payments (the amount so expended, if other than in
cash, to be determined in good faith by the Board of Directors, whose
determination shall be conclusive and evidenced by a Board Resolution) after the
date of the Indenture shall exceed the sum of (1) the excess of (x) 100% of
Consolidated EBITDA from the first day of the fiscal quarter beginning after the
Closing Date through the last day of the last full fiscal quarter immediately
preceding the Transaction Date for which reports have been filed pursuant to the
"Commission Reports and Reports to Holders" covenant over (y) the product of 2.0
times cumulative Consolidated Fixed Charges from the first day of the fiscal
quarter beginning after the Closing Date through the last day of the last full
fiscal quarter immediately preceding such Transaction Date for which such
reports have been filed, plus (2) the aggregate Net Cash Proceeds received by
the Company after the Closing Date from the issuance and sale permitted by the
Indenture of its Capital Stock (other than Redeemable Stock) to a Person who is
not a Subsidiary of the Company, or from the issuance to a Person who is not a
Subsidiary of the Company of any options, warrants or other rights to acquire
Capital Stock of the Company (in each case, exclusive of any Redeemable Stock or
any options, warrants or other rights that are redeemable at the option of the
holder, or are required to be redeemed, prior to the Stated Maturity of the
Notes) plus (3) an amount equal to the net reduction in Investments (other than
reductions in Permitted Investments) in any Person resulting from payments of
interest on Indebtedness, dividends, repayments of loans or advances, or other
transfers of assets, in each case to the Company or any Restricted Subsidiary
from such Person (except to the extent any such payment is included in the
calculation of Adjusted Consolidated Net Income), or from redesignations of
Unrestricted Subsidiaries as Restricted Subsidiaries (valued in each case as
provided in the definition of "Investment"), not to exceed the amount of
Investments previously made by the Company and its Restricted Subsidiaries in
such Person.
The foregoing provision shall not be violated by reason of: (i) the payment
of any dividend within 60 days after the date of declaration thereof if, at said
date of declaration, such payment would comply with the foregoing paragraph;
(ii) the redemption, repurchase, defeasance or other acquisition or retirement
for value of Indebtedness that is subordinated in right of payment to the Notes,
including premium, if any, and accrued and unpaid interest, with the proceeds
of, or in exchange for, permitted Refinancing Indebtedness; (iii) the
repurchase, redemption or other acquisition of Capital Stock of the Company in
exchange for, or out of the proceeds of a substantially concurrent issuance or
sale of, shares of Capital Stock (other than Redeemable Stock) of the Company;
(iv) the acquisition of Indebtedness of the Company which is subordinated in
right of payment to the Notes, in exchange for, or out of the proceeds of, a
substantially concurrent issuance or sale of, shares of Capital Stock (other
than Redeemable Stock) of the Company; (v) Investments in an aggregate amount
not to exceed $15.0 million, in any Person the primary business of which is
related, ancillary or complementary to the businesses of the Company and its
Restricted Subsidiaries on the date of such Investments; (vi) Investments in an
aggregate amount not to exceed the Net Cash Proceeds received by the Company
after the Closing Date from the issuance and sale of its Capital Stock or rights
to purchase its
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Capital Stock (other than Redeemable Stock and Preferred Stock) to a Person that
is not a Subsidiary of the Company, provided that the Investment is made within
12 months after the sale of such Capital Stock; (vii) the purchase, redemption,
acquisition, cancellation or other retirement for value of shares of Capital
Stock of the Company to the extent necessary, in the judgment of the Board of
Directors of the Company, to prevent the loss or secure the renewal or
reinstatement of any license or franchise held by the Company or any Restricted
Subsidiary from any governmental agency or to retain the financial benefits of
the Company's "Designated Entity" status as a "Small Business" or as a "Business
Owned by Members of Minority Groups and/or Women" as such terms are defined by
the FCC; (viii) the purchase, redemption, acquisition, cancellation or other
retirement for value of shares of Capital Stock of the Company, or options to
acquire shares of such Capital Stock, held by any employee or former employee of
the Company or any of their respective heirs or administrators or executors of
their respective estates, or by any Person substantially all the beneficial
ownership of which is held by members of such employee's or former employee's
family, in each case in connection with such employee's or former employee's
termination of employment with the Company, the aggregate payments of which
shall (A) have been approved by a majority of the Board of Directors of the
Company, including the approval of a majority of the independent, disinterested
directors, as fair to the Company from a financial point of view and is
evidenced by a resolution of the Board of Directors of the Company and (B) not
exceed $1 million in any single calendar year; (ix) the cancellation and
retirement after November 10, 2004, through conversion at the option of the
holders thereof into subordinated Indebtedness of the Company, of the Company's
Series A Preferred Stock in accordance with the terms thereof; and (x) the
purchase for value of the Warrants pursuant to an offer to purchase the Warrants
in accordance with the terms of the Warrant Agreement; provided, that, except in
the case of clause (i) above, no Default or Event of Default shall have occurred
and be continuing or occur as a consequence of the actions or payments set forth
therein.
Each Restricted Payment permitted pursuant to the preceding paragraph
(other than the Restricted Payments referred to in clauses (ii) and (ix)
thereof), and the Net Cash Proceeds from any issuance of Capital Stock referred
to in clause (iii), (iv) and (vi) shall be included in calculating whether the
conditions of clause (C) of the first paragraph of this "Limitation on
Restricted Payments" covenant have been met with respect to any subsequent
Restricted Payments.
Limitation on Dividend and Other Payment Restrictions Affecting Restricted
Subsidiaries
So long as any of the Notes are outstanding, the Company will not, and will
not permit any Restricted Subsidiary to, create or otherwise cause or suffer to
exist or become effective any consensual encumbrance or restriction of any kind
on the ability of any Restricted Subsidiary to (i) pay dividends or make any
other distributions permitted by applicable law on any Capital Stock of such
Restricted Subsidiary owned by the Company or any other Restricted Subsidiary,
(ii) pay any Indebtedness owed to the Company or any other Restricted
Subsidiary, (iii) make loans or advances to the Company or any other Restricted
Subsidiary, (iv) transfer any of its property or assets to the Company or any
other Restricted Subsidiary or (v) make any payments to the Company for the
purpose of satisfying any tax liabilities or obligations of the Company.
The foregoing provisions shall not apply to any encumbrances or
restrictions: (i) existing on the Closing Date in any agreement in effect on the
Closing Date, including, without limitation, in the Credit Facility, and any
extensions, refinancings, renewals or replacements of such agreements; provided
that the encumbrances and restrictions in any such extensions, refinancings,
renewals or replacements are no less favorable in any material respect to the
Holders than those encumbrances or restrictions that are then in effect and that
are being extended, refinanced, renewed or replaced; (ii) existing under or by
reason of applicable law; (iii) existing with respect to any Person or the
property or assets of such Person acquired by the Company or any Restricted
Subsidiary, existing at the time of such acquisition and not incurred in
contemplation thereof, which encumbrances or restrictions are not applicable to
any Person or the property or assets of any Person other than such Person or the
property or assets of such Person so acquired; (iv) in the case of clause (iv)
of the first paragraph of this "Limitation on Dividend and Other Payment
Restrictions Affecting Restricted Subsidiaries" covenant, (A) that restrict in a
customary manner the subletting, assignment or transfer of any property or asset
that is a lease, license, conveyance or contract or similar property or asset,
(B) existing by
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virtue of any transfer of, agreement to transfer, option or right with respect
to, or Lien on, any property or assets of the Company or any Restricted
Subsidiary not otherwise prohibited by the Indenture or (C) arising or agreed to
in the ordinary course of business, not relating to any Indebtedness, and that
do not, individually or in the aggregate, detract from the value of property or
assets of the Company or any Restricted Subsidiary in any manner material to the
Company or any Restricted Subsidiary; or (v) with respect to a Restricted
Subsidiary and imposed pursuant to an agreement that has been entered into for
the sale or disposition of all or substantially all of the Capital Stock of, or
property and assets of, such Restricted Subsidiary. Nothing contained in this
"Limitation on Dividend and Other Payment Restrictions Affecting Restricted
Subsidiaries" covenant shall prevent the Company or any Restricted Subsidiary
from (1) creating, incurring, assuming or suffering to exist any Liens otherwise
permitted in the "Limitation on Liens" covenant or (2) restricting the sale or
other disposition of property or assets of the Company or any of its Restricted
Subsidiaries that secure Indebtedness of the Company or any of its Restricted
Subsidiaries.
Limitation on the Issuance and Sale of Capital Stock of Restricted
Subsidiaries
Under the terms of the Indenture, the Company will not, and will not permit
any Restricted Subsidiary, directly or indirectly, to issue, transfer, convey,
sell, lease or otherwise dispose of any shares of Capital Stock (including
options, warrants or other rights to purchase shares of such Capital Stock) of
such or any other Restricted Subsidiary to any Person (other than to the Company
or a Wholly Owned Restricted Subsidiary) unless (A) the Net Cash Proceeds from
such issuance, transfer, conveyance, sale, lease or other disposition are
applied in accordance with the provisions of the "Limitation on Asset Sales"
covenant and (B) if, immediately after giving effect to such issuance or sale,
such Restricted Subsidiary would no longer constitute a Restricted Subsidiary,
any Investment in such Person remaining after giving effect to such issuance or
sale would have been permitted to be made under the "Limitation on Restricted
Payments" covenant if made on the date of such sale (valued as provided in the
definition of "Investment"). Notwithstanding the foregoing, for as long as any
of the Notes are outstanding the Company will own 100% of the Capital Stock of
PCSD Financial Corp.
Limitation on Issuances of Guarantees by Restricted Subsidiaries
The Company will not permit any Restricted Subsidiary, directly or
indirectly, to Guarantee any Indebtedness of the Company, unless (i) such
Restricted Subsidiary simultaneously executes and delivers a supplemental
indenture to the Indenture providing for a Guarantee of payment of the Notes by
such Restricted Subsidiary (a "Subsidiary Guarantee") and (ii) such Restricted
Subsidiary waives and will not in any manner whatsoever claim or take the
benefit or advantage of, any rights of reimbursement, indemnity or subrogation
or any other rights against the Company or any other Restricted Subsidiary as a
result of any payment by such Restricted Subsidiary under its Subsidiary
Guarantee; provided that this paragraph shall not be applicable, to (x) the
Guarantees by the Company's Restricted Subsidiaries pursuant to the Credit
Facility or (y) any Guarantee of any Restricted Subsidiary that existed at the
time such Person became a Restricted Subsidiary and was not Incurred in
connection with, or in contemplation of, such Person becoming a Restricted
Subsidiary. If the Guaranteed Indebtedness is (A) pari passu with the Notes,
then the Guarantee of such Guaranteed Indebtedness shall be pari passu with, or
subordinated to, the Subsidiary Guarantee or (B) subordinated to the Notes, then
the Guarantee of such Guaranteed Indebtedness shall be subordinated to the
Subsidiary Guarantee at least to the extent that the Guaranteed Indebtedness is
subordinated to the Notes.
Notwithstanding the foregoing, any Subsidiary Guarantee by a Restricted
Subsidiary shall provide by its terms that it shall be automatically and
unconditionally released and discharged upon any sale, exchange or transfer, to
any Person that is not an Affiliate of the Company of all of the Company's and
each Restricted Subsidiary's Capital Stock in, or all or substantially all the
assets of, such Restricted Subsidiary (which sale, exchange or transfer is not
prohibited by the Indenture). The release or discharge of the Indebtedness or
the Guarantee which resulted in the creation of such Subsidiary Guarantee will
not release or discharge such Subsidiary Guarantee.
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Limitation of Transactions with Shareholders and Affiliates
Under the terms of the Indenture, the Company will not, and will not permit
any Restricted Subsidiary to, directly or indirectly, enter into, renew or
extend any transaction or series of related transactions (including, without
limitation, the purchase, sale, lease or exchange of property or assets, or the
rendering of any service) with any holder of 5% or more of any class of Capital
Stock of the Company (or any Affiliate of such holder) or with any Affiliate of
the Company or any Restricted Subsidiary, unless (i) such transaction or series
of transactions is on terms no less favorable to the Company or such Restricted
Subsidiary than those that could be obtained, at the time of such transaction or
at the time of the execution of the agreement providing therefor, in a
comparable arm's-length transaction with a Person that is not such a holder or
an Affiliate and (ii) if such transaction or series of transactions involves
aggregate payments and other consideration having a fair market value at the
time of the transaction or series of transactions in excess of $1 million, (A)
such transaction or series of transactions is approved by a majority of the
Board of Directors of the Company, including the approval of a majority of the
independent, disinterested directors, as fair to the Company from a financial
point of view and is evidenced by a resolution of the Board of Directors of the
Company or (B) the Company shall have obtained and delivered to the Trustee a
written opinion of a nationally recognized investment banking firm stating that
such transaction or series of transactions is fair to the Company or such
Restricted Subsidiary from a financial point of view.
The foregoing limitation does not limit, and shall not apply to, (i) any
transaction between the Company and any of its Wholly Owned Restricted
Subsidiaries or between Wholly Owned Restricted Subsidiaries; (ii) the payment
of reasonable and customary regular fees to directors of the Company who are not
employees of the Company; (iii) any payments or other transactions pursuant to
any tax-sharing agreement between the Company and any other Person with which
the Company files a consolidated tax return or with which the Company is part of
a consolidated group for tax purposes; (iv) any Restricted Payment not
prohibited by the "Limitation on Restricted Payments" covenant; (v) any
extension, renewal or modification of the terms and provisions of the Sloan
Loan, which extension, renewal or modification shall have been previously
approved by a majority of the Board of Directors of the Company, including the
approval of a majority of the independent, disinterested directors, as fair to
the Company from a financial point of view and evidenced by a resolution of the
Board of Directors; and (vi) the execution of any reseller agreement, operating
agreement, network build-out agreement, management agreement or joint venture
relating to the telecommunications business with any Person who was a
stockholder on the date of the Indenture, which execution shall have been
previously approved by a majority of the Board of Directors of the Company,
including the approval of a majority of the independent, disinterested
directors, as fair to the Company from a financial point of view and evidenced
by a resolution of the Board of Directors.
Limitation on Liens
Under the terms of the Indenture, the Company will not, and will not permit
any Restricted Subsidiary to, create, incur, assume or suffer to exist any Lien
on any of its assets or properties of any character, or any shares of Capital
Stock or Indebtedness of any Restricted Subsidiary, without making effective
provision for all of the Notes and all other amounts due under the Indenture to
be directly secured at least equally and ratably with the obligation or
liability secured by such Lien.
The foregoing limitation does not apply to (i) Liens created pursuant to
agreements existing on the Closing Date; (ii) Liens granted after the Closing
Date on any assets or Capital Stock of the Company or its Restricted
Subsidiaries created in favor of the Holders; (iii) Liens with respect to the
assets of a Restricted Subsidiary granted by such Restricted Subsidiary to the
Company or a Wholly Owned Restricted Subsidiary to secure Indebtedness owing to
the Company or such other Wholly Owned Restricted Subsidiary; (iv) Liens
securing permitted Refinancing Indebtedness which is Incurred to refinance
secured Indebtedness; provided that such Liens do not extend to or cover any
property or assets of the Company or any Restricted Subsidiary other than the
property or assets securing the Indebtedness being refinanced; (v) Liens with
respect to assets or properties of any Person that becomes a Restricted
Subsidiary after the Closing Date; provided that such Liens do not extend to or
cover any assets or properties of the Company or any of its Restricted
Subsidiaries other than the assets or properties of such Person subject to such
Liens on the date such Person becomes a
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Restricted Subsidiary; and provided further that such Liens are not incurred in
contemplation of, or in connection with, such Person becoming a Restricted
Subsidiary; or (vi) Permitted Liens.
Limitation on Sale and Leaseback Transactions
Under the terms of the Indenture, neither the Company nor any Restricted
Subsidiary will, directly or indirectly, enter into any Sale and Leaseback
Transaction, except that the Company or any Restricted Subsidiary may enter into
a Sale and Leaseback Transaction if (i) immediately prior thereto, and after
giving effect to such Sale and Leaseback Transaction (the Indebtedness
thereunder being equivalent to the Attributable Value thereof), the Company
could Incur at least $1.00 of additional Indebtedness under the first paragraph
of the "Limitation on Indebtedness" covenant and (ii) the Sale and Leaseback
Transaction constitutes an Asset Sale effected in accordance with the
requirements of the "Limitation on Asset Sales" covenant.
Limitation on Asset Sales
Under the terms of the Indenture, the Company will not, and will not permit
any Restricted Subsidiary to, consummate any Asset Sale, unless (I) the
consideration received by the Company or such Restricted Subsidiary is at least
equal to the fair market value of the assets sold or disposed of and (II) at
least 80% of the consideration received consists of cash or Temporary Cash
Investments or the assumption of unsubordinated Indebtedness of the Company to
the extent that the Company or such Restricted Subsidiary is released from all
liability on such unsubordinated Indebtedness. In the event of an Asset Sale,
the Company shall or shall cause the relevant Restricted Subsidiary to (i)
within nine months after the date the Net Cash Proceeds are received either (A)
apply an amount equal to such Net Cash Proceeds to permanently repay
unsubordinated Indebtedness of the Company (other than the Notes), or
Indebtedness of any Restricted Subsidiary, in each case owing to a Person other
than the Company or any of its Restricted Subsidiaries or (B) invest an equal
amount, or the amount not so applied pursuant to clause (A) (or enter into a
definitive agreement committing to invest, and actually invest, such Net Cash
Proceeds within one year of the receipt of such Net Cash Proceeds), in property
or assets (other than current assets) of a nature or type or that are used in a
business (or in a company having property and assets of a nature or type, or
engaged in a business) similar or related to the nature or type of the property
and assets of, or the business of, the Company and its Restricted Subsidiaries
existing on the date of such investment (as determined in good faith by the
Board of Directors, whose determination shall be conclusive and evidenced by a
Board Resolution) and (ii) apply (no later than the end of the nine-month or
one-year period, as the case may be, referred to in clause (i)) such Net Cash
Proceeds (to the extent not applied pursuant to clause (i)) as provided in the
following paragraph of this "Limitation on Asset Sales" covenant. The amount of
such Net Cash Proceeds required to be applied (or to be committed to be applied)
during such nine-month or one-year period, as the case may be, as set forth in
clause (i) of the preceding sentence and not applied as so required by the end
of such period, as the case may be, shall constitute "Excess Proceeds."
If, as of the first day of any calendar month, the aggregate amount of
Excess Proceeds totals at least $10.0 million, the Company must commence, not
later than the fifteenth Business Day of such month, and consummate an Offer to
Purchase from the Holders on a pro rata basis an aggregate Accreted Value of
Notes equal to the Excess Proceeds on such date, at a purchase price equal to
the Accreted Value of the Notes, plus, in each case, accrued interest (if any)
to the date of purchase. To the extent that the Accreted Value of Notes tendered
pursuant to such Offer to Purchase is less than the Excess Proceeds, the Company
may use such deficiency for general corporate purposes. If the Accreted Value of
Notes validly tendered and not withdrawn by Holders thereof exceeds the Excess
Proceeds, Notes to be purchased will be selected on a pro rata basis. Upon
completion of such Offer to Purchase, the amount of Excess Proceeds will be
reset to zero.
Activities of the Company and Restricted Subsidiaries
The Indenture will provide that the Company will not, and will not permit
any Restricted Subsidiary to, engage in any business other than the
telecommunications business and related activities and services.
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CONSOLIDATION, MERGER AND SALE OF ASSETS
The Company shall not consolidate with, merge with or into, or sell,
convey, transfer, lease or otherwise dispose of all or substantially all of its
property and assets (as an entirety or substantially an entirety in one
transaction or a series of related transactions) to, any Person or permit any
Person to merge with or into the Company unless: (i) the Company shall be the
continuing Person, or the Person (if other than the Company) formed by such
consolidation or into which the Company is merged or that acquired or leased
such property and assets of the Company shall be a corporation organized and
validly existing under the laws of the United States or any jurisdiction thereof
and shall expressly assume, by a supplemental indenture executed and delivered
to the Trustee, all of the obligations of the Company in respect of all of the
Notes under the Indenture; (ii) immediately after giving effect to such
transaction, no Default or Event of Default shall have occurred and be
continuing; (iii) immediately after giving effect to such transaction on a pro
forma basis, the Company, or any Person becoming the successor obligor of the
Notes, as the case may be, could Incur at least $1.00 of Indebtedness under the
first paragraph of the "Limitation on Indebtedness" covenant; and (iv) the
Company delivers to the Trustee an Officers' Certificate (attaching the
arithmetic computations to demonstrate compliance with clause (iii)) and an
Opinion of Counsel, in each case stating that such consolidation, merger or
transfer and such supplemental indenture complies with this provision and that
all conditions precedent provided for herein relating to such transaction have
been complied with; provided that the provisions of clause (iii) shall not apply
to transactions described above which are between or among two or more Wholly
Owned Subsidiaries of the Company.
Notwithstanding the immediately preceding paragraph, this covenant shall
not prohibit a transaction the sole purpose of which (as determined in good
faith by the Board of Directors of the Company) is to change the state of
incorporation of the Company.
REPURCHASE OF NOTES UPON A CHANGE OF CONTROL
The Company must commence, within 30 days of the occurrence of a Change of
Control, and consummate an Offer to Purchase in respect of all Notes then
outstanding, at a purchase price equal to 101% of the Accreted Value thereof,
plus accrued interest (if any) to the date of purchase (if the date is prior to
, 2001) or 101% of the principal amount thereof, plus accrued interest
(if any) to the date of purchase (if such date is on or after , 2001).
The failure by the Company to repurchase Notes at the conclusion of the Offer to
Purchase will constitute an Event of Default without any waiting period or
notice requirements.
There can be no assurance that the Company will have sufficient funds
available at the time of any Change of Control to make any debt payment
(including repurchases of Notes) required by the foregoing covenant (as well as
any that may be contained in other securities of the Company which might be
outstanding at the time). The above covenant requiring the Company to repurchase
the Notes will, unless any required consents are obtained, require the Company
to repay all indebtedness then outstanding which by its terms would prohibit
such Note repurchase, either prior to or concurrently with such Note repurchase.
The Company will comply with Rule 14e-1 under the Exchange Act and any
other securities laws and regulations thereunder, to the extent such laws and
regulations are applicable, in the event that the Company is required to
repurchase Notes pursuant to an Offer to Purchase.
Other than the requirement to make an Offer to Purchase upon a Change of
Control, the Indenture will not contain any provisions which afford holders of
the Notes specific protection in the event of a highly leveraged transaction
which results in a Change of Control. Further, other than the "Limitation on
Indebtedness" covenant described above, the Indenture will not contain any
provisions which afford holders of the Notes specific protection in the event of
a highly leveraged transaction which does not result in a Change of Control. The
Company does not have the ability to waive either the requirement to make an
Offer to Purchase or the provisions of the "Limitation on Indebtedness"
covenant.
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EVENTS OF DEFAULT
The following events will be defined as "Events of Default" in the
Indenture: (a) default in the payment of principal of (or premium, if any, on)
any Note when the same becomes due and payable, whether at maturity, upon
acceleration, redemption or otherwise; (b) default in the payment of interest on
any Note when the same becomes due and payable, and such default continues for a
period of 30 days; (c) default in the payment of principal (or premium, if any)
and interest on Notes required to be purchased pursuant to an Offer to Purchase
as described under the "Limitation on Asset Sales" covenant and under
"Repurchase of Notes upon a Change of Control" when due and payable; (d) failure
to perform or comply with the provisions described under the "Consolidation,
Merger and Sale of Assets" covenant; (e) default in the performance of or breach
of any other covenant or agreement of the Company in the Indenture or under the
Notes and such default or breach continues for a period of 60 consecutive days
after written notice by the Trustee or the Holders of 25% or more in aggregate
principal amount of the Notes; (f) there occurs with respect to any issue or
issues of Indebtedness of the Company or any Restricted Subsidiary having an
outstanding principal amount of $5.0 million or more in the aggregate for all
such issues of all such Persons, whether such Indebtedness now exists or shall
hereafter be created, (I) an event of default that has caused the holder thereof
to declare such Indebtedness to be due and payable prior to its Stated Maturity
and/or (II) the failure to make a payment when due of principal, premium, if
any, or interest and such defaulted payment shall not have been made, waived or
extended by the earliest of (x) the expiration of any applicable grace period
and (y) the 30th day after such payment default; (g) any final judgment or order
(not covered by insurance) for the payment of money in excess of $5.0 million in
the aggregate for all such final judgments or orders against all such Persons
(treating any deductibles, self-insurance or retention as not so covered) shall
be rendered against the Company or any Restricted Subsidiary and shall not be
paid or discharged, and there shall be any period of 60 consecutive days
following entry of the final judgment or order that causes the aggregate amount
for all such final judgments or orders outstanding and not paid or discharged
against all such Persons to exceed $5.0 million during which a stay of
enforcement of such final judgment or order, by reason of a pending appeal or
otherwise, shall not be in effect; (h) a court having jurisdiction in the
premises enters a decree or order for (A) relief in respect of the Company or
any Restricted Subsidiary in an involuntary case under any applicable
bankruptcy, insolvency or other similar law now or hereafter in effect, (B)
appointment of a receiver, liquidator, assignee, custodian, trustee,
sequestrator or similar official of the Company or any Restricted Subsidiary or
for all or substantially all of the property and assets of the Company or any
Restricted Subsidiary or (C) the winding up or liquidation of the affairs of the
Company or any Restricted Subsidiary and, in each case, such decree or order
shall remain unstayed and in effect for a period of 30 consecutive days; or (i)
the Company or any Restricted Subsidiary (A) commences a voluntary case under
any applicable bankruptcy, insolvency or other similar law now or hereafter in
effect, or consents to the entry of an order for relief in an involuntary case
under any such law, (B) consents to the appointment of or taking possession by a
receiver, liquidator, assignee, custodian, trustee, sequestrator or similar
official of the Company or any Restricted Subsidiary or for all or substantially
all of the property and assets of the Company or any Restricted Subsidiary or
(C) effects any general assignment for the benefit of creditors.
If an Event of Default (other than an Event of Default specified in clause
(h) or (i) above) occurs and is continuing under the Indenture, the Trustee or
the Holders of at least 25% in aggregate principal amount of the Notes then
outstanding, by written notice to the Company (and to the Trustee if such notice
is given by the Holders), may, and the Trustee at the request of such Holders
shall, declare the principal (or Accreted Value) of, premium, if any, and
accrued interest, if any, on the Notes to be immediately due and payable. Upon a
declaration of acceleration, such principal (or Accreted Value), premium, if
any, and accrued interest, if any, shall be immediately due and payable. In the
event of a declaration of acceleration because an Event of Default set forth in
clause (f) above has occurred and is continuing, such declaration of
acceleration shall be automatically rescinded and annulled if the event of
default triggering such Event of Default pursuant to clause (f) shall be
remedied or cured by the Company or the relevant Subsidiary or waived by the
holders of the relevant Indebtedness within 30 days after the declaration of
acceleration with respect thereto. If an Event of Default specified in clause
(h) or (i) above occurs, the principal (or Accreted Value) of, premium, if any,
and accrued interest, if any, on the Notes then outstanding shall ipso facto
become and be immediately due and payable without any declaration or other act
on the part of the Trustee or any Holder. The Holders of at
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least a majority in principal amount of the outstanding Notes, by written notice
to the Company and to the Trustee, may waive all past defaults and rescind and
annul a declaration of acceleration and its consequences if (i) all existing
Events of Default, other than the nonpayment of the principal of, premium, if
any, and interest on the Notes that have become due solely by such declaration
of acceleration, have been cured or waived, and (ii) the rescission would not
conflict with any judgment or decree of a court of competent jurisdiction. For
information as to the waiver of defaults, see "--Modification and Waiver."
The Holders of at least a majority in aggregate principal amount of the
outstanding Notes may direct the time, method and place of conducting any
proceeding for any remedy available to the Trustee or exercising any trust or
power conferred on the Trustee. However, the Trustee may refuse to follow any
direction that conflicts with law or the Indenture, that may involve the Trustee
in personal liability, or that the Trustee determines in good faith may be
unduly prejudicial to the rights of Holders of Notes not joining in the giving
of such direction and may take any other action it deems proper that is not
inconsistent with any such direction received from Holders of Notes. A Holder
may not pursue any remedy with respect to the Indenture or the Notes unless: (i)
the Holder gives the Trustee written notice of a continuing Event of Default;
(ii) the Holders of at least 25% in aggregate principal amount of outstanding
Notes make a written request to the Trustee to pursue the remedy; (iii) such
Holder or Holders offer the Trustee indemnity satisfactory to the Trustee
against any costs, liability or expense; (iv) the Trustee does not comply with
the request within 60 days after receipt of the request and the offer of
indemnity; and (v) during such 60-day period, the Holders of a majority in
aggregate principal amount of the outstanding Notes do not give the Trustee a
direction that is inconsistent with the request. However, such limitations do
not apply to the right of any Holder of a Note to receive payment of the
principal of, premium, if any, or interest on, such Note or to bring suit for
the enforcement of any such payment, on or after the due date expressed in the
Notes, which right shall not be impaired or affected without the consent of the
Holder. See "Book Entry; Delivery and Form."
The Indenture will require certain officers of the Company to certify,
within 90 days after the end of each fiscal year and within 45 days after the
end of the first, second and third fiscal quarters, whether or not any Default
or Event of Default has occurred, that a review has been conducted of the
activities of the Company and its Restricted Subsidiaries and the Company's and
its Restricted Subsidiaries' performance under the Indenture and that the
Company has fulfilled all obligations thereunder, or, if there has been a
default in the fulfillment of any such obligation, specifying each such default
and the nature and status thereof. The Company will also be obligated to notify
promptly the Trustee of any default or defaults in the performance of any
covenants or agreements under the Indenture.
DEFEASANCE
Defeasance and Discharge. The Indenture will provide that the Company will
be deemed to have paid and will be discharged from any and all obligations in
respect of the Notes on the 123rd day after the deposit referred to below, and
the provisions of the Indenture will no longer be in effect with respect to the
Notes (except for, among other matters, certain obligations to register the
transfer or exchange of the Notes, to replace stolen, lost or mutilated Notes,
to maintain paying agencies and to hold monies for payment in trust) if, among
other things, (A) the Company has deposited with the Trustee, in trust, money
and/or U.S. Government Obligations that through the payment of interest and
principal in respect thereof in accordance with their terms will provide money
in an amount sufficient to pay the principal of, premium, if any, and accrued
interest on the Notes on the Stated Maturity of such payments in accordance with
the terms of the Indenture and the Notes, (B) the Company has delivered to the
Trustee (i) either (x) an Opinion of Counsel to the effect that Holders will not
recognize income, gain or loss for federal income tax purposes as a result of
the Company's exercise of its option under this "Defeasance" provision and will
be subject to federal income tax on the same amount and in the same manner and
at the same times as would have been the case if such deposit, defeasance and
discharge had not occurred, which Opinion of Counsel must be based upon (and
accompanied by a copy of) a ruling of the Internal Revenue Service to the same
effect unless there has been a change in applicable federal income tax law after
the date of the Indenture such that a ruling is no longer required or (y) a
ruling directed to the Trustee received from the Internal Revenue Service to the
same effect as the aforementioned Opinion of Counsel and (ii) an Opinion of
Counsel to the effect that the creation of the
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defeasance trust does not violate the Investment Company Act of 1940, as
amended, and after the passage of 123 days following the deposit, the trust fund
will not be subject to the effect of Section 547 of the United States Bankruptcy
Code or Section 15 of the New York Debtor and Creditor Law, (C) immediately
after giving effect to such deposit on a pro forma basis, no Event of Default,
or event that after the giving of notice or lapse of time or both would become
an Event of Default, shall have occurred and be continuing on the date of such
deposit or during the period ending on the 123rd day after the date of such
deposit, and such deposit shall not result in a breach or violation of, or
constitute a default under, any other agreement or instrument to which the
Company or any of its Subsidiaries is a party or by which the Company or any of
its Subsidiaries is bound and (D) if at such time the Notes are listed on a
national securities exchange, the Company has delivered to the Trustee an
Opinion of Counsel to the effect that the Notes will not be delisted as a result
of such deposit, defeasance and discharge.
Defeasance of Certain Covenants and Certain Events of Default. The
Indenture further will provide that the provisions of the Indenture will no
longer be in effect with respect to clause (iii) under "--Consolidation, Merger
and Sale of Assets" and all the covenants described herein under "--Covenants,"
clause (e) under "--Events of Default" with respect to such covenants and clause
(iii) under "--Consolidation, Merger and Sale of Assets," and clauses (f) and
(g) under "Events of Default" shall be deemed not to be Events of Default, upon,
among other things, the deposit with the Trustee, in trust, of money and/or U.S.
Government Obligations that through the payment of interest and principal in
respect thereof in accordance with their terms will provide money in an amount
sufficient to pay the principal of, premium, if any, and accrued interest on the
Notes at the Stated Maturity of such payments in accordance with the terms of
the Indenture and the Notes, the satisfaction of the provisions described in
clauses (B)(ii), (C) and (D) of the preceding paragraph and the delivery by the
Company to the Trustee of an Opinion of Counsel to the effect that, among other
things, the Holders will not recognize income, gain or loss for federal income
tax purposes as a result of such deposit and defeasance of certain covenants and
Events of Default and will be subject to federal income tax on the same amount
and in the same manner and at the same times as would have been the case if such
deposit and defeasance had not occurred.
Defeasance and Certain Other Events of Default. In the event the Company
exercises its option to omit compliance with certain covenants and provisions of
the Indenture with respect to the Notes as described in the immediately
preceding paragraph and the Notes are declared due and payable because of the
occurrence of an Event of Default that remains applicable, the amount of money
and/or U.S. Government Obligations on deposit with the Trustee will be
sufficient to pay amounts due on the Notes at the time of their Stated Maturity
but may not be sufficient to pay amounts due on the Notes at the time of the
acceleration resulting from such Event of Default. However, the Company will
remain liable for such payments.
MODIFICATION AND WAIVER
Modifications and amendments of the Indenture may be made by the Company
and the Trustee with the consent of the Holders of not less than a majority in
aggregate principal amount of the outstanding Notes; provided, however, that no
such modification or amendment may, without the consent of each Holder affected
thereby, (i) change the Stated Maturity of the principal of, or any installment
of interest on, any Note, (ii) reduce the principal amount of, or premium, if
any, or interest on, any Note, (iii) change the place or currency of payment of
principal of, or premium, if any, or interest on, any Note, (iv) impair the
right to institute suit for the enforcement of any payment on or after the
Stated Maturity (or, in the case of a redemption, on or after the Redemption
Date) of any Note, (v) reduce the above-stated percentage of outstanding Notes
the consent of whose Holders is necessary to modify or amend the Indenture, (vi)
waive a default in the payment of principal of, premium, if any, or interest on
the Notes, (vii) reduce the percentage or aggregate principal amount of
outstanding Notes the consent of whose Holders is necessary for waiver of
compliance with certain provisions of the Indenture or for waiver of certain
defaults or (viii) following the mailing of an offer with respect to an Offer to
Purchase the Notes as described under the "Limitation on Asset Sales" covenant
and "Repurchase of Notes upon Change of Control," modify the Indenture with
respect to such Offer to Purchase in a manner adverse to such Holders.
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COMMISSION REPORTS AND REPORTS TO HOLDERS
So long as any of the Notes are outstanding, the Company will file with the
Commission the annual reports, quarterly reports and other documents which the
Company would have been required to file with the Commission pursuant to Section
13(a) or 15(d) of the Exchange Act if the Company were subject to such Sections
and will also provide to all Holders and file with the Trustee copies of such
reports.
NO PERSONAL LIABILITY OF INCORPORATORS, SHAREHOLDERS, OFFICERS, DIRECTORS OR
EMPLOYEES
The Indenture provides that no recourse for the payment of the principal
of, premium, if any, or interest on any of the Notes or for any claim based
thereon or otherwise in respect thereof, and no recourse under or upon any
obligation, covenant or agreement of the Company in the Indenture, or in any of
the Notes or because of the creation of any Indebtedness represented thereby,
shall be had against any incorporator, shareholder, officer, director, employee
or controlling person of the Company or of any successor Person thereof. Each
Holder, by accepting the Notes, waives and releases all such liability.
CONCERNING THE TRUSTEE
The Indenture provides that, except during the continuance of a Default,
the Trustee will not be liable, except for the performance of such duties as are
specifically set forth in such Indenture. If an Event of Default has occurred
and is continuing, the Trustee will use the same degree of care and skill in its
exercise as a prudent person would exercise under the circumstances in the
conduct of such person's own affairs.
The Indenture and provisions of the Trust Indenture Act, incorporated by
reference therein, contain limitations on the rights of the Trustee, should it
become a creditor of the Company, to obtain payment of claims in certain cases
or to realize on certain property received by it in respect of any such claims,
as security or otherwise. The Trustee is permitted to engage in other
transactions; provided, however, that if it acquires any conflicting interest,
it must eliminate such conflict or resign.
GOVERNING LAW
The Indenture and the Notes will be governed by the laws of the State of
New York.
DEFINITIONS
Set forth below is a summary of certain of the defined terms used in the
covenants and other provisions of the Indenture. Reference is made to the
Indenture for the full definition of all terms set forth below as well as the
definition of any other capitalized term used herein for which no definition is
provided.
"Accreted Value" is defined to mean, for any Specified Date, the amount
provided below with respect to each $1,000 principal amount at maturity of
Notes:
(i) if the Specified Date occurs on one of the following dates (each a
"Semi-Annual Accrual Date"), the Accreted Value will equal the
amount set forth below for such Semi-Annual Accrual Date:
<TABLE>
<CAPTION>
ACCRETED
SEMI-ANNUAL ACCRUAL DATE VALUE
---------------------------------------------------------------- ---------
<S> <C>
, 1997................................................ $
, 1997................................................ $
, 1998................................................ $
, 1998................................................ $
, 1999................................................ $
, 1999................................................ $
, 2000................................................ $
, 2000................................................ $
, 2001................................................ $
, 2001................................................ $1,000.00
</TABLE>
(ii) if the Specified Date occurs before the first Semi-Annual Accrual
Date, the Accreted Value will equal the sum of (a) the issue price
(as determined for U.S. federal income tax purposes)
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and (b) an amount equal to the product of (1) the Accreted Value
for the first Semi-Annual Accrual Date less the original issue
price multiplied by (2) a fraction, the numerator of which is the
number of days from the issue date of the Notes to the Specified
Date, using a 360-day year of twelve 30-day months, and the
denominator of which is the number of days from the issue date of
the Notes to the first Semi-Annual Accrual Date, using a 360-day
year of twelve 30-day months;
(iii) if the Specified Date occurs between two Semi-Annual Accrual
Dates, the Accreted Value will equal the sum of (a) the Accreted
Value for the Semi-Annual Accrual Date immediately preceding such
Specified Date and (b) an amount equal to the product of (1) the
Accreted Value for the immediately following Semi-Annual Accrual
Date less the Accreted Value for the immediately preceding Semi
Annual Accrual Date multiplied by (2) a fraction, the numerator of
which is the number of days from the immediately preceding
Semi-Annual Accrual Date to the Specified Date, using a 360-day
year of twelve 30-day months, and the denominator of which is 180;
or
(iv) if the Specified Date occurs after the last Semi-Annual Accrual
Date, the Accreted Value will equal $1,000.
"Acquired Indebtedness" means Indebtedness of a Person existing at the time
such Person becomes a Restricted Subsidiary or assumed in connection with an
Asset Acquisition by the Company or a Restricted Subsidiary and not incurred in
connection with, or in anticipation of, such Person becoming a Restricted
Subsidiary or such Asset Acquisition, as the case may be; provided that
Indebtedness of such Person which is redeemed, defeased, retired or otherwise
repaid at the time of or immediately upon consummation of the transactions by
which such Person becomes a Restricted Subsidiary or such Asset Acquisition
shall not be Acquired Indebtedness.
"Adjusted Consolidated Net Income" means, for any period, the aggregate net
income (or loss) of the Company and its Restricted Subsidiaries for such period
determined in conformity with GAAP; provided that the following items shall be
excluded in computing Adjusted Consolidated Net Income (without duplication):
(i) the net income of any Person (other than net income attributable to a
Restricted Subsidiary) in which any Person (other than the Company or any of its
Restricted Subsidiaries) has a joint interest and the net income of any
Unrestricted Subsidiary, except to the extent of the amount of dividends or
other distributions actually paid to the Company or any of its Restricted
Subsidiaries by such other Person or such Unrestricted Subsidiary during such
period; (ii) solely for the purposes of calculating the amount of Restricted
Payments that may be made pursuant to clause (C) of the first paragraph of the
"Limitation on Restricted Payments" covenant described above (and in such case,
except to the extent includable pursuant to clause (i) above), the net income
(or loss) of any Person accrued prior to the date it becomes a Restricted
Subsidiary or is merged into or consolidated with the Company or any of its
Restricted Subsidiaries or all or substantially all of the property and assets
of such Person are acquired by the Company or any of its Restricted
Subsidiaries; (iii) the net income of any Restricted Subsidiary to the extent
that the declaration or payment of dividends or similar distributions by such
Restricted Subsidiary of such net income is not at the time permitted by the
operation of the terms of its charter or any agreement, instrument, judgment,
decree, order, statute, rule or governmental regulation applicable to such
Restricted Subsidiary; (iv) any gains or losses (on an after-tax basis)
attributable to Asset Sales; (v) any amount paid or accrued as dividends on
Preferred Stock of the Company or any Restricted Subsidiary owned by Persons
other than the Company and any of its Restricted Subsidiaries; and (vi) all
extraordinary gains and extraordinary losses.
"Affiliate" means, as applied to any Person, any other Person directly or
indirectly controlling, controlled by, or under direct or indirect common
control with, such Person. For purposes of this definition, "control"
(including, with correlative meanings, the terms "controlling," "controlled by"
and "under common control with"), as applied to any Person, means 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.
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"Asset Acquisition" means (i) an investment by the Company or any of its
Restricted Subsidiaries in any other Person pursuant to which such Person shall
become a Restricted Subsidiary or shall be merged into or consolidated with the
Company or any Restricted Subsidiary; provided that such Person's primary
business is related, ancillary or complementary to the businesses of the Company
and its Restricted Subsidiaries on the date of such investment, or (ii) an
acquisition by the Company or any of its Restricted Subsidiaries of the property
and assets of any Person other than the Company or any of its Restricted
Subsidiaries that constitute substantially all of a division or line of business
of such Person; provided that the property and assets acquired are related,
ancillary or complementary to the businesses of the Company and its Restricted
Subsidiaries on the date of such acquisition.
"Asset Sale" means any sale, transfer or other disposition (including by
way of merger, consolidation, or sale-leaseback transactions) in one transaction
or a series of related transactions by the Company or any of its Restricted
Subsidiaries to any Person other than the Company or any of its Restricted
Subsidiaries of (i) all or any of the Capital Stock of any Restricted
Subsidiary, (ii) all or substantially all of the property and assets of an
operating unit or business of the Company or any of its Restricted Subsidiaries
or (iii) any other property and assets of the Company or any of its Restricted
Subsidiaries outside the ordinary course of business of the Company or such
Restricted Subsidiary and, in each case, that is not governed by the provisions
of the Indenture applicable to mergers, consolidations, and sales of assets of
the Company; provided that "Asset Sale" shall not include (i) sales or other
dispositions of inventory, receivables and other current assets in the ordinary
course of business, (ii) substantially contemporaneous exchanges by the Company
or any Restricted Subsidiary of property or equipment for other property or
equipment; provided that the property or equipment received in any such exchange
by the Company or such Restricted Subsidiary (A) constitutes Telecommunications
Assets and (B) has at least substantially equal market value to the Company or
such Restricted Subsidiary (as determined by the Board of Directors whose good
faith determination shall be conclusive and evidenced by a board resolution) or
(iii) sales or other dispositions of assets with a fair market value (as
certified in an Officers' Certificate) not in excess of $500,000.
"Attributable Value" means, as to any particular lease under which any
Person is at the time liable other than a Capitalized Lease Obligation, and at
any date as of which the amount thereof is to be determined, the total net
amount of rent required to be paid by such Person under such lease during the
initial term thereof as determined in accordance with GAAP, discounted from the
last date of such initial term to the date of determination at a rate per annum
equal to the discount rate which would be applicable to a Capitalized Lease
Obligation with a like term in accordance with GAAP. The net amount of rent
required to be paid under any such lease for any such period shall be the
aggregate amount of rent payable by the lessee with respect to such period after
excluding amounts required to be paid on account of insurance, taxes,
assessments, utility, operating and labor costs and similar charges. In the case
of any lease which is terminable by the lessee upon the payment of a penalty,
such net amount shall also include the amount of such penalty, but no rent shall
be considered as required to be paid under such lease subsequent to the first
date upon which it may be so terminated. "Attributable Value" means, as to a
Capitalized Lease Obligation under which any Person is at the time liable and at
any date as of which the amount thereof is to be determined, the capitalized
amount thereof that would appear on the face of a balance sheet of such person
in accordance with GAAP.
"Average Life" means, at any date of determination with respect to any debt
security, the quotient obtained by dividing (i) the sum of the products of (a)
the number of years from such date of determination to the dates of each
successive scheduled principal payment of such debt security and (b) the amount
of such principal payment by (ii) the sum of all such principal payments.
"Board of Directors" means the Board of Directors of the Company or any
committee of such Board of Directors duly authorized to act under the Indenture.
"Board Resolution" means a copy of a resolution, certified by the Secretary
or Assistant Secretary of the Company to have been duly adopted by the Board of
Directors and to be in full force and effect on the date of such certification
and delivered to the Trustee.
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"Business Day" means any day except Saturday, Sunday or other day on which
commercial banks in the City of New York, or in the city of the office of the
Trustee at which the corporate trust business of the Trustee shall, at any
particular time, be principally administered, are authorized by law to close.
"Capital Stock" means, with respect to any Person, any and all shares,
interests, participations or other equivalents (however designated, whether
voting or non-voting) in the equity of such Person, whether now outstanding or
issued after the date of the Indenture.
"Capitalized Lease" means, as applied to any Person, any lease of any
property (whether real, personal or mixed) of which the discounted present value
of the rental obligations of such Person as lessee, in conformity with GAAP, is
required to be capitalized on the balance sheet of such Person; and "Capitalized
Lease Obligations" means the discounted present value of the rental obligations
under such lease.
"Change of Control" means the occurrence of any of the following events:
(i) a "person" or "group" (within the meaning of Sections 13(d) and 14(d)(2) of
the Exchange Act) becomes the "beneficial owner" (as defined in Rule 13d-3 under
the Exchange Act) of Voting Stock having more than 50% of the voting power of
the total Voting Stock of the Company on a fully diluted basis; (ii) individuals
who at the beginning of any period of two consecutive calendar years constituted
the Board of Directors of the Company (together with any new directors whose
election by the Board of Directors or whose nomination for election by the
Company's shareholders was approved by a vote of at least two-thirds of the
members of the Board of Directors then in office who either were members of the
Board of Directors at the beginning of such period or whose election or
nomination for election was previously so approved) cease for any reason to
constitute a majority of the members of the Board of Directors then in office;
(iii) the sale, lease, transfer, conveyance or other disposition (other than by
way of merger or consolidation), in one or a series of related transactions, of
all or substantially all of the assets of the Company and its Subsidiaries taken
as a whole to any such "person" or "group" (other than to the Company or a
Wholly Owned Restricted Subsidiary); (iv) the merger or consolidation of the
Company with or into another corporation or the merger of another corporation
with or into the Company with the effect that immediately after such transaction
any such "person" or "group" of persons or entities shall have become the
beneficial owner of securities of the surviving corporation of such merger or
consolidation representing a majority of the combined voting power of the
outstanding securities of the surviving corporation ordinarily having the right
to vote in the election of directors; or (v) the adoption of a plan relating to
the liquidation or dissolution of the Company; provided, that a Change of
Control will be deemed not to occur pursuant to clauses (i), (ii), (iii) or (iv)
above if either (x) the acquiring "person" is a corporation with outstanding
senior, unsecured corporate debt securities having a maturity at original
issuance of at least one year and such debt securities are rated Investment
Grade (without giving effect to any third-party credit support or enhancement)
by S&P or Moody's for a period of at least 90 consecutive days, beginning on the
date of such event (which period will be extended up to 90 additional days for
as long as the rating of such debt securities is under publicly announced
consideration for possible downgrading by the applicable rating agency), or (y)
in the event that the acquiring "person" is a corporation that either (1) does
not have any outstanding senior, unsecured corporate debt securities that are
rated by S&P or Moody's at any time during a period of 90 consecutive days
beginning on the date of such event (which period will be extended up to an
additional 90 days for as long as any such rating agency has publicly announced
that such debt securities will be rated), or (2) after the date of such event
but during such 90 day period, has outstanding senior, unsecured corporate debt
securities having a maturity at original issuance of at least one year that have
been rated Investment Grade (without giving effect to any third-party credit
support or enhancement) by S&P or Moody's which rating continues in effect for
the remainder of the period specified in clause (x) above, the Notes shall be
rated Investment Grade immediately upon such Change of Control.
"Closing Date" means the date on which the Units are originally issued
under the Unit Agreement.
"Closing Price" on any Trading Day with respect to the per share price of
any shares of Capital Stock means the last reported sale price regular way or,
in case no such reported sale takes place on such day, the average of the
reported closing bid and asked prices regular way, in either case on the New
York Stock Exchange or, if such shares of Capital Stock are not listed or
admitted to trading on such exchange, on the principal national securities
exchange on which such shares are listed or admitted to trading or, if not
listed or
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admitted to trading on any national securities exchange, on the Nasdaq National
Market or, if such shares are not listed or admitted to trading on any national
securities exchange or quoted on such automated quotation system, the average of
the closing bid and asked prices in the over-the-counter market as furnished by
any New York Stock Exchange member firm that is selected from time to time by
the Company for that purpose and is reasonably acceptable to the Trustee.
"Common Stock" means, with respect to any Person, any and all shares,
interests, participations or other equivalents (however designated, whether
voting or non-voting) of such Person's common stock, whether now outstanding or
issued after the date of the Indenture, including, without limitation, all
series and classes of such common stock.
"Consolidated EBITDA" means, for any period, the sum of the amounts for
such period of (i) Adjusted Consolidated Net Income, (ii) Consolidated Interest
Expense to the extent such amount was deducted in calculating Adjusted
Consolidated Net Income, (iii) income taxes, to the extent such amount was
deducted in calculating Adjusted Consolidated Net Income (other than income
taxes (either positive or negative) attributable to extraordinary and
non-recurring gains or losses or sales of assets), (iv) depreciation expense, to
the extent such amount was deducted in calculating Adjusted Consolidated Net
Income, (v) amortization expense, to the extent such amount was deducted in
calculating Adjusted Consolidated Net Income, and (vi) all other non-cash
charges (excluding any such non-cash charge to the extent that it represents an
accrual of or reserve for cash charges in any future period) of such Person and
its Subsidiaries for such period to the extent that such other non cash charges
were deducted in computing such Adjusted Consolidated Net Income, less (vii) all
non-cash items increasing Adjusted Consolidated Net Income for such period
(excluding any such non-cash income to the extent it represents an accrual of
cash income to be received in any future period), in each case on a consolidated
basis and determined in accordance with GAAP; provided that, if any Restricted
Subsidiary is not a Wholly Owned Restricted Subsidiary, Consolidated EBITDA
shall be reduced (to the extent not otherwise reduced in accordance with GAAP)
by an amount equal to (A) the amount of the Adjusted Consolidated Net Income
attributable to such Restricted Subsidiary multiplied by (B) the quotient of (1)
the number of outstanding common shares of such Restricted Subsidiary not owned
on the last day of such period by the Company or any of its Restricted
Subsidiaries divided by (2) the total number of outstanding common shares of
such Restricted Subsidiary on the last day of such period.
"Consolidated Fixed Charges" of any Person means for any period (i)
Consolidated Interest Expense of such Person plus (ii) Preferred Stock dividends
declared and payable in cash in such period by such Person or any of its
Restricted Subsidiaries, other than any such dividends payable by a Restricted
Subsidiary of such Person to such Person or one of its Wholly Owned Restricted
Subsidiaries.
"Consolidated Interest Expense" means, for any period, the aggregate of the
following amounts for such period determined on a consolidated basis (without
taking into account Unrestricted Subsidiaries) in accordance with GAAP: the
amount of interest in respect of Indebtedness (including amortization of
original issue discount on any Indebtedness; the interest portion of any
deferred payment obligation and any premiums, fees and expenses (and any
amortization thereof) payable in connection with Indebtedness; all commissions,
discounts and other fees and charges owed with respect to letters of credit and
bankers' acceptance financing; the net costs associated with Interest Rate
Agreements; interest on Indebtedness that is Guaranteed or secured by the
Company or any of its Restricted Subsidiaries; and amounts paid to repurchase
the Warrants to the extent such amounts have been expensed for purposes of
determining Adjusted Consolidated Net Income) and all but the principal
component of rentals in respect of Capitalized Lease Obligations paid, accrued
or scheduled to be paid or to be accrued by the Company and its Restricted
Subsidiaries during such period; excluding, however, any amount of such interest
of any Restricted Subsidiary if the net income of such Restricted Subsidiary is
excluded in the calculation of Adjusted Consolidated Net Income pursuant to
clause (iii) of the definition thereof (but only in the same proportion as the
net income of such Restricted Subsidiary is excluded from the calculation of
Adjusted Consolidated Net Income pursuant to clause (iii) of the definition
thereof).
"Consolidated Net Worth" means, at any date of determination, shareholders'
equity as set forth on the most recently available quarterly or annual
consolidated balance sheet of the Company and its Restricted
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Subsidiaries (which shall be as of a date not more than 90 days prior to the
date of such computation, and which shall not take into account Unrestricted
Subsidiaries), less any amounts attributable to Redeemable Stock or any equity
security convertible into or exchangeable for Indebtedness, the cost of treasury
stock and the principal amount of any promissory notes receivable from the sale
of Capital Stock of the Company or any of its Restricted Subsidiaries, each item
to be determined in conformity with GAAP.
"Credit Facility" means the credit agreement to be entered into prior to or
simultaneously with the completion of the Offering of the Units, as such credit
agreement may be amended, modified, supplemented, restated or replaced from time
to time.
"Default" means any event that is, or after notice or passage of time or
both would be, an Event of Default.
"FCC" means the Federal Communications Commission or any successor
governmental authority.
"GAAP" means generally accepted accounting principles in the United States
of America as in effect as of the date of the Indenture, including, without
limitation, those set forth in the opinions and pronouncements of the Accounting
Principles Board of the American Institute of Certified Public Accountants and
statements and pronouncements of the Financial Accounting Standards Board or in
such other statements by such other entity as approved by a significant segment
of the accounting profession.
"Guarantee" means, with respect to any Person, any obligation, contingent
or otherwise, of such Person directly or indirectly guaranteeing any
Indebtedness or other obligation of any other Person and, without limiting the
generality of the foregoing, any obligation, direct or indirect, contingent or
otherwise, of such Person (i) to purchase or pay (or advance or supply funds for
the purchase or payment of) such Indebtedness or other obligation of such other
Person (whether arising by virtue of partnership arrangements, or by agreements
to keep-well, to purchase assets, goods, securities or services, to take-or-pay,
or to maintain financial statement conditions or otherwise) or (ii) entered into
for purposes of assuring in any other manner the obligee of such Indebtedness or
other obligation of the payment thereof or to protect such obligee against loss
in respect thereof (in whole or in part); provided that the term "Guarantee"
shall not include endorsements for collection or deposit in the ordinary course
of business. The term "Guarantee" used as a verb has a corresponding meaning.
"Holder" means the registered holder of any Note.
"Incur" means, with respect to any Indebtedness, to incur, create, issue,
assume, Guarantee or otherwise become liable for or with respect to, or become
responsible for, the payment of, contingently or otherwise, such Indebtedness,
including Acquired Indebtedness; provided that neither the accrual of interest
nor the accretion of original issue discount shall be considered an Incurrence
of Indebtedness.
"Indebtedness" means, with respect to any Person at any date of
determination (without duplication), (i) all indebtedness of such Person for
borrowed money, (ii) all obligations of such Person evidenced by bonds,
debentures, notes or other similar instruments, (other than the Company's Series
A Preferred Stock) (iii) all obligations of such Person in respect of letters of
credit or other similar instruments (including reimbursement obligations with
respect thereto), (iv) all obligations of such Person to pay the deferred and
unpaid purchase price of property or services, which purchase price is due more
than six months after the date of placing such property in service or taking
delivery and title thereto or the completion of such services, except trade
payables, (v) all obligations of such Person as lessee under Capitalized Leases,
(vi) all Indebtedness of other Persons secured by a Lien on any asset of such
Person, whether or not such Indebtedness is assumed by such Person; provided
that the amount of such Indebtedness shall be the lesser of (A) the fair market
value of such asset at such date of determination and (B) the amount of such
Indebtedness, (vii) all Indebtedness of other Persons Guaranteed by such Person
to the extent such Indebtedness is Guaranteed by such Person and (viii) to the
extent not otherwise included in this definition, obligations under Interest
Rate Agreements. The amount of Indebtedness of any Person at any date shall be
the outstanding balance at such date of all unconditional obligations as
described above and, with respect to contingent obligations, the maximum
liability upon the occurrence of the contingency giving rise to the obligation,
provided (i) that the amount outstanding at any time of any Indebtedness issued
with original issue
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discount is the accreted value of such Indebtedness, (ii) that Indebtedness
shall not include any liability for federal, state, local or other taxes (iii)
that Indebtedness shall not include any liability under health, life, accident
or disability plans for employees of the Company or any Restricted Subsidiary
generally, and (iv) Indebtedness shall not include any commitment for the
purchase by the Company or any Restricted Subsidiary of equipment or
telecommunications services requiring the Company or such Restricted Subsidiary
to purchase minimum quantities to achieve discount pricing prior to the time the
Company or such Restricted Subsidiary is required pursuant to GAAP to record a
liability on its balance sheet under such commitment to pay increased prices.
"Indebtedness to EBITDA Ratio" means, as at any date of determination (the
"Determination Date"), the ratio of (i) the aggregate amount of Indebtedness of
the Company and its Restricted Subsidiaries on a consolidated basis
("Consolidated Indebtedness") at the Determination Date to (ii) the product of
four times the Consolidated EBITDA of the Company for the most recent full
fiscal quarter for which reports have been filed pursuant to the "Commission
Reports and Reports to Holders" covenant described above (such full fiscal
quarter being referred to herein as the "Most Recent Quarter"); provided that
(x) pro forma effect shall be given to (A) any Indebtedness Incurred during the
period commencing on the first day of the Most Recent Quarter through the
Determination Date (the "Reference Period"), including any Indebtedness Incurred
on the Determination Date, to the extent outstanding at the close of the
Determination Date, and (B) the discharge of any other Indebtedness permanently
retired, repaid, repurchased, defeased or otherwise discharged with the proceeds
of such new Indebtedness, in each case as if the Incurrence or retirement of
such Indebtedness had occurred on the first date of such Reference Period, (y)
if during the Reference Period, the Company or any of its Restricted
Subsidiaries shall have engaged in any Asset Sale, Consolidated EBITDA for such
period shall be decreased by an amount equal to the portion thereof (if
positive), or increased by an amount equal to the portion thereof (if negative),
directly attributable to the assets which are the subject of such Asset Sale
(including, as part of the amount directly attributable to such Asset Sale, any
transfer, retirement or other satisfaction of Indebtedness of the Company or any
of its Restricted Subsidiaries as part of the consideration for such Asset Sale)
as if such Asset Sale and related retirement of Indebtedness had occurred on the
first day of such Reference Period or (z) if during such Reference Period the
Company or any of its Restricted Subsidiaries shall have made any Asset
Acquisition, the Consolidated EBITDA of the Company shall be calculated on a pro
forma basis as if such Asset Acquisition and any related financing had occurred
on the first day of such Reference Period.
"Interest Payment Date" means each semiannual interest payment date on
and of each year, commencing , 2002.
"Interest Rate Agreement" means any interest rate protection agreement,
interest rate future agreement, interest rate option agreement, interest rate
swap agreement, interest rate cap agreement, interest rate collar agreement,
interest rate hedge agreement, option or future contract or other similar
agreement or arrangement designed to protect the Company or any of its
Subsidiaries against fluctuations in interest rates.
"Investment" in any Person means any direct or indirect advance, loan or
other extension of credit (including, without limitation, by way of Guarantee or
similar arrangement; but excluding advances to customers in the ordinary course
of business that are, in conformity with GAAP, recorded as accounts receivable
on the balance sheet of the Company or its Restricted Subsidiaries) to, capital
contribution (by means of any transfer of cash or other property to others or
any payment for property or services for the account or use of others) to, or
any purchase or acquisition of Capital Stock, bonds, notes, debentures or other
similar instruments issued by, such Person and shall include the designation of
a newly formed or newly acquired Subsidiary as an Unrestricted Subsidiary. For
purposes of the definition of "Unrestricted Subsidiary", the "Limitation on
Restricted Payments" covenant and the "Limitation on the Issuance and Sale of
Capital Stock of Restricted Subsidiaries" covenant described above, (i)
"Investment" shall include (a) the fair market value of the assets (net of
liabilities) of any newly formed or newly acquired Subsidiary of the Company at
the time that such newly formed or newly acquired Subsidiary is designated an
Unrestricted Subsidiary and (b) the fair market value, in the case of a sale of
Capital Stock in accordance with the "Limitation on the Issuance and Sale of
Capital Stock of Restricted Subsidiaries" covenant such that a Person no longer
constitutes a Restricted Subsidiary, of the remaining assets (net of
liabilities) of such Person after
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such sale, and shall exclude the fair market value of the assets (net of
liabilities) of any Unrestricted Subsidiary at the time that such Unrestricted
Subsidiary is designated a Restricted Subsidiary of the Company and (ii) any
property transferred to or from an Unrestricted Subsidiary shall be valued at
its fair market value at the time of such transfer, in each case as determined
by the Board of Directors in good faith.
"Investment Grade" shall mean BBB- or higher by S&P or Baa3 or higher by
Moody's.
"L.A. Note" means the $500,000 aggregate principal amount promissory note
or notes of the Company issued to the seller in connection with the acquisition
of radio frequency licenses in Los Angeles, California.
"Lien" means any mortgage, pledge, security interest, encumbrance, lien or
charge of any kind (including, without limitation, any conditional sale or other
title retention agreement or lease in the nature thereof, any sale with recourse
against the seller or any Affiliate of the seller, or any agreement to give any
security interest).
"Moody's" means Moody's Investors Service, Inc. and its successors.
"Net Cash Proceeds" means, (a) with respect to any Asset Sale, the proceeds
of such Asset Sale in the form of cash or cash equivalents, including payments
in respect of deferred payment obligations (to the extent corresponding to the
principal, but not interest, component thereof) when received in the form of
cash or cash equivalents (except to the extent such obligations are financed or
sold with recourse to the Company or any Restricted Subsidiary of the Company)
and proceeds from the conversion of other property received when converted to
cash or cash equivalents, net of (i) brokerage commissions and other fees and
expenses (including fees and expenses of counsel and investment bankers) related
to such Asset Sale, (ii) provisions for all taxes (whether or not such taxes
will actually be paid or are payable) as a result of such Asset Sale without
regard to the consolidated results of operations of the Company and its
Restricted Subsidiaries, taken as a whole, (iii) payments made to repay
Indebtedness or any other obligation outstanding at the time of such Asset Sale
that either (A) is secured by a Lien on the property or assets sold or (B) is
required to be paid as a result of such sale and (iv) appropriate amounts to be
provided by the Company or any Restricted Subsidiary of the Company as a reserve
against any liabilities associated with such Asset Sale, including, without
limitation, pension and other post-employment benefit liabilities, liabilities
related to environmental matters and liabilities under any indemnification
obligations associated with such Asset Sale, all as determined in conformity
with GAAP and (b) with respect to any issuance or sale of Capital Stock, the
proceeds of such issuance or sale in the form of cash or cash equivalents,
including payments in respect of deferred payment obligations (to the extent
corresponding to the principal, but not interest, component thereof) when
received in the form of cash or cash equivalents (except to the extent such
obligations are financed or sold with recourse to the Company or any Restricted
Subsidiary of the Company) and proceeds from the conversion of other property
received when converted to cash or cash equivalents, net of attorneys' fees,
accountants' fees, underwriters' or placement agents' fees, discounts or
commissions and brokerage, consultant and other fees incurred in connection with
such issuance or sale and net of taxes paid or payable as a result thereof.
"Offer to Purchase" means an offer to purchase Notes by the Company from
the Holders commenced by mailing a notice to the Trustee and each Holder
stating: (i) the covenant pursuant to which the offer is being made and that all
Notes validly tendered will be accepted for payment on a pro rata basis; (ii)
the purchase price and the date of purchase (which shall be a Business Day no
earlier than 30 days nor later than 60 days from the date such notice is mailed)
(the "Payment Date"); (iii) that any Note not tendered will continue to accrue
interest (or accrete original issue discount) pursuant to its terms; (iv) that,
unless the Company defaults in the payment of the purchase price, any Note
accepted for payment pursuant to the Offer to Purchase shall cease to accrue
interest (or accrete original issue discount) on and after the Payment Date; (v)
that Holders electing to have a Note purchased pursuant to the Offer to Purchase
will be required to surrender the Note, together with the form entitled "Option
of the Holder to Elect Purchase" on the reverse side of the Note completed, to
the Paying Agent at the address specified in the notice prior to the close of
business on the Business Day immediately preceding the Payment Date; (vi) that
Holders will be entitled to withdraw their election if the Paying Agent
receives, not later than the close of business on the third Business Day
immediately preceding the Payment Date, a telegram, facsimile transmission or
letter setting forth the name of such Holder, the principal amount of Notes
delivered for purchase and a statement that such Holder
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is withdrawing his election to have such Notes purchased; and (vii) that Holders
whose Notes are being purchased only in part will be issued new Notes equal in
principal amount to the unpurchased portion of the Notes surrendered; provided
that each Note purchased and each new Note issued shall be in a principal amount
of $1,000 or integral multiples thereof. On the Payment Date, the Company shall
(i) accept for payment on a pro rata basis Notes or portions thereof tendered
pursuant to an Offer to Purchase; (ii) deposit with the Paying Agent money
sufficient to pay the purchase price of all Notes or portions thereof so
accepted; and (iii) cause the Paying Agent to deliver to the Trustee all Notes
or portions thereof so accepted together with an Officers' Certificate
specifying the Notes or portions thereof accepted for payment by the Company.
The Paying Agent shall promptly mail to the Holders of Notes so accepted payment
in an amount equal to the purchase price, and the Trustee shall promptly
authenticate and mail to such Holders a new Note equal in principal amount to
any unpurchased portion of the Note surrendered; provided that each Note
purchased and each new Note issued shall be in a principal amount of $1,000 or
integral multiples thereof. The Company will publicly announce the results of an
Offer to Purchase as soon as practicable after the Payment Date. The Trustee
shall act as the Paying Agent for an Offer to Purchase. The Company will comply
with Rule 14e-1 under the Exchange Act and any other securities laws and
regulations thereunder to the extent such laws and regulations are applicable,
in the event that the Company is required to repurchase Notes pursuant to an
Offer to Purchase.
"Officer" means, with respect to the Company, (i) the Chairman, the Chief
Executive Officer, a Vice Chairman, the President, any Vice President and (ii)
the Treasurer or any Assistant Treasurer, or the Secretary or any Assistant
Secretary.
"Officers' Certificate" means a certificate signed by one Officer listed in
clause (i) of the definition thereof and one Officer listed in clause (ii) of
the definition thereof, provided, however, that any such certificate may be
signed by any two of the Officers listed in clause (i) of the definition thereof
in lieu of being signed by one Officer listed in clause (i) of the definition
thereof and one Officer listed in clause (ii) of the definition thereof. Each
Officers' Certificate (other than certificates provided pursuant to TIA Section
314(a)(4)) shall include the statements provided for in TIA Section 314(e).
"Opinion of Counsel" means a written opinion signed by legal counsel who
may be an employee of or counsel to the Company. Each such Opinion of Counsel
shall include the statements provided for in TIA Section 314(e).
"Permitted Investment" means (i) an Investment in a Restricted Subsidiary
or a Person which will, upon the making of such Investment, become a Restricted
Subsidiary or be merged or consolidated with or into or transfer or convey all
or substantially all its assets to, the Company or a Restricted Subsidiary;
provided that, such Person's primary business is related, ancillary or
complementary to the businesses of the Company and its Restricted Subsidiaries
on the date of such Investment; (ii) a Temporary Cash Investment; (iii) payroll,
travel and similar advances to cover matters that are expected at the time of
such advances ultimately to be treated as expenses in accordance with GAAP; and
(iv) loans or advances to employees made in the ordinary course of business in
accordance with past practice of the Company or its Restricted Subsidiaries and
that do not in the aggregate exceed $500,000 at any time outstanding.
"Permitted Liens" means (i) Liens for taxes, assessments, governmental
charges or claims that are not yet delinquent or that are being contested in
good faith by appropriate legal proceedings promptly instituted and diligently
conducted and for which a reserve or other appropriate provision, if any, as
shall be required in conformity with GAAP shall have been made; (ii) statutory
Liens of landlords and carriers, warehousemen, mechanics, suppliers,
materialmen, repairmen or other similar Liens arising in the ordinary course of
business and with respect to amounts not yet delinquent or being contested in
good faith by appropriate legal proceedings promptly instituted and diligently
conducted and for which a reserve or other appropriate provision, if any, as
shall be required in conformity with GAAP shall have been made; (iii) Liens
incurred or deposits made in the ordinary course of business in connection with
workers' compensation, unemployment insurance and other types of social
security; (iv) Liens incurred or deposits made to secure the performance of
tenders, bids, leases, statutory or regulatory obligations, bankers'
acceptances, surety and appeal bonds, government contracts, performance and
return-of-money bonds and other obligations of a similar nature
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incurred in the ordinary course of business (exclusive of obligations for the
payment of borrowed money); (v) easements, rights-of-way, municipal and zoning
ordinances and similar charges, encumbrances, title defects or other
irregularities that do not materially interfere with the ordinary course of
business of any Telecommunications Subsidiary individually or the Company and
its Restricted Subsidiaries taken as a whole; (vi) Liens upon real or personal
property acquired after the Closing Date; provided that (a) such Lien is created
solely for the purpose of securing Indebtedness Incurred in accordance with the
"Limitation on Indebtedness" covenant described above, (1) to finance the cost
(including the cost of improvement or construction) of the item of property or
assets subject thereto and such Lien is created prior to, at the time of or
within six months after the later of the acquisition, the completion of
construction or the commencement of full operation of such property or (2) to
refinance any Indebtedness previously so secured, (b) the principal amount of
the Indebtedness secured by such Lien does not exceed 100% of such cost and (c)
any such Lien shall not extend to or cover any property or assets other than
such item of property or assets and any improvements on such item; (vii) leases,
subleases, licenses or sublicenses granted to others that do not materially
interfere with the ordinary course of business of the Company and its Restricted
Subsidiaries, taken as a whole; (viii) Liens encumbering property or assets
under construction arising from progress or partial payments by a customer of
the Company or its Restricted Subsidiaries relating to such property or assets;
(ix) any interest or title of a lessor in the property subject to any
Capitalized Lease or operating lease; (x) Liens arising from filing Uniform
Commercial Code financing statements (or substantially equivalent filings
outside of the United States) regarding leases; (xi) Liens on property of, or on
shares of stock or Indebtedness of, any corporation existing at the time such
corporation becomes, or becomes a part of, any Restricted Subsidiary; provided
that such Liens do not extend to or cover any property or assets of the Company
or any Restricted Subsidiary other than the property or assets acquired or
property or assets of the corporation that becomes a Restricted Subsidiary;
(xii) Liens in favor of the Company or any Restricted Subsidiary; (xiii) Liens
arising from the rendering of a final judgment or order against the Company or
any Restricted Subsidiary of the Company that does not give rise to an Event of
Default; (xiv) Liens securing reimbursement obligations with respect to letters
of credit that encumber documents and other property relating to such letters of
credit and the products and proceeds thereof; (xv) Liens in favor of customs and
revenue authorities arising as a matter of law to secure payment of customs
duties in connection with the importation of goods; (xvi) Liens encumbering
customary initial deposits and margin deposits, and other Liens that are either
within the general parameters customary in the industry and incurred in the
ordinary course of business, in each case, securing Indebtedness under Interest
Rate Agreements; (xvii) Liens arising out of conditional sale, title retention,
consignment or similar arrangements for the sale of goods entered into by the
Company or any of its Restricted Subsidiaries in the ordinary course of business
of the Company and its Restricted Subsidiaries; (xviii) Liens on or sales of
receivables; (xix) Liens securing Indebtedness permitted to be Incurred pursuant
to clause (vi) of the second paragraph of the "Limitation on Indebtedness"
covenant (including, without limitation, Indebtedness under the Credit Facility
permitted to be Incurred pursuant to such clause (vi)); provided, however, that
any such Indebtedness shall not be secured by any property or assets of the
Company or any Restricted Subsidiary of the Company other than the
Telecommunications Assets so constructed or acquired with the proceeds of such
Indebtedness or by the stock of any Restricted Subsidiary, the assets of which
consist solely of such Telecommunications Assets so constructed or acquired;
(xx) Liens on licenses granted by the FCC to utilize narrowband radio frequency
or on the interests in any entity, the material assets of which consist of such
licenses to the extent they secure Indebtedness permitted to be Incurred under
clauses (v) and (vii) of the second paragraph of the "Limitation on
Indebtedness" covenant, provided that the aggregate amount of Indebtedness
secured by any such Lien shall not at any time exceed the amount of Indebtedness
permitted to be Incurred pursuant to such clauses (v) and (vii); (xxi) Liens
(including Liens on Capital Stock of any Restricted Subsidiary) to the extent
they secure Indebtedness outstanding under the Credit Facility, provided that
the aggregate amount of Indebtedness secured by any such Lien (without
duplication of any Indebtedness secured by Liens pursuant to clause (xix) above)
shall not at any time exceed the amount of Indebtedness permitted to be Incurred
under any such facility pursuant to the terms of the Indenture; (xxii) Liens
(including Liens on Capital Stock of any Restricted Subsidiary) to the extent
they secure Indebtedness outstanding permitted to be Incurred under clause (i)
or (viii) of the second paragraph of the "Limitation on Indebtedness" covenant,
provided that the fair market value, as determined by the Board of Directors of
the Company in good faith, of the property and other assets subject to
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such Liens (determined at the time such Liens are granted) does not exceed an
amount equal to 150% of the amount of such Indebtedness; and (xxiii) any
extension, renewal or replacement, in whole or in part, of any Lien described in
clauses (i) through (xxii); provided that any such extension, renewal or
replacement shall not extend to any additional property or assets.
"Person" means an individual, partnership, corporation, trust or
unincorporated organization, and a government or agency or political subdivision
thereof.
"Preferred Stock," as applied to the Capital Stock of any Person, means
Capital Stock of such Person of any class or classes (however designated) that
ranks prior, as to the payment of dividends or as to the distribution of assets
upon any voluntary or involuntary liquidation, dissolution or winding up of such
Person, to shares of Capital Stock of any other class of such Person.
"Redeemable Stock" means any class or series of Capital Stock of any Person
that by its terms or otherwise is (i) required to be redeemed prior to the
Stated Maturity of the Notes, (ii) redeemable at the option of the holder of
such class or series of Capital Stock at any time prior to the Stated Maturity
of the Notes or (iii) convertible into or exchangeable for Capital Stock
referred to in clause (i) or (ii) above or Indebtedness having a scheduled
maturity prior to the Stated Maturity of the Notes; provided that any Capital
Stock that would not constitute Redeemable Stock but for provisions thereof
giving holders thereof the right to require such Person to repurchase or redeem
such Capital Stock upon the occurrence of an "asset sale" or "change of control"
occurring prior to the Stated Maturity of the Notes shall not constitute
Redeemable Stock if the "asset sale" or "change of control" provisions
applicable to such Capital Stock are no more favorable to the holders of such
Capital Stock than the provisions contained in "Limitation on Asset Sales" and
"Repurchase of Notes upon a Change of Control" covenants described above and
such Capital Stock specifically provides that such Person will not repurchase or
redeem any such stock pursuant to such provision prior to the expiration of the
Company's Offer to Purchase Notes as required pursuant to the "Limitation on
Asset Sales" and "Repurchase of Notes upon a Change of Control" covenants
described above.
"Redemption Date," when used with respect to any Note to be redeemed, means
the date fixed for such redemption by or pursuant to the Indenture.
"Refinancing Indebtedness" means Indebtedness of the Company or any
Restricted Subsidiary issued in exchange for, or the net proceeds of which are
used to refinance or refund, then outstanding Indebtedness of such Person, other
than Indebtedness Incurred under clause (i), (v) or (viii) of the second
paragraph under the "Limitation on Indebtedness" covenant, and any refinancings
thereof in an amount not to exceed the amount so refinanced or refunded (plus
premiums, accrued interest, fees and expenses); provided that Indebtedness the
proceeds of which are used to refinance or refund the Notes or Indebtedness that
is pari passu with, or subordinated in right of payment to, the Notes shall only
be permitted if (A) in case the Notes are refinanced in part or the Indebtedness
to be refinanced is pari passu with the Notes, such new Indebtedness, by its
terms or by the terms of any agreement or instrument pursuant to which such new
Indebtedness is outstanding, is expressly made pari passu with, or subordinate
in right of payment to, the remaining Notes, (B) in case the Indebtedness to be
refinanced is subordinated in right of payment to the Notes, such new
Indebtedness, by its terms or by the terms of any agreement or instrument
pursuant to which such new Indebtedness is issued or remains outstanding, is
expressly made subordinate in right of payment to the Notes at least to the
extent that the Indebtedness to be refinanced is subordinated to the Notes and
(C) such new Indebtedness, determined as of the date of Incurrence of such new
Indebtedness, does not mature prior to the Stated Maturity of the Indebtedness
to be refinanced or refunded and the Average Life of such new Indebtedness is at
least equal to the remaining Average Life of the Indebtedness to be refinanced
or refunded; and provided further that in no event may Indebtedness of the
Company (other than the L.A. Note) be refinanced by means of any Indebtedness of
any Restricted Subsidiary pursuant to this definition.
"Regular Record Date" for the interest payable on any Interest Payment Date
means the or (whether or not a Business Day), as the
case may be, next preceding such Interest Payment Date.
"Restricted Subsidiary" means any Subsidiary of the Company other than an
Unrestricted Subsidiary.
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"Sale and Leaseback Transaction" means any direct or indirect arrangement
with any Person or to which any such Person is a party providing for the leasing
to the Company or a Restricted Subsidiary of any property, whether owned by the
Company or any Restricted Subsidiary at the Closing Date or later acquired,
which has been or is to be sold or transferred by the Company or such Restricted
Subsidiary to such Person or to any other Person from whom funds have been or
are to be advanced by such Person on the security of such property.
"Security Register" means the register of the Notes and of their transfer
and exchange to be kept by the office or agency maintained by the Company where
Notes may be presented for registration of transfer or for exchange.
"Series A Preferred Stock" means the Series A Preferred Stock of the
Company outstanding on the date of the Indenture and any Series B Preferred
Stock of the Company issuable upon the exchange of such Series A Preferred
Stock.
"Sloan Loan" means the promissory notes in favor of the Company issued in
connection with the original issuance of the Company's Capital Stock, of which
approximately $1.7 million was outstanding on the date hereof.
"Specified Date" means any redemption date, any date of purchase for any
purchase of Notes pursuant to the covenants described under "Limitation on Asset
Sales" or "Repurchase of Notes upon a Change of Control" above or any date on
which the Notes first become due and payable after an Event of Default.
"Spectrum Acquisition Debt" means Indebtedness Incurred solely for the
purpose of financing the costs of licenses or other rights granted by the FCC to
utilize radio frequency and which is either a direct obligation owing to the FCC
or recourse solely to such licenses or to the Capital Stock of a Restricted
Subsidiary which has no material assets other than such licenses.
"S&P" means Standard & Poor's Corporation and its successors.
"Stated Maturity" means, (i) with respect to any debt security, the date
specified in such debt security as the fixed date on which the final installment
of principal of such debt security is due and payable and (ii) with respect to
any scheduled installment of principal of or interest on any debt security, the
date specified in such debt security as the fixed date on which such installment
is due and payable.
"Strategic Equity Investor" means any Person the common stock of which is
publicly traded that, both as of the Trading Day immediately before the day of a
sale and the Trading Day immediately after the day of such sale, has Total
Common Equity of at least $400 million and is engaged in the business of (a)
providing emission, transmission or reception of signs, signals, writing,
images, sound, data or video; (b) the sale, resale, lease or provision of
cellular services, PCS, dispatch services, paging services, telephone services
and other telecommunications or radiocommunications services; (c) the operation
of PCS networks and other telecommunications or radiocommunications networks;
(d) the provision of telecommunications or radiocommunications facilities or
equipment; or (e) any business ancillary or directly related to the businesses
referred to in clauses (a), (b), (c) or (d) above.
"Subsidiary" means, with respect to any Person, any corporation,
association or other business entity of which more than 50% of the outstanding
Voting Stock is owned, directly or indirectly, by such Person and one or more
other Subsidiaries of such Person.
"Telecommunications Assets" means (i) any entity or business which holds
telecommunications or radiocommunications licenses, or a substantial portion of
the revenues of which are derived from (a) providing emission, transmission or
reception of signs, signals, writing, images, sound, data or video; (b) the
sale, resale, lease or provision of cellular services, PCS, dispatch services,
paging services, telephone services and other telecommunications or
radiocommunications services; (c) the operation of PCS networks and other
telecommunications or radiocommunications networks; (d) the provision of
telecommunications or radiocommunications facilities or equipment; or (e) any
business ancillary or directly related to the businesses referred in clauses
(a), (b), (c) or (d) above and (ii) any assets used primarily to provide such
products or services or to conduct such businesses, including licenses or other
rights to use radio frequency.
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"Telecommunications Subsidiary" means (i) PCSD Financial Corp., SGI
Communications, Inc., PCSD Spectrum, Inc., PCSD Network, Inc. and their
respective successors and (ii) any other Subsidiary of the Company that holds
more than a de minimis amount of Telecommunications Assets.
"Temporary Cash Investment" means any of the following: (i) direct
obligations of the United States or any agency thereof or obligations fully and
unconditionally guaranteed by the United States or any agency thereof with
maturities of twelve months or less from the date of acquisition, (ii) time
deposit accounts, certificates of deposit and money market deposits maturing
within 365 days of the date of acquisition thereof, bankers' acceptances with
maturities not exceeding 365 days, and overnight bank deposits, in each case
issued by or with a bank or trust company that is organized under the laws of
the United States or any state thereof and which bank or trust company has
capital, surplus and undivided profits aggregating in excess of $500 million and
has outstanding debt which is rated "A" (or such similar equivalent rating) or
higher by at least one nationally recognized statistical rating organization (as
defined in Rule 436 under the Securities Act), or any money market fund
sponsored by a registered broker dealer or mutual fund distributor, (iii)
repurchase obligations with a term of not more than 30 days for underlying
securities of the types described in clause (i) above entered into with a bank
meeting the qualifications described in clause (ii) above, (iv) commercial
paper, maturing not more than 365 days after the date of acquisition, issued by
a corporation (other than an Affiliate of the Company) organized and in
existence under the laws of the United States of America, any state thereof or
any foreign country recognized by the United States with a rating at the time as
of which any investment therein is made of "P-l" (or higher) according to
Moody's Investors Service, Inc. or "A-l" (or higher) according to Standard &
Poor's and (v) securities with maturities of twelve months or less from the date
of acquisition issued or fully and unconditionally guaranteed by any state,
commonwealth or territory of the United States, or by any political subdivision
or taxing authority thereof, and rated at least "A" by Standard & Poor's or
Moody's Investors Service, Inc.
"Total Common Equity" of any Person means, as of any day of determination,
the product of (i) the aggregate number of outstanding shares of Common Stock of
such Person on such day (which shall not include any options or warrants on, or
securities convertible or exchangeable into, shares of Common Stock of such
person) and (ii) the average Closing Price of such Common Stock over the 20
consecutive Trading Days immediately preceding such day. For purposes of
calculating Total Common Equity on the Trading Day immediately following an
event described under "Change of Control," the average closing price shall be
equal to the Closing Price on such Trading Day. If no Closing Price exists with
respect to shares of any such class, the value of such shares for purposes of
clause (ii) of the preceding sentence shall be determined by a nationally
recognized independent investment banking firm.
"Trading Day" with respect to a securities exchange or automated quotation
system, means a day on which such exchange or system is open for a full day of
trading.
"Transaction Date" means, with respect to the Incurrence of any
Indebtedness by the Company or any of its Restricted Subsidiaries, the date such
Indebtedness is to be Incurred and, with respect to any Restricted Payment, the
date such Restricted Payment is to be made.
"TIA" or "Trust Indenture Act" means the Trust Indenture Act of 1939, as
amended (15 U.S. Code sec.sec. 77aaa-77bbb), as in effect on the date the
Indenture was executed.
"Unrestricted Subsidiary" means (i) any Subsidiary of the Company that at
the time of determination shall be designated an Unrestricted Subsidiary by the
Board of Directors in the manner provided below and (ii) any Subsidiary of such
an Unrestricted Subsidiary. The Board of Directors may, at the time of
acquisition or formation, designate any Subsidiary of the Company which has been
either newly acquired or newly formed after the date of the Indenture to be an
Unrestricted Subsidiary unless such Subsidiary owns any Capital Stock of, or
owns or holds any Lien on any property of, the Company or any Restricted
Subsidiary; provided that (i) either (A) the Subsidiary to be so designated has
total assets of $1,000 or less or (B) if such Subsidiary has assets greater than
$1,000, that such designation would be permitted under the "Limitation on
Restricted Payments" covenant described above and (ii) the holders of any
permitted Indebtedness of such Subsidiary do not have direct or indirect
recourse against the Company or any Restricted Subsidiary of the Company and
neither the Company nor any Restricted Subsidiary of the Company otherwise has
any liability
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for any payment obligations in respect of such Indebtedness. The Board of
Directors may designate any Unrestricted Subsidiary to be a Restricted
Subsidiary of the Company; provided that immediately after giving effect to such
designation (x) the Company could Incur $1.00 of additional Indebtedness under
the first paragraph of the "Limitation on Indebtedness" covenant described above
and (y) no Default or Event of Default shall have occurred and be continuing.
Any such designation by the Board of Directors shall be evidenced to the Trustee
by promptly filing with the Trustee a copy of the Board Resolution giving effect
to such designation and an Officers' Certificate certifying that such
designation complied with the foregoing provisions.
"U.S. Government Obligations" means securities that are (i) direct
obligations of the United States of America for the payment of which its full
faith and credit is pledged or (ii) obligations of a Person controlled or
supervised by and acting as an agency or instrumentality of the United States of
America the payment of which is unconditionally guaranteed as a full faith and
credit obligation by the United States of America, which, in either case, are
not callable or redeemable at the option of the issuer thereof at any time prior
to the Stated Maturity of the Notes, and shall also include a depository receipt
issued by a bank or trust company as custodian with respect to any such U.S.
Government Obligation or a specified payment of interest on or principal of any
such U.S. Government Obligation held by such custodian for the account of the
holder of a depository receipt; provided that (except as required by law) such
custodian is not authorized to make any deduction from the amount payable to the
holder of such depository receipt from any amount received by the custodian in
respect of the U.S. Government Obligation or the specific payment of interest on
or principal of the U.S. Government Obligation evidenced by such depository
receipt.
"Voting Stock" means, with respect to any Person, Capital Stock of any
class or kind ordinarily having the power to vote for the election of directors,
managers or other voting members of the governing body of such Person.
"Wholly Owned" means, with respect to any Subsidiary of any Person, such
Subsidiary if all of the outstanding Capital Stock in such Subsidiary (other
than any director's qualifying shares or Investments by foreign nationals
mandated by applicable law) is owned by such Person or one or more Wholly Owned
Subsidiaries of such Person.
BOOK-ENTRY, DELIVERY AND FORM
Except as set forth below, the Notes will initially be issued in the form
of one or more Global Notes (the "Global Note") held in book-entry form. The
Global Note will be deposited on the Closing Date with, or on behalf of, The
Depository Trust Company ("DTC" or the "Depository") and registered in the name
of Cede & Co., as nominee of the Depository (such nominee being referred to
herein as the "Global Note holder").
DTC has advised the Company that it is a limited-purpose trust company that
was created to hold securities for its participating organizations
(collectively, the "Participants" or the "Depository's Participants") and to
facilitate the clearance and settlement of transactions in such securities
between Participants through electronic book-entry changes in accounts of its
Participants. The Depository's Participants include securities brokers and
dealers (including the Underwriters), banks and trust companies, clearing
corporations and certain other organizations. Access to the Depository's system
is also available to other entities such as banks, brokers, dealers and trust
companies (collectively, the "Indirect Participants" or the "Depository's
Indirect Participants") that clear through or maintain a custodial relationship
with a Participant, either directly or indirectly. Persons who are not
Participants may beneficially own securities held by or on behalf of the
Depository only through the Depository's Participants or the Depository's
Indirect Participants.
The Company has been advised by the Depository that (i) upon deposit of the
Global Note, the Depository will credit the accounts of Participants designated
by the Underwriters with portions of the principal amount of the Global Note and
(ii) ownership of the Notes evidenced by the Global Note will be shown on, and
the transfer of ownership thereof will be effected only through, records
maintained by the Depository (with respect to the interests of the Depository's
Participants), the Depository's Participants and the Depository's Indirect
Participants. Prospective purchasers are advised that the laws of some states
require
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that certain persons take physical delivery in definitive form of securities
that they own. Consequently, the ability to transfer Notes evidenced by the
Global Note will be limited to such extent.
So long as the Global Note holder is the registered owner of any Notes, the
Global Note holder will be considered the sole holder under the Indenture of any
Notes evidenced by the Global Note. Beneficial owners of Notes evidenced by the
Global Note will not be considered the owners or holders thereof under the
Indenture for any purpose, including with respect to the giving of any
directions, instructions or approvals to the Trustee thereunder. Neither the
Company nor the Trustee will have any responsibility or liability for any aspect
of the records of the Depository or for maintaining, supervising or reviewing
any records of the Depository relating to the Notes.
Payments in respect of the principal of, premium, if any, and interest on
any Notes registered in the name of the Global Note holder on the applicable
record date will be payable by the Trustee to or at the direction of the Global
Note holder in its capacity as the registered holder under the Indenture. Under
the terms of the Indenture, the Company and the Trustee may treat the persons in
whose names the Notes, including the Global Note, are registered as the owners
thereof for the purpose of receiving such payments. Consequently, neither the
Company nor the Trustee has or will have any responsibility or liability for the
payment of such amounts to beneficial owners of the Notes (including principal,
premium, if any, or interest). The Company believes, however, that it is
currently the policy of the Depository to immediately credit the accounts of the
relevant Participants with such payments, in amounts proportionate to their
respective holdings of beneficial interests in the relevant security as shown on
the records of the Depository. Payments by the Depository's Participants and the
Depository's Indirect Participants to the beneficial owners of the Notes will be
governed by standing instructions and customary practice and will be the
responsibility of the Depository's Participants or the Depository's Indirect
Participants.
CERTIFICATED SECURITIES
Subject to certain conditions, any person having a beneficial interest in
the Global Note may, upon request to the Trustee, exchange such beneficial
interest for Notes in the form of Certificated Notes. Upon any such issuance,
the Trustee is required to register such Certificated Notes in the name of, and
cause the same to be delivered to, such person or persons (or the nominee of any
thereof). In addition, if (i) the Company notifies the Trustee in writing that
the Depository is no longer willing or able to act as a depository and the
Company is unable to locate a qualified successor within 90 days or (ii) the
Company, at its option, notifies the Trustee in writing that it elects to cause
the issuance of Notes in the form of Certificated Notes under the Indenture,
then, upon surrender by the Global Note holder of its Global Note, Notes in such
form will be issued to each person that the Global Note holder and the
Depository identify as being the beneficial owner of the related Notes.
Neither the Company nor the Trustee will be liable for any delay by the
Global Note holder or the Depository in identifying the beneficial owners of
Notes and the Company and the Trustee may conclusively rely on, and will be
protected in relying on, instructions from the Global Note holder or the
Depository for all purposes.
SAME-DAY SETTLEMENT AND PAYMENT
The Indenture will require that payments in respect of the Notes (including
principal, premium, if any, and interest) be made in immediately available
funds.
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DESCRIPTION OF THE WARRANTS
GENERAL
The Warrants are to be issued under a Warrant Agreement (the "Warrant
Agreement") between the Company and United States Trust Company of New York, as
Warrant Agent (the "Warrant Agent"). The following summaries of certain
provisions of the Warrant Agreement do not purport to be complete and are
subject to, and are qualified in their entirety by reference to, all the
provisions of the Warrants and the Warrant Agreement.
Each Warrant initially will entitle the registered holder thereof (the
"holder"), subject to and upon compliance with the provisions thereof and of the
Warrant Agreement, at such holder's option, prior to 5:00 P.M., New York City
time, on the Expiration Date, to purchase at a price of $0.01 per Warrant (the
"Exercise Price") from the Company one (or such other number as may result from
adjustments as provided in the Warrant Agreement) share of Class B Common Stock.
The Class B Common Stock issuable upon exercise of the Warrants collectively
will represent approximately 2.0% of the Company's outstanding Common Stock on a
fully diluted basis. THE AGGREGATE NUMBER OF WARRANTS SET FORTH HEREIN IS AN
ESTIMATE ONLY AND IS SUBJECT TO CHANGE PRIOR TO ISSUANCE. As of July 1, 1996,
the Company had issued warrants to acquire 1,313 shares of the Class B Common
Stock.
Subject to the terms and conditions established in the Warrant Agreement,
unless exercised the Warrants will expire at 5:00 p.m., New York time, on the
earliest to occur of (i) 180 days after an Exercise Event (as defined below) and
(ii) , 2006 (the "Expiration Date"). Each Warrant may be exercised on
any business day on or after the Exercisability Date (as defined below) and on
or prior to the Expiration Date. Any Warrant not exercised before the close of
business on the Expiration Date shall become void, and all rights of the holder
under the Warrant Certificate evidencing such Warrant and under the Warrant
Agreement shall cease.
Subject to the terms of the Warrant Agreement, the Warrant Certificates
evidencing the Warrants may be surrendered for exercise or exchange, and the
transfer of Warrant Certificates will be registrable, at the office or agency of
the Company maintained for such purpose, which initially will be the corporate
trust office of the Warrant Agent in New York, New York. The Warrant
Certificates will be issued either in global form or physical form as definitive
Warrant Certificates. No service charge will be made for any exercise, exchange
or registration of transfer of Warrant Certificates, but the Company may require
payment of a sum sufficient to cover any tax or other governmental charge
payable in connection therewith.
In general, holders of Warrants will not be entitled, by virtue of being
such holders, to receive notice of any meetings of stockholders or otherwise
have any rights of stockholders of the Company. However, if at any time the
Company (i) grants, issues or sells options, convertible securities, or rights
to purchase stock, warrants or other securities pro rata to the record holders
of the Common Stock (the "Distribution Rights") or (ii) without duplication,
makes any dividend or otherwise makes any distribution (a "Distribution") on
shares of the Common Stock, then the Company will grant, issue, sell or make to
each registered holder of Warrants the aggregate Distribution Rights or
Distribution, as the case may be, which such holder would have acquired if such
holder had held the maximum number of shares of Common Stock acquirable upon
complete exercise of each holder's Warrants immediately before the date as of
which the record holders of Common Stock are to be determined for the grant,
issue or sale of such Distribution Rights or Distribution, as the case may be.
The number of shares of Common Stock issuable upon exercise of a Warrant
(the "Exercise Rate") is subject to adjustment from time to time upon the
occurrence of certain events, including certain (a) subdivisions, combinations
or certain reclassifications of the Common Stock and (b) sales by the Company of
Common Stock or of securities convertible into or exchangeable or exercisable
for Common Stock (other than (1) pursuant to the exercise of the Warrants, (2)
any security convertible into, or exchangeable or exercisable for, Common Stock
as to which the issuance thereof has previously been the subject of any required
adjustment pursuant to the Warrant Agreement and (3) grants to employees of
options to purchase shares of Common Stock in the ordinary course of business in
accordance with past
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practice) at a price per share less than the Current Market Value (as defined
below) at the time and date of the determination of stockholders entitled to
receive such rights (the "Time of Determination").
The Warrant Agreement permits the Company voluntarily to increase the
Exercise Rate from time to time for a period of time not less than 20 business
days.
If the Company is a party to a consolidation, merger or binding share
exchange, or certain transfers of all or substantially all of its assets occur,
the right to exercise a Warrant for Class B Common Stock may be changed into a
right to receive securities, cash or other assets of the Company or another
person which such holder would have received immediately after such transaction
if such holder had exercised the Warrant immediately before the effective date
of such transaction.
The Warrant Agreement permits, with certain exceptions, the amendment
thereof and the modification of the rights and obligations of the Company and
the rights of the holders of Warrant Certificates under the Warrant Agreement at
any time by the Company and the Warrant Agent with the consent of the holders of
Warrant Certificates representing a majority in number of the then outstanding
Warrants.
WARRANT EXERCISE
Warrants may be exercised on or after the Exercisability Date and on or
prior to the Expiration Date by surrendering the Warrant Certificate evidencing
such Warrants with the form of election to purchase Class B Common Stock set
forth on the reverse side thereof duly completed and executed by the holder
thereof and paying in full the Exercise Price for such Warrant at the office or
agency designated for such purpose, which will initially be the corporate trust
office of the Warrant Agent in New York, New York. Each Warrant may only be
exercised in whole and the Exercise Price may be paid only in cash or by
certified or official bank check or through the surrender of unexercised
Warrants.
Upon the occurrence of an Exercise Event, the Company shall (i) send
promptly to each holder of Warrants, by first class mail at the addresses
appearing on the Warrant Register, a notice of such Exercise Event, which notice
shall describe the type of Exercise Event and the date of the occurrence thereof
and (ii) cause a notice of such Exercise Event to be published in the Wall
Street Journal, National Edition, for two consecutive business days, which
notice shall identify the Warrants, describe the type of Exercise Event and the
date of the occurrence thereof.
Fractional shares of Common Stock are not required to be issued upon
exercise of Warrants, but in lieu thereof the Company will pay a cash
adjustment.
NOTWITHSTANDING THE FOREGOING, THE EXERCISE OF THE WARRANTS (AND THE
OWNERSHIP OF CLASS B COMMON STOCK ISSUABLE UPON THE EXERCISE THEREOF) MAY BE
LIMITED BY THE COMPANY IN ORDER TO ENSURE COMPLIANCE WITH THE FCC'S RULES, AND
THE WARRANTS WILL NOT BE EXERCISABLE BY ANY HOLDER IF SUCH EXERCISE WOULD CAUSE
THE COMPANY TO BE IN VIOLATION OF THE COMMUNICATIONS ACT OR THE FCC'S RULES,
REGULATIONS OR POLICIES. SEE "RISK FACTORS -- GOVERNMENT REGULATION; POSSIBLE
LOSS OF LICENSES." In the event the Company is restricted by the Communications
Act or the FCC's rules, regulations or policies from issuing Warrant Shares upon
exercise of any Warrants, the Company shall be required to pay to each holder of
each Warrant seeking to exercise such Warrant an amount per Warrant in cash
equal to the Current Market Value thereof as of the date of such proposed
exercise as set forth below under "Offer to Repurchase."
"Common Stock" means both the Class A Common Stock, par value $1.00 per
share, and the Class B Common Stock of the Company, par value $1.00 per share,
and any other capital stock of the Company into which such Common Stock may be
converted or reclassified or that may be issued in respect of, in exchange for,
or in substitution for, such Common Stock by reason of any stock splits, stock
dividends, distributions, mergers, consolidations or other like events.
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"Exercisability Date" is defined in the Warrant Agreement as the date of
occurrence of any Exercise Event, provided that if an Exercise Event occurs
prior to the Separability Date, the Separability Date shall instead be the
Exercisability Date.
"Exercise Event" means, with respect to each Warrant as to which such event
is applicable, the date of the earliest of: (1) the occurrence of a Change of
Control (which definition is identical to the definition of "Change of Control"
set forth above under "Description of the Notes -- Definitions", except that the
proviso to such definition under "Description of the Notes" is not included in
such definition), (2) the consummation of a Public Equity Offering (as defined
herein) after which there shall exist a Public Market (as defined herein) and
(3) , 2006.
"Separability Date" is defined in the Warrant Agreement to mean the
earliest to occur of: (i) , 1996, (ii) such earlier date as may be
determined by Lehman Brothers Inc. and specified to the Company, the Trustee,
the Warrant Agent and the Unit Agent in writing, (iii) the occurrence of a
Change of Control and (iv) in the event of an Offer to Purchase in connection
with any Asset Sale (each as defined herein), the date the Company mails notice
thereof to the holders of the Notes, at which time the Notes and the Warrants
will become separately transferable.
"Public Equity Offering" means a primary public offering (whether or not
underwritten, but excluding any offering pursuant to Form S-4 or S-8 under the
Securities Act) of Common Stock of the Company pursuant to an effective
registration statement under the Securities Act.
"Public Market" means any time after (x) a Public Equity Offering has been
consummated and (y) at least 20% of the total issued and outstanding Common
Stock of the Company has been distributed by means of an effective registration
statement under the Securities Act.
The Company has agreed to file and to use its best efforts to make
effective by the Exercisability Date a shelf registration statement on an
appropriate form covering the issuance of the Warrant Shares, unless an
exemption from the registration requirements under the Securities Act is then
available for the issuance of such Warrant Shares. The Company will keep such
registration statement effective until the Expiration Date of the Warrants.
OFFER TO REPURCHASE
Upon the occurrence of an Exercise Event, the Company shall have the right
to make an offer to purchase all outstanding Warrants and Warrant Shares in
cash, within 120 days after such Exercise Event, at a price equal to the Current
Market Value thereof. In the event the Company makes any such offer the Company
shall have selected an Independent Financial Expert reasonably satisfactory to a
majority of the holders of Warrants and Warrant Shares prior to 90 days before
the Expiration Date. If the Company has not selected an Independent Financial
Expert prior to 90 days before the Expiration Date, then a majority of the
holders of Warrants and Warrant Shares shall have the right to select one at the
expense of the Company.
"Current Market Value" per share of Class B Common Stock or any other
security at any date means (1) if the security is not registered under the
Exchange Act, the value of the security determined as of such date by such
Independent Financial Expert and approved by the Board of Directors of the
Company, or (2) if the security is registered under the Exchange Act, the
average of the daily closing bid prices for each business day during the period
commencing 15 business days before such date and ending on the date one day
prior to such date or, if the security has been registered under the Exchange
Act for less than 15 consecutive business days before such date, then the
average of the daily closing bid prices for all of the business days before such
date for which daily closing bids prices are available. If the closing bid price
is not determinable for at least 10 business days in such period, the Current
Market Value of the security shall be determined as if the security was not
registered under the Exchange Act. Current Market Value with respect to a
Warrant means the Current Market Value of a Warrant Share and all other property
acquirable upon exercise in full of such Warrant. Current Market Value shall be
determined without any discount for lack of liquidity, the amount of Class B
Common Stock proposed to be sold or the fact that the Warrant Shares or Class B
Common Stock held may represent a minority interest in a private company.
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"Independent Financial Expert" means a nationally recognized investment
banking firm which is not an affiliate of the Company.
REGISTRATION RIGHTS
The Company and the Underwriters will enter into a Class B Common Stock and
Warrant Registration Rights Agreement (the "Warrant Registration Rights
Agreement") with respect to the Warrant Shares. The Warrant Registration Rights
Agreement will provide among other things, that the Underwriters and persons to
whom Warrant Shares are transferred will have the registration rights with
respect to the Warrant Shares described below.
Holders of Warrant Shares will have the demand registration rights
described in this paragraph only following the occurrence of an Exercise Event.
After the occurrence of an Exercise Event, the holders of at least 25% of the
outstanding Warrant Shares will be entitled to require the Company to use its
best efforts to effect one registration under the Securities Act of such Warrant
Shares (a "Demand Registration"), subject to certain limitations, unless an
exemption from the registration requirements of the Securities Act is then
available for the sale of the Warrant Shares. Upon a demand, the Company will
prepare, file and use its best efforts to cause to be effective within 120 days
of such demand a registration statement in respect of all of the Warrant Shares;
provided, that in lieu of filing such registration statement the Company may
make an offer to purchase all of the Warrant Shares at the Current Market Value
per share thereof.
Holders of Warrant Shares will also have the right to include such Warrant
Shares in any registration statement under the Securities Act filed by the
Company for its own account or for the account of any of its securityholders
(other than a registration statement on Form S-4 or S-8) for sale on the same
terms and conditions as the securities of the Company or any other selling
securityholder included therein (a "Piggy-Back Registration"), unless an
exemption from the registration requirements of the Securities Act is then
available for the sale of the Warrant Shares. In the case of a Piggy-Back
Registration, the number of Warrant Shares requested to be included therein is
subject to reduction to the extent that the Company is advised by the managing
underwriter therefor that the total number of shares proposed to be included
therein is such as to materially and adversely affect the success of the
offering.
The Warrant Registration Rights Agreement will include customary covenants
on the part of the Company and will provide that the Company will indemnify the
holders of Warrant Shares included in any registration statement and any
underwriter with respect thereto against certain liabilities.
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DESCRIPTION OF CAPITAL STOCK
COMMON STOCK
General
The Company is authorized to issue two classes of Common Stock, designated
"Class A Common Stock" and "Class B Common Stock". The Company is authorized to
issue up to 500,000 shares of Common Stock in the aggregate. Of that amount, up
to 300,000 shares may be shares of Class A Common Stock, par value $1.00 per
share, and up to 200,000 shares may be shares of Class B Common Stock, par value
$1.00 per share. As of July 1, 1996, there were issued and outstanding 8,718
shares of Class A Common Stock and 28,482 shares of Class B Common Stock each
held of record by 26 stockholders.
The holders of shares of Class A Common Stock are entitled to one vote for
each share held on all matters as to which stockholders are entitled to vote.
Shares of Class B Common Stock confer on the holders thereof no right to vote
except with respect to each of the matters listed in items (i) through (xiv)
below, as to which each holder is entitled to one vote for each share of Class B
Common Stock held, voting together with the holders of the Class A Common Stock
as a single class with respect to each such matter. The affirmative vote or
consent of the holders of two-thirds or more of the outstanding shares of Common
Stock is required to:
(i) alter or change the rights, preferences or privileges of the Class
A Common Stock or Class B Common Stock or increase the authorized number of
shares thereof;
(ii) authorize or issue any Common Stock, any debt or equity security
convertible into Common Stock or any rights or options to purchase Common
Stock or any debt or equity securities convertible into Common Stock (other
than (i) pursuant to or as permitted by the Common Stockholders Agreement
or (ii) pursuant to rights generally granted to employees, either directly
or pursuant to employee benefit plans, in each case, with the approval of
the Board of Directors and a two-thirds vote of the holders of the Class A
Common Stock and, if applicable, in accordance with waivers obtained from
the FCC with respect to the application to such employees of its rules and
regulations pertaining to Designated Entity status);
(iii) authorize or issue any new class or series of stock, any debt or
equity security convertible into any new class or series of stock or any
rights or options to purchase the same;
(iv) amend or restate the certificate of incorporation or bylaws of
the Company;
(v) effect the sale, merger, consolidation, recapitalization or
reorganization of the Company or any subsidiary thereof which would result
in a change of control of the Company or a sale of all or substantially all
of the assets of the Company;
(vi) repurchase or otherwise acquire shares of Common Stock or other
securities of the Company (other than (i) pursuant to the Common
Stockholders Agreement, (ii) pursuant to the terms of employee benefit
plans approved by the Board of Directors or (iii) in connection with the
cessation of the employment of employees or former employees of the
Company, in each case not to exceed $500,000 in the aggregate during any
fiscal year);
(vii) change the number of directors prescribed in the bylaws of the
Company;
(viii) effect any issuances of stock or any securities convertible
into or exchangeable for stock by any subsidiary of the Company;
(ix) change the line of business engaged in by the Company or any of
its subsidiaries in any material fashion;
(x) incur any indebtedness for borrowed money or any financing leases
in any fiscal year in excess of $2 million in the aggregate; incur or
approve any capital expenditures in any fiscal year in excess of $2 million
in the aggregate; or pledge, encumber, purchase, sell or otherwise transfer
or dispose of any assets of the Company or any subsidiary (other than in
the ordinary course of business) in any fiscal year
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in excess of $500,000 in the aggregate; provided that nothing shall
restrict the Company from incurring such indebtedness, leases or capital
expenditures or effecting any such transfer or disposition referred to
above if in accordance with a business plan (which business plan shall have
been approved as provided in clause (xii) below) then in effect for such
fiscal year;
(xi) liquidate or dissolve the Company (other than pursuant to the
Common Stockholders Agreement);
(xii) approve the business plan each year and any material changes
during the year as submitted to the Stockholders of the Company by the
Board of Directors in accordance with the Common Stockholders Agreement;
(xiii) create any committees of the Board of Directors that are
delegated power or authority of the Board of Directors except the Finance
Committee, the Compensation Committee and the Corporate Opportunity
Committee; or
(xiv) take any action or cause to suffer the occurrence of any event
which, in the opinion of FCC Counsel to the Company, would result in the
loss of or materially jeopardize the Company's status as a Designated
Entity.
Common Stockholders Agreement
Certain of the rights and obligations of the holders of the Common Stock of
the Company are governed by the Stockholders Agreement dated as of November 14,
1994 and subsequently amended (as amended, the "Common Stockholders Agreement")
among the Company and the holders of the Common Stock party thereto (the "Common
Stockholders"). The shares of Common Stock underlying the Preferred Stock (as
defined below), and the shares of Common Stock for which the Warrants may be
exercised, will be subject, upon issuance, to rights and restrictions set forth
in the Common Stockholders Agreement. The Common Stockholders Agreement is
summarized below, which is qualified in its entirety by reference to the
complete text of the Common Stockholders Agreement.
Stock Transfer Restrictions. A Common Stockholder may transfer his, her or
its Common Stock only if the transfer complies with the provisions in the Common
Stockholders Agreement. If the proposed transferee is a "Permitted Transferee"
(as defined below), then the following requirements apply:
(i) the Common Stockholder proposing to make the transfer must give
written notice to the Company of the proposed transfer, identifying the
proposed transferee;
(ii) in the opinion of counsel satisfactory to the Company, the
proposed transfer must not violate the registration requirements under the
Securities Act or state securities laws;
(iii) the transfer, in the reasonable opinion of special FCC counsel
to the Company, must not result in the loss of or materially jeopardize the
Designated Entity status of the Company;
(iv) the transfer must not cause a transfer of control by the Company
under FCC rules and regulations (other than a transfer specifically
contemplated by the Common Stockholders Agreement); and
(v) the transferee must execute and deliver to the Company a written
instrument, in form and substance reasonably satisfactory to the Company,
acknowledging the receipt of a copy of the Common Stockholders Agreement
and agreeing to comply with and be bound by it.
In the case of a Common Stockholder that is a corporation or partnership, a
"Permitted Transferee" is a general or limited partner, stockholder, beneficial
owner, equity holder or subsidiary or subsidiaries of such Common Stockholder.
For this purpose, a "subsidiary" means any corporation, partnership, joint
venture, trust or estate of which (or in which) the Common Stockholder owns or
controls directly or indirectly 50% or more of (i) the voting stock with power
to elect a majority of the directors, (ii) the capital and profit and loss
interests of a partnership or joint venture or (iii) the beneficial interests of
a trust or estate.
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If the proposed transferee is not a "Permitted Transferee," then, in
addition to the above requirements, the transfer notice must set forth all of
the terms and conditions of the proposed transfer, the transferor and the
transferee must notify the Company of completion of the transfer, and the rights
of co-sale and rights in the case of the sale of the business, as described in
the following two paragraphs, will apply.
Co-Sale Rights and Requirements. If Common Stock is to be transferred to a
Person other than a Permitted Transferee by a holder of 5% or more of the Common
Stock and such stock constitutes one-third or more of the Common Stock owned by
such Person, then the Company shall notify all other Common Stockholders and all
other holders of the Preferred Stock (the "Preferred Stockholders" and
collectively, the "Stockholders") of the transfer. Such other Stockholders shall
then have the option to participate in the contemplated transfer by selling, at
the same price and on the same terms as the proposed transfer, a proportionate
number of their shares of Common Stock based on the relative holdings of those
Stockholders electing to sell (on an as-if-converted basis). The Common
Stockholders and Preferred Stockholders may exercise their options to
participate in such transfer by giving notice to the transferor and to the
Company within thirty days after receipt of notice from the Company.
Notwithstanding the foregoing, no Common Stockholder may obtain a majority of
the Common Stock or of the Class A Common Stock in the Company by acquiring
Common Stock from the other Common Stockholders in a single transaction or
series of related transactions unless the acquiring Stockholder offers to
acquire on identical terms and conditions Common Stock from the other
stockholders in proportion to their relative shareholdings.
In the event that a bona fide offer of any type, other than an offer by a
Common Stockholder or any Permitted Transferee of a Common Stockholder or any
affiliate thereof, is made to purchase the business of the Company, including
without limitation a proposed merger or consolidation, an offer to purchase more
than 50% of the Common Stock or an offer to purchase all or substantially all of
the assets of the Company, then, if Stockholders with an aggregate holding of
two-thirds or more of the Common Stock and Preferred Stock, voting together as a
single class on an as-if-converted basis, approve the offer, all of the Common
Stockholders are required to consent to and participate on a pro rata basis in
the transaction approved by such two-thirds majority.
Conversion of Class B Common Stock. The Common Stockholders Agreement
allows the holders of the Class B Common Stock to exchange such Class B Common
Stock for an equal number of shares of Class A Common Stock immediately upon and
after the consummation of an Initial Public Offering (as defined below).
Voting Requirements. The Common Stockholders Agreement contains provisions
identical to the voting requirements discussed above under "-- General." In
addition, the Common Stockholders Agreement provides that decisions by the Board
of Directors shall be by majority vote, except that not less than two-thirds of
the total number of directors then in office must vote in favor of the following
actions if such actions are to be duly authorized:
(i) hiring, terminating or materially changing the compensation and
benefits of any key employee of the Company;
(ii) engaging in any transactions with a Stockholder or any affiliate
thereof other than pursuant to agreements specifically referenced in the
Common Stockholders Agreement;
(iii) approving and submitting to the Stockholders the business plan
each year and any material changes during the year, as submitted to the
Board of Directors by the Finance Committee or as developed by the Board of
Directors itself absent a timely submission by the Finance Committee all in
accordance with the Common Stockholders Agreement; or
(iv) changing the accounting or reporting systems in any material
manner from that previously approved by the Stockholders.
Directors. The Board of Directors of the Company consists of 17 directors.
The holders of the Class A Common Stock have agreed to elect the directors of
the Company from designees selected by the
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Stockholders as prescribed in the Common Stockholders Agreement. The following
is a list of the present designees of such Stockholders and the number of
directors such Stockholders are entitled to designate:
<TABLE>
<CAPTION>
NUMBER OF
STOCKHOLDER DIRECTORS DESIGNEE
------------------------------------------------------ --------- -------------------
<S> <C> <C>
Paging Company Investors:
A+ Network(1)....................................... 1 Elliott H. Singer
Arch Communications(2).............................. 1 C.E. Baker, Jr.
Board Designee(3)..................................... 1 Stan F. Sech
Venture Capital Funds:
Austin Ventures..................................... 1 Jeffery C. Garvey
Battery Ventures III, L.P. ......................... 1 Richard D. Frisbie
Marquette Venture Partners.......................... 1 James E. Daverman
Memorial Drive Trust................................ 1 R. Schorr Berman
Control Group:
Dobson Family Corp.................................. 1 Vacant
Sloan LP(4)......................................... 8 Maceo K. Sloan
Steven J. Lerner
Cecil L. Duffie
William D. deKay
Malcolmn Pryor
Justin F. Beckett
Pamela R. Simmons
Vacant
Holders of Series A Preferred Stock................... 1 James D. Kallman
--
Total....................................... 17
========
</TABLE>
- ---------------
(1) A+ Network has entered into a definitive agreement to be acquired by
Metrocall that will result in the merger of A+ Network into Metrocall.
Under the Common Stockholders Agreement, a stockholder who has the right to
designate a director and who sells, assigns, conveys or otherwise transfers
its Common Stock by operation of law or otherwise loses its right to
designate a director. Accordingly, upon the consummation of the merger of
A+ Network into Metrocall, A+ Network will lose its right to designate a
director to PCSD's Board. Under the Common Stockholders Agreement, open
board seats created by the termination of a Paging Company Investor's right
to designate a director shall be filled by an individual designated by the
Board who is employed by or associated with the remaining Paging Company
Investor, if any, or another person otherwise experienced in the
telecommunications industry.
(2) On or about May 20, 1996, Arch Communications acquired the stock of Westlink
Holdings, Inc. ("Westlink") which owns 49.9% of the outstanding stock of
Benbow PCS Ventures, Inc., ("Benbow"), which owns two 50 kHz/12.5 kHz
regional narrowband PCS licenses. Westlink also has a five-year management
agreement with Benbow under which Westlink is responsible for the
day-to-day operations of Benbow. In addition, Arch Communications has
notified the Company that it plans to transfer all of the Common Stock of
the Company owned by Arch Communications to its wholly-owned subsidiary,
Arch Communications Enterprises, Inc. ("ACE"). As a result of the closing
of the Westlink acquisition and the transfer of the PCSD Common Stock to
ACE, Arch Communications has lost its right to designate a director to
PCSD's Board and Mr. Baker is required to resign from PCSD's Board. Under
the Common Stockholders Agreement, open Board seats created by the
termination of a Paging Company Investor's right to designate a director
shall be filled by an individual designated by the Board who is employed by
or associated with the remaining Paging Company Investor, if any or another
person otherwise experienced in the telecommunications industry.
(3) Holders of the Class A Common Stock have agreed to vote their shares for an
individual designated by the Company's Board of Directors who shall be
employed by or associated with either Arch Communications, A+ Network or
another company in the wireless telecommunications industry.
(4) These eight directors will be designated by either Sloan LP or SCI, or
jointly by them.
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Except as provided in the following paragraph, the number of directors can be
changed by an amendment to the Company's bylaws. Such amendment requires a vote
of the holders of two-thirds of the outstanding shares of Common Stock and
Series A Preferred Stock, voting together as a single class.
If for any reason a designee is unable to continue serving as a director,
then the Stockholders shall immediately vote their Class A Common Stock, if
necessary, in such a manner as to fill the vacancy with another nominee
designated by the Stockholder who designated the former director. In the event a
Stockholder who has the right to designate a director or directors to the
Company's Board of Directors (1) does not continue to hold at least 1% of the
then total equity of the Company, (2) sells, assigns, conveys or otherwise
transfers the Common Stock by operation of law or otherwise or (3) becomes a
competitor or associated with a competitor, then its right to designate a
director shall cease. Open Board seats created by the termination of a Paging
Company Investor's right to designate a director as described above will be
filled by an individual designated by the Board of Directors who is employed by
or associated with the remaining Paging Company Investor or another person
otherwise experienced in the telecommunications industry. Other vacancies
created by the termination of other Stockholder rights to designate directors
will be filled by a majority of the votes of the Stockholders voting their Class
A Common Stock. In addition, the holders of the Preferred Stock (the "Series A
Preferred Stockholders") will lose their right to designate a director when (i)
less than one-third of the shares of Preferred Stock are outstanding or (ii)
more than 50% of the shares of Preferred Stock become owned, directly or
indirectly, by a competitor or an affiliate of a competitor (as each is defined
in the Certificate of Designations for the Preferred Stock). Upon the occurrence
of either of these events, Sloan LP will also lose the right to designate one of
its eight directors, and the two vacancies on the Board of Directors created
thereby will be filled by a majority of the votes of the Stockholders voting
their Class A Common Stock for persons who are not affiliated with the Company
or any of its Stockholders.
Finance Committee; Annual Business Plan. The Common Stockholders Agreement
provides that the Board of Directors shall establish a Finance Committee
consisting of seven members to be designated as follows:
- One member shall be selected by the designees to the Board of SCI, or of
Sloan LP to extent SCI has transferred its rights to designate directors
of the Company to Sloan LP.
- One member shall be selected by the designees of Arch Communications and
A+ Network.
- One member shall be selected by the Chief Executive Officer of the
Company.
- Two members shall be selected by the designees of Austin Ventures,
Marquette Ventures Partners Battery Ventures III, L.P. and Memorial Drive
Trust.
- Two members shall be selected by the designee of the Series A Preferred
Stockholders.
The Common Stockholders Agreement provides that the Company's annual
business plan is to be developed by the Finance Committee, submitted to the
Board of Directors for approval by a two-thirds vote of the Board of Directors,
and then submitted to the Stockholders (including the Series A Preferred
Stockholders) for approval by a two-thirds vote. If any person or group of
persons loses its right to designate a director of the Company pursuant to the
Common Stockholders Agreement, it will also lose the right to designate a member
of the Finance Committee.
Preemptive Rights. The Common Stockholders Agreement provides that the
Company shall not issue, sell or exchange any shares of Common Stock or any debt
obligation or security convertible into or exchangeable for Common Stock or any
option, warrant or other right to subscribe for, purchase or otherwise acquire
Common Stock or any other equity security of the Company unless, in each case,
the Company first offers to sell to each Common Stockholder such Common
Stockholder's proportionate share of the securities offered at the same price
and on the same terms at which they were proposed to be issued, sold or
exchanged. Such Common Stockholder shall have 30 days after delivery of notice
from the Company to exercise its preemptive rights. If some Common Stockholders
exercise their options, but at least one Common Stockholder does not, then the
Company shall notify the exercising Common Stockholders, who shall have an
additional 15 days to elect to purchase the remaining portion of the securities
offered in proportion to the
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relative shareholdings of the Common Stockholders who have exercised their
options. This procedure shall be repeated until either (i) there is no
additional portion of the securities to be purchased or (ii) no Common
Stockholder elects to purchase the remaining portion of the securities. If the
Common Stockholders fail to exercise their successive rights to purchase all of
such securities, then, within 120 days of such failure, the Company may sell
such securities on the terms and prices specified in the notice of such
offering.
Notwithstanding any other provision of the Common Stockholders Agreement,
the exercise of preemptive rights is forbidden to the extent that, in the
reasonable opinion of special FCC counsel to the Company, it would result in the
loss of or materially jeopardize the Designated Entity status of the Company.
Moreover, the preemptive rights do not apply to the issuance or exercise of
certain options and warrants, the conversion of the Preferred Stock, or the
issuance of stock in an Initial Public Offering or the issuance of the Notes.
Termination. The Common Stockholders Agreement will terminate in the event
that either: (i) the holders of two-thirds of the then outstanding Common Stock
and Series A Preferred Stock, each voting separately as a class, approve
termination or consent to it in writing; or (ii) the Company consummates an
Initial Public Offering. In any event, the provisions of the Common Stockholders
Agreement with respect to voting arrangements and restrictions will terminate no
later than 10 years from the date of the Common Stockholders Agreement in
accordance with applicable law, subject to extension by agreement of the
remaining parties to the Common Stockholders Agreement.
Application to Future Share Issuances. The Common Stockholders Agreement
applies to Common Stock now held and Common Stock that may be acquired in the
future by existing Common Stockholders and their Permitted Transferees,
including Common Stock acquired by existing Common Stockholders and their
Permitted Transferees through the exercise of preemptive rights. The Common
Stockholders Agreement will not apply in any event to additional shares of
Common Stock issued by the Company to Persons other than existing Common
Stockholders and their Permitted Transferees.
The Registration Rights Agreement for Holders of Common Stock
The following is a summary of certain provisions of the Registration Rights
Agreement dated as of November 14, 1994 and subsequently amended (as amended,
the "Common Stockholders Registration Rights Agreement") between the Company and
all of the Common Stockholders of the Company. Such summary is qualified in its
entirety by reference to the complete text of the Common Stockholders
Registration Rights Agreement, a copy of which is available upon request. The
Common Stock underlying the Preferred Stock will be subject, upon issuance, to
rights and restrictions set forth in the Common Stockholders Registration Rights
Agreement.
The Common Stockholders Registration Rights Agreement provides that, on or
after November 14, 1997, the holders of a majority of all shares of the Common
Stock owned by the Common Stockholders and not otherwise registered under the
Securities Act or sold in reliance on an exemption from the registration
requirements of the Securities Act (the "Registrable Securities") may make one
written demand to the Company for registration under the Securities Act of all
or a portion of the Registrable Securities in a public offering that the Company
anticipates will result in gross proceeds to such holders of not less than $10
million and a price of at least $10.00 per share. Upon becoming qualified to use
Form S-3 under the Securities Act, the holders of at least 10% of the
Registrable Securities then outstanding also may make written requests (which
requests may not be made more than once in any twelve-month period) to the
Company for registration of the Registrable Securities on Form S-3 pursuant to
Rule 415 under the Securities Act. The Company must honor these requests, too,
provided that it shall not be required to effect such a registration unless the
holder or holders requesting registration thereunder propose to dispose of
Registrable Securities which they reasonably anticipate to result in gross
proceeds to such holders of not less than $1 million. The holders of the
Registrable Securities also have certain "piggyback" registration rights to
include the Registrable Securities, subject to certain limitations, in other
registration statements filed by the Company.
Whenever the Company effects a registration pursuant to the registration
rights provisions of the Common Stockholders Registration Rights Agreement, the
Company (i) has agreed, and the Common Stockholder parties have agreed if
requested, not to effect any public sale or distribution of securities similar
to
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those being registered, or of any securities convertible into or exchangeable or
exercisable for such securities, for a specified period of time prior to and
after such registration statement becomes effective and (ii) will be required to
pay the cost of such registration of securities, except that each selling
stockholder will bear its pro-rata share of customary underwriting discounts and
commissions, customary fees and expenses of its counsel and applicable transfer
taxes. The Common Stockholders Registration Rights Agreement contains customary
indemnification and contribution provisions relating to the exercise by the
holders of Registrable Securities of their registration rights thereunder. The
Common Stockholders Registration Rights Agreement will apply to the Common Stock
received by holders of the Preferred Stock upon conversion.
PREFERRED STOCK
General
The authorized capital stock of the Company includes 100,000 shares of
preferred stock, par value $1.00 per share. A total of 27,000 of such shares
have been designated "Series A Preferred Stock" and a total of 3,000 of such
shares have been designated "Series B Preferred Stock" (referred to together in
this Prospectus as the "Preferred Stock"). As of July 1, 1996, there were issued
and outstanding 23,600 shares of Series A Preferred Stock held of record by 70
stockholders and 1,067 shares of Series B Preferred Stock held of record by one
stockholder.
The Board of Directors is authorized by the Restated Certificate of
Incorporation of the Company to issue one or more additional series of preferred
stock from time to time, without further stockholder action, in one or more
series and, with respect to each such series, to fix the designation and the
number of shares to be issued, the voting rights of the shares, the dividend
rights, if any, the redemption rights, if any, sinking fund requirements, if
any, rights upon the liquidation, dissolution or winding up of the Company or
upon the distribution of the assets of the Company, the terms of the conversion
or exchange into any other class or series of shares, if provided for, and other
powers, preferences, rights, qualifications, limitations or restrictions
thereof.
The Series A Preferred Stock and Series B Preferred Stock have identical
rights and designations in all respects, except that the holders of the Series B
Preferred Stock shall have no voting rights and their consent shall not be
required for the taking of any corporate action, except to the extent otherwise
required by law. Holders of the Series B Preferred Stock will have the right to
convert any or all of such Series B Preferred Stock into shares of Series A
Preferred Stock on a share-for-share basis upon the occurrence of events
specified in the Certificate of Designations relating to the Preferred Stock.
Conversion into Class B Common Stock
Each holder of shares of the Preferred Stock will have the right,
exercisable at any time and from time to time, to convert all or any such
Preferred Stock into shares of Class B Common Stock, initially on a share-for-
share basis. The conversion ratio of the Preferred Stock is subject to
adjustment in the event of (i) any subdivision or combination of the Common
Stock, (ii) any payment by the Company of a stock dividend to the holders of the
Common Stock or (iii) the issuance of equity or rights to acquire equity at a
price per share less than $2,250 (as adjusted).
If the Company consummates an underwritten public offering of its Class A
Common Stock arranged by a nationally recognized underwriter at a price of at
least $10.00 per share at any time (i) before the fifth anniversary of the
issuance of the Preferred Stock in which the Company receives at least $40
million of net proceeds and reflects at least a $4,500 value per original share
of Preferred Stock, (ii) after the fifth anniversary and prior to the sixth
anniversary of the issuance of the Preferred Stock in which the Company receives
at least $50 million of net proceeds and reflects at least a $5,000 value per
original share of the Preferred Stock, or (iii) at any time after the sixth
anniversary of the issuance of the Preferred Stock in which the Company receives
at least $50 million of net proceeds and reflects a value per original share of
the Preferred Stock equal to the greater of $5,000 or the initial purchase price
plus the Preferred Stock Dividend (each an "Initial Public Offering"), then the
Preferred Stock will be converted automatically into shares of
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the Common Stock which is to be sold in such Initial Public Offering at an
initial conversion rate of one-for-one, subject to adjustment in certain
circumstances.
Liquidation Preference
In the event of any voluntary or involuntary dissolution, winding up, or
liquidation of the Company (including liquidation following the sale or
disposition of substantially all of the Company's assets) or a "change of
control," whether voluntary or otherwise, after payment or provision for payment
of all of the Company's debts and other liabilities, the holders of the
Preferred Stock will be entitled to receive, out of the remaining net assets of
the Company and in preference to the Common Stockholders, the amount of $2,250
for each share of the Preferred Stock, plus the Preferred Stock Dividend, as
defined below (whether or not declared). If, upon any liquidation of the
Company, the assets distributable among the Preferred Stockholders and all other
classes and series of preferred stock ranking (as to any such distribution)
senior to or on a parity with the Preferred Stock are insufficient to permit the
payment in full to the holders of all such shares of all preferential amounts
payable to all such holders, then the entire assets of the Company thus
distributable will be distributed ratably among the Preferred Stockholders and
of all classes and series of preferred stock ranking (as to any such
distribution) on a parity with the Preferred Stock in proportion to the full
preferential amount that would be payable per share if such assets were
sufficient to permit payment in full. If, after payment of a liquidation
preference to Preferred Stockholders and the payment of the per share amount
equal to the liquidation preference on the Preferred Stock to the Common
Stockholders, assets remain in the Company, then all such remaining assets of
the Company shall be distributed to the Preferred Stockholders and the Common
Stockholders on a pro-rata, as-if-converted basis.
The proceeds distributable to the Company's shareholders with respect to a
sale of substantially all of the assets of the Company or a merger or
consolidation of the Company with or into any other entity will be distributed
in the same manner as in a liquidation of the Company unless, with respect to a
merger or consolidation, other arrangements are made in the successor entity for
the protection of the rights granted to the holders of the Preferred Stock.
Conversion into Subordinated Notes
At any time after the ninth anniversary of the issuance of the Preferred
Stock and upon the vote or consent of the holders of not less than 40% of the
shares of the Series A Preferred Stock at the time outstanding all, but not less
than all, of the Preferred Stock shall automatically be converted into
subordinated notes of the Company (the "Subordinated Notes"), provided that the
conversion of the Preferred Stock and the issuance of the Subordinated Notes
does not cause a default or an incipient default under the Indenture. The
Subordinated Notes will be subordinate in right of payment to the prior payment
in full of the Notes and all other indebtedness of the Company that is not by
its terms subordinate to, or pari passu with, the Subordinated Notes and will be
redeemable at the option of the Company in full or in part at any time for the
principal plus accrued interest (and, if redeemed in part, will be acquired from
the holders thereof ratably in accordance with the principal amounts thereof
then held by the holders). The Subordinated Notes will otherwise be payable in
full on , 2007 and will accrue interest at the rate of 10% per
annum, compounded semiannually, payable upon the final scheduled maturity of the
Subordinated Notes.
The only events of default upon the Subordinated Notes will be (i) the
Company's failure to pay principal and interest at their scheduled maturity,
(ii) the occurrence of bankruptcy or certain liquidation events with respect to
the Company and (iii) the declared acceleration of the Notes or other material
indebtedness of the Company following a default thereunder, which acceleration
has not been withdrawn after 10 days.
Upon exercise of this conversion right, each holder will receive, in
exchange for all of the holder's Preferred Stock, Subordinated Notes whose
principal amount will equal the sum of the initial purchase price of the
Preferred Stock plus the Preferred Stock Dividend. This conversion right will
expire upon payment in full of the Notes.
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If and to the extent that the conversion of the Preferred Stock and the
issuance of the Subordinated Notes would cause a default or an incipient default
under the Indenture, then the terms of the Subordinated Notes may be amended
prior to their issuance with the approval of the holders of a majority of the
shares of the Preferred Stock at the time outstanding. Notwithstanding the
foregoing, the Company shall not treat the Preferred Stock as debt (for federal
income tax purposes) so long as the Preferred Stock remains outstanding.
Optional Redemption
The Preferred Stock may be redeemed at the option of the Company, in whole
or in part, on a pro rata basis at any time after the tenth anniversary of the
issuance of the Preferred Stock at a price equal to the purchase price of the
Preferred Stock plus the Preferred Stock Dividend. The holders of the Preferred
Stock may, however, convert the Preferred Stock into Class B Common Stock or
Subordinated Notes prior to redemption but after notice of redemption by the
Company.
Dividend Rights
The Preferred Stock will accrue a 10% per annum dividend, compounded
semiannually, on a liquidation preference of $2,250 per share (adjusted for
certain events) (the "Preferred Stock Dividend"), payable only under the
circumstances described in "Liquidation Preference." If, after receiving the
consent of the holders of at least 50% of the Series A Preferred Stock, the
Company should declare and pay in full a dividend, then holders of all of the
Company's Preferred Stock, Common Stock and all other capital stock not ranking
junior to the Preferred Stock as to payment of dividends would be entitled to
participate in such dividend in equal per share amounts; provided, however,
that, if the Board declares a dividend to the holders of any class of capital
stock of the Company other than stock senior to the Preferred Stock, but is
unable to pay such dividend in full, then such dividend shall be paid first to
the Preferred Stockholders, in preference to the Common Stockholders. No
dividend or distribution on, or purchase or redemption of, any Class A Common
Stock or Class B Common Stock shall be permitted without the affirmative vote or
consent of the holders of at least 50% of the Series A Preferred Stock, other
than the redemption of shares held by employees or former employees in
connection with the cessation of their employment.
Voting Rights
The Series A Preferred Stockholders will be entitled to vote together with
the Common Stockholders as though part of such class on those specific matters
as to which the holders of the Class B Common Stock are entitled to vote. Series
A Preferred Stockholders will have the right to that number of votes equal to
the number of shares of Common Stock which would be held by such holders if
conversion of the Preferred Stock were to occur at the close of business on the
day immediately prior to the date of the vote. The Company shall not, without
the affirmative vote or consent of the holders of at least two-thirds of the
number of shares of Series A Preferred Stock outstanding, voting separately as a
class, (i) create any class of capital stock having any preference or priority
as to dividends, or upon liquidation, distribution or winding up, over the
Preferred Stock, (ii) reclassify any shares of capital stock of the Company into
shares of Preferred Stock, (iii) issue or reserve for issuance any security
exchangeable for, convertible into or evidencing the right to purchase Preferred
Stock or (iv) change the preferences, rights or powers with respect to the
Preferred Stock so as to adversely affect the Preferred Stock. So long as no
less than one-third of the shares of Preferred Stock remain outstanding, the
Series A Preferred Stockholders, voting separately as a single class, also have
the right to elect one member to the Company's Board of Directors. If and when
less than one-third of the shares of Preferred Stock are outstanding, the
Preferred Stockholders will be divested of their directorship. In addition, in
the event that more than 50% of the shares of Preferred Stock become owned by a
competitor or an affiliate of a competitor of the Company, the Preferred
Stockholders will be divested of their directorship. Except as provided by law,
the Series B Preferred Stock shall have no voting rights.
Preferred Stockholders Agreement
Certain of the rights and obligations of the Preferred Stockholders will be
governed by a Stockholders Agreement (the "Preferred Stockholders Agreement")
among the Company and all Preferred Stockholders.
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The Preferred Stockholders Agreement is summarized below and is qualified in its
entirety by reference to the complete text of the Preferred Stockholders
Agreement. A copy of the Preferred Stockholders Agreement is available from the
Company upon request.
Stock Transfer Restrictions. A Preferred Stockholder may transfer its
Preferred Stock only if the transfer complies with the following requirements:
(i) the Preferred Stockholder proposing to make the transfer (other
than to Permitted Transferees) must give written notice to the Company of
the proposed transfer, identifying the proposed transferee and all of the
terms and conditions of the proposed transfer;
(ii) in the opinion of counsel satisfactory to the Company, the
proposed transfer must not violate the registration requirements under the
Securities Act or state securities laws;
(iii) if the transferor is a member of the Control Group, then the
transfer, in the reasonable opinion of special FCC counsel to the Company,
must not result in the loss of or materially jeopardize the Designated
Entity status of the Company;
(iv) the transfer must not cause a transfer of control of the Company
under FCC rules and regulations (other than a transfer specifically
contemplated by the Preferred Stockholders Agreement); and
(v) the transferee must execute and deliver to the Company a written
instrument, in form and substance reasonably satisfactory to the Company,
acknowledging the receipt of a copy of the Preferred Stockholders Agreement
and agreeing to comply with and be bound by it.
If Preferred Stock is to be transferred to a Person other than a Permitted
Transferee by a holder of 4.9% or more of the Preferred Stock and such stock
constitutes one-third or more of the Preferred Stock owned by such Preferred
Stockholder, then the Company shall notify all other Preferred Stockholders of
such transfer. Such other Preferred Stockholders shall have the option to
participate in the contemplated transfer by selling, at the same price and on
the same terms as the proposed transfer, a proportionate number of their shares
of Preferred Stock based upon the relative holdings of those Preferred
Stockholders electing to sell. Notwithstanding the foregoing, no Preferred
Stockholder may obtain a majority of the Preferred Stock by acquiring Preferred
Stock from other Preferred Stockholders in a single transaction or series of
related transactions unless the acquiring Preferred Stockholder offers to
acquire on identical terms and conditions Preferred Stock from other
stockholders in proportion to their relative shareholdings.
In the event that a bona fide offer of any type other than an offer by a
Stockholder or any Permitted Transferee of a Stockholder or any affiliate
thereof is made to purchase the business of the Company, including without
limitation a proposed merger or consolidation, an offer to purchase more than
50% of the Common Stock or an offer to purchase all or substantially all of the
assets of the Company, then, if two-thirds or more of the number of shares of
Common Stock and Preferred Stock then outstanding, voting as a single class on
an as-if-converted basis, approve the offer, all of the Preferred Stockholders
are required to consent to and participate on a pro rata basis in the
transaction approved by the two-thirds majority.
Preemptive Rights. The Preferred Stockholders Agreement provides that the
Company shall not issue, sell or exchange any shares of Common Stock or any debt
obligation or security convertible into or exchangeable for Common Stock or any
option, warrant or other right to subscribe for, purchase or otherwise acquire
Common Stock or any other equity security of the Company unless, in each case,
the Company first offers to sell to each Preferred Stockholder and each Common
Stockholder such Stockholder's proportionate share of the securities offered at
the same price and on the same terms at which they were proposed to be issued,
sold or exchanged. Such Stockholder shall have 30 days after delivery of notice
from the Company to exercise its preemptive rights. If some Stockholders
exercise their options, but at least one Stockholder does not, then the Company
shall notify the exercising Stockholders, who shall have an additional 15 days
to elect to purchase the remaining portion of the securities offered in
proportion to the relative shareholdings of the Stockholders who have exercised
their options. This procedure shall be repeated until either (i) there is no
additional portion of the securities to be purchased or (ii) no Stockholder
elects to purchase the remaining
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portion of the securities. If the Stockholders fail to exercise their successive
rights to purchase all of such securities, then, within 120 days of such
failure, the Company may sell such securities on the terms and prices specified
in the notice of such offering.
These preemptive rights shall not apply to the issuance of options or
warrants simultaneously and in connection with the issuance of indebtedness by
the Company.
Notwithstanding any other provision of the Preferred Stockholders
Agreement, the exercise of preemptive rights is forbidden to the extent that, in
the reasonable opinion of special FCC counsel to the Company, it would result in
the loss of or materially jeopardize the Designated Entity status of the
Company.
Information. The Preferred Stockholders Agreement provides that each of
the Preferred Stockholders is entitled to receive financial and other
information regarding the Company, including copies of the Company's business
plans, for so long as such Preferred Stockholder is not a competitor or
affiliated with a competitor of the Company.
Termination. The Preferred Stockholders Agreement will terminate pro tanto
as and when the Preferred Stock is converted into Common Stock or the Company
consummates an Initial Public Offering.
In any event, the provisions of the Preferred Stockholders Agreement with
respect to voting arrangements and restrictions will terminate no later than 10
years from the date of the Preferred Stockholders Agreement in accordance with
applicable law, subject to extension by agreement of the remaining parties to
the Preferred Stockholders Agreement.
Registration Rights Agreement for Holders of Preferred Stock
The following is a summary of certain provisions of the Registration Rights
Agreement (the "Preferred Stockholder Registration Rights Agreement") to be
entered into among the Company and all of the Preferred Stockholders. Such
summary is qualified in its entirety by reference to the complete text of the
Preferred Stockholder Registration Rights Agreement, a copy of which is
available upon request.
The Preferred Stockholder Registration Rights Agreement provides that, on
or after November 14, 1997, the holders of a majority of all shares of the
Preferred Stock may make one written demand to the Company for registration
under the Securities Act of all or a portion of the Common Stock (including
Common Stock which has been issued following the conversion of the Preferred
Stock) not otherwise registered under the Securities Act or sold in reliance on
an exemption from the registration requirements of the Securities Act (the
"Registrable Securities") in a public offering. Upon becoming qualified to use
Form S-3 under the Securities Act, the holders of at least 10% of the Preferred
Stock then outstanding also may make written requests (which requests may not be
made more than once in any twelve-month period) to the Company for registration
of the Registrable Securities on Form S-3 pursuant to Rule 415 under the
Securities Act. The Company must honor these requests, too, provided that it
shall not be required to effect such a registration unless the holder or holders
requesting registration thereunder propose to dispose of Registrable Securities
which they reasonably anticipate to result in gross proceeds to such holders of
not less than $1 million. The holders of the Preferred Stock also have certain
"piggyback" registration rights to include the Registrable Securities, subject
to certain limitations, in other registration statements filed by the Company.
Any Preferred Stock included in any registration pursuant to rights granted
under the Preferred Stockholders Registration Rights Agreement will convert
automatically into shares of Common Stock to be sold in such public offering
immediately prior to the closing.
Whenever the Company effects a registration pursuant to the registration
rights provisions of the Preferred Stockholder Registration Rights Agreement,
the Company (i) has agreed, and the Preferred Stockholder parties have agreed if
requested, not to effect any public sale or distribution of securities similar
to those being registered, or of any securities convertible into or exchangeable
or exercisable for such securities, for a specified period of time prior to and
after such registration statement becomes effective, and (ii) will be required
to pay the cost of such registration of securities, except that each selling
stockholder will bear its pro rata share of customary underwriting discounts and
commissions, customary fees and expenses of its counsel and applicable transfer
taxes. The Preferred Stockholder Registration Rights Agreement contains
customary
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indemnification and contribution provisions relating to the exercise by the
holders of Registrable Securities of their registration rights thereunder.
LIMITATION ON DIRECTORS' LIABILITY
The Company's Certificate of Incorporation provides that to the fullest
extent permitted by Delaware Law a director of the Company shall not be liable
to the Company or its stockholders for monetary damages for breach of fiduciary
duty as a director. Under current Delaware law, liability of a director may not
be limited (i) for any breach of the director's duty of loyalty to the company
or its stockholders, (ii) for acts or omissions not in good faith or which
involve intentional misconduct or a knowing violation of law, (iii) in respect
of certain unlawful dividend payments or stock redemptions or repurchases and
(iv) for any transaction from which the director derives an improper personal
benefit. The effect of this provision of the Company's Certificate of
Incorporation is to limit or eliminate the rights of the Company and its
stockholders (through stockholders' derivative suits on behalf of the company)
to recover monetary damages against a director for breach of the fiduciary duty
of care as a director (including breaches resulting from negligent or grossly
negligent behavior) except in those circumstances described in clauses (i)
through (iv) above. This provision does not limit or eliminate the rights of the
Company or any stockholder to seek nonmonetary relief such as an injunction or
rescission in the event of a breach of a director's duty to care. In addition,
the Company's Certificate of Incorporation and Bylaws as provide that the
Company shall indemnify its directors, officers, employees and agents to the
fullest extent permitted by Delaware law.
DELAWARE TAKEOVER STATUTE
Section 203 of the Delaware Law, as amended ("Section 203"), provides that,
subject to certain exceptions specified therein, an "interested stockholder" of
a Delaware corporation shall not engage in any business combination, including
mergers or consolidations or acquisitions of additional shares of the
corporation, with the corporation for a three-year period following the date at
which the stockholder becomes an "interested stockholder" unless (i) prior to
such date, the board of directors of the corporation approved either the
business combination or the transaction which resulted in the stockholder
becoming an "interested stockholder," (ii) upon consummation of the transaction
which resulted in the stockholder becoming an "interested stockholder," the
interested stockholder owned at least 85% of the voting stock of the corporation
outstanding at the time the transaction commenced (excluding certain shares), or
(iii) or subsequent to such date, the business combination is approved by the
board of directors of the corporation and authorized at an annual or special
meeting of stockholders by the affirmative vote of at least 66 2/3% of the
outstanding voting stock which is not owned by the "interested stockholder."
Except as otherwise specified in Section 203, an "interested stockholder" is
defined to include (x) any person which is the owner of 15% or more of the
outstanding voting stock of the corporation, or is an affiliate or associate of
the corporation and was the owner of 15% or more of the outstanding voting stock
of the corporation at any time within three years immediately prior to the
relevant date and (y) the affiliates and associates of any such person.
These provisions could have the effect of delaying, deferring or preventing
a change of control of the Company. The Company's stockholders, by adopting an
amendment to its Certificate of Incorporation or Bylaws, may elect not to be
governed by Section 203, effective twelve months after adoption. Neither the
Certificate nor the bylaws presently exclude the Company from the restrictions
imposed by Section 203.
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CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
The following discussion summarizes the material United States federal
income tax considerations applicable to an investment in the Notes or Warrants
by U.S. Holders who hold such Notes or Warrants as capital assets. For purposes
of this discussion, the term "U.S. Holder" means a beneficial owner of a Note or
Warrant that is (i) a citizen or resident of the United States, (ii) a
corporation, partnership or other entity created or organized under the laws of
the United States or a political subdivision thereof, (iii) an estate or trust
the income of which is subject to United States federal income taxation
regardless of source or (iv) any other person defined as a United States person
under the Internal Revenue Code of 1986, as amended (the "Code"). The discussion
does not apply to dealers in securities, financial institutions, life insurance
companies, tax-exempt organizations, foreign individuals and entities, persons
whose functional currency is not the U.S. Dollar or to persons that will hold a
Note or Warrant as a position in a "straddle" or "conversion transaction" for
tax purposes, or aspects of Federal income taxation that may be relevant to a
prospective investor based upon such investor's particular tax situation. It
does not address any tax consequences arising under the laws of any state, local
or foreign jurisdiction. This summary is based on the Code, Treasury Regulations
promulgated thereunder, and judicial and administrative interpretations thereof,
all as in effect on the date hereof and all of which are subject to prospective
or retroactive change. PURCHASERS OF UNITS SHOULD CONSULT THEIR OWN TAX ADVISORS
AS TO THE FEDERAL, STATE, LOCAL, AND FOREIGN TAX CONSEQUENCES TO THEM OF HOLDING
AND DISPOSING OF UNITS.
NOTES
Original Issue Discount. The Notes will be issued with original issue
discount ("OID") for federal income tax purposes. Accordingly, each U.S. Holder
of a Note generally will be required to include OID in income as it accrues
under a constant yield method in advance of cash payments attributable to such
income (regardless of whether the U.S. Holder is a cash or accrual basis
taxpayer).
The amount of OID with respect to each Note will be the excess of the
"stated redemption price at maturity" of such Note over its "issue price." The
"stated redemption price at maturity" of the Notes will include all cash
payments required to be made on the Notes until maturity, whether denominated as
principal or interest. The issue price of the Notes is the first price at which
a substantial amount of the Notes is sold to the public for money.
Because the original purchasers of the Notes will also purchase Warrants,
each Note will likely be treated by the IRS as having been issued as part of an
"investment unit" consisting of Notes and Warrants. Pursuant to final Treasury
Regulations regarding OID (the "OID Regulations"), the "issue price" of an
investment unit is equal to the first price at which a substantial amount of
Units is sold to the public. For this purpose, the public does not include bond
houses, brokers or similar persons or organizations acting in the capacity of
underwriters, placement agents or wholesalers. The issue price of a Unit, as so
determined, must be allocated between its component parts based on their
relative fair market values. The holder of an investment unit must use the
issuer's allocation unless the holder discloses on its Federal income tax return
for the year that includes the acquisition date of such Unit that it plans to
use an allocation that is inconsistent with the issuer's allocation. The Company
will allocate to each $1,000 principal amount of Notes and $ to the
Warrant comprising each Unit and will use such allocation to determine the
respective "issue prices" of the Notes and the Warrants. Such allocation is not
binding on the IRS.
Each U.S. Holder of a Note will be required to include in gross income an
amount equal to the sum of the daily portions of OID for each day during the
taxable year in which such holder holds the Note ("accrued OID") without regard
to when the cash attributable to such income is received. The daily portions of
OID are determined by allocating to each day in an accrual period the pro rata
portion of the OID that is allocable to that accrual period. The "accrual
period" for a debt instrument may be of any length and may vary in length over
the term of the Note, provided that each accrual period is no longer than one
year and each scheduled payment of principal or interest occurs on the first day
or the final day of an accrual period. The amount of OID that is allocable to an
accrual period will be determined by multiplying the adjusted issue price of the
Note at the beginning of the accrual period by the yield to maturity of such
Note (determined on the basis of compounding at the close of each accrual period
and properly adjusted for the length of the accrual period).
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OID allocable to a final accrual period is the difference between the amount
payable at maturity (other than a payment of qualified stated interest) and the
adjusted issue price at the beginning of the final accrual period. Special rules
will apply for calculating OID for an initial short accrual period. The adjusted
issue price of the Note at the beginning of an accrual period will be equal to
its issue price increased by all previously accrued OID (determined without
regard to the amortization of any acquisition premium, as described below) and
reduced by the amount of all previous payments made on such Note on or before
the first day of the accrual period. The yield to maturity is the discount rate
that, when used in computing the present value of the payments to be made under
the Note, produces an amount equal to the issue price of the Note.
The Company will report annually to the Internal Revenue Service (the
"IRS") and to record U.S. Holders of Notes, other than corporations and other
exempt holders, information with respect to the amount of OID that has accrued
with respect to the Notes during the calendar year. This information will be
based upon the adjusted issue price of the Note as if the holder were the
original holder of the Note. In addition, each Note will bear a legend setting
forth the issue date, the issue price, the total amount of OID, the yield to
maturity and certain other information, or such legend will indicate how a
holder can receive such information.
Subsequent holders who purchase Notes for an amount other than the adjusted
issue price, and/or on a date other than the end of an accrual period, will be
required to determine for themselves the amount of OID they are required to
include in gross income for Federal income tax purposes. The subsequent
purchaser's aggregate amount of includible income may vary depending upon the
amount paid for the Notes. See "Acquisition Premium" and "Market Discount"
below.
Effect of Mandatory Offer to Redeem on Original Issue Discount. In the
event of a Change of Control or in the event of certain asset sales, the Company
will be required, subject to certain conditions, to offer to redeem all of the
Notes. The OID Regulations provide that a required redemption upon the
occurrence of a contingent event such as a change of control or such asset sale
will not affect the yield or maturity date of the Notes and will not affect the
computation of OID unless, based on all of the facts and circumstances as of the
issue date, it is more likely than not that the contingent event will occur. The
Company has no present intention of treating the offer to redeem the Notes as
affecting the computation of the yield to maturity or OID of any Note.
Acquisition Premium. A subsequent purchaser of a Note issued with OID who
purchases the Note for an amount that is less than or equal to the sum of all
amounts payable on the Note after the purchase date but greater than its
adjusted issue price immediately before such purchase (i.e., a purchase at an
"acquisition premium") also will be required to include in gross income the sum
of the daily portions of OID on that Note. In computing the daily portions of
OID for such a purchaser (as well as an initial purchaser that purchases at a
price higher than the adjusted issue price but less than or equal to the stated
redemption price at maturity), however, the daily portion of OID is reduced by a
portion of the acquisition premium equal to the product of (A) the daily portion
of OID for such day (computed in accordance with the rules set forth above) and
(B) a fraction, the numerator of which is the excess of the cost of the Note
over its adjusted issue price, and the denominator of which is the sum of all
amounts payable on the Note after the date of acquisition reduced by the Note's
adjusted issue price.
Disposition of Notes. A U.S. Holder of a Note generally will recognize
gain or loss upon the sale, exchange, redemption, retirement or other taxable
disposition of a Note in an amount equal to the difference between the amount
realized on such sale, exchange, redemption, retirement or other taxable
disposition and the U.S. Holder's adjusted tax basis in the Note. A U.S.
Holder's adjusted tax basis in a Note will generally be equal to the price paid
by such Holder for such Note, increased by the portion of OID previously
included in gross income to the date of disposition (and the accruals of market
discount, if any, which the U.S. Holder has previously elected to include in
gross income on an annual basis as described below) and decreased by any cash
payments, regardless of whether such payments are denominated as interest or
principal. Such gain or loss generally will be capital gain or loss provided the
Note was a capital asset in the hands of the U.S. Holder, and will be long-term
capital gain or loss if the Note has been held for more than one year.
Market Discount. Purchasers of Notes should be aware that a purchase of
Notes in this offering or a subsequent resale of Notes may be affected by the
market discount provisions of the Code. These rules
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generally provide that, subject to a statutorily defined de minimis exception,
if a U.S. Holder of a Note (including a purchaser in this offering) purchases
the Note at a price below its issue price plus the amount of OID includible in
income by all prior U.S. Holders of the Note and thereafter receives a principal
payment on, or recognizes gain upon a disposition of the Note (including
dispositions by gift or redemption), the lesser of such principal payment or of
such gain (or appreciation, in the case of a gift) and the portion of the market
discount that has accrued ("Accrued Market Discount") while the Note was held by
such U.S. Holder will be treated as ordinary interest income at the time of
disposition rather than as capital gain. The market discount rules also provide
that a U.S. Holder who acquires a Note at a market discount may be required to
defer a portion of any interest expense that may otherwise be deductible on any
indebtedness incurred or maintained to purchase or carry such Note until the
U.S. Holder disposes of the Note in a taxable transaction.
"Market discount" generally is the excess of the adjusted issue price of a
Note over the tax basis of the Note in the hands of the U.S. Holder immediately
after its acquisition. Under a de minimis exception, the amount of market
discount is considered to be zero if it is less than 0.25 percent of the Note's
stated redemption price at maturity multiplied by the number of complete years
from acquisition to maturity. Market discount generally will accrue ratably
during the period from the date of acquisition to the maturity date of the Note,
unless the U.S. Holder elects to accrue such discount on the basis of the
constant yield method.
In lieu of including the Accrued Market Discount in income at the time of
disposition, a U.S. Holder of a Note acquired at a market discount may elect to
include the Accrued Market Discount in income currently (either ratably or using
the constant yield method). Once made, such an election applies to all Notes and
other obligations that the U.S. Holder purchases at a market discount during the
taxable year for which the election is made and in all subsequent taxable years
of the U.S. Holder, unless the IRS consents to a revocation of the election. If
an election is made to include Accrued Market Discount in income currently, the
basis of a Note in the hands of the U.S. Holder will be increased by the Accrued
Market Discount thereon as it is includible in income and the rule described
above requiring deferral of interest expense on indebtedness incurred with
respect to the Note will not apply.
High-Yield Discount Obligations. If the yield-to-maturity on the Notes
equals or exceeds the sum of (x) the "applicable federal rate" (as determined
under Section 1274(d) of the Code) in effect for the month in which the Notes
are issued (the "AFR") and (y) 5%, the Notes will be considered "applicable high
yield discount obligations" under Section 163(i) of the Code. Consequently, the
Company will not be allowed to take a deduction for interest (including OID)
accrued on the Notes for U.S. federal income tax purposes until such time as the
Company actually pays such interest (including OID) in cash or in other property
(other than stock or debt of the Company or a person deemed to be related to the
Company under Section 453(f)(1) of the Code).
Moreover, if the yield-to-maturity on the Notes exceeds the sum of (x) the
AFR and (y) 6% (such excess shall be referred to hereinafter as the
"Disqualified Yield"), the deduction for interest (including OID) accrued on the
Notes will be permanently disallowed (regardless of whether the Company actually
pays such interest or OID in cash or in other property) for U.S. federal income
tax purposes to the extent such interest or OID is attributable to the
Disqualified Yield on the Notes ("Dividend-Equivalent Interest"). For purposes
of the dividends-received deduction, such Dividend-Equivalent Interest will be
treated as a dividend to the extent it is deemed to have been paid out of the
Company's current or accumulated earnings and profits. Accordingly, a United
States Holder of a Note that is a corporation may be entitled to take a
dividends-received deduction with respect to any Dividend-Equivalent Interest
received by such corporate holder on such Note.
Backup Withholding. The backup withholding rules require a payor to deduct
and withhold tax if (i) the payee fails to furnish a taxpayer identification
number ("TIN") to the payor, (ii) the IRS notifies the payor that the TIN
furnished by the payee is incorrect, (iii) the IRS has notified the payor that
withholding is required with respect to the payee or (iv) there has been a
failure of the payee to certify under penalty of perjury that a payee is not
subject to withholding under Section 3406 of the Code. If any one of the above
events occurs, the Company, its paying agent or other withholding agent will be
required to withhold a tax equal to 31% of any "reportable payment" made in
connection with the Notes. A "reportable payment" includes, among other things,
OID and amounts paid through brokers in retirement of a Note. Any amounts
107
<PAGE> 110
withheld from a payment to a Holder under the backup withholding rules will be
allowed as a refund or credit against such Holder's federal income tax, provided
that the required information is furnished to the IRS. Certain holders
(including, among others, corporations and certain tax exempt organizations) are
not subject to the backup withholding and information reporting requirements,
and no withholding will be imposed on such holders provided that they certify
their exemption from such requirements to the payor in the necessary manner.
WARRANTS
Characterization of Warrants as Stock. The Company believes that the
Warrants are in substance equivalent to stock of the Company, and thus for
federal income tax purposes should be treated as stock because, among other
things, the Warrants are exercisable for nominal consideration and the holders
of the Warrants are entitled to receive certain distributions if the Company
pays a dividend or makes a distribution to holders of the Common Stock. As set
forth in more detail below, the likely federal income tax treatment upon
exercise and sale of the Warrants and the sale of the Common Stock received upon
exercise of the Warrants will be affected by whether the Warrants are treated as
warrants or stock for federal tax purposes. The federal income tax treatment in
the case of lapse or adjustments will likely not be affected.
Exercise -- Payment of Cash. No gain or loss will be recognized for
Federal income tax purposes by holders of the Warrants upon the exercise thereof
in exchange for Common Stock (except to the extent of cash, if any, received in
lieu of the issuance of fractional shares of Common Stock). A holder's tax basis
in the Common Stock acquired upon exercise of a Warrant generally will equal its
tax basis in the Warrant (i.e., generally the portion of the price of a Unit
allocated to the Warrant) plus the amount paid upon exercise. The holding period
of the Common Stock received upon the exercise of the Warrants will begin on the
date of exercise of the Warrant, unless the Warrant is itself treated as stock
for federal income tax purposes (as discussed above). In the event the Warrant
is treated as stock, the holding period of the shares of Common Stock received
upon exercise should include the period during which the Warrants were held by
such holder. If any cash is received in lieu of fractional shares, the holder
will recognize gain or loss, and the character and the amount of such gain or
loss will be determined as if the holder had received such fractional shares and
then immediately sold them for cash.
Exercise -- Payment with other Warrants. If the Warrants are not treated
as Common Stock (as discussed above), a holder who exercises a Warrant by
surrendering Warrants (the "Surrendered Warrants") other than the exercised
Warrant in payment of the exercise price thereof should be treated as disposing
of the Surrendered Warrants in a taxable transaction. Accordingly, a holder
should recognize gain or loss equal to the difference between the exercise price
and the holder's tax basis in the Surrendered Warrants (and taking into account
any cash received by the holder in lieu of the issuance of fractional shares of
Common Stock). Such gain or loss should be capital gain or loss; however, such
gain or loss may be ordinary income or loss on the grounds that the Surrendered
Warrants were not sold or exchanged. A holder's tax basis in the Common Stock
received upon exercise generally will equal its tax basis in the exercised
Warrant (i.e., generally the portion of the price of a Unit allocated to the
Warrant) plus the amount deemed paid upon exercise. However, the IRS may argue
that the holder is deemed to have exercised both the exercised Warrant and the
Surrendered Warrants in exchange for the Common Stock, in which case the receipt
of Common Stock by the holder will not be a taxable transaction (except to the
extent of cash, if any, received in lieu of the issuance of fractional shares of
Common Stock), and such holder's basis in the Common Stock will equal the sum of
its tax basis in the exercised Warrant and its tax basis in the Surrendered
Warrants. The holding period for such Common Stock will begin on the date of
exercise of the Warrant, unless the Warrant is itself treated as stock for
federal income tax purposes (as discussed above). In the event the Warrant
exercised is itself treated as stock, the holding period of the shares of Common
Stock received upon exercise will include the period during which the Warrant
was held by such holder. Moreover, if the Warrants are treated as stock for
federal income tax purposes (as discussed above), the surrender of Surrendered
Warrants in payment of the exercise price of the exercised Warrant may be
treated as a tax-free recapitalization of stock for stock under Section
368(a)(1)(E) of the Code or as a tax-free exchange of Common Stock for Common
Stock under Section 1036 of the Code. In such a case, a holder will not
recognize gain or loss upon the surrender of the Surrendered Warrants
108
<PAGE> 111
(except to the extent of cash, if any, received in lieu of the issuance of
fractional shares of Common Stock), and the holder's tax basis in the Common
Stock received upon exercise will equal the sum of its tax basis in the
exercised Warrant and its tax basis in the Surrendered Warrants, increased by
any gain and decreased by any loss recognized in the transaction. Because of the
uncertain tax consequences of a surrender of Warrants in connection with the
exercise of Warrants, U.S. Holders considering the use of Warrants to pay any
part of the exercise price of a Warrant should consult their own tax advisors.
Sale of Warrants. The sale of a Warrant ordinarily will result in the
recognition of gain or loss to the holder for Federal income tax purposes in an
amount equal to the difference between the amount realized on such sale or
exchange and the holder's tax basis in the Warrant. Such gain or loss will be
capital gain or loss, provided the Common Stock would have been a capital asset
in the hands of the Warrant holder had the Warrant been exercised, and will be
long-term capital gain or loss with respect to Warrants held for more than one
year. However, the IRS might assert that the sale of a Warrant to the Company
does not constitute a sale or exchange and that the holder recognized ordinary
income or loss. In the event the Warrants are treated as stock for federal
income tax purposes (as discussed above), the sale of Warrants to the Company
should be governed by the stock redemption provisions of the Code. In such a
case, redemptions of Warrants by the Company would be treated as a dividend and
taxed as ordinary income to the extent of the Company's current and accumulated
earnings and profits, unless, taking into account certain constructive ownership
rules, the holder terminated his entire equity interest in the Company or the
redemptions were "not essentially equivalent to a dividend." In a published
ruling, the IRS has indicated that a holder whose actual and constructive stock
ownership in an issuer was minimal and who exercised no control over corporate
affairs was generally entitled to capital gain or loss treatment upon the
redemption of his stock so long as his percentage stock ownership was thereby
reduced.
Similarly, gain or loss will generally be recognized upon a sale of the
Common Stock received upon exercise of a Warrant in an amount equal to the
difference between the amount realized on the transfer and the holder's adjusted
tax basis in the Common Stock. Such gain or loss will be capital gain or loss,
provided the Common Stock is held as a capital asset, and will be long-term
capital gain or loss with respect to Common Stock with a more than one-year
holding period. In the event the Warrants are treated as stock for federal
income tax purposes, gain or loss on the sale of the Warrants should be
long-term capital gain or loss with respect to Warrants held more than one year.
Lapse. If the Warrants lapse without exercise, the holder generally will
recognize a capital loss (assuming the sale or exchange of the Warrants by the
holder would have given rise to capital gain or loss) equal to the holder's tax
basis in the Warrants. Any such capital loss would be long-term if the holding
period for the Warrants exceeds one year.
Adjustments. The Exercise Rate of the Warrants are subject to adjustments
under certain circumstances and the Warrant holders may be entitled to certain
distributions in the event of distributions to holders of the Common Stock.
Under Section 305 of the Code and the Treasury Regulations issued thereunder,
holders of the Warrants will be treated as having received a constructive
distribution, resulting in ordinary income (subject to a possible
dividends-received deduction in the case of corporate holders) to the extent of
the Company's current and/or accumulated earnings and profits, if, and to the
extent that, certain adjustments in the Exercise Rate that may occur in limited
circumstances, increase the proportionate interest of a holder of a Warrant in
the earnings and profits of the Company. Thus, under certain circumstances that
may or may not occur, such an adjustment may be treated as taxable distributions
to holders of Warrants, without regard to whether such holders receive any cash
or other property. The Warrant holders may be entitled to receive certain
distributions if the Company pays a dividend or makes a distribution to holders
of the Common Stock, and the Company may waive payment of the exercise price
when a holder exercises a Warrant, in which case it would be deemed to have
distributed cash to the holder in an amount equal to the payments waived by the
Company. Any such distribution or deemed distribution would likely be taxable as
ordinary income to the holder to the extent of the Company's current and/or
accumulated earnings and profits.
109
<PAGE> 112
UNDERWRITING
The underwriters named below (the "Underwriters") have severally agreed,
subject to the terms and conditions of the underwriting agreement (the form of
which has been filed as an exhibit to the Registration Statement of which this
Prospectus is a part) (the "Underwriting Agreement"), to purchase from the
Company, and the Company has agreed to sell to the Underwriters, the number of
Units set forth opposite their respective names below.
<TABLE>
<CAPTION>
UNDERWRITERS UNITS
----------------------------------------------------------------------- ------------
<S> <C>
Lehman Brothers Inc....................................................
Donaldson, Lufkin & Jenrette Securities Corporation....................
Chase Securities Inc. .................................................
Toronto Dominion Securities (USA) Inc..................................
------------
Total........................................................
===========
</TABLE>
The Underwriting Agreement provides that the obligations of the
Underwriters to purchase the Units are subject to the approval of certain legal
matters by their counsel and to certain conditions, and that if any Units are
purchased by the Underwriters pursuant to the Underwriting Agreement, all of the
Units agreed to be purchased by the Underwriters pursuant to the Underwriting
Agreement must be so purchased.
The Company has been advised by the Underwriters that they propose to offer
the Units offered hereby initially at the public offering price set forth on the
cover page of this Prospectus and to certain selected dealers (who may include
the Underwriters) at such public offering price less a concession not to exceed
$ per Unit. The Underwriters or such selected dealers may reallow a
commission to certain other dealers not to exceed $ per Unit. After the
initial public offering of the Units the public offering price, the concession
to selected dealers and the reallowance to other dealers may be changed by the
Underwriters.
In the Underwriting Agreement, the Company has agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act, or to contribute to payments that the Underwriters may be
required to make in respect thereof.
The offering price for the Units and the provisions of the Notes and the
Warrants have been determined by negotiations between the Company and the
Underwriters. The material factors considered in such negotiations were
prevailing market conditions, the results of operations of the Company in recent
periods, the market capitalizations and stages of development of other companies
which the Company and the Underwriters believed to be comparable to the Company,
estimates of business potential of the Company and the present stage of the
Company's development.
There is no public market for the Units, Notes or Warrants and the Company
has no plans to apply for listing of the Units, Notes or Warrants on any
national securities exchange or for quotation on any automated quotation system.
The Company has been advised by certain of the Underwriters that they currently
intend to make a market in the Units (prior to separation), Notes and Warrants,
as permitted by applicable laws and regulations, however, such Underwriters are
not obligated to do so. Any such market-making may be discontinued at any time,
for any reason, without notice. If any of such Underwriters ceases to act as a
market-maker for the Units, Notes or Warrants for any reason, there can be no
assurance that another firm or person will make a market in the Units, Notes or
Warrants. Accordingly, there can be no assurance as to the liquidity of, or the
existence of trading markets for, the Units, Notes or Warrants.
Certain of the Underwriters have provided certain financial advisory and
investment banking services to the Company in the past. Lehman Brothers Inc. was
the placement agent for the private placement by the Company of the Series A
Preferred Stock in November 1995 for which it received customary commissions.
Lehman Brothers Inc. is presently engaged on a best efforts basis as placement
agent for the private placement by Sloan LP of the remaining limited partnership
interests in Sloan LP, for which Lehman Brothers Inc. will also receive
customary commissions. The Chase Manhattan Bank, an affiliate of Chase
Securities Inc., is Administrative Agent and a lender under the Credit Facility.
The Chase Manhattan Bank and its affiliates
110
<PAGE> 113
may from time to time perform financial and banking services for the Company.
The Chase Manhattan Bank is also an affiliate of Chase Manhattan Capital
Corporation and Chase Venture Capital Associates, L.P. Chase Manhattan Capital
Corporation and Chase Venture Capital Associates, L.P. own 3.60% and 18.02%,
respectively, of the Series A Preferred Stock.
Toronto Dominion Investments, Inc., an affiliate of Toronto Dominion
Securities (USA) Inc., owns 9.01% of the Series A Preferred Stock and Series B
Preferred Stock, collectively.
Chase Manhattan Capital Corporation, which in the aggregate beneficially
owns 21.6% of the Series A Preferred Stock outstanding as of the date hereof, is
an affiliate of Chase Securities Inc., a member of the National Association of
Securities Dealers, Inc. (the "NASD") and a participant as an underwriter in the
Offering of the Units covered by this Prospectus. As a result of the foregoing,
this Offering is subject to the provisions of Schedule E to the Bylaws of the
NASD. Accordingly, the underwriting arrangements for the Offering will conform
with the requirements set forth in Schedule E. In particular, the price (in the
case of equity) or the yield (in the case of debt) at which such Offering is to
be distributed to the public must be at a price no higher or a yield no lower,
as the case may be, than that recommended by a "qualified independent
underwriter" who has also participated in the preparation of the registration
statement and the prospectus, and who meets certain standards. In accordance
with this requirement, Lehman Brothers Inc. will serve in such role and will
recommend the public offering price in compliance with the requirements of
Schedule E. Lehman Brothers Inc., in its role as qualified independent
underwriter, has performed due diligence investigations and reviewed and
participated in the preparation of this Prospectus and the Registration
Statement of which this Prospectus forms a part.
LEGAL MATTERS
Certain legal matters in connection with the Units offered hereby are being
passed upon for the Company by Nelson Mullins Riley & Scarborough, L.L.P.
("NMRS"), Charlotte, North Carolina and Atlanta, Georgia. Patrick Daugherty, a
partner of NMRS, beneficially owns 30 shares of the Company's Series A Preferred
Stock. Certain communications-related legal matters are being passed upon for
the Company by Lukas McGowan Nace & Gutierrez, Chartered, Washington, D.C.
("Lukas McGowan"). Gerald S. McGowan, a partner of Lukas McGowan, beneficially
owns 12 shares of the Company's Class A Common Stock and 63 shares of the
Company's Class B Common Stock. Certain legal matters are being passed upon for
the Underwriters by Simpson Thacher & Bartlett (a partnership which includes
professional corporations), New York, New York.
EXPERTS
The financial statements included in this Prospectus have been audited by
Deloitte & Touche LLP, independent auditors, as stated in their report appearing
herein, and are included in reliance upon the report of such firm given upon
their authority as experts in accounting and auditing.
111
<PAGE> 114
AVAILABLE INFORMATION
The Company has filed with the Commission a Registration Statement on Form
S-1 under the Securities Act with respect to the Securities offered hereby. This
Prospectus does not contain all of the information set forth in the Registration
Statement and the exhibits and schedules thereto. Certain items are omitted in
accordance with the rules and regulations of the Commission. For further
information with respect to the Company and the Securities offered hereby,
reference is made to the Registration Statement and to the exhibits and
schedules filed as part thereof. Statements contained in this Prospectus as to
the contents of any contract or other document referred to are not necessarily
complete, and, in each instance, reference is made to the copy of such contract
or document filed as an exhibit to the Registration Statement, each such
statement being qualified in all respects by such reference. The Registration
Statement, including the exhibits and schedules thereto, may be inspected
without charge at the principal office of the Commission in Washington, D.C. and
copies may be obtained from the Public Reference Section at the Commission's
principal office, 450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549, and
at the Commission's regional offices at Seven World Trade Center, New York, New
York 10048 and 500 West Madison Street, Suite 1400, Chicago, Illinois 60661,
upon payment of the fees prescribed by the Commission.
112
<PAGE> 115
PCS DEVELOPMENT CORPORATION
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Independent Auditors' Report.......................................................... F-2
Consolidated Balance Sheets as of December 31, 1994 and December 31, 1995............. F-3
Consolidated Statements of Operations for the period from September 21, 1994 (date of
incorporation) to December 31, 1994, for the year ended December 31, 1995 and
cumulative amounts from September 21, 1994 to December 31, 1995..................... F-4
Consolidated Statements of Stockholders' Equity for the period from September 21, 1994
(date of incorporation) to December 31, 1995........................................ F-5
Consolidated Statements of Cash Flows for the period from September 21, 1994 (date of
incorporation) to December 31, 1994, for the year ended December 31, 1995 and
cumulative amounts from September 21, 1994 to December 31, 1995..................... F-6
Notes to Consolidated Financial Statements............................................ F-7
Consolidated Balance Sheets (unaudited) as of March 31, 1996.......................... F-16
Consolidated Statements of Operations (unaudited) for the Three Months Ended March 31,
1995 and March 31, 1996 and cumulative amounts from September 21, 1994 (date of
incorporation) to March 31, 1996.................................................... F-17
Consolidated Statements of Stockholders' Equity (unaudited) for the period from
December 31, 1995 to March 31, 1996................................................. F-18
Consolidated Statements of Cash Flows (unaudited) for the Three Months Ended March 31,
1995 and March 31, 1996 and cumulative amounts from September 21, 1994 (date of
incorporation) to March 31, 1996.................................................... F-19
Notes to Consolidated Financial Statements (unaudited)................................ F-20
</TABLE>
F-1
<PAGE> 116
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
PCS Development Corporation
Greenville, South Carolina
We have audited the accompanying consolidated balance sheets of PCS
Development Corporation (a development stage company) as of December 31, 1994
and 1995, and the related consolidated statements of operations, stockholders'
equity, and cash flows for the period from September 21, 1994 (date of
incorporation) to December 31, 1994, for the year ended December 31, 1995 and
cumulative amounts from September 21, 1994 to December 31, 1995. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these 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, such financial statements present fairly, in all material
respects, the financial position of the Company as of December 31, 1994 and
1995, and the results of its operations and its cash flows for the period from
September 21, 1994 (date of incorporation) to December 31, 1994, for the year
ended December 31, 1995 and cumulative amounts from September 21, 1994 to
December 31, 1995, in conformity with generally accepted accounting principles.
Deloitte & Touche LLP
Greenville, South Carolina
February 16, 1996
(except with respect to
Note 12, as to which the date is
April 25, 1996)
F-2
<PAGE> 117
PCS DEVELOPMENT CORPORATION
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------
1994 1995
------------ ------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents................................... $ 763,878 $ 25,947,791
Interest receivable from stockholder (Note 9)............... 22,190 84,343
Prepaid expenses and other current assets................... 845 751,810
------------ ------------
Total current assets................................ 786,913 26,783,944
EQUIPMENT AND FIXTURES -- Net (Note 3)........................ 13,941 2,360,057
INTANGIBLE ASSETS -- Net (Note 4)............................. 9,253,100 97,554,358
------------ ------------
TOTAL............................................... $ 10,053,954 $126,698,359
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable............................................ $ 146,379 $ 215,581
Due to related company (Note 6)............................. 193,320 --
Accrued payroll withholdings................................ 39,342 225,416
Other accrued liabilities................................... 111,500 550,502
Current portion of long-term debt (Note 7).................. -- 418,582
------------ ------------
Total current liabilities........................... 490,541 1,410,081
------------ ------------
OTHER LIABILITIES............................................. -- 134,570
------------ ------------
LONG-TERM DEBT (Note 7)....................................... -- 73,382,678
------------ ------------
COMMITMENTS (Note 5)
REDEEMABLE CONVERTIBLE PREFERRED STOCK (Notes 10 and 12)...... -- 23,112,325
STOCKHOLDERS' EQUITY (Notes 9 and 11):
Common stock:
Class A, $1.00 par value, 300,000 shares authorized,
8,718 shares issued and outstanding.................... 8,718 8,718
Class B, $1.00 par value, 200,000 shares authorized,
28,482 shares issued and outstanding................... 28,482 28,482
Common stock additional paid-in capital..................... 37,162,800 36,366,601
Deficit accumulated during the development stage............ (375,103) (2,455,814)
------------ ------------
36,824,897 33,947,987
Less amounts receivable from stockholders................ (23,993,979) (14,147)
Less notes receivable from stockholder................... (3,267,505) (5,275,135)
------------ ------------
Total stockholders' equity.......................... 9,563,413 28,658,705
------------ ------------
TOTAL............................................... $ 10,053,954 $126,698,359
=========== ===========
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE> 118
PCS DEVELOPMENT CORPORATION
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
PERIOD FROM
SEPTEMBER 21, 1994
(DATE OF YEAR ENDED CUMULATIVE AMOUNTS
INCORPORATION) DECEMBER 31, FROM SEPTEMBER 21, 1994
TO DECEMBER 31, 1994 1995 TO DECEMBER 31, 1995
--------------------- ------------ --------------------------
<S> <C> <C> <C>
OPERATING EXPENSES:
Sales and Marketing..................... $ -- $ 796,100 $ 796,100
Administrative.......................... 394,918 1,922,163 2,317,081
Depreciation............................ -- 137,374 137,374
Amortization............................ 4,058 19,479 23,537
----------- ------------ -------------
398,976 2,875,116 3,274,092
INTEREST INCOME FROM STOCKHOLDER (Note
9)...................................... (22,190) (526,075) (548,265)
INTEREST INCOME -- OTHER.................. (1,683) (268,330) (270,013)
----------- ------------ -------------
NET LOSS........................ $ 375,103 $2,080,711 $2,455,814
================ ========== ====================
PER SHARE DATA:
NET LOSS........................ $ 375,103 $2,080,711
ACCRETION OF PREFERRED STOCK
DIVIDENDS..................... -- 796,199
----------- ------------
NET LOSS ATTRIBUTABLE TO COMMON
STOCKHOLDERS.................. $ 375,103 $2,876,910
================ ==========
NET LOSS PER COMMON SHARE....... $ 10.08 $ 77.34
================ ==========
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE> 119
PCS DEVELOPMENT CORPORATION
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
PERIOD FROM SEPTEMBER 21, 1994 (DATE OF INCORPORATION)
TO DECEMBER 31, 1995
<TABLE>
<CAPTION>
AMOUNTS
COMMON STOCK DEFICIT ACCUMULATED RECEIVABLE NOTES RECEIVABLE
COMMON STOCK COMMON STOCK ADDITIONAL DURING THE FROM FROM
CLASS A CLASS B PAID-IN CAPITAL DEVELOPMENT STAGE STOCKHOLDERS STOCKHOLDER TOTAL
------------ ------------ --------------- ------------------- ------------ ---------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE,
SEPTEMBER
21,
1994...... $ -- $ -- $ -- $ -- $ -- $ -- $ --
Issuance of
37,200
shares of
common
stock
($1,000
per share)
on October
1, 1994... 8,718 28,482 37,162,800 -- (23,993,979) (3,267,505) 9,938,516
Net loss
from date
of
incorporation
to
December
31,
1994...... -- -- -- (375,103) -- -- (375,103)
------------ ------------ --------------- ------------------- ------------ ---------------- -----------
BALANCE,
DECEMBER
31,
1994...... 8,718 28,482 37,162,800 (375,103) (23,993,979) (3,267,505) 9,563,413
Collection
of amounts
receivable
from
stockholders... -- -- -- -- 23,979,832 (5,932,495) 18,047,337
Collection
of notes
receivable
from
stockholder... -- -- -- -- -- 3,924,865 3,924,865
Preferred
stock
accretion... -- -- (796,199) -- -- -- (796,199)
Net loss.... -- -- -- (2,080,711) -- -- (2,080,711)
------------ ------------ --------------- ------------------- ------------ ---------------- -----------
BALANCE,
DECEMBER
31,
1995...... $8,718 $ 28,482 $36,366,601 $(2,455,814) $ (14,147) $ (5,275,135) $28,658,705
============ ============ ============ ================ ============= ============= ============
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE> 120
PCS DEVELOPMENT CORPORATION
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
PERIOD FROM CUMULATIVE
SEPTEMBER 21, 1994 AMOUNTS FROM
(DATE OF INCORPORATION) YEAR ENDED SEPTEMBER 21, 1994
TO DECEMBER 31, 1994 DECEMBER 31, 1995 TO DECEMBER 31, 1995
----------------------- ----------------- --------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net Loss.................................. $ (375,103) $ (2,080,711) $ (2,455,814)
Adjustments to reconcile net loss to net
cash provided by (used in) operating
activities:
Depreciation and amortization.......... 4,058 156,853 160,911
Changes in assets and liabilities:
Increase in interest receivable from
shareholder....................... (22,190) (62,153) (84,343)
Increase in prepaid expenses and
other current assets.............. (845) (250,965) (251,810)
Increase in accounts payable......... 146,379 69,202 215,581
(Decrease) increase in due to related
company........................... 117,557 (193,320) (75,763)
Increase in accrued payroll
withholdings...................... 39,342 186,074 225,416
Increase in other accrued
liabilities....................... 111,500 420,379 531,879
Increase in other liabilities........ -- 134,570 134,570
----------------------- ----------------- --------------------
Net cash provided by (used in)
operating activities............ 20,698 (1,620,071) (1,599,373)
INVESTING ACTIVITIES:
Purchases of equipment and fixtures....... (3,233) (1,488,351) (1,491,584)
Payments for FCC licenses................. (9,192,103) (15,579,616) (24,771,719)
Increase in accrued interest payable...... -- 18,623 18,623
FCC deposit............................... -- (500,000) (500,000)
----------------------- ----------------- --------------------
Net cash used in investing
activities...................... (9,195,336) (17,549,344) (26,744,680)
FINANCING ACTIVITIES:
Proceeds from the issuance of common stock
and collection of amounts receivable
from stockholders...................... 9,938,516 18,047,337 27,985,853
Proceeds from the issuance of preferred
stock and collection of subscriptions
receivable............................. -- 22,316,126 22,316,126
Proceeds from the issuance of note
payable................................ -- 65,000 65,000
Collection of notes receivable from
stockholder............................ -- 3,924,865 3,924,865
----------------------- ----------------- --------------------
Net cash provided by financing
activities...................... 9,938,516 44,353,328 54,291,844
INCREASE IN CASH AND CASH EQUIVALENTS....... 763,878 25,183,913 25,947,791
CASH AND CASH EQUIVALENTS, BEGINNING OF
PERIOD.................................... -- 763,878 --
----------------------- ----------------- --------------------
CASH AND CASH EQUIVALENTS, END OF PERIOD.... $ 763,878 $ 25,947,791 $ 25,947,791
================= ============= ===============
SUPPLEMENTAL DISCLOSURES OF NON-CASH
FINANCING INFORMATION:
Debt incurred to acquire FCC Licenses..... -- $ 72,741,121 $ 72,741,121
Debt incurred to acquire certain fixed
assets................................. -- 995,139 995,139
Issuance of notes receivable to
stockholder for
stock.................................. $ 3,267,505 5,932,495 9,200,000
Preferred stock accretion................. -- 796,199 796,199
</TABLE>
See notes to consolidated financial statements.
F-6
<PAGE> 121
PCS DEVELOPMENT CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE PERIOD FROM SEPTEMBER 21, 1994 (DATE OF INCORPORATION)
TO DECEMBER 31, 1994 AND YEAR ENDED DECEMBER 31, 1995
1. ORGANIZATION
PCS Development Corporation and its subsidiary (the "Company") is a
development stage company incorporated on September 21, 1994, for the purpose of
establishing, constructing and operating regional narrowband personal
communications systems in the United States.
During 1994, the Company successfully bid on five regional narrowband
licenses, which were officially granted by the Federal Communications Commission
(the "FCC") in February, 1995. The Company plans to employ the licenses to offer
a full array of two-way narrowband wireless voice and data messaging. The
Company is subject to the regulatory authority of the FCC and qualified as a
"Designated Entity" in the FCC narrowband PCS regional auction whereby the
Company received from the FCC certain bidding credits and financing terms as
part of its purchase of the licenses. The Company continues to satisfy the
applicable Designated Entity criteria because it is a small business and it is
controlled by a control group composed of minorities and women.
The Company is in a new segment of the wireless telecommunications industry
and is now developing a nationwide narrowband PCS wireless network. It plans to
offer two-way wireless stored voice and data messaging services through existing
wireless messaging providers and other channels. The development, construction
and initial start-up phase associated with the implementation of the Company's
services will require substantial capital. The Company has experienced operating
losses and negative cash flow from operating activities since its incorporation
in 1994. The Company expects that during the buildout of its nationwide network
and as it seeks market penetration, operating losses and negative cash flow from
operating activities will continue at historical or greater levels. The ability
to generate positive net income and cash flow from operations in the future is
dependent upon many factors, including general economic conditions, attainment
of significant additional financing, the timely completion of the Company's
network buildout, the level of market acceptance for the Company's products and
services and the degree of competition encountered by the Company.
The Company intends to purchase its infrastructure equipment from two
suppliers. As a result, the Company will rely on these suppliers for the
manufacture of a substantial portion of the equipment necessary to construct its
narrowband PCS network. One of these suppliers is the only current manufacturer
of the subscriber equipment necessary to deliver stored voice messaging services
over the Company's network.
No market currently exists for the stored voice messaging services proposed
to be offered by the Company. With respect to sales of both voice and data
services, the Company intends to target broad market segments with diverse
messaging requirements by providing nationwide, easy-to-use services at a
reasonable price. The potential markets for these services include corporate
users, business travelers, portable personal computer users and household
consumers. The Company will employ a variety of direct and indirect distribution
channels to market and sell its PCS products and services. To speed marketing
and sales and quickly build a broad customer base, the Company intends initially
to distribute its PCS services through certain of its investors and other
distribution partners, deriving leverage from their existing customer
relationships.
2. SIGNIFICANT ACCOUNTING POLICIES
The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiary, SGI Communications, Inc. Significant
intercompany accounts and transactions have been eliminated in consolidation.
F-7
<PAGE> 122
PCS DEVELOPMENT CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Cash and cash equivalents consist of cash in banks and short-term, highly
liquid investments purchased with original maturities of less than three months.
Equipment and fixtures are recorded at cost. Equipment and fixtures will be
depreciated using the straight-line method over the lives of the related assets.
The Company capitalizes interest costs related to network buildout, where
activities are in progress, necessary to get the asset ready for its intended
use.
Intangible assets are amortized on the straight-line method over the period
of the related asset. The Company will periodically review the values assigned
to intangible assets to determine whether any impairments are other than
temporary. This assessment is based on the estimated undiscounted future cash
flows from operating activities compared with the carrying value of intangible
assets. Management believes that the intangible assets in the accompanying
balance sheets are appropriately valued.
The Company provides for deferred income taxes for temporary differences
between the tax basis and financial reporting basis of assets and liabilities
pursuant to the requirements of Statement of Financial Accounting Standards No.
109.
Net loss per common share and common equivalent share are computed using
the weighted average number of outstanding common and dilutive common equivalent
shares outstanding. Additionally, net loss per share includes the accretion of
preferred stock dividends for the periods presented.
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 period. Actual results could differ from those estimates.
Certain 1994 amounts have been reclassified to conform to current
presentation.
3. EQUIPMENT AND FIXTURES
Equipment and fixtures at December 31 is comprised of the following:
<TABLE>
<CAPTION>
USEFUL LIFE 1994 1995
----------- ------- ----------
<S> <C> <C> <C>
Computer Hardware..................................... 5 $ 6,029 $ 323,423
Computer Software..................................... 5 1,057 839,512
Furniture and Fixtures................................ 10 3,862 180,840
Office Equipment...................................... 7 2,993 77,744
Leasehold Improvements................................ 15 -- 192,866
Assets Under Construction............................. -- 883,046
------- ----------
13,941 2,497,431
Less: accumulated depreciation...................... -- (137,374)
------- ----------
$13,941 $2,360,057
======= =========
</TABLE>
F-8
<PAGE> 123
PCS DEVELOPMENT CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
4. INTANGIBLE ASSETS
Intangible assets at December 31 is comprised of the following:
<TABLE>
<CAPTION>
1994 1995
---------- -----------
<S> <C> <C>
Costs of FCC licenses (including deposits with FCC of
$9,092,640 at December 31, 1994 and interest capitalized of
$4,824,081 through December 31, 1995)...................... $9,159,261 $95,817,102
Option to acquire radio spectrum............................. -- 1,656,359
Organization costs........................................... 97,397 97,397
Other........................................................ 500 7,037
---------- -----------
9,257,158 97,577,895
Less: accumulated amortization............................... (4,058) (23,537)
---------- -----------
$9,253,100 $97,554,358
========= ==========
</TABLE>
Amortization recorded in 1994 and 1995 relates to organization costs
consisting of legal fees incurred in organizing and incorporating the Company,
which are being amortized over a five year period. Amortization of FCC licenses
will commence when placed in service, which is expected to be during the first
half of 1997, and will be computed on a straight line basis over a period not to
exceed 40 years.
In December of 1995, the Company acquired an option to purchase radio
spectrum for $1,500,000 and expenses of $156,359. The option is exercisable from
September 14, 1998 to September 14, 2001 for an additional fee of $2,875,000.
Under the terms of the option, the Company can acquire FCC licenses which
provide additional capacity in one of its geographical areas of operation. If
acquired, the FCC licenses will be amortized over their estimated useful life
not to exceed 40 years.
5. COMMITMENTS
Lease Agreements -- In 1995, the Company entered into operating lease
agreements for office space and certain office equipment with noncancelable
lease terms ranging from three months to five years. The office lease has a
seven year term, with an option to terminate the lease at the end of five years.
Rental expense under these leases was $30,745 for the year ended December
31, 1995. Aggregate rental commitments under the noncancelable portion of these
operating leases are as follows:
<TABLE>
<S> <C>
1996.............................................................. $ 87,723
1997.............................................................. 131,220
1998.............................................................. 131,220
1999.............................................................. 131,220
2000.............................................................. 71,284
--------
$552,667
========
</TABLE>
6. DUE TO RELATED COMPANY
During 1995, the Company reimbursed certain costs and expenses incurred by
a related company in 1994 totaling $193,320. These reimbursements were primarily
for consulting services and certain organization costs, market research, legal
fees, office fixtures, equipment and supplies, which were incurred prior to the
Company's formation, and certain other operating expenses which were incurred on
its behalf subsequent to the date of incorporation.
F-9
<PAGE> 124
PCS DEVELOPMENT CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
7. LONG-TERM DEBT
Long-term debt at December 31, 1995 is comprised of the following:
<TABLE>
<S> <C>
FCC obligation, maturing December 30, 2004, bearing interest at 7.5%
payable quarterly; principal payments beginning March 30, 1997........ $72,741,121
Equipment financing agreement, maturing July 14, 1998, bearing interest
at 9.5%, collateralized by computer equipment and software, payable
monthly beginning January 14, 1996.................................... 995,139
Note payable to bank, maturing January 1999, bearing interest at 6.55%,
collateralized by a certificate of deposit, payable monthly beginning
February 28, 1996..................................................... 65,000
-----------
73,801,260
Less: current portion................................................... (418,582)
-----------
$73,382,678
==========
</TABLE>
The fair value of the Company's long-term debt is estimated based on the
present value of the future cash payments of the long-term debt at borrowing
rates currently available to the Company for loans with similar terms and
average maturities. The fair value of long-term debt at December 31, 1995 is
$72,290,000.
Maturities of long-term debt at December 31, 1995 are as follows:
<TABLE>
<S> <C>
1996................................................................ $ 418,582
1997................................................................ 7,272,269
1998................................................................ 7,648,792
1999................................................................ 8,090,103
2000................................................................ 8,635,332
Thereafter.......................................................... 41,736,182
-----------
$73,801,260
==========
</TABLE>
Total interest paid was $4,830,054 for the twelve month period ended
December 31, 1995.
F-10
<PAGE> 125
PCS DEVELOPMENT CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
8. INCOME TAXES
The components of income tax expense (benefit) are as follows:
<TABLE>
<CAPTION>
1994 1995
--------- -----------
<S> <C> <C>
Current tax benefit:
Federal................................................ $(111,117) $(1,275,743)
State.................................................. (13,073) (121,859)
--------- -----------
Total.......................................... (124,190) (1,397,602)
Deferred tax (benefit) provision:
Federal................................................ (16,418) 568,274
State.................................................. (1,932) 52,868
--------- -----------
Total.......................................... (18,350) 621,142
Valuation Allowance...................................... 142,540 776,460
--------- -----------
Income tax expense (benefit)............................. $ -- $ --
========= ==========
At December 31, the Company had deferred tax assets
(liabilities) as follows:
Depreciable assets..................................... $ -- $ (372,000)
Amortizable assets..................................... -- (3,866,000)
--------- -----------
Gross deferred tax liabilities................. -- (4,238,000)
Development stage expenses capitalized for income tax
purposes as start-up expenditures................... 18,350 3,607,000
Net operating loss carryforward........................ 124,190 1,521,000
Other.................................................. -- 29,000
--------- -----------
Gross deferred tax assets...................... 142,540 5,157,000
Valuation allowance.................................... (142,540) (919,000)
--------- -----------
Net deferred tax asset................................. $ -- $ --
========= ==========
</TABLE>
A valuation allowance has been recorded against the deferred income tax
asset as realization of this asset is uncertain as of December 31, 1994 and
1995.
At December 31, 1995, the Company had $4,080,000 of net operating loss
carryforwards available to reduce future taxable income which will expire in
2009 and 2010 if not previously utilized. The net changes in the valuation
allowance for deferred tax assets were increases of $142,540 for the period from
September 21, 1994 to December 31, 1994 and $776,460 for the year ended December
31, 1995, both of which were primarily related to increased net operating loss
carryfowards of the Company.
9. STOCKHOLDERS' EQUITY
On October 1, 1994, the Company and its stockholders entered into Common
Stock Subscription Agreements (the "Agreements") for the issuance of 37,200
shares of common stock in a private placement offering at a price of $1,000 per
share. Common stock consists of two classes. Class A common stock entitles the
holder to one vote for each share on all matters as to which stockholders are
entitled to vote. Class B common stock has no voting rights except with respect
to certain matters as specified in the restated certificate of incorporation. In
accordance with the Agreements, the Company made a capital call prior to the
close of business on November 14, 1994 (First Payment) and prior to the close of
business on the third business day following the day one or more licenses were
granted by the FCC (Second Payment). The balance due was
F-11
<PAGE> 126
PCS DEVELOPMENT CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
payable at various times according to a board-approved schedule. Amounts
receivable from stockholders collected by the Company in relation to the
Agreements at December 31, 1994 and 1995 were $9,938,516 and $18,047,337,
respectively.
The Company entered into an agreement on October 4, 1994 (as amended
effective December 31, 1994) with Sloan Communications, Inc. ("Sloan") whereby
the Company committed to loan to Sloan up to $9,200,000, subject to certain
limitations on the dollar amount of individual loan/stock purchase transactions.
This loan commitment was made for Sloan to satisfy its obligation to purchase
9,300 shares of common stock under the Agreements. The loan commitment was drawn
under the following promissory notes:
<TABLE>
<CAPTION>
DATE AMOUNT
------------------------------------------------------------------------- ----------
<S> <C>
September 30, 1994....................................................... $ 325,000
November 14, 1994........................................................ 2,942,505
January 19, 1995......................................................... 3,311,000
April 20, 1995........................................................... 366,667
June 23, 1995............................................................ 983,333
September 20, 1995....................................................... 1,271,495
----------
$9,200,000
=========
</TABLE>
Interest accrues on the notes at 6% until the first anniversary date of
each note. Thereafter, interest accrues at a fixed, annual rate of 10%. In the
event of default, the interest rate on the principal amount of the notes
increases at the following rate:
<TABLE>
<CAPTION>
PERIOD OF DEFAULT INTEREST RATE
------------------------------------------------------------------------- -------------
<S> <C>
First 6 months........................................................... 15%
After 6 through 12 months................................................ 20%
After 12 months.......................................................... 25%
</TABLE>
Upon repayment of all overdue principal and accrued interest, the interest
rate reverts to 10% prospectively at the next principal due date. Sloan also has
pledged its common stock in the Company as collateral for the notes.
Accrued interest on the unpaid principal balance is payable at each
principal repayment date. During 1995, Sloan repaid $3,924,865 of the
outstanding principal, including a letter of credit in the amount of $750,000
issued in the name of the Company with a maturity date of April 30, 1996, and
$441,732 in interest. The unpaid promissory notes call for repayment of
principal as follows:
<TABLE>
<S> <C>
October 4, 1996.......................................................... $1,595,135
April 30, 1997........................................................... 3,680,000
----------
$5,275,135
=========
</TABLE>
From October 4, 1995 through November 29, 1995, the stockholder notes
receivable were in default resulting in default interest due in the amount of
$126,000. The Company agreed to waive the default interest on the condition that
all notes were repaid in full on or prior to April 30, 1996. Based upon its
contingent nature, no default interest has been recorded. As of December 31,
1995, the Stockholder note receivable was current.
The loan to Sloan is recorded as a reduction in stockholders' equity in the
financial statements. Accrued interest receivable at December 31, 1994 and 1995
was $22,190 and $84,343, respectively.
F-12
<PAGE> 127
PCS DEVELOPMENT CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
10. REDEEMABLE CONVERTIBLE PREFERRED STOCK
On November 9, 1995, the Company and its stockholders entered into
Preferred Stock Subscription Agreements for the issuance of 24,667 shares of
Series A Convertible Preferred Stock (the "Preferred Stock") in a private
placement offering at a price of $2,250 per share. The Preferred Stock is
convertible, at the option of the holder, into Class B Common Stock at any time
provided that the exercise of the conversion does not adversely impact the
Company's "Designated Entity" status under FCC rules. Additionally, the
Preferred Stock is automatically converted to Class B Common Stock in the event
of a public offering of the Company's common stock sufficient in value to give
the holders of the Preferred Stock certain investment returns as described in
the Preferred Stock purchase agreements. The Preferred Stock has limited voting
rights and grants preferences to the holders regarding dividends, liquidation
and merger. Dividends on the Class A or Class B Common Stock require the consent
of the holders of at least 50% of the Preferred Stock. The Preferred Stock
entitles the holders to participate in cumulative dividends accreting at the
rate of 10% per annum, compounded semi-annually on the anniversary of its
initial issuance. Subsequent to November 10, 2004, the Preferred Stock is
redeemable at the option of the holder by conversion into subordinated notes of
the Company whose principal amount equals the accreted value of the Preferred
Stock at the time of conversion. Upon conversion, the subordinated notes will
bear interest at 10% per annum and will be due in 2007.
The Company incurred $2,790,124 in expenses associated with the offering of
Preferred Stock. The costs associated with the offering include underwriting,
legal and professional fees and were recorded as a reduction of the proceeds
from the offering. The net proceeds of $52,710,626 will be used to construct the
Company's network and for general corporate purposes.
In accordance with the Preferred Stock subscription agreements, the Company
made a capital call prior to the close of business on November 9, 1995. The
balance due is payable at various times according to a board-approved schedule.
Capital subscriptions collected by the Company in relation to the Preferred
Stock subscription agreements at December 31, 1995 were $25,106,250.
Subscriptions receivable in relation to the Preferred Stock subscription
agreement at December 31, 1995 were $30,394,500 and are due in two installments
on February 1, 1996 and May 1, 1996.
11. STOCK OPTIONS AND WARRANTS
Officers -- The Company entered into Employment Agreements with two
principal officers (the "Officers") of the Company effective October 31, 1994.
The Employment Agreements provide the Officers the option to acquire 2,626
shares each of Class B Common Stock at an exercise price of $1,000 per share of
common stock. This exercise price represents the initial subscription price upon
formation of the Company. Half of the options for the Officers (i.e., 1,313
shares each) became fully vested at the effective date of the Employment
Agreements. The remaining options vest in accordance with the following schedule
as long as the respective officer remains employed by the Company:
<TABLE>
<S> <C>
June 1, 1996...................................................... 263
June 1, 1997...................................................... 263
June 1, 1998...................................................... 263
June 1, 1999...................................................... 262
June 1, 2000...................................................... 262
-----
1,313
</TABLE>
Cessation of employment for any reason cancels unvested options. The
Officers may retain vested options after cessation of employment. The vesting
schedule above may be accelerated in certain instances where a change in
ownership occurs of more than 50% of the common stock of the Company.
F-13
<PAGE> 128
PCS DEVELOPMENT CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Stockholders -- Certain stockholders of the Company were granted warrants
to acquire 1,313 shares of Class B Common Stock at an exercise price of
approximately $1,360 per share in an agreement effective October 31, 1994, which
became vested 31.25% on February 1, 1995 and an additional 6.25% of the warrants
vest every successive three months until fully vested on November 1, 1997.
Vesting of half of the warrants is dependent on the continued employment of one
of the officers and vesting of the other half of the warrants is dependent on
continued employment of the other officer. For the officer options and
stockholder warrants, vested options and warrants become exercisable on the
earlier of the following dates: (1) the date on which the holder provides the
Company with an opinion from the Company's FCC counsel that the exercise of the
option or warrant would not jeopardize the status of the Company as a Designated
Entity, (2) the date the Company consummates a public offering of common stock
at $10 or more per share and realizes gross proceeds of at least $10,000,000, or
(3) the first date after which the failure of the Company to qualify for
"Designated Entity" status as a "Business Owned by Members of Minority Groups
and/or Women" would not result in the loss of material benefits by the Company.
The options and warrants expire ten years from the date of issuance (October 31,
2004).
Other Employee Options -- In 1995, several employees were granted options
to exercise, collectively, 1,200 and 300 shares of Class B Common Shares at an
exercise price of $1,000 and $1,850, respectively, per common share. Vesting
occurs at a rate of 5% per quarter over five years with the initial 20% vesting
at the first anniversary of each employee's employment date.
Cessation of employment for any reason cancels unvested options. The
employees may retain vested options after cessation of employment. The vesting
schedule above may be accelerated in certain instances where a change in
ownership occurs of more than 50% of the common stock of the Company. Provisions
for exercise limitations are similar to those for the Officers.
At December 31, 1994 and 1995, no expense for options or warrants was
recorded as Company management believes that the fair value of the Class B
common stock at the date of issuance of the options and warrants was not in
excess of the exercise price.
Subsequent to December 31, 1995, additional options to acquire up to 700
shares of Class B Common Stock were issued to employees upon approval by a
committee of the Board of Directors.
12. SUBSEQUENT EVENTS
Capital Stock Transactions -- All amounts outstanding relating to the
Preferred Stock Subscription Agreements on December 31, 1995, were collected as
of April 25, 1996. On April 18, 1996, Sloan repaid $2,722,005 of outstanding
principal and $189,079 of interest related to the notes receivable from
stockholders.
Purchase of Radio Spectrum -- In early 1996, radio spectrum was purchased
in two metropolitan areas of the United States for a total of $7,250,000. These
purchases were financed through cash and a $500,000 note payable.
During April 1996, the Company successfully bid, by auction, on radio
spectrum in various metropolitan areas throughout the United States. The Company
qualifies as a "Small Business", and as such was permitted a 10% credit on the
bid price made during the auction. The Company was required to make an advance
payment of 5% of the committed price of the licenses within five business days
of the end of the auction. Another 5% is due within five business days of the
date the licenses are granted (expected to be in July of 1996). The balance of
the committed purchase price is due and payable in accordance with the rules and
regulations of the FCC. This obligation will be incurred on the date the
licenses are granted.
F-14
<PAGE> 129
PCS DEVELOPMENT CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The total consideration for the licenses is as follows:
<TABLE>
<S> <C>
Deposit paid in 1995..................................................... $ 500,000
Deposit to be paid....................................................... 480,386
Aggregate balance of unpaid FCC obligation............................... 8,722,485
----------
Total purchase price of licenses (after 10% credit)...................... $9,702,871
=========
</TABLE>
The terms of the FCC obligation consist of a fixed interest rate equal to
the ten-year treasury note at the time of license grant plus 2.5%, with
quarterly payments. Interest only payments are required for the first two years
of the ten-year term. Principal and interest payments will commence following
the second anniversary of the obligation and will continue through the final
payment date.
Additional Financing -- The Company is in the process of registering with
the Securities and Exchange Commission for the issuance of approximately $150
million in Senior Discount Notes due 2006 (the "Notes") and Warrants to purchase
Class B common stock (collectively, the "Units"). The proceeds from the issuance
of the Units will be used to fund capital expenditures, general working capital
and debt service requirements, operating losses, future acquisitions of spectrum
and other general corporate purposes. The indenture governing the Notes will
contain covenants that will limit the ability of the Company to incur
indebtedness, pay dividends and dispose of assets, among others.
The Company is negotiating a commitment from an investment advisory firm to
arrange the establishment of senior credit facilities in the amount of $225
million effective upon the closing of the Notes discussed above. The credit
facilities will consist of a $75 million term loan, a $35 million term loan and
a $115 million reducing revolving credit facility. Under the proposed terms, the
Company will have approximately $75 million immediately available for borrowing
under the credit facilities, and the balance will be available upon the
achievement and maintenance of certain operating results and financial ratios.
The credit facilities will be used to fund capital expenditures, working
capital and debt service requirements, operating losses, future acquisitions of
spectrum and other general corporate purposes. Borrowings under the facilities
will bear interest, at the option of the Company, at a maximum rate of the agent
bank's base rate plus 3% or the agent bank's Eurodollar rate plus 4%. Borrowings
under the facilities will initially be available on the closing date of the
facility and end on June 30, 2004. The $75 million and $35 million term loans
will be repayable in two equal installments on March 31, 2000 and June 30, 2000.
The $115 million reducing revolving loans will be retired in quarterly
installments beginning on March 31, 2000 and ending on June 30, 2004.
The $115 million reducing revolving credit facility's availability are
conditioned upon the satisfaction of certain conditions including expending
certain amounts previously received from the issuance of equity by the Company,
borrowing the full amount under the term loan and maintaining certain financial
ratios. The credit facilities will contain covenants that will limit the
Company's ability to incur additional indebtedness, pay dividends and dispose of
assets, among others.
The investment advisory firm and the lender under the $35 million term loan
and the $115 million reducing revolving credit facility are affiliates of two of
the Company's preferred stockholders who own 3.6% and 18.0% of the Company's
Series A Preferred Stock, respectively.
F-15
<PAGE> 130
PCS DEVELOPMENT CORPORATION
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED BALANCE SHEET
(UNAUDITED)
<TABLE>
<CAPTION>
MARCH 31,
1996
------------
<S> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents.................................................... $ 29,865,057
Interest receivable from stockholder......................................... 161,834
Prepaid expenses and other current assets.................................... 855,996
------------
Total current assets................................................. 30,882,887
DEFERRED OFFERING EXPENSES..................................................... 607,655
EQUIPMENT AND FIXTURES -- Net.................................................. 4,128,866
INTANGIBLE ASSETS -- Net....................................................... 106,480,017
------------
TOTAL................................................................ $142,099,425
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable............................................................. $ 499,825
Accrued payroll withholdings................................................. 319,938
Other accrued liabilities.................................................... 1,312,978
Current portion of long-term debt............................................ 338,062
------------
Total current liabilities............................................ 2,470,803
------------
OTHER LIABILITIES.............................................................. 134,570
------------
LONG-TERM DEBT................................................................. 73,762,198
------------
COMMITMENTS
REDEEMABLE CONVERTIBLE PREFERRED STOCK......................................... 40,107,923
STOCKHOLDERS' EQUITY:
Common stock:
Class A, $1.00 par value, 300,000 shares authorized, 8,718 shares issued
and outstanding.......................................................... 8,718
Class B, $1.00 par value, 200,000 shares authorized, 28,482 shares issued
and outstanding.......................................................... 28,482
Common stock additional paid-in capital...................................... 34,973,253
Deficit accumulated during the development stage............................. (4,111,387)
------------
30,899,066
Less notes receivable from stockholder....................................... (5,275,135)
------------
Total stockholders' equity........................................... 25,623,931
------------
TOTAL................................................................ $142,099,425
===========
</TABLE>
See notes to consolidated financial statements.
F-16
<PAGE> 131
PCS DEVELOPMENT CORPORATION
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
CUMULATIVE AMOUNTS
FROM
SEPTEMBER 21, 1994
THREE MONTHS THREE MONTHS (DATE OF
ENDED ENDED INCORPORATION)
MARCH 31, 1995 MARCH 31, 1996 TO MARCH 31, 1996
-------------- -------------- ------------------
<S> <C> <C> <C>
OPERATING EXPENSES:
Sales and Marketing............................. $ -- $ 756,041 $1,552,141
Administrative.................................. 317,659 1,236,390 3,553,471
Depreciation.................................... 472 73,217 210,591
Amortization.................................... 4,869 4,869 28,406
-------------- -------------- ------------------
323,000 2,070,517 5,344,609
-------------- -------------- ------------------
INTEREST INCOME FROM STOCKHOLDER.................. (102,867) (77,308) (625,573)
INTEREST INCOME -- OTHER.......................... (29,746) (337,636) (607,649)
-------------- -------------- ------------------
NET LOSS................................ $ 190,387 $1,655,573 $4,111,387
=========== =========== ==============
PER SHARE DATA:
NET LOSS................................ $ 190,387 $1,655,573
ACCRETION OF PREFERRED STOCK
DIVIDENDS............................. -- 1,393,348
-------------- --------------
NET LOSS ATTRIBUTABLE TO COMMON
STOCKHOLDERS.......................... $ 190,387 $3,048,921
=========== ===========
NET LOSS PER COMMON SHARE............... $ 5.12 $ 81.96
=========== ===========
</TABLE>
See notes to consolidated financial statements.
F-17
<PAGE> 132
PCS DEVELOPMENT CORPORATION
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
PERIOD FROM DECEMBER 31, 1995
TO MARCH 31, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
AMOUNTS
COMMON STOCK DEFICIT ACCUMULATED RECEIVABLE NOTES RECEIVABLE
COMMON STOCK COMMON STOCK ADDITIONAL DURING THE FROM FROM
CLASS A CLASS B PAID-IN CAPITAL DEVELOPMENT STAGE STOCKHOLDERS STOCKHOLDER TOTAL
------------ ------------ --------------- ------------------- ------------ ---------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE,
December
31,
1995...... $8,718 $ 28,482 $36,366,601 $(2,455,814) $ (14,147) $ (5,275,135) $28,658,705
Collection
of
amounts
receivable
from
stockholders... -- -- -- -- 14,147 -- 14,147
Preferred
stock
accretion... -- -- (1,393,348) -- -- -- (1,393,348)
Net loss.... -- -- -- (1,655,573) -- -- (1,655,573)
------------ ------------ --------------- ------------------- ------------ ---------------- -----------
BALANCE,
March 31,
1996...... $8,718 $ 28,482 $34,973,253 $(4,111,387) $ -- $ (5,275,135) $25,623,931
============ ============ ============ ================ ============= ============= ============
</TABLE>
See notes to consolidated financial statements.
F-18
<PAGE> 133
PCS DEVELOPMENT CORPORATION
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
CUMULATIVE
AMOUNTS FROM
THREE MONTHS THREE MONTHS SEPTEMBER 21, 1994
ENDED ENDED (DATE OF INCORPORATION)
MARCH 31, 1995 MARCH 31, 1996 TO MARCH 31, 1996
-------------- -------------- -----------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net Loss............................................. $ (190,387) $ (1,655,573) $(4,111,387)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation and amortization...................... 5,341 78,086 238,997
Changes in assets and liabilities:
Increase in accrued interest receivable.......... -- (592) (592)
Increase in interest receivable from
shareholder................................... (102,747) (77,491) (161,834)
Increase in prepaid expenses and other current
assets........................................ (5,150) (103,594) (355,404)
(Decrease) increase in accounts payable.......... (89,132) 284,244 499,825
Decrease in due to related company............... (139,333) -- (75,763)
Increase in accrued payroll withholdings......... -- 94,522 319,938
Increase in other accrued liabilities............ 8,096 409,447 941,326
Increase in other liabilities.................... -- -- 134,570
-------------- -------------- -----------------------
Net cash used in operating activities......... (513,312) (970,951) (2,570,324)
INVESTING ACTIVITIES:
Purchases of equipment and fixtures.................. (16,194) (1,842,026) (3,333,610)
Payments for FCC licenses............................ (9,830,761) (8,430,530) (33,202,249)
FCC deposit.......................................... -- -- (500,000)
Increase (decrease) in accrued interest payable...... 738,621 (13,601) 5,022
-------------- -------------- -----------------------
Net cash used in investing activities......... (9,108,334) (10,286,157) (37,030,837)
FINANCING ACTIVITIES:
Proceeds from the issuance of common stock and
collection of amounts receivable from
stockholders....................................... 9,246,257 14,147 28,000,000
Proceeds from the issuance of preferred stock and
collection of subscriptions receivable............. -- 15,602,250 37,918,376
Payments on debt..................................... -- (200,998) (200,998)
Proceeds from the issuance of note payable........... -- -- 65,000
Collection of notes receivable from stockholder...... -- -- 3,924,865
Deferred offering expenses, net of accrued
expenses........................................... -- (241,025) (241,025)
-------------- -------------- -----------------------
Net cash provided by financing activities..... 9,246,257 15,174,374 69,466,218
(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS....... (375,389) 3,917,266 29,865,057
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD......... 763,878 25,947,791 --
-------------- -------------- -----------------------
CASH AND CASH EQUIVALENTS, END OF PERIOD............... $ 388,489 $ 29,865,057 $29,865,057
============== ============== =====================
SUPPLEMENTAL DISCLOSURES OF NON-CASH FINANCING
INFORMATION:
Debt incurred to acquire FCC Licenses................ $ 72,741,121 -- $72,741,121
Debt incurred to acquire SMR Licenses................ -- $ 500,000 $ 500,000
Debt incurred to acquire certain fixed assets........ -- -- $ 995,139
Issuance of notes receivable to stockholder for
stock.............................................. $ 3,311,000 -- $ 9,200,000
Preferred stock accretion............................ -- $ 1,393,348 $ 2,189,547
</TABLE>
See notes to consolidated financial statements.
F-19
<PAGE> 134
PCS DEVELOPMENT CORPORATION
(A DEVELOPMENT STAGE COMPANY)
MARCH 31, 1996
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. BASIS OF INTERIM PRESENTATION
The accompanying unaudited financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information. Accordingly, they do not include all the information and footnotes
required by generally accepted accounting principles for complete financial
statements. In the opinion of the Company, all adjustments (consisting of only
normal recurring adjustments) necessary to present fairly the financial position
and the results of operations for the interim period presented herein have been
included. These unaudited financial statements should be read in conjunction
with the financial statements and the accompanying notes thereto as of and for
the period ended December 31, 1995, included elsewhere in this registration
statement.
2. SUBSEQUENT EVENTS
Purchase of radio spectrum -- The Company has purchased or has contracts or
letters of intent to purchase from third parties radio spectrum in five
metropolitan areas for an aggregate purchase price of approximately $15.6
million. Additionally, the Company has options or is actively negotiating to
acquire options on radio spectrum in four metropolitan areas, the option fees
under which are approximately $3.5 million and the total purchase price for
which (inclusive of the option fees) would be approximately $11.4 million if the
options are exercised. The options are long term options, the shortest of which
expires on June 30, 2000 if not earlier exercised.
Additional financing -- The Company has amended its registration with the
Securities and Exchange Commission for the issuance of its $150 million initial
Accreted Value of Senior Discount Notes due 2006 to increase the initial
Accreted Value to $165 million (the "Notes") and Warrants to purchase Class B
common stock (collectively, the "Units"). The proceeds from the issuance of the
Units will be used to fund capital expenditures, general working capital and
debt service requirements, operating losses, future acquisitions of spectrum and
other general corporate purposes. The indenture governing the Notes will contain
covenants that will limit the ability of the Company to incur indebtedness, pay
dividends and dispose of assets, among others.
The Company has received a commitment from an investment advisory firm to
arrange the establishment of senior credit facilities in the amount of $225
million effective upon the closing of the Notes discussed above. The credit
facilities consist of a $75 million term loan, a $35 million revolving credit
facility and a $115 million reducing revolving credit facility. The Company has
approximately $75 million immediately available for borrowing under the credit
facilities, and the balance is available upon the achievement and maintenance of
certain operating results and financial ratios. The Chase Manhattan Bank has
committed to provide the entire $35 million and $115 million revolving loans and
Glenayre Electronics Inc. has agreed to provide the entire $75 million term
loan.
The credit facilities will be used to fund capital expenditures, working
capital and debt service requirements, operating losses, future acquisitions of
spectrum and other general corporate purposes. Borrowings under the facilities
will bear interest, at the option of the Company, at a maximum rate of the agent
bank's base rate plus 3% or the agent bank's Eurodollar rate plus 4%. Borrowings
under the facilities will initially be available on the closing date of the
facility and end on June 30, 2004. The $75 million and $35 million loans will be
repayable in two equal installments on March 31, 2000 and June 30, 2000. The
$115 million reducing revolving loans will be retired in quarterly installments
beginning on March 31, 2001 and ending on June 30, 2004.
F-20
<PAGE> 135
The availability of the $35 million and the $115 million revolving loans is
conditioned upon the satisfaction of certain conditions including expending
certain amounts previously received from the issuance of equity by the Company,
borrowing the full amount under the $75 million term loan and maintaining
certain financial ratios. The credit facilities will contain covenants that will
limit the Company's ability to incur additional indebtedness, pay dividends and
dispose of assets, among others.
The investment advisory firm and the lender under the $35 million revolving
loan and the $115 million reducing revolving credit facility are affiliates of
two of the Company's preferred stockholders who own 3.6% and 18.0% of the
Company's Series A Preferred Stock, respectively.
F-21
<PAGE> 136
------------------------------------------------------
------------------------------------------------------
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS AND,
IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED BY THE COMPANY OR THE UNDERWRITERS. THIS PROSPECTUS DOES
NOT CONSTITUTE AN OFFER OF ANY SECURITIES OTHER THAN THOSE TO WHICH IT RELATES
OR AN OFFER TO SELL TO, OR A SOLICITATION OF AN OFFER TO BUY FROM, ANY PERSON IN
ANY JURISDICTION WHERE SUCH AN OFFER OR SOLICITATION WOULD BE UNLAWFUL. NEITHER
THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY
CIRCUMSTANCES, CREATE AN IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS
CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF.
---------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary.................... 3
Risk Factors.......................... 11
Corporate Reorganization and
Structure........................... 19
Use of Proceeds....................... 20
Dividend Policy....................... 20
Capitalization........................ 21
Selected Consolidated Financial
Data................................ 22
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 23
Business.............................. 28
Management............................ 45
Certain Transactions.................. 51
Principal Stockholders................ 53
Description of FCC Auction Benefits... 56
Description of Other Indebtedness..... 59
Description of the Units.............. 61
Description of the Notes.............. 62
Description of the Warrants........... 89
Description of Capital Stock.......... 93
Certain Federal Income Tax
Considerations...................... 105
Underwriting.......................... 110
Legal Matters......................... 111
Experts............................... 111
Available Information................. 112
Index to Consolidated Financial
Statements.......................... F-1
</TABLE>
UNTIL , 1996 (90 DAYS AFTER THE DATE OF THE OFFERING),
ALL DEALERS EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES OFFERED HEREBY,
WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A
PROSPECTUS. THIS DELIVERY REQUIREMENT IS IN ADDITION TO THE OBLIGATION OF
DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO
THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
------------------------------------------------------
------------------------------------------------------
------------------------------------------------------
------------------------------------------------------
UNITS
LOGO
$ OF
% SENIOR DISCOUNT NOTES DUE 2006
WITH WARRANTS TO PURCHASE
SHARES
OF CLASS B COMMON STOCK
---------------------------
PROSPECTUS
, 1996
---------------------------
LEHMAN BROTHERS
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
CHASE SECURITIES INC.
TORONTO DOMINION SECURITIES
------------------------------------------------------
------------------------------------------------------
<PAGE> 137
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
Set forth below is an estimate of the approximate amount of fees and
expenses (other than underwriting discounts and commissions) payable by the
Registrant in connection with the issuance and distribution of the securities
registered hereby.
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee.............................. $ 56,896
Printing and engraving........................................................... 250,000
Accountants' fees and expenses................................................... 100,000
Blue sky fees and expenses....................................................... 8,000
Counsel fees and expenses........................................................ 500,000
Rating services.................................................................. 100,000
Miscellaneous.................................................................... 485,103
----------
Total.................................................................. $1,500,000
=========
</TABLE>
- ---------------
*Estimate
ITEM 14. INDEMNIFICATION OF OFFICERS AND DIRECTORS
Under Section 145 of the Delaware General Corporation Law (the "Delaware
Law"), a corporation may indemnify its directors, officers, employees and agents
and its former directors, officers, employees and agents and those who serve, at
the corporation's request, in such capacity with another enterprise, against
expenses (including attorneys' fees), as well as judgments, fines and
settlements in nonderivative lawsuits, actually and reasonably incurred in
connection with the defense of any action, suit or proceeding in which they or
any of them were or are made parties or are threatened to be made parties by
reason of their serving or having served in such capacity. The Delaware Law
provides, however, that such person must have acted in good faith and in a
manner such person reasonably believed to be in (or not opposed to) the best
interests of the corporation and, in the case of a criminal action, such person
must have had no reasonable cause to believe his or her conduct was unlawful. In
addition, the Delaware Law does not permit indemnification in an action or suit
by or in the right of the corporation, where such person has been adjudged
liable to the corporation, unless, and only to the extent that, a court
determines that such person fairly and reasonably is entitled to indemnity for
costs the court deems proper in light of liability adjudication. Indemnity is
mandatory to the extent a claim, issue or matter has been successfully defended.
The Company's Restated Certificate of Incorporation and Restated By-laws,
as amended, provide for mandatory indemnification of directors and officers on
generally the same terms as permitted by the Delaware Law. Under the Restated
Certificate of Incorporation, the Company is required to advance expenses
incurred by an officer or director in defending any such action if the director
or officer undertakes to repay such amount if it is determined that the director
or officer is not entitled to indemnification.
The Underwriting Agreement provides for indemnification by the Underwriters
of the directors, officers and controlling persons of the Company against
certain liabilities, including liabilities under the Securities Act, under
certain circumstances.
II-1
<PAGE> 138
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
In October, 1994 the Company sold 8,718 shares of Class A Common Stock and
28,482 shares of Class B Common Stock to its 26 founding stockholders for $1,000
per share. The purchasers were officers and directors of the Company, the Paging
Company Investors, members of the law firm that is the Company's special FCC
counsel, venture capital funds and certain accredited investors. A portion of
the consideration for this Common Stock remains payable by the subscribers upon
a board-approved schedule. The Company simultaneously issued warrants to Austin
Ventures and Marquette Ventures to purchase 692 and 621 shares of Class B Common
Stock, respectively. These issuances of Common Stock and warrants were exempt
from the registration requirements of the Securities Act pursuant to Section
4(2) of the Securities Act.
From October 31, 1994 until the date hereof, the Company has issued to
officers and employees options to purchase an aggregate of 7,452 shares of Class
B Common Stock. These issuances were exempt from the registration requirements
of the Securities Act pursuant to Section 4(2) and Rule 701 of the Securities
Act.
On November 10, 1995 the Company sold 24,667 shares of its Series A
Preferred Stock to 70 accredited investors for $2,250 per share. A portion of
the subscription price for these shares remains payable by the subscribers upon
a board-approved schedule. This issuance was exempt from the registration
requirements of the Securities Act pursuant to Section 4(2) and Regulation D of
the Securities Act.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(A) EXHIBITS
<TABLE>
<C> <S>
1.1 Form of Underwriting Agreement by and among PCS Development Corporation and Lehman
Brothers Inc., Donaldson, Lufkin & Jenrette Securities Corporation, Chase Securities
Inc. and Toronto Dominion Securities (USA) Inc. as Underwriters.
2.1 Subscription Agreement between PCS Development Corporation and PCSD Financial
Corporation.*
2.2 Subscription Agreement among PCSD Financial Corporation, PCSD Spectrum, Inc. and PCSD
Network, Inc.*
2.3 Application for Assignment of Authorization or Consent to Transfer of Control of
Licensee filed by Registrant with the FCC and FCC Consent to Assignment of Commercial
Radio Station Construction Permit or License with respect to the KNKV213 License.+
2.4 Application for Assignment of Authorization or Consent to Transfer of Control of
Licensee filed by Registrant with the FCC and FCC Consent to Assignment of Commercial
Radio Station Construction Permit or License with respect to the KNKV219 License.+
2.5 Application for Assignment of Authorization or Consent to Transfer of Control of
Licensee filed by Registrant with the FCC and FCC Consent to Assignment of Commercial
Radio Station Construction Permit or License with respect to the KNKV225 License.+
2.6 Application for Assignment of Authorization or Consent to Transfer of Control of
Licensee filed by Registrant with the FCC and FCC Consent to Assignment of Commercial
Radio Station Construction Permit or License with respect to the KNKV231 License.+
2.7 Application for Assignment of Authorization or Consent to Transfer of Control of
Licensee filed by Registrant with the FCC and FCC Consent to Assignment of Commercial
Radio Station Construction Permit or License with respect to the KNKV237 License.+
3.1 Restated Certificate of Incorporation of PCS Development Corporation dated November
14, 1994.+
3.2 Certificate of Amendment of Restated Certificate of Incorporation of PCS Development
Corporation dated October 30, 1995.+
3.3 Certificate of Designations of Series A Preferred Stock and Series B Preferred Stock
of PCS Development Corporation dated November 9, 1995.+
</TABLE>
II-2
<PAGE> 139
<TABLE>
<C> <S>
3.4 Certificate of Correction of PCS Development Corporation dated January 29, 1996.+
3.5 Amended and Restated Bylaws of PCS Development Corporation.+
4.1 Form of Indenture (including form of Note) between PCS Development Corporation and
United States Trust Company of New York, as Trustee, relating to the Senior Discount
Notes due 2006 of PCS Development Corporation.
4.2 PCS Development Corporation Stockholders Agreement dated November 14, 1994, by and
among the Registrant and each of the Stockholders.+
4.3 PCS Development Corporation Stockholders Agreement First Amendment dated March 1,
1995, by and among the Registrant and each of the Common Stockholders.+
4.4 Second Amendment to PCS Development Corporation Stockholders Agreement dated June 14,
1995, by and among the Registrant and each holder of Common Stock.+
4.5 Third Amendment to PCS Development Corporation Stockholders Agreement dated October
30, 1995, by and among the Registrant and each holder of Common Stock.+
4.6 Fourth Amendment to PCS Development Corporation Stockholders Agreement dated November
9, 1995, by and among the Registrant and each holder of Common Stock.+
4.7 Fifth Amendment to PCS Development Corporation Stockholders Agreement dated December
5, 1995, by and among the Registrant and each of the Common Stockholders and each
Purchaser of Series A Preferred Stock.+
4.8 Preferred Stockholders Agreement of PCS Development Corporation dated November 10,
1995, by and among the Registrant and each Purchaser of Series A Preferred Stock.+
4.9 PCS Development Corporation Subscription Agreement dated October 1, 1994, by and
among the Registrant and certain holders of the Common Stock.+
4.10 Form of Unit Agreement between PCS Development Corporation and United States Trust
Company, as Unit Agent, Trustee and Warrant Agent.
4.11 Form of Warrant Agreement between PCS Development Corporation and United States Trust
Company, as Warrant Agent.
4.12 Form of Class B Common Stock and Warrant Registration Rights Agreement among PCS
Development Corporation and Lehman Brothers Inc., on behalf of itself and Donaldson,
Lufkin & Jenrette Securities Corporation, Chase Securities Inc. and Toronto Dominion
Securities (USA) Inc., as Underwriters.
5.1 Opinion of Nelson Mullins Riley & Scarborough, L.L.P., counsel to the Registrant, as
to the legality of the Securities being registered.*
5.2 Opinion of Lukas McGowan Nace & Gutierrez, Chartered, special FCC counsel to the
Registrant ("Lukas McGowan"), as to the dilution of the control group in connection
with the sale of Series A Preferred Stock.
5.3 Opinion of Lukas McGowan regarding the Adarand decision.
5.4 Form of Opinion of Lukas McGowan as to certain communications related legal matters,
including the dilution of the control group in connection with the sale of the Units.
8.1 Form of Opinion of Nelson Mullins Riley & Scarborough, L.L.P., with respect to
certain tax matters.
10.1 PCS Development Corporation Class B Common Stock Warrant Agreement dated October 31,
1994, among the Registrant and Austin Ventures III-A, L.P., Austin Ventures III-B,
L.P., Austin Ventures IV-A, L.P., and Austin Ventures IV-B, L.P.+
10.2 First Amendment to PCS Development Corporation Class B Common Stock Warrant Agreement
dated October 31, 1994, between the Registrant and Austin Ventures III-A, L.P.,
Austin Ventures III-B, L.P., Austin Ventures IV-A, L.P., and Austin Ventures IV-B,
L.P.+
</TABLE>
II-3
<PAGE> 140
<TABLE>
<C> <S>
10.3 PCS Development Corporation Class B Common Stock Warrant Agreement dated October 31,
1994, between the Registrant and Marquette Venture Partners II, L.P. and MVP II
Affiliates Fund, L.P.+
10.4 First Amendment to PCS Development Corporation Class B Common Stock Warrant Agreement
dated October 31, 1994, between the Registrant and Marquette Venture Partners II,
L.P. and MVP II Affiliates Fund, L.P.+
10.5 Employment Agreement dated October 31, 1994, between the Registrant and William D.
deKay.+
10.6 First Amendment to Employment Agreement dated July, 1995, between the Registrant and
William D. deKay.+
10.7 PCS Development Corporation Class B Common Stock Option Agreement dated October 31,
1994, between the Registrant and William D. deKay.+
10.8 First Amendment to PCS Development Corporation Class B Common Stock Option Agreement
dated October 31, 1994, between the Registrant and William D. deKay.+
10.9 Employment Agreement dated October 31, 1994, between the Registrant and Cecil L.
Duffie, Jr.+
10.10 First Amendment to Employment Agreement dated July 25, 1995, between the Registrant
and Cecil L. Duffie, Jr.+
10.11 PCS Development Corporation Class B Common Stock Option Agreement dated October 31,
1994, between the Registrant and Cecil L. Duffie, Jr.+
10.12 First Amendment to PCS Development Corporation Class B Common Stock Option Agreement
dated October 31, 1994, between the Registrant and Cecil L. Duffie, Jr.+
10.13 Employment Agreement dated March 31, 1995, between the Registrant and Harry L. Latham
III.+
10.14 First Amendment to Employment Agreement dated July 25, 1995, between the Registrant
and Harry L. Latham III.+
10.15 PCS Development Corporation Class B Common Stock Option Agreement dated March 31,
1995, between the Registrant and Harry L. Latham III.+
10.16 First Amendment to PCS Development Corporation Class B Common Stock Option Agreement
dated March 31, 1995, between the Registrant and Harry L. Latham III.+
10.17 Second Amendment to PCS Development Corporation Class B Common Stock Option Agreement
dated January 1, 1996, between the Registrant and Harry L. Latham III.+
10.18 Employment Agreement dated January 13, 1995, between the Registrant and Jerry
Leonard.+
10.19 First Amendment to Employment Agreement dated January 13, 1995, between the
Registrant and Jerry Leonard.+
10.20 PCS Development Corporation Class B Common Stock Option Agreement dated January 13,
1995, between the Registrant and Jerry Leonard.+
10.21 First Amendment to PCS Development Corporation Class B Common Stock Option Agreement
dated January 13, 1995, between the Registrant and Jerry Leonard.+
10.22 Preferred Stockholders Registration Rights Agreement of PCS Development Corporation
dated November 10, 1995, by and among the Registrant and each Purchaser of Series A
Preferred Stock.+
10.23 Convertible Preferred Stock Purchase Agreement dated November 10, 1995, by and among
the Registrant and certain Purchasers named therein.+
10.24 First Amendment to Convertible Preferred Stock Purchase Agreement dated December 5,
1995, by and among the Registrant and each of the Purchasers of the Convertible
Preferred Stock.+
10.25 PCS Development Corporation Stockholders Agreement (included in Exhibit 4.2).
10.26 PCS Development Corporation Stockholders Agreement First Amendment (included in
Exhibit 4.3).
</TABLE>
II-4
<PAGE> 141
<TABLE>
<C> <S>
10.27 Second Amendment to PCS Development Corporation Stockholders Agreement (included in
Exhibit 4.4).
10.28 Third Amendment to PCS Development Corporation Stockholders Agreement (included in
Exhibit 4.5).
10.29 Fourth Amendment to PCS Development Corporation Stockholders Agreement (included in
Exhibit 4.6).
10.30 Fifth Amendment to PCS Development Corporation Stockholders Agreement (included in
Exhibit 4.7).
10.31 PCS Development Corporation Registration Rights Agreement dated November 14, 1994, by
and among the Registrant and each holder of Common Stock.+
10.32 First Amendment to PCS Development Corporation Registration Rights Agreement dated
October 30, 1995, by and among the Registrant and each holder of Common Stock.+
10.33 Second Amendment to PCS Development Corporation Registration Rights Agreement dated
November 9, 1995, by and among the Registrant and each holder of Common Stock.+
10.34 Preferred Stockholders Agreement (included in Exhibit 4.3).
10.35 Office Lease Agreement by and between 15 S. Main, Inc. and PCS Development
Corporation dated April 17, 1995, for the premises located at 15 S. Main St., Suite
810, Greenville, S.C. 29601+.
10.36 PCS Development Corporation Subscription Agreement (included in Exhibit 4.9).
10.37 Commitment Letter dated June 25, 1996 for $225 million Equipment Financing Credit
Facility from The Chase Manhattan Bank, N.A. as Administrative Agent, Chase
Securities Inc. as Arranger, and Glenayre Electronics Inc. to PCSD Financial Corp.
10.38 FCC Radio Station Authorization granted to PCS Development Corporation on February 3,
1995, for call sign KNKV213, File No. 00013-CN-L-95.+
10.39 FCC Radio Station Authorization granted to PCS Development Corporation on February 3,
1995, for call sign KNKV219, File No. 00019-CN-L-95.+
10.40 FCC Radio Station Authorization granted to PCS Development Corporation on February 3,
1995, for call sign KNKV225, File No. 00025-CN-L-95.+
10.41 FCC Radio Station Authorization granted to PCS Development Corporation on February 3,
1995, for call sign KNKV231, File No. 00031-CN-L-95.+
10.42 FCC Radio Station Authorization granted to PCS Development Corporation on February 3,
1995, for call sign KNKV237, File No. 00037-CN-L-95.+
10.43 Loan Agreement dated October 4, 1994, between the Registrant and Sloan
Communications, Inc.+
10.44 Promissory Note dated September 30, 1994, executed and delivered by Sloan
Communications, Inc. in favor of the Registrant.+
10.45 Promissory Note dated January 19, 1995, executed and delivered by Sloan
Communications, Inc. in favor of the Registrant.+
10.46 Promissory Note dated April 20, 1995, executed and delivered by Sloan Communications,
Inc. in favor of the Registrant.+
10.47 Promissory Note dated June 23, 1995, executed and delivered by Sloan Communications,
Inc. in favor of the Registrant.+
12.1 Statement regarding Computation of Ratio of Earnings to Fixed Charges.+
21.1 Subsidiary of PCS Development Corporation.+
23.1 Consent of Deloitte & Touche LLP.**
23.2 Consent of Nelson Mullins Riley & Scarborough, L.L.P. (included in the legal opinions
filed as Exhibits 5.1 and 8.1 hereto).*
</TABLE>
II-5
<PAGE> 142
<TABLE>
<C> <S>
23.3 Consent of Lukas McGowan.
24.1 Powers of Attorney (included on the signature page to the Registration Statement).
25.1 Statement of Eligibility of Trustee on Form T-1 (separately bound).*
27 Financial Data Schedule.+
99.1 Ruling from the FCC's Commercial Wireless Division dated 10/25/95 as to the dilution
of the control group to an amount less than 25% of the total equity.+
</TABLE>
- ---------------
* To be filed by amendment.
** Revised from Exhibit filed on May 24, 1996.
+ Previously filed.
(B) FINANCIAL STATEMENT SCHEDULES. All information required by the
financial statement schedules is included in the notes to the financial
statements.
ITEM 17. UNDERTAKINGS.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
The undersigned Registrant hereby undertakes that,
(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of this registration statement in reliance upon Rule 430A and contained in
the form of prospectus filed by the Registrant pursuant to Rule 424(b)(1)
or (4) or 497(h) under the Securities Act shall be deemed to be part of
this registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
II-6
<PAGE> 143
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment to Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Greenville,
State of South Carolina, on July 16, 1996.
PCS Development Corporation
By: /s/ CECIL L. DUFFIE, JR.
------------------------------------
Cecil L. Duffie, Jr.
Vice Chairman and
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this Amendment
to Registration Statement has been signed by the following persons in the
capacities and on this 16th day of July, 1996.
<TABLE>
<CAPTION>
SIGNATURES TITLE
- --------------------------------------------- ----------------------------------------------
<C> <S>
* Chairman of the Board
- ---------------------------------------------
Maceo K. Sloan
/s/ CECIL L. DUFFIE, Vice Chairman of the Board and Chief Executive
JR. Officer (principal executive officer)
- ---------------------------------------------
Cecil L. Duffie, Jr.
* President and Director
- ---------------------------------------------
William D. deKay
* Senior Vice President of Sales and Marketing
- ---------------------------------------------
Harry L. Latham, III
* Senior Vice President for Engineering and
- --------------------------------------------- Network Operations Director
Jerome C. Leonard
* Senior Vice President of Finance, Treasurer &
- --------------------------------------------- Chief Financial Officer (principal financial
Mark A. Moore and accounting officer)
* Director
- ---------------------------------------------
C.E. Baker, Jr.
* Director
- ---------------------------------------------
Justin F. Beckett
* Director
- ---------------------------------------------
R. Schorr Berman
* Director
- ---------------------------------------------
James E. Daverman
* Director
- ---------------------------------------------
Richard D. Frisbie
</TABLE>
II-7
<PAGE> 144
<TABLE>
<CAPTION>
SIGNATURES TITLE
- --------------------------------------------- ----------------------------------------------
<C> <S>
* Director
- ---------------------------------------------
Jeffery C. Garvey
* Director
- ---------------------------------------------
James D. Kallman
* Director
- ---------------------------------------------
Steven J. Lerner
* Director
- ---------------------------------------------
Malcolmn Pryor
* Director
- ---------------------------------------------
Stan F. Sech
* Director
- ---------------------------------------------
Pamela R. Simmons
* Director
- ---------------------------------------------
Elliott H. Singer
*By: /s/ CECIL L. DUFFIE,
JR.
- ---------------------------------------------
Cecil L. Duffie, Jr.
Attorney-in-fact
</TABLE>
II-8
<PAGE> 145
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
- ------ -----------------------------------------------------------------------------------
<C> <S>
1.1 Form of Underwriting Agreement by and among PCS Development Corporation and Lehman
Brothers Inc., Donaldson, Lufkin & Jenrette Securities Corporation, Chase
Securities Inc. and Toronto Dominion Securities (USA) Inc. as Underwriters.
2.1 Subscription Agreement between PCS Development Corporation and PCSD Financial
Corporation.*
2.2 Subscription Agreement among PCSD Financial Corporation, PCSD Spectrum, Inc. and
PCSD Network, Inc.*
2.3 Application for Assignment of Authorization or Consent to Transfer of Control of
Licensee filed by Registrant with the FCC and FCC Consent to Assignment of
Commercial Radio Station Construction Permit or License with respect to the KNKV213
License.+
2.4 Application for Assignment of Authorization or Consent to Transfer of Control of
Licensee filed by Registrant with the FCC and FCC Consent to Assignment of
Commercial Radio Station Construction Permit or License with respect to the KNKV219
License.+
2.5 Application for Assignment of Authorization or Consent to Transfer of Control of
Licensee filed by Registrant with the FCC and FCC Consent to Assignment of
Commercial Radio Station Construction Permit or License with respect to the KNKV225
License.+
2.6 Application for Assignment of Authorization or Consent to Transfer of Control of
Licensee filed by Registrant with the FCC and FCC Consent to Assignment of
Commercial Radio Station Construction Permit or License with respect to the KNKV231
License.+
2.7 Application for Assignment of Authorization or Consent to Transfer of Control of
Licensee filed by Registrant with the FCC and FCC Consent to Assignment of
Commercial Radio Station Construction Permit or License with respect to the KNKV237
License.+
3.1 Restated Certificate of Incorporation of PCS Development Corporation dated November
14, 1994.+
3.2 Certificate of Amendment of Restated Certificate of Incorporation of PCS
Development Corporation dated October 30, 1995.+
3.3 Certificate of Designations of Series A Preferred Stock and Series B Preferred
Stock of PCS Development Corporation dated November 9, 1995.+
3.4 Certificate of Correction of PCS Development Corporation dated January 29, 1996.+
3.5 Amended and Restated Bylaws of PCS Development Corporation.+
4.1 Form of Indenture (including form of Note) between PCS Development Corporation and
United States Trust Company of New York, as Trustee, relating to the Senior
Discount Notes due 2006 of PCS Development Corporation.
4.2 PCS Development Corporation Stockholders Agreement dated November 14, 1994, by and
among the Registrant and each of the Stockholders.+
4.3 PCS Development Corporation Stockholders Agreement First Amendment dated March 1,
1995, by and among the Registrant and each of the Common Stockholders.+
4.4 Second Amendment to PCS Development Corporation Stockholders Agreement dated June
14, 1995, by and among the Registrant and each holder of Common Stock.+
4.5 Third Amendment to PCS Development Corporation Stockholders Agreement dated October
30, 1995, by and among the Registrant and each holder of Common Stock.+
4.6 Fourth Amendment to PCS Development Corporation Stockholders Agreement dated
November 9, 1995, by and among the Registrant and each holder of Common Stock.+
4.7 Fifth Amendment to PCS Development Corporation Stockholders Agreement dated
December 5, 1995, by and among the Registrant and each of the Common Stockholders
and each Purchaser of Series A Preferred Stock.+
4.8 Preferred Stockholders Agreement of PCS Development Corporation dated November 10,
1995, by and among the Registrant and each Purchaser of Series A Preferred Stock.+
</TABLE>
<PAGE> 146
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
- ------ -----------------------------------------------------------------------------------
<C> <S>
4.9 PCS Development Corporation Subscription Agreement dated October 1, 1994, by and
among the Registrant and certain holders of the Common Stock.+
4.10 Form of Unit Agreement between PCS Development Corporation and United States Trust
Company, as Unit Agent, Trustee and Warrant Agent.
4.11 Form of Warrant Agreement between PCS Development Corporation and United States
Trust Company, as Warrant Agent.
4.12 Form of Class B Common Stock and Warrant Registration Rights Agreement among PCS
Development Corporation and Lehman Brothers Inc., on behalf of itself and
Donaldson, Lufkin & Jenrette Securities Corporation, Chase Securities Inc. and
Toronto Dominion Securities (USA) Inc., as Underwriters.
5.1 Opinion of Nelson Mullins Riley & Scarborough, L.L.P., counsel to the Registrant,
as to the legality of the Securities being registered.*
5.2 Opinion of Lukas McGowan Nace & Gutierrez, Chartered, special FCC counsel to the
Registrant ("Lukas McGowan"), as to the dilution of the control group in connection
with the sale of Series A Preferred Stock.
5.3 Opinion of Lukas McGowan regarding the Adarand decision.
5.4 Form of Opinion of Lukas McGowan as to certain communications related legal
matters, including the dilution of the control group in connection with the sale of
the Units.
8.1 Form of Opinion of Nelson Mullins Riley & Scarborough, L.L.P., with respect to
certain tax matters.
10.1 PCS Development Corporation Class B Common Stock Warrant Agreement dated October
31, 1994, among the Registrant and Austin Ventures III-A, L.P., Austin Ventures
III-B, L.P., Austin Ventures IV-A, L.P., and Austin Ventures IV-B, L.P.+
10.2 First Amendment to PCS Development Corporation Class B Common Stock Warrant
Agreement dated October 31, 1994, between the Registrant and Austin Ventures III-A,
L.P., Austin Ventures III-B, L.P., Austin Ventures IV-A, L.P., and Austin Ventures
IV-B, L.P.+
10.3 PCS Development Corporation Class B Common Stock Warrant Agreement dated October
31, 1994, between the Registrant and Marquette Venture Partners II, L.P. and MVP II
Affiliates Fund, L.P.+
10.4 First Amendment to PCS Development Corporation Class B Common Stock Warrant
Agreement dated October 31, 1994, between the Registrant and Marquette Venture
Partners II, L.P. and MVP II Affiliates Fund, L.P.+
10.5 Employment Agreement dated October 31, 1994, between the Registrant and William D.
deKay.+
10.6 First Amendment to Employment Agreement dated July, 1995, between the Registrant
and William D. deKay.+
10.7 PCS Development Corporation Class B Common Stock Option Agreement dated October 31,
1994, between the Registrant and William D. deKay.+
10.8 First Amendment to PCS Development Corporation Class B Common Stock Option
Agreement dated October 31, 1994, between the Registrant and William D. deKay.+
10.9 Employment Agreement dated October 31, 1994, between the Registrant and Cecil L.
Duffie, Jr.+
10.10 First Amendment to Employment Agreement dated July 25, 1995, between the Registrant
and Cecil L. Duffie, Jr.+
10.11 PCS Development Corporation Class B Common Stock Option Agreement dated October 31,
1994, between the Registrant and Cecil L. Duffie, Jr.+
10.12 First Amendment to PCS Development Corporation Class B Common Stock Option
Agreement dated October 31, 1994, between the Registrant and Cecil L. Duffie, Jr.+
10.13 Employment Agreement dated March 31, 1995, between the Registrant and Harry L.
Latham III.+
</TABLE>
<PAGE> 147
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
- ------ -----------------------------------------------------------------------------------
<C> <S>
10.14 First Amendment to Employment Agreement dated July 25, 1995, between the Registrant
and Harry L. Latham III.+
10.15 PCS Development Corporation Class B Common Stock Option Agreement dated March 31,
1995, between the Registrant and Harry L. Latham III.+
10.16 First Amendment to PCS Development Corporation Class B Common Stock Option
Agreement dated March 31, 1995, between the Registrant and Harry L. Latham III.+
10.17 Second Amendment to PCS Development Corporation Class B Common Stock Option
Agreement dated January 1, 1996, between the Registrant and Harry L. Latham III.+
10.18 Employment Agreement dated January 13, 1995, between the Registrant and Jerry
Leonard.+
10.19 First Amendment to Employment Agreement dated January 13, 1995, between the
Registrant and Jerry Leonard.+
10.20 PCS Development Corporation Class B Common Stock Option Agreement dated January 13,
1995, between the Registrant and Jerry Leonard.+
10.21 First Amendment to PCS Development Corporation Class B Common Stock Option
Agreement dated January 13, 1995, between the Registrant and Jerry Leonard.+
10.22 Preferred Stockholders Registration Rights Agreement of PCS Development Corporation
dated November 10, 1995, by and among the Registrant and each Purchaser of Series A
Preferred Stock.+
10.23 Convertible Preferred Stock Purchase Agreement dated November 10, 1995, by and
among the Registrant and certain Purchasers named therein.+
10.24 First Amendment to Convertible Preferred Stock Purchase Agreement dated December 5,
1995, by and among the Registrant and each of the Purchasers of the Convertible
Preferred Stock.+
10.25 PCS Development Corporation Stockholders Agreement (included in Exhibit 4.2).
10.26 PCS Development Corporation Stockholders Agreement First Amendment (included in
Exhibit 4.3).
10.27 Second Amendment to PCS Development Corporation Stockholders Agreement (included in
Exhibit 4.4).
10.28 Third Amendment to PCS Development Corporation Stockholders Agreement (included in
Exhibit 4.5).
10.29 Fourth Amendment to PCS Development Corporation Stockholders Agreement (included in
Exhibit 4.6).
10.30 Fifth Amendment to PCS Development Corporation Stockholders Agreement (included in
Exhibit 4.7).
10.31 PCS Development Corporation Registration Rights Agreement dated November 14, 1994,
by and among the Registrant and each holder of Common Stock.+
10.32 First Amendment to PCS Development Corporation Registration Rights Agreement dated
October 30, 1995, by and among the Registrant and each holder of Common Stock.+
10.33 Second Amendment to PCS Development Corporation Registration Rights Agreement dated
November 9, 1995, by and among the Registrant and each holder of Common Stock.+
10.34 Preferred Stockholders Agreement (included in Exhibit 4.3).
10.35 Office Lease Agreement by and between 15 S. Main, Inc. and PCS Development
Corporation dated April 17, 1995, for the premises located at 15 S. Main St., Suite
810, Greenville, S.C. 29601+.
10.36 PCS Development Corporation Subscription Agreement (included in Exhibit 4.9).
10.37 Commitment Letter dated June 25, 1996 for $225 million Equipment Financing Credit
Facility from The Chase Manhattan Bank, N.A. as Administrative Agent, Chase
Securities Inc. as Arranger, and Glenayre Electronics Inc. to PCSD Financial Corp.
10.38 FCC Radio Station Authorization granted to PCS Development Corporation on February
3, 1995, for call sign KNKV213, File No. 00013-CN-L-95.+
</TABLE>
<PAGE> 148
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
- ------ -----------------------------------------------------------------------------------
<C> <S>
10.39 FCC Radio Station Authorization granted to PCS Development Corporation on February
3, 1995, for call sign KNKV219, File No. 00019-CN-L-95.+
10.40 FCC Radio Station Authorization granted to PCS Development Corporation on February
3, 1995, for call sign KNKV225, File No. 00025-CN-L-95.+
10.41 FCC Radio Station Authorization granted to PCS Development Corporation on February
3, 1995, for call sign KNKV231, File No. 00031-CN-L-95.+
10.42 FCC Radio Station Authorization granted to PCS Development Corporation on February
3, 1995, for call sign KNKV237, File No. 00037-CN-L-95.+
10.43 Loan Agreement dated October 4, 1994, between the Registrant and Sloan
Communications, Inc.+
10.44 Promissory Note dated September 30, 1994, executed and delivered by Sloan
Communications, Inc. in favor of the Registrant.+
10.45 Promissory Note dated January 19, 1995, executed and delivered by Sloan
Communications, Inc. in favor of the Registrant.+
10.46 Promissory Note dated April 20, 1995, executed and delivered by Sloan
Communications, Inc. in favor of the Registrant.+
10.47 Promissory Note dated June 23, 1995, executed and delivered by Sloan
Communications, Inc. in favor of the Registrant.+
12.1 Statement regarding Computation of Ratio of Earnings to Fixed Charges.+
21.1 Subsidiary of PCS Development Corporation.+
23.1 Consent of Deloitte & Touche LLP.**
23.2 Consent of Nelson Mullins Riley & Scarborough, L.L.P. (included in the legal
opinions filed as Exhibits 5.1 and 8.1 hereto).*
23.3 Consent of Lukas McGowan.
24.1 Powers of Attorney (included on the signature page to the Registration Statement).
25.1 Statement of Eligibility of Trustee on Form T-1 (separately bound).*
27 Financial Data Schedule.+
99.1 Ruling from the FCC's Commercial Wireless Division dated 10/25/95 as to the
dilution of the control group to an amount less than 25% of the total equity.+
</TABLE>
- ---------------
* To be filed by amendment.
** Revised from Exhibit filed on May 24, 1996.
+ Previously filed.
<PAGE> 1
EXHIBIT 1.1
PCS DEVELOPMENT CORPORATION
_______ UNITS CONSISTING OF
$_______ ___% SENIOR DISCOUNT NOTES DUE 2006 AND
WARRANTS TO PURCHASE _______ SHARES OF CLASS B COMMON STOCK
UNDERWRITING AGREEMENT
July __, 1996
LEHMAN BROTHERS INC.
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
CHASE SECURITIES INC.
TORONTO DOMINION SECURITIES (USA) INC.,
As Representatives of the several
Underwriters named in Schedule 1,
c/o Lehman Brothers Inc.
3 World Financial Center
New York, New York 10285
Dear Sirs:
PCS Development Corporation, a Delaware corporation (the
"Company"), proposes to issue and sell ________ Units consisting of $________
aggregate principal amount of ___% Senior Discount Notes due 2006 (the "Notes")
and Warrants (the "Warrants") to purchase ________ shares (the "Warrant
Shares") of Class B Common Stock, par value $1.00, of the Company (the "Class B
Common Stock," and together with the Class A Common Stock, the "Common Stock")
(the Units, Notes and Warrants are referred to collectively as the
"Securities"). The Units are to be issued pursuant to a Unit Agreement, dated
as of _________, 1996 (the "Unit Agreement"), to be entered into between the
Company and United States Trust Company of New York, as unit agent (the "Unit
Agent"), the form of which has been filed as an exhibit to the Registration
Statement (as defined below). The Notes are to be issued pursuant to an
Indenture dated as of ________, 1996 (the "Indenture") to be entered into
between the Company and United States Trust Company of New York, as trustee
(the "Trustee"), the form of which has been filed as an exhibit to the
Registration Statement. The Warrants are to be issued pursuant to a Warrant
Agreement (the "Warrant Agreement"), dated as of ________, 1996, to be entered
into between the Company and United States Trust Company of New York, as
warrant agent (the "Warrant Agent"), the form of which has been filed as an
exhibit to the Registration Statement and the holders thereof will be entitled
to the benefits of the Class B Common Stock and Warrant Registration Rights
Agreement (the "Registration Rights Agreement"), dated as of _______, 1996, to
be entered into between the Company and the Underwriters. This is to confirm
the agreement concerning the purchase of the Securities from the Company by the
Underwriters named in Schedule I hereto (the "Underwriters").
1. Representations, Warranties and Agreements of the Company.
The Company represents, warrants and agrees that:
(a) A registration statement on Form S-1
(Registration No. 333-2162), and one or more amendments
thereto, with respect to the Securities have (i) been prepared
by the Company in conformity in all material respects with the
requirements of the Securities Act of 1933 (the "Securities
Act") and the rules and regulations (the "Rule and
Regulations") of the Securities and Exchange Commission (the
"Commission") thereunder in effect as of the applicable filing
date as to such registration statement or amendment and (ii)
been filed with the Commission under the Securities Act; no
other document with respect to such registration statement has
heretofore been filed with the Commission; and an amendment to
such registration statement, including a final prospectus as
part thereof, is now proposed to be filed with the Commission.
Copies of such registration statement, the amendments thereto
and the form of such final prospectus have been delivered by
the Company to you as the representatives (the
"Representatives") of the Underwriters.
<PAGE> 2
2
As used in this Agreement, "Effective Time" means the date and
the time as of which such registration statement is declared
effective by the Commission; "Effective Date" means the date
of the Effective Time; "Preliminary Prospectus" means each
prospectus included in such registration statement, or
amendments thereof, before it becomes effective under the
Securities Act and any prospectus filed with the Commission by
the Company with the consent of the Representatives pursuant
to Rule 424(a) of the Rules and Regulations; "Registration
Statement" means such registration statement as amended at the
Effective Time; and "Prospectus" means such final prospectus,
with any changes thereto made by the Company with the consent
of the Representatives.
(b) The Registration Statement and the Prospectus
and any further amendments or supplements thereto will, when
they become effective or are filed with the Commission, as the
case may be, conform in all material respects to the
requirements of the Securities Act and the Rules and
Regulations as in effect as of the Effective Time and do not
and will not contain any untrue statement of a material fact
or omit to state a material fact required to be stated therein
or necessary to make the statements therein (in case of the
Prospectus, in the light of the circumstances under which they
were made) not misleading; provided that no representation or
warranty is made as to information contained in or omitted
from the Registration Statement or the Prospectus in reliance
upon and in conformity with written information furnished to
the Company through the Representatives by or on behalf of any
Underwriter specifically for inclusion therein; and the
Indenture conforms in all material respects to the
requirements of the Trust Indenture Act of 1939, as amended
(the "Trust Indenture Act"), and the applicable rules and
regulations thereunder.
(c) The Company and each of its subsidiaries (as
defined in Section 15) have been duly incorporated and are
validly existing as corporations in good standing under the
laws of their respective jurisdictions of incorporation, are
duly qualified to do business and are in good standing as
foreign corporations in each jurisdiction in which their
respective ownership or lease of property or the conduct of
their respective businesses requires such qualification, and
have all power and authority necessary to own or hold their
respective properties and to conduct the businesses in which
they are engaged as described in the Registration Statement
and the Prospectus, except where the failure to be so
qualified, or failure to have such power and authority, does
not have a material adverse effect on the condition of the
business, properties, financial position or results of
operations of the Company and its subsidiaries taken as a
whole.
(d) The Company has an authorized capitalization as
set forth in the Prospectus, and all of the issued shares of
capital stock of the Company have been duly and validly
authorized and issued, are fully paid and non-assessable and
conform to the description thereof contained in the
Prospectus; and all of the issued shares of capital stock of
each subsidiary of the Company have been duly and validly
authorized and issued and are fully paid, non-assessable and
(except for directors' qualifying shares and liens described
in the Prospectus) are owned directly or indirectly by the
Company, free and clear of all perfected liens, encumbrances,
equities or claims.
(e) All of the Warrant Shares issuable upon exercise
of the Warrants have been duly and validly authorized and
reserved for issuance upon such exercise and, when issued and
delivered upon exercise of the Warrants in accordance with the
terms of the Warrant Agreement, will be duly and validly
issued, fully paid and non-assessable and free of any
preemptive or similar rights and will be entitled to the
benefits of the Warrant Agreement; and the Securities and
Warrant Shares issuable upon exercise of the Warrants will
conform to the description of the Units, Notes, Warrants and
Class B Common Stock contained in the Prospectus. The Company
has a sufficient number of authorized but unissued shares of
Class B Common Stock to enable the Company to issue, without
further stockholder action, the Warrant Shares.
(f) The execution, delivery and performance of this
Agreement, the Unit Agreement, the Indenture, the Warrant
Agreement, the Registration Rights Agreement and the
Securities by the
<PAGE> 3
3
Company and the consummation of the transactions contemplated
hereby and thereby, and the issuance and delivery of the
Warrant Shares issuable upon exercise of the Warrants, will
not conflict with or result in a breach or violation of any of
the terms or provisions of, or constitute a default under, any
indenture, mortgage, deed of trust, loan agreement or other
agreement or instrument to which the Company or any of its
subsidiaries is a party or by which the Company or any of its
subsidiaries is bound or to which any of the property or
assets of the Company or any of its subsidiaries is subject,
nor will such actions result in any violation of the
provisions of the charter or by-laws of the Company or any of
its subsidiaries or any statute or any order, rule or
regulation of any court or governmental agency or body
(including, without limitation, the Communications Act of
1934, as amended, and the rules and regulations of the FCC
thereunder (collectively, the "Communications Act") and any
order or decision of the Federal Communications Commission
(the "FCC") having jurisdiction over the Company or any of its
subsidiaries or any of their properties or assets, except
where such breach, default or violation would not have a
material adverse effect on the business, prospects, net worth
or results of operations of the Company and its subsidiaries,
taken as a whole; and except for the registration of the
Securities and the Warrant Shares issuable upon exercise of
the Warrants under the Securities Act, the qualification of
the Indenture under the Trust Indenture Act and such consents,
approvals, authorizations, registrations or qualifications as
may be required under the Exchange Act and applicable state
securities laws in connection with the purchase and
distribution of the Securities by the Underwriters, no
consent, approval, authorization or order of, or filing or
registration with, any such court or governmental agency or
body (including, without limitation, the FCC) or any other
person is required for the execution, delivery and performance
of this Agreement, the Unit Agreement, the Indenture, the
Warrant Agreement, the Registration Rights Agreement or the
Securities by the Company and the consummation of the
transactions contemplated hereby and thereby, and the issuance
of the Warrant Shares upon exercise of the Warrants.
(g) The Unit Agreement, the Indenture, the Warrant
Agreement and the Registration Rights Agreement have been duly
authorized, and when duly executed by the proper officers of
the Company (assuming due execution and delivery by the Unit
Agent, Trustee and Warrant Agent) and delivered by the
Company, will constitute valid and binding agreements of the
Company enforceable against the Company in accordance with
their respective terms, except as enforceability may be
limited by bankruptcy, insolvency, fraudulent conveyance,
reorganization, moratorium and other similar laws relating to
or affecting creditors' rights generally, by general equitable
principles (regardless of whether such enforceability is
considered in a proceeding in equity or at law) or by an
implied covenant of good faith and fair dealing; and the
Units, Notes and Warrants have been duly authorized, and when
duly executed, authenticated, issued and delivered as provided
in the Unit Agreement, the Indenture and the Warrant
Agreement, will be duly and validly issued and outstanding and
will constitute valid and binding obligations of the Company
entitled to the benefits of the Unit Agreement, the Indenture
and the Warrant Agreement and enforceable against the Company
in accordance with their respective terms, except as
enforceability may be limited by bankruptcy, insolvency,
fraudulent conveyance, reorganization, moratorium and other
similar laws relating to or affecting creditors' rights
generally, by general equitable principles (regardless of
whether such enforceability is considered in a proceeding in
equity or at law) or by an implied covenant of good faith and
fair dealing; the Warrants are exercisable into Warrant Shares
in accordance with the terms of the Warrant Agreement; and the
Unit Agreement, the Indenture, the Warrant Agreement and the
Registration Rights Agreement and the Units, Notes, Warrants
and Warrant Shares will conform to the descriptions thereof
contained in the Prospectus.
(h) Except as described in the Prospectus, there are
no contracts, agreements or understandings between the Company
and any person granting such person the right (other than
rights which have been waived or satisfied) to require the
Company to file a registration statement under the Securities
Act with respect to any securities of the Company owned or to
be owned by such person or to require the Company to include
such securities in the securities registered pursuant to the
Registration Statement or in any securities being registered
pursuant to any other registration statement filed by the
Company under the Securities Act.
<PAGE> 4
4
(i) Neither the Company nor any of its subsidiaries
has sustained, since the date of the latest audited financial
statements included in the Prospectus, any material loss or
interference with its business from fire, explosion, flood or
other calamity, whether or not covered by insurance, or from
any labor dispute or court or governmental action, order or
decree, otherwise than as set forth or contemplated in the
Prospectus; and, since such date, there has not been any
change in the capital stock or long-term debt of the Company
or any of its subsidiaries or any material adverse change, or
any development involving a prospective material adverse
change, in or affecting the general affairs, management,
financial position, stockholders' equity or results of
operations of the Company and its subsidiaries, taken as a
whole, otherwise than as set forth or contemplated in the
Prospectus.
(j) The financial statements (including the related
notes and supporting schedules) filed as part of the
Registration Statement or included in the Prospectus present
fairly in all material respects the financial condition and
results of operations of the entities purported to be shown
thereby, at the dates and for the periods indicated, and have
been prepared in conformity with generally accepted accounting
principles applied on a consistent basis throughout the
periods involved, except as disclosed therein.
(k) Deloitte & Touche, L.L.P., who have certified
certain financial statements of the Company and whose report
appears in the Prospectus and who have delivered the initial
letter referred to in Section 7(f) hereof, are independent
public accountants as required by the Securities Act and the
Rules and Regulations. The consolidated historical financial
statements of the Company, together with related schedules and
notes, set forth in the Prospectus and the Registration
Statement comply as to form in all material respects with the
requirements of the Securities Act. Such historical financial
statements fairly present the consolidated financial position
of the Company and its subsidiaries at the respective dates
indicated and the results of their operations and their cash
flows for the respective periods indicated, in accordance with
generally accepted accounting principles consistently applied
throughout such periods. The other financial and statistical
information and data included in the Prospectus and in the
Registration Statement are, in all material respects,
accurately presented and prepared on a basis consistent with
such financial statements and the books and records of the
Company.
(l) The Company and each of its subsidiaries have
good and marketable title in fee simple to all real property
and good and marketable title to all personal property owned
by them, in each case free and clear of all liens,
encumbrances and defects except such as are described in the
Prospectus or such as do not materially affect the value of
such property and do not materially interfere with the use
made and proposed to be made of such property by the Company
and its subsidiaries; and all real property and buildings held
under lease by the Company and its subsidiaries are held by
them under valid, subsisting and enforceable leases, with such
exceptions as are not material and do not interfere with the
use made and proposed to be made of such property and
buildings by the Company and its subsidiaries, taken as a
whole; and all other material leases to which the Company or
any of its subsidiaries is a party, including, without
limitation, leases for transmitter sites, as described in the
Prospectus, are valid and binding and no default on the part
of the Company or its subsidiaries, or to the knowledge of the
Company, any other party thereto, has occurred or is
continuing thereunder.
(m) The Company and each of its subsidiaries carry,
or are covered by, insurance in such amounts and covering such
risks as is adequate for the conduct of their respective
businesses and the value of their respective properties and as
is customary for companies engaged in similar businesses in
similar industries.
(n) The Company and each of its subsidiaries own or
possess adequate rights to use all material patents, patent
applications, trademarks, service marks, trade names,
trademark registrations, service mark registrations,
copyrights and licenses necessary for the conduct of their
respective businesses and have no reason to believe that the
conduct of their respective businesses
<PAGE> 5
5
will conflict with, and have not received any notice of any
claim of conflict with, the rights of others in respect
thereof.
(o) There are no legal or governmental proceedings
pending to which the Company or any of its subsidiaries is a
party or of which any property or asset of the Company or any
of its subsidiaries is the subject which, if determined
adversely to the Company or any of its subsidiaries, might
have a material adverse effect on the consolidated financial
position, stockholders' equity, results of operations,
business or prospects of the Company and its subsidiaries,
taken as a whole; and to the best of the Company's knowledge,
no such proceedings are threatened or contemplated by
governmental authorities or threatened by others.
(p) There are no contracts or other documents which
are required to be described in the Prospectus or filed as
exhibits to the Registration Statement by the Securities Act
or by the Rules and Regulations which have not been described
in the Prospectus or filed as exhibits to the Registration
Statement.
(q) No relationship, direct or indirect, exists
between or among the Company on the one hand, and the
directors, officers, stockholders, customers or suppliers of
the Company on the other hand, which is required to be
described in the Prospectus which is not so described.
(r) No labor disturbance by the employees of the
Company exists or, to the knowledge of the Company, is
imminent which might reasonably be expected to have a material
adverse effect on the consolidated financial position,
stockholders' equity, results of operations, business or
prospects of the Company and its subsidiaries.
(s) The Company is in compliance in all material
respects with all presently applicable provisions of the
Employee Retirement Income Security Act of 1974, as amended,
including the regulations and published interpretations
thereunder ("ERISA"); and no "reportable event" (as defined in
ERISA) has occurred with respect to any "pension plan" (as
defined in ERISA) of the Company, and the Company has not
incurred and does not expect to incur liability under (i)
Title IV of ERISA with respect to termination of, or
withdrawal from, any "pension plan" or (ii) Sections 412 or
4971 of the Internal Revenue Code of 1986, as amended,
including the regulations and published interpretations
thereunder (the "Code"), except where such liability would not
have a material adverse effect on the Company and the
subsidiaries, taken as a whole; and each "pension plan" for
which the Company would have any liability that is intended to
be qualified under Section 401(a) of the Code is so qualified
in all material respects and nothing has occurred, whether by
action or by failure to act, which would cause the loss of
such qualification.
(t) The Company has filed all federal, state and
local income and franchise tax returns required to be filed
through the date hereof (or obtained extensions thereof) and
has paid all taxes due thereon, and no tax deficiency has been
determined adversely to the Company or any of its subsidiaries
which has had (nor does the Company have any knowledge of any
tax deficiency which, if determined adversely to the Company
or any of its subsidiaries, might have) a material adverse
effect on the consolidated financial position, stockholders'
equity, results of operations, business or prospects of the
Company and its subsidiaries, taken as a whole.
(u) Since the date as of which information is given
in the Prospectus through the date hereof, and except as may
otherwise be disclosed in the Prospectus, the Company has not
(i) issued or granted any securities, (ii) incurred any
liability or obligation, direct or contingent, other than
liabilities and obligations which were incurred in the
ordinary course of business or would not be material to the
Company and its subsidiaries, taken as a whole, (iii) entered
into any transaction not in the ordinary course of business
that would be material to the Company and its subsidiaries,
taken as a whole, or (iv) declared or paid any dividend on its
capital stock.
<PAGE> 6
6
(v) The Company (i) makes and keeps accurate books
and records and (ii) maintains internal accounting controls
which provide reasonable assurance that (A) transactions are
executed in accordance with management's general or specific
authorization, (B) transactions are recorded as necessary to
permit preparation of its financial statements and to maintain
accountability for its assets, (C) access to its assets is
permitted only in accordance with management's general or
specific authorization and (D) the reported accountability
for its assets is compared with existing assets at reasonable
intervals and appropriate action is taken with respect to any
differences.
(w) Neither the Company nor any of its subsidiaries
(i) is in violation of its charter or by-laws, (ii) is in
default in any material respect, and no event has occurred
which, with notice or lapse of time or both, would constitute
such a default, in the due performance or observance of any
term, covenant or condition contained in any material
indenture, mortgage, deed of trust, loan agreement or other
agreement or instrument to which it is a party or by which it
is bound or to which any of its properties or assets is
subject and which is material to the Company and its
subsidiaries, taken as a whole, or (iii) is in violation in
any material respect of any law, ordinance, governmental rule,
regulation or court decree to which it or its property or
assets may be subject except where such violation would not
have a material adverse effect on the Company and its
subsidiaries, taken as a whole, or has failed to obtain any
material license, permit, certificate, franchise or other
governmental authorization or permit necessary to the
ownership of its property or to the conduct of its business
and which is material to the Company and its subsidiaries,
taken as a whole.
(x) Neither the Company nor any of its subsidiaries,
nor any director, officer, agent, employee or other person
associated with or acting on behalf of the Company or any of
its subsidiaries, has used any corporate funds for any
unlawful contribution, gift, entertainment or other unlawful
expense relating to political activity; made any direct or
indirect unlawful payment to any foreign or domestic
government official or employee from corporate funds; violated
or is in violation of any provision of the Foreign Corrupt
Practices Act of 1977; or made any bribe, rebate, payoff,
influence payment, kickback or other unlawful payment.
(y) There has been no storage, disposal, generation,
manufacture, refinement, transportation, handling or treatment
of toxic wastes, medical wastes, hazardous wastes or hazardous
substances by the Company or any of its subsidiaries (or, to
the knowledge of the Company, any of their predecessors in
interest) at, upon or from any of the property now or
previously owned or leased by the Company or its subsidiaries
in violation of any applicable law, ordinance, rule,
regulation, order, judgment, decree or permit or which would
require remedial action under any applicable law, ordinance,
rule, regulation, order, judgment, decree or permit, except
for any violation or remedial action which would not have, or
could not be reasonably likely to have, singularly or in the
aggregate with all such violations and remedial actions, a
material adverse effect on the general affairs, management,
financial position, stockholders' equity or results of
operations of the Company and its subsidiaries, taken as a
whole; there has been no material spill, discharge, leak,
emission, injection, escape, dumping or release of any kind
onto such property or into the environment surrounding such
property of any toxic wastes, medical wastes, solid wastes,
hazardous wastes or hazardous substances due to or caused by
the Company or any of its subsidiaries or with respect to
which the Company or any of its subsidiaries have knowledge,
except for any such spill, discharge, leak, emission,
injection, escape, dumping or release which would not have or
would not be reasonably likely to have, singularly or in the
aggregate with all such spills, discharges, leaks, emissions,
injections, escapes, dumpings and releases, a material adverse
effect on the general affairs, management, financial position,
stockholders' equity or results of operations of the Company
and its subsidiaries, taken as a whole; and the terms
"hazardous wastes", "toxic wastes", "hazardous substances" and
"medical wastes" shall have the meanings specified in any
applicable local, state and federal laws or regulations with
respect to environmental protection.
<PAGE> 7
7
(z) Neither the Company nor any subsidiary is an
"investment company" within the meaning of such term under the
United States Investment Company Act of 1940 and the rules and
regulations of the Commission thereunder.
2. Purchase of the Securities by the Underwriters. On the
basis of the representations and warranties contained in, and subject to the
terms and conditions of, this Agreement, the Company hereby agrees to issue and
sell to the several Underwriters and each of the Underwriters, severally and
not jointly, agrees to purchase from the Company, at a purchase price of
$________ per Unit, the respective number of Units set forth opposite that
Underwriter's name in Schedule 1 hereto.
The Company shall not be obligated to deliver any of the
Securities to be delivered on the Delivery Date (as hereinafter defined),
except upon payment for all the Securities to be purchased on the Delivery Date
as hereinafter provided.
3. Offering of Securities by the Underwriters.
Upon authorization by the Representatives of the release of
the Securities, the several Underwriters propose to offer the Securities for
sale upon the terms and conditions set forth in the Prospectus.
4. Delivery of and Payment for the Securities. Delivery of
and payment for the Securities shall be made at the office of Simpson Thacher &
Bartlett, 425 Lexington Avenue, New York, New York 10017, at 10:00 A.M., New
York City time, on the third full business day following the Effective Date or
at such other date or place as shall be determined by agreement between the
Representatives and the Company. This date and time are sometimes referred to
as the "Delivery Date." On the Delivery Date, the Company shall deliver or
cause to be delivered certificates representing the Securities to the
Representatives for the account of each Underwriter against payment to or upon
the order of the Company of the purchase price in same day funds by wire
transfer to the account of PCS Development Corporation at a bank acceptable to
Lehman Brothers Inc. or by official Federal Reserve Bank check or checks. Time
shall be of the essence, and delivery at the time and place specified pursuant
to this Agreement is a further condition of the obligation of each Underwriter
hereunder. Upon delivery, the Securities shall be registered in such names and
in such denominations as the Representatives shall request in writing not less
than two full business days prior to the Delivery Date. For the purpose of
expediting the checking and packaging of the certificates for the Securities,
the Company shall make the certificates representing the Securities available
for inspection by the Representatives in New York, New York, not later than
2:00 P.M., New York City time, on the business day prior to the Delivery Date.
5. Further Agreements of the Company. The Company agrees:
(a) To make no further amendment or any supplement
to the Registration Statement or to the Prospectus except as
permitted herein; to advise the Representatives, promptly
after it receives notice thereof, of the time when the
Registration Statement, or any amendment thereto, has been
filed or becomes effective or any supplement to the Prospectus
or any amended Prospectus has been filed and to furnish the
Representatives with copies thereof; to advise the
Representatives, promptly after it receives notice thereof, of
the issuance by the Commission of any stop order or of any
order preventing or suspending the use of any Preliminary
Prospectus or the Prospectus, of the suspension of the
qualification of the Securities for offering or sale in any
jurisdiction, of the initiation or threatening of any
proceeding for any such purpose, or of any request by the
Commission for the amending or supplementing of the
Registration Statement or the Prospectus or for additional
information; and, in the event of the issuance of any stop
order or of any order preventing or suspending the use of any
Preliminary Prospectus or the Prospectus or suspending any
such qualification, to use promptly its best efforts to obtain
its withdrawal;
(b) To furnish promptly to each of the
Representatives and to counsel for the Underwriters a signed
copy of the Registration Statement as originally filed with
the Commission, and each amendment thereto filed with the
Commission, including all consents and exhibits filed
therewith;
<PAGE> 8
8
(c) To deliver promptly to the Representatives in
New York City such number of the following documents as the
Representatives shall reasonably request: (i) conformed
copies of the Registration Statement as originally filed with
the Commission and each amendment thereto (in each case
excluding exhibits other than this Agreement, the Unit
Agreement, the Indenture and the Warrant Agreement, the
computation of ratio of earnings to fixed charges, and the
computation of per share earnings) and (ii) each Preliminary
Prospectus, the Prospectus (not later than 10:00 a.m. New York
City time, of the day following the execution and delivery of
this Agreement) and any amended or supplemented Prospectus
(not later than 10:00 a.m. New York City time, of the day
following the date of such amendment or supplement); and, if
the delivery of a prospectus is required at any time prior to
the expiration of nine months after the Effective Time of the
Registration Statement in connection with the offering or sale
of the Securities (or any other securities relating thereto)
and if at such time any events shall have occurred as a result
of which the Prospectus as then amended or supplemented would
include any untrue statement of a material fact or omit to
state any material fact necessary in order to make the
statements therein, in the light of the circumstances under
which they were made when such Prospectus is delivered, not
misleading, or, if for any other reason it shall be necessary
during such same period to amend or supplement the Prospectus
in order to comply with the Securities Act, to notify the
Representatives and, upon their request, to prepare and
furnish without charge to each Underwriter and to any dealer
in securities as many copies as the Representatives may from
time to time reasonably request of an amended Prospectus or a
supplement to the Prospectus which will correct such statement
or omission or effect such compliance, and in case any
Underwriter is required to deliver a prospectus in connection
with sales of any of the Securities at any time nine months or
more after the Effective Time of the Registration Statement,
upon the request of the Representatives but at the expense of
such Underwriter, to prepare and deliver to such Underwriter
as many copies as the Representatives may from time to time
request of an amended or supplemented Prospectus complying
with Section 10(a)(3) of the Securities Act;
(d) To file promptly with the Commission any
amendment to the Registration Statement or the Prospectus or
any supplement to the Prospectus that may, in the judgment of
the Company or the Representatives, be required by the
Securities Act or requested by the Commission;
(e) Prior to filing with the Commission any (i)
Preliminary Prospectus, (ii) amendment to the Registration
Statement or supplement to the Prospectus or (iii) Prospectus
pursuant to Rule 424 of the Rules and Regulations, to furnish
a copy thereof to the Representatives and counsel for the
Underwriters and obtain the consent of the Representatives to
the filing (which consent shall not be unreasonably withheld);
(f) As soon as practicable after the Effective Date
of the Registration Statement to make generally available to
the Company's security holders and to deliver to the
Representatives an earning statement of the Company and its
subsidiaries (which need not be audited) complying with
Section 11(a) of the Securities Act and the Rules and
Regulations (including, at the option of the Company, Rule
158);
(g) For a period of five years following the
Effective Date of the Registration Statement to furnish to the
Representatives copies of all materials furnished by the
Company to its shareholders and all public reports and all
reports and financial statements furnished by the Company to
the principal national securities exchange upon which its
Common Stock may be listed pursuant to requirements of or
agreements with such exchange or to the Commission pursuant to
the Exchange Act or any rule or regulation of the Commission
thereunder;
(h) Promptly from time to time to take such action
as the Representatives may reasonably request to qualify the
Securities and the Warrant Shares issuable upon exercise of
the Warrants for offering and sale under the securities laws
of such jurisdictions as the Representatives may request and
to comply with such laws so as to permit the continuance of
sales and dealings therein in such jurisdictions for as long
as may be necessary to complete the distribution of the
Securities; provided
<PAGE> 9
9
that in connection therewith the Company shall not be required
to qualify as a foreign corporation or to execute a general
consent to service of process in any jurisdiction or to
subject itself to taxation in respect of doing business in any
jurisdiction in which it is not otherwise so subject;
(i) For a period of 90 days from the date of the
Prospectus, not to, directly or indirectly, offer for sale,
sell or otherwise dispose of (or enter into any transaction or
device which is designed to, or could be expected to, result
in the disposition or purchase by any person at any time in
the future of), any debt securities or shares of Common Stock
(other than the Securities, the Warrant Shares and shares
issued pursuant to employee benefit plans, qualified stock
option plans or other employee compensation plans existing on
the date hereof or pursuant to currently outstanding options,
warrants or rights), or sell or grant options, rights or
warrants with respect to any debt securities or shares of
Common Stock (other than the grant of options pursuant to
option plans existing on the date hereof), without the prior
written consent of Lehman Brothers Inc.;
(j) Prior to filing with the Commission any reports
on Form SR pursuant to Rule 463 of the Rules and Regulations,
to furnish a copy thereof to the counsel for the Underwriters
and receive and consider its comments thereon, and to deliver
promptly to the Representatives a signed copy of each report
on Form SR filed by it with the Commission;
(k) To apply the net proceeds from the sale of the
Securities being sold by the Company as set forth in the
Prospectus; and
(l) To take such steps as shall be necessary to
ensure that neither the Company nor any subsidiary thereof
shall become an "investment company" within the meaning of
such term under the Investment Company Act of 1940 and the
rules and regulations of the Commission thereunder.
6. Expenses. The Company agrees to pay (a) the costs
incident to the authorization, issuance, sale and delivery of the Securities
and any taxes payable in that connection; (b) the costs incident to the
preparation, printing and filing under the Securities Act of the Registration
Statement and any amendments and exhibits thereto; (c) the costs of
distributing the Registration Statement as originally filed and each amendment
thereto and any post-effective amendments thereof (including, in each case,
exhibits), any Preliminary Prospectus, the Prospectus and any amendment or
supplement to the Prospectus, all as provided in this Agreement; (d) the costs
of reproducing and printing this Agreement and any other underwriting and
selling group documents; (e) the costs of distributing the terms of agreement
relating to the organization of the underwriting syndicate and the selling
group to the members thereof by mail, facsimile, telex or other means of
communication; (f) the filing fees incident to securing any required review by
the National Association of Securities Dealers, Inc. of the terms of sale of
the Securities; (g) the fees and expenses of qualifying the Securities under
the securities laws of the several jurisdictions as provided in Section 5(h)
and of preparing, printing and distributing a Blue Sky Memorandum (including
related reasonable fees and expenses of counsel to the Underwriters); (h) any
fees charged by securities rating services selected or approved by the Company
for rating the Securities; (i) all fees and expenses of an independent
underwriter; (j) all fees and expenses of the Unit Agent, the Trustee and the
Warrant Agent; and (k) all other costs and expenses incident to the performance
of the obligations of the Company under this Agreement, the Unit Agreement, the
Indenture and the Warrant Agreement; provided that, except as provided in this
Section 6 and in Section 11, the Underwriters shall pay their own costs and
expenses, including the costs and expenses of their counsel, any transfer taxes
on the Securities which they may sell and the expenses of advertising any
offering of the Securities made by the Underwriters.
7. Conditions of Underwriters' Obligations. The respective
obligations of the Underwriters hereunder are subject to the accuracy, when
made and on the Delivery Date, of the representations and warranties of the
Company contained herein, to the performance by the Company of its respective
obligations hereunder, and to each of the following additional terms and
conditions:
(a) The Registration Statement shall have become
effective and the Indenture shall have been qualified under
the Trust Indenture Act, and the Representatives shall have
received notice thereof, not later than the first full
business day next following the date of this Agreement or such
<PAGE> 10
10
later date as shall be consented to in writing by the
Representatives; no stop order suspending the effectiveness of
the Registration Statement or any part thereof shall have been
issued and no proceeding for that purpose shall have been
initiated or threatened by the Commission; and any request of
the Commission for inclusion of additional information in the
Registration Statement or the Prospectus or otherwise shall
have been complied with.
(b) No Underwriter shall have discovered and
disclosed to the Company on or prior to the Delivery Date that
the Registration Statement or the Prospectus or any amendment
or supplement thereto contains an untrue statement of a fact
which, in the opinion of Simpson Thacher & Bartlett, counsel
for the Underwriters, is material or omits to state a fact
which, in the opinion of such counsel, is material and is
required to be stated therein or is necessary to make the
statements therein not misleading.
(c) All corporate proceedings and other legal
matters incident to the authorization, form and validity of
this Agreement, the Unit Agreement, the Indenture, the Warrant
Agreement, the Securities, the Registration Statement and the
Prospectus, and all other legal matters relating to this
Agreement and the transactions contemplated hereby, shall be
satisfactory in all material respects to counsel for the
Underwriters, and the Company shall have furnished to such
counsel all documents and information that they may reasonably
request to enable them to pass upon such matters.
(d) Nelson Mullins Riley & Scarborough, L.L.P. shall
have furnished to the Representatives its written opinion, as
counsel to the Company, addressed to the Underwriters and
dated the Delivery Date, in form and substance reasonably
satisfactory to the Representatives subject to customary
qualifications and assumptions, to the effect that:
(i) The Company and each of its subsidiaries
have been duly incorporated and are validly existing
as corporations in good standing under the laws of
their respective jurisdictions of incorporation, are
duly qualified to do business and are in good
standing as foreign corporations in each jurisdiction
in which their respective ownership or lease of
property or the conduct of their respective
businesses requires such qualification (other than
those jurisdictions in which the failure to so
qualify would not have a material adverse effect on
the Company or the Company and its subsidiaries taken
as a whole), and have full corporate power and
corporate authority to own, lease and operate their
respective properties and to conduct their respective
businesses as described in the Prospectus;
(ii) The Company has an authorized
capitalization as set forth in the Prospectus, and
all of the issued shares of capital stock of the
Company have been duly and validly authorized and
issued, are fully paid and non-assessable and conform
to the description thereof contained in the
Prospectus; all of the Warrant Shares have been duly
and validly authorized and reserved for issuance upon
exercise of the Warrants, and, when issued and
delivered in accordance with the terms of the Warrant
Agreement, will be duly and validly issued, fully
paid and non-assessable; and all of the issued
shares of capital stock of each subsidiary of the
Company have been duly and validly authorized and
issued and are fully paid, non-assessable and (except
for directors' qualifying shares and liens disclosed
in the Prospectus) are owned directly or indirectly
by the Company, free and clear of all liens,
encumbrances, equities or claims;
(iii) Except as set forth in the Prospectus,
there are no preemptive or other rights to subscribe
for or to purchase, nor any restriction upon the
voting or transfer of, any shares of the Common Stock
(including the Warrant Shares) pursuant to the
Company's charter or by-laws, or to any agreement or
other instrument of the Company known to such
counsel;
<PAGE> 11
11
(iv) To the best of such counsel's knowledge
and other than as set forth in the Prospectus, there
are no legal or governmental proceedings pending
against the Company or any of its subsidiaries, or to
which any of their respective properties or assets is
subject, which, if determined adversely to the
Company or any of its subsidiaries, would reasonably
be expected to have a material adverse effect on the
consolidated financial position, stockholders'
equity, results of operations or business of the
Company and its subsidiaries, taken as a whole, and
that are required to be described in the Prospectus
and are not described as required; and, to the best
of such counsel's knowledge, no such proceedings are
threatened or contemplated by governmental
authorities or threatened by others;
(v) The Registration Statement was declared
effective under the Securities Act and the Indenture
was qualified under the Trust Indenture Act as of the
date and time specified in such opinion and no stop
order suspending the effectiveness of the
Registration Statement has been issued and, to the
best knowledge of such counsel, no proceeding for
that purpose is pending or threatened by the
Commission;
(vi) The Registration Statement, as of the
Effective Date, and the Prospectus, as of its date,
and any further amendments or supplements thereto, as
of their respective dates, made by the Company prior
to the Delivery Date (other than the financial
statements and related schedules and other financial
data included therein or omitted therefrom, as to
which such counsel need express no opinion) comply as
to form in all material respects with the
requirements of the Securities Act and the Rules and
Regulations; and the Indenture conforms in all
material respects to the requirements of the Trust
Indenture Act and the applicable rules and
regulations thereunder;
(vii) The statements contained in the
Prospectus under the caption "Certain Federal Income
Tax Considerations," insofar as they describe federal
statutes, rules and regulations, constitute a fair
summary thereof; the statements made in the
Prospectus under the captions "Description of Capital
Stock", "Description of the Units", "Description of
the Notes" and "Description of the Warrants", insofar
as they purport to constitute summaries of the terms
of the Company's securities, constitute accurate
summaries in all material respects;
(viii) To the best of such counsel's knowledge,
there are no contracts or other documents which are
required to be described in the Prospectus or filed
as exhibits to the Registration Statement by the
Securities Act or by the Rules and Regulations which
have not been described or filed as exhibits to the
Registration Statement;
(ix) This Agreement has been duly authorized,
executed and delivered by the Company;
(x) The Company has full legal right, power
and authority to execute and deliver this Agreement,
the Unit Agreement, the Indenture, the Warrant
Agreement, the Registration Rights Agreement and the
Securities and to perform its obligations hereunder
and thereunder; and all corporate action required to
be taken on the part of the Company for the due and
proper authorization, execution and delivery of this
Agreement, the Unit Agreement, the Indenture, the
Warrant Agreement, the Registration Rights Agreement
and the Securities and the consummation of the
transactions contemplated by this Agreement, the Unit
Agreement, the Indenture, the Warrant Agreement and
the Registration Rights Agreement have been duly and
validly taken;
(xi) The Indenture, the Unit Agreement, the
Warrant Agreement and the Registration Rights
Agreement have been duly authorized, executed and
delivered by the Company and constitute valid and
binding agreements of the Company enforceable against
<PAGE> 12
12
the Company in accordance with their respective
terms, subject to the effects of bankruptcy,
insolvency, fraudulent conveyance, reorganization,
moratorium and other similar laws relating to or
affecting creditors' rights generally, general
equitable principles (whether considered in a
proceeding in equity or at law) or an implied
covenant of good faith and fair dealing; the
Securities are in the form contemplated by the Unit
Agreement, the Indenture, the Registration Rights
Agreement and the Warrant Agreement and have been
duly authorized and executed by the Company and, upon
the due authentication and delivery thereof by the
Unit Agent pursuant to the Unit Agreement, the
Trustee pursuant to the Indenture and the Warrant
Agent pursuant to the Warrant Agreement, will be duly
and validly issued and outstanding and will
constitute valid and binding obligations of the
Company entitled to the benefits of the Unit
Agreement, the Indenture and the Warrant Agreement,
respectively, and enforceable in accordance with
their respective terms, subject to the effects of
bankruptcy, insolvency, fraudulent conveyance,
reorganization, moratorium and other similar laws
relating to or affecting creditors' rights generally,
general equitable principles (whether considered in a
proceeding in equity or at law) or an implied
covenant of good faith and fair dealing; and the Unit
Agreement, the Indenture, the Warrant Agreement, the
Registration Rights Agreement and the Securities
conform to the descriptions thereof contained in the
Prospectus;
(xii) The issue and sale of the Securities by
the Company and the compliance by the Company with
all of the provisions of this Agreement, the Unit
Agreement, the Indenture and Warrant Agreement and
the consummation of the transactions contemplated
hereby and thereby, and the issuance and delivery of
the Warrant Shares issuable upon exercise of the
Warrants, will not conflict with or result in a
breach or violation of any of the terms or provisions
of, or constitute a default under, any indenture,
mortgage, deed of trust, loan agreement or other
agreement or instrument known to such counsel to
which the Company or any of its subsidiaries is a
party or by which the Company or any of its
subsidiaries is bound or to which any of the property
or assets of the Company or any of its subsidiaries
is subject and which are material to the Company or
its subsidiaries, taken as a whole, nor will such
actions result in any violation of the provisions of
the charter or by-laws of the Company or any of its
subsidiaries or any material statute or any order,
rule or regulation known to such counsel of any court
or governmental agency or body having jurisdiction
over the Company or any of its subsidiaries or any of
their properties or assets and which violation would
have a material adverse effect on the Company or its
subsidiaries, taken as a whole; and, except for the
registration of the Securities and the Warrant Shares
under the Securities Act and such consents,
approvals, authorizations, registrations or
qualifications as may be required under the Exchange
Act and applicable state securities laws in
connection with the purchase and distribution of the
Securities by the Underwriters, no consent, approval,
authorization or order of, or filing or registration
with, any such court or governmental agency or body
is required for the execution, delivery and
performance of this Agreement, the Unit Agreement,
the Indenture, the Warrant Agreement, the
Registration Rights Agreement or the Securities by
the Company, the consummation of the transactions
contemplated hereby and thereby and the issuance of
the Warrant Shares upon exercise of the Warrants;
(xiii) To the best of such counsel's knowledge,
except as set forth in the Prospectus, there are no
contracts, agreements or understandings between the
Company and any person granting such person the right
(other than rights which have been waived or
satisfied) to require the Company to file a
registration statement under the Securities Act with
respect to any securities of the Company owned or to
be owned by such person or to require the Company to
include such securities in the securities registered
pursuant to the Registration Statement or in any
securities being registered pursuant to any other
registration statement filed by the Company under the
Securities Act; and
<PAGE> 13
13
(xiv) The Indenture complies as to form in all
material respects with the requirements of the Trust
Indenture Act and the rules and regulations of the
Commission thereunder.
In rendering such opinion, such counsel may (i) state that its
opinion is limited to matters governed by the Federal laws of
the United States of America, the laws of the states of North
Carolina, South Carolina and Georgia and the General
Corporation Law of the State of Delaware; and (ii) may exclude
(to the extent such counsel deems proper and specifies in its
opinion) matters involving the application of federal
communications law. Such counsel shall also have furnished to
the Representatives a written statement, addressed to the
Underwriters and dated the Delivery Date, in form and
substance satisfactory to the Representatives, to the effect
that (x) such counsel has acted as counsel to the Company on a
regular basis, has acted as counsel to the Company in
connection with previous financing transactions and has acted
as counsel to the Company in connection with the preparation
of the Registration Statement, and (y) in such capacity, such
counsel has participated in conferences with officers and
other representatives of the Company, representatives of the
independent public accountants for the Company, and
representatives of the Underwriters and their counsel, at
which the contents of the Registration Statement and the
Prospectus and related matters were discussed and, although
such counsel is not passing upon, and does not assume any
responsibility for, the accuracy, completeness or fairness of
the statements contained in the Registration Statement and the
Prospectus (other than statements made in the Prospectus under
the captions "Description of Capital Stock," "Description of
the Units," "Description of the Notes," "Description of the
Warrants" and "Certain Federal Income Tax Considerations," in
each case insofar as such statements relate to the Securities
and concern legal matters) and has not made any independent
check or verification thereof, during the course of that
participation, no facts came to such counsel's attention that
caused such counsel to believe that the Registration Statement
as of the Effective Date contained any untrue statement of a
material fact or omitted to state any material fact required
to be stated therein or necessary in order to make the
statements therein not misleading or that the Prospectus
contains any untrue statement of a material fact or omits to
state any material fact required to be stated therein or
necessary in order to make the statements therein, in the
light of the circumstances under which they were made, not
misleading; it being understood that such counsel need express
no opinion as to the financial statements, schedules or other
financial data included in the Registration Statement or the
Prospectus.
(e) Lukas, McGowan, Nance & Gutierrez shall have
furnished to the Representatives its written opinion, as
special communications counsel to the Company, addressed to
the Underwriters and dated the Delivery Date, in form and
substance reasonably satisfactory to the Representatives, to
the effect that with respect to matters arising under the
Communications Act:
(i) No approval of the FCC is required
in connection with the issuance and sale of the
Securities to the Underwriters or for the issuance of
the Warrant Shares upon exercise of the Warrants;
(ii) The Company and its subsidiaries
have all such licenses and authorizations as are
necessary under the Communications Act to conduct the
business described in the Prospectus, and such
licenses and authorizations conform to the
descriptions thereof in the Prospectus;
(iii) The execution, delivery and
performance of this Agreement, the Unit Agreement,
the Indenture, the Warrant Agreement and the
Securities by the Company and compliance by the
Company with the provisions of this Agreement, the
Unit Agreement, the Indenture, the Warrant Agreement
and the Securities do not and will not violate the
Communications Act or any order or decision of the
FCC, and to the best knowledge of such counsel, no
order, judgement or decree of any court or government
body of the United States relating to the
Communications Act would be violated by the
execution,
<PAGE> 14
14
delivery and performance of such Agreements or
instruments by the Company and compliance by the
Company with the provisions of such Agreements or
instruments;
(iv) To the best knowledge of such
counsel, no proceedings before the FCC against or
involving the properties, systems, licenses or
authorizations of the Company or its subsidiaries, or
any provision of the Communications Act relevant to
such properties, systems, licenses or authorizations,
which is not described in the Registration Statement
is required to be so described;
(v) The Company is in compliance with
all FCC rules and regulations qualifying it as a
Designated Entity (as both a "Small Business" and as
a "Business Owned by Members of Minority Groups
and/or Women") under the Communications Act, and, to
the best knowledge of such counsel, (x) no condition
exists or event is likely to occur that might affect
such Designated Entity status that is not adequately
described in the Prospectus, and (y) the issuance of
the Securities and the Warrant Shares upon exercise
of the Warrants will not affect such Designated
Entity status or any benefits accruing therefrom;
(vi) The statements contained in the
Prospectus under the captions "Business -
Regulation," "Description of FCC Auction Benefits"
and "Description of Other Indebtedness - FCC
Obligation," and the related statements contained
under the caption "Risk Factors" (insofar as they
describe federal and state statues, rules and
regulations and the application and consequences
thereof to the Company), constitute a fair and
accurate summary thereof; and
(vii) With respect to the statements
described in clause (vi) above only, such counsel has
no reason to believe that the Registration Statement,
as of the Effective Date, contained any untrue
statement of a material fact or omitted to state a
material fact required to be stated therein or
necessary in order to make such statements therein
not misleading, or that the Prospectus contains any
untrue statement of a material fact or omits to state
any material fact required to be stated therein or
necessary in order to make the statements therein,
in the light of the circumstances under which they
were made, not misleading.
(f) With respect to the letter of Deloitte & Touche,
LLP delivered to the Representatives concurrently with the
execution of this Agreement (as used in this paragraph, the
"initial letter"), the Company shall have furnished to the
Representatives a letter (as used in this paragraph, the
"bring-down letter") of such accountants, addressed to the
Underwriters and dated the Delivery Date, (i) confirming that
they are independent public accountants within the meaning of
the Securities Act and are in compliance with the applicable
requirements relating to the qualification of accountants
under Rule 2-01 of Regulation S-X of the Commission, (ii)
stating, as of the date of the bring-down letter (or, with
respect to matters involving changes or developments since the
respective dates as of which specified financial information
is given in the Prospectus, as of a date not more than five
days prior to the date of the bring-down letter), the
conclusions and findings of such firm with respect to the
financial information and other matters covered by the initial
letter delivered and (iii) confirming in all material respects
the conclusions and findings set forth in the initial letter.
(g) The Company shall have furnished to the
Representatives a certificate, dated the Delivery Date, of its
Chief Executive Officer or its President, and its chief
financial officer, stating that:
(i) The representations, warranties and
agreements of the Company in Section 1 are true and
correct as of the Delivery Date; the Company has
complied with all its
<PAGE> 15
15
agreements contained herein; and the conditions set
forth in Sections 7(a) and 7(h) have been fulfilled;
and
(ii) They have carefully examined the
Registration Statement and the Prospectus and, in
their opinion, (A) as of the Effective Date, the
Registration Statement and Prospectus did not include
any untrue statement of a material fact and did not
omit to state a material fact required to be stated
therein or necessary to make the statements therein
not misleading, and (B) since the Effective Date no
event has occurred which should have been set forth
in a supplement or amendment to the Registration
Statement or the Prospectus.
(h) (i) Neither the Company nor any of its
subsidiaries shall have sustained since the date of the latest
audited financial statements included in the Prospectus any
loss or interference with its business from fire, explosion,
flood or other calamity, whether or not covered by insurance,
or from any labor dispute or court or governmental action,
order or decree, otherwise than as set forth or contemplated
in the Prospectus or (ii) since such date there shall not have
been any change in the capital stock or material increase in
the long-term debt of the Company or any of its subsidiaries
or any change, or any development involving a prospective
change, in or affecting the general affairs, management,
financial position, stockholders' equity or results of
operations of the Company and its subsidiaries, otherwise than
as set forth or contemplated in the Prospectus, the effect of
which, in any such case described in clause (i) or (ii), is,
in the judgment of the Representatives, so material and
adverse as to make it impracticable or inadvisable to proceed
with the public offering or the delivery of the Securities on
the terms and in the manner contemplated in the Prospectus.
(i) Subsequent to the execution and delivery of this
Agreement, (i) no downgrading shall have occurred in the
rating accorded the Securities or any of the Company's other
debt securities or preferred stock by any "nationally
recognized statistical rating organization," as that term is
defined by the Commission for purposes of Rule 436(g)(2) of
the Rules and Regulations, and (ii) no such organization shall
have publicly announced that it has under surveillance or
review, with possible negative implications, its rating of any
of the Securities or any of the Company's other debt
securities or preferred stock.
(j) Subsequent to the execution and delivery of this
Agreement there shall not have occurred any of the following:
(i) trading in securities generally on the New York Stock
Exchange or the American Stock Exchange or the
over-the-counter market, or trading in any securities of the
Company on any national securities exchange or in the
over-the-counter market, shall have been suspended or minimum
prices shall have been established on any such exchange or
such market by the Commission, by such exchange or by any
other regulatory body or governmental authority having
jurisdiction, (ii) a banking moratorium shall have been
declared by Federal or state authorities, (iii) the United
States shall have become engaged in hostilities, there shall
have been an escalation in hostilities involving the United
States or there shall have been a declaration of a national
emergency or war by the United States or (iv) there shall have
occurred such a material adverse change in general economic,
political or financial conditions (or the effect of
international conditions on the financial markets in the
United States shall be such) as to make it, in the judgment of
a majority in interest of the several Underwriters,
inadvisable or impractical to proceed with the public offering
or delivery of the Securities on the terms and in the manner
contemplated in the Prospectus.
All opinions, letters, evidence and certificates mentioned
above or elsewhere in this Agreement shall be deemed to be in compliance with
the provisions hereof only if they are in form and substance satisfactory to
counsel for the Underwriters.
8. Indemnification and Contribution.
<PAGE> 16
16
(a) The Company and its subsidiaries shall, jointly and
severally, indemnify and hold harmless each Underwriter (including Lehman
Brothers Inc. in its role as "qualified independent underwriter" pursuant to
the rules of the National Association of Securities Dealers, Inc.), its
officers and employees and each person, if any, who controls any Underwriter
within the meaning of the Securities Act, from and against any loss, claim,
damage or liability, joint or several, or any action in respect thereof
(including, but not limited to, any loss, claim, damage, liability or action
relating to purchases and sales of Securities), to which that Underwriter,
officer, employee or controlling person may become subject, under the
Securities Act or otherwise, insofar as such loss, claim, damage, liability or
action arises out of, or is based upon, (i) any untrue statement or alleged
untrue statement of a material fact contained (A) in any Preliminary
Prospectus, the Registration Statement or the Prospectus or in any amendment or
supplement thereto, or (B) in any blue sky application or other document
prepared or executed by the Company (or based upon any written information
furnished by the Company) specifically for the purpose of qualifying any or all
of the Securities, and the Warrant Shares issuable upon exercise of the
Warrants, under the securities laws of any state or other jurisdiction (any
such application, document or information being hereinafter called a "Blue Sky
Application"); (ii) the omission or alleged omission to state in any
Preliminary Prospectus, the Registration Statement or the Prospectus, or in any
amendment or supplement thereto, or in any Blue Sky Application a material fact
required to be stated therein or necessary to make the statements therein not
misleading, or (iii) any act or failure to act, or any alleged act or failure
to act, by any Underwriter in connection with, or relating in any manner to,
the Securities, the Warrant Shares issuable upon exercise of the Warrants or
the offering contemplated hereby, and which is included as part of or referred
to in any loss, claim, damage, liability or action arising out of or based upon
matters covered by clause (i) or (ii) above (provided that the Company and its
subsidiaries shall not be liable in the case of any matter covered by this
clause (iii) to the extent that it is determined in a final judgment by a court
of competent jurisdiction that such loss, claim, damage, liability or action
resulted directly from any such act or failure to act undertaken or omitted to
be taken by such Underwriter through its gross negligence or wilful
misconduct), and shall reimburse each Underwriter and each such officer,
employee and controlling person promptly upon demand for any legal or other
expenses reasonably incurred by that Underwriter, officer, employee or
controlling person in connection with investigating or defending or preparing
to defend against any such loss, claim, damage, liability or action as such
expenses are incurred; provided, however, that the Company and its subsidiaries
shall not be liable in any such case to the extent that any such loss, claim,
damage, liability or action arises out of, or is based upon, any untrue
statement or alleged untrue statement or omission or alleged omission made in
any Preliminary Prospectus, the Registration Statement or the Prospectus or in
any such amendment or supplement, or in any Blue Sky Application in reliance
upon and in conformity with written information furnished to the Company
through the Representatives by or on behalf of any Underwriter specifically for
inclusion therein and described in Section 8(e); and provided further that as
to any Preliminary Prospectus this indemnity agreement shall not inure to the
benefit of any Underwriter, its officers or employees or any person controlling
that Underwriter on account of any loss, claim, damage, liability or action
arising from the sale of Securities to any person by that Underwriter if that
Underwriter failed to send or give a copy of the Prospectus, as the same may be
amended or supplemented, to that person within the time required by the
Securities Act, and the untrue statement or alleged untrue statement of a
material fact or omission or alleged omission to state a material fact in such
Preliminary Prospectus was corrected in the Prospectus, unless such failure
resulted from non-compliance by the Company with Section 5(c). The foregoing
indemnity agreement is in addition to any liability which the Company or its
subsidiaries may otherwise have to any Underwriter or to any officer, employee
or controlling person of that Underwriter.
(b) Each Underwriter, severally and not jointly, shall
indemnify and hold harmless the Company, its officers and its employees, each
of its directors (including any person who, with his or her consent, is named
in the Registration Statement as about to become a director of the Company),
and each person, if any, who controls the Company within the meaning of the
Securities Act, from and against any loss, claim, damage or liability, joint or
several, or any action in respect thereof, to which the Company or any such
director, officer or controlling person may become subject, under the
Securities Act or otherwise, insofar as such loss, claim, damage, liability or
action arises out of, or is based upon, (i) any untrue statement or alleged
untrue statement of a material fact contained (A) in any Preliminary
Prospectus, the Registration Statement or the Prospectus or in any amendment or
supplement thereto, or (B) in any Blue Sky Application or (ii) the omission or
alleged omission to state in any Preliminary Prospectus, the Registration
Statement or the Prospectus, or in any amendment or supplement thereto, or in
any Blue Sky Application any material fact required to be stated therein or
necessary to make the statements therein not misleading, but in each case only
to the extent that the untrue statement or alleged untrue statement or omission
or alleged omission was made in reliance upon and in conformity with written
information furnished to the Company
<PAGE> 17
17
through the Representatives by or on behalf of that Underwriter specifically
for inclusion therein and described in Section 8(e), and shall reimburse the
Company and any such director, officer or controlling person for any legal or
other expenses reasonably incurred by the Company or any such director, officer
or controlling person in connection with investigating or defending or
preparing to defend against any such loss, claim, damage, liability or action
as such expenses are incurred. The foregoing indemnity agreement is in
addition to any liability which any Underwriter may otherwise have to the
Company or any such director, officer or controlling person.
(c) Promptly after receipt by an indemnified party under
this Section 8 of notice of any claim or the commencement of any action, the
indemnified party shall, if a claim in respect thereof is to be made against
the indemnifying party under this Section 8, notify the indemnifying party in
writing of the claim or the commencement of that action; provided, however,
that the failure to notify the indemnifying party shall not relieve it from any
liability which it may have under this Section 8 except to the extent it has
been materially prejudiced by such failure and, provided further, that the
failure to notify the indemnifying party shall not relieve it from any
liability which it may have to an indemnified party otherwise than under this
Section 8. If any such claim or action shall be brought against an indemnified
party, and it shall notify the indemnifying party thereof, the indemnifying
party shall be entitled to participate therein and, to the extent that it
wishes, jointly with any other similarly notified indemnifying party, to assume
the defense thereof with counsel reasonably satisfactory to the indemnified
party. After notice from the indemnifying party to the indemnified party of
its election to assume the defense of such claim or action, the indemnifying
party shall not be liable to the indemnified party under this Section 8 for any
legal or other expenses subsequently incurred by the indemnified party in
connection with the defense thereof other than reasonable costs of
investigation; provided, however, that any indemnified party shall have the
right to employ separate counsel in any such action and to participate in the
defense thereof but the fees and expenses of such counsel shall be at the
expense of such indemnified party unless (i) the employment thereof has been
specifically authorized by the indemnifying party in writing, (ii) such
indemnified party shall have been advised by such counsel that there may be one
or more legal defenses available to it which are different from or additional
to those available to the indemnifying party and in the reasonable judgment of
such counsel it is advisable for such indemnified party to employ separate
counsel in order to avail the indemnified party of such defenses or (iii) the
indemnifying party has failed to assume the defense of such action and employ
counsel reasonably satisfactory to the indemnified party, in which case, if
such indemnified party notifies the indemnifying party in writing that it
elects to employ separate counsel at the expense of the indemnifying party, the
indemnifying party shall not have the right to assume the defense of such
action on behalf of such indemnified party, it being understood, however, that
the indemnifying party shall not, in connection with any one such action or
separate but substantially similar or related actions in the same jurisdiction
arising out of the same general allegations or circumstances, be liable for the
reasonable fees and expenses of more than one separate firm of attorneys at any
time for all such indemnified parties, which firm shall be designated in
writing by the Representatives, if the indemnified parties under this Section 8
consist of any Underwriter or any of their respective officers, employees or
controlling persons, or by the Company, if the indemnified parties under this
Section consist of the Company or any of the Company's directors, officers,
employees or controlling persons. Each indemnified party, as a condition of
the indemnity agreements contained in Sections 8(a) and 8(b), shall use its
best efforts to cooperate with the indemnifying party in the defense of any
such action or claim. No indemnifying party shall (i) without the prior
written consent of the indemnified parties (which consent shall not be
unreasonably withheld), settle or compromise or consent to the entry of any
judgment with respect to pending or threatened claim, action, suit or
proceeding in respect of which indemnification or contribution may be sought
hereunder (whether or not the indemnified parties are actual or potential
parties to such claim or action) unless such settlement, compromise or consent
includes an unconditional release of each indemnified party from all liability
arising out of such claim, action, suit or proceeding, or (ii) be liable for
any settlement of any such action effected without its written consent (which
consent shall not be unreasonably withheld), but if settled with its written
consent or if there be a final judgment of the plaintiff in any such action,
the indemnifying party agrees to indemnify and hold harmless any indemnified
party from and against any loss of liability by reason of such settlement or
judgment.
(d) If the indemnification provided for in this Section 8
shall for any reason be unavailable to or insufficient to hold harmless an
indemnified party under Section 8(a), 8(b) or 8(c) in respect of any loss,
claim, damage or liability, or any action in respect thereof, referred to
therein, then each indemnifying party shall, in lieu of indemnifying such
indemnified party, contribute to the amount paid or payable by such indemnified
party as a result of such loss, claim, damage or liability, or action in
respect thereof, (i) in such proportion as shall be appropriate to reflect the
relative benefits received by the Company and its subsidiaries on the one hand
and the
<PAGE> 18
18
Underwriters on the other from the offering of the Securities or (ii) if the
allocation provided by clause (i) above is not permitted by applicable law in
such proportion as is appropriate to reflect not only the relative benefits
referred to in clause (i) above but also the relative fault of the Company and
its subsidiaries on the one hand and the Underwriters on the other with respect
to the statements or omissions which resulted in such loss, claim, damage or
liability, or action in respect thereof, as well as any other relevant
equitable considerations. The relative benefits received by the Company and
its subsidiaries on the one hand and the Underwriters on the other with respect
to such offering shall be deemed to be in the same proportion as the total net
proceeds from the offering of the Securities purchased under this Agreement
(before deducting expenses) received by the Company and its subsidiaries on the
one hand, and the total underwriting discounts and commissions received by the
Underwriters with respect to the Securities purchased under this Agreement, on
the other hand, bear to the total gross proceeds from the offering of the
Securities under this Agreement, in each case as set forth in the table on the
cover page of the Prospectus. The relative fault shall be determined by
reference to whether the untrue or alleged untrue statement of a material fact
or omission or alleged omission to state a material fact relates to information
supplied by the Company, its subsidiaries or the Underwriters, the intent of
the parties and their relative knowledge, access to information and opportunity
to correct or prevent such statement or omission. For purposes of the
preceding two sentences, the net proceeds deemed to be received by the Company
shall be deemed to be also for the benefit of its subsidiaries and information
supplied by the Company shall also be deemed to have been supplied by its
subsidiaries. The Company, its subsidiaries and the Underwriters agree that it
would not be just and equitable if contributions pursuant to this Section 8(d)
were to be determined by pro rata allocation (even if the Underwriters were
treated as one entity for such purpose) or by any other method of allocation
which does not take into account the equitable considerations referred to
herein. The amount paid or payable by an indemnified party as a result of the
loss, claim, damage or liability, or action in respect thereof, referred to
above in this Section 8(d) shall be deemed to include, for purposes of this
Section 8(d), any legal or other expenses reasonably incurred by such
indemnified party in connection with investigating or defending any such action
or claim. Notwithstanding the provisions of this Section 8(d), no Underwriter
shall be required to contribute any amount in excess of the amount by which the
total price at which the Securities underwritten by it and distributed to the
public was offered to the public exceeds the amount of any damages which such
Underwriter has otherwise paid or become liable to pay by reason of any untrue
or alleged untrue statement or omission or alleged omission. No person guilty
of fraudulent misrepresentation (within the meaning of Section 11(f) of the
Securities Act) shall be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation. The Underwriters' obligations to
contribute as provided in this Section 8(d) are several in proportion to their
respective underwriting obligations and not joint.
(e) The Underwriters severally confirm that the
statements with respect to the public offering of the Securities set forth on
the cover page of, and under the caption "Underwriting" in, the Prospectus are
correct and constitute the only information furnished in writing to the Company
by or on behalf of the Underwriters specifically for inclusion in the
Registration Statement and the Prospectus.
9. Defaulting Underwriters.
If, on the Delivery Date, any Underwriter defaults in the
performance of its obligations under this Agreement, the remaining
non-defaulting Underwriters shall be obligated to purchase the Securities which
the defaulting Underwriter agreed but failed to purchase on the Delivery Date
in the respective proportions which the number of Units set opposite the name
of each remaining non-defaulting Underwriter in Schedule 1 hereto bears to the
total number of Units set opposite the names of all the remaining
non-defaulting Underwriters in Schedule 1 hereto; provided, however, that the
remaining non-defaulting Underwriters shall not be obligated to purchase any of
the Securities on the Delivery Date if the total number of Securities which the
defaulting Underwriter or Underwriters agreed but failed to purchase on such
date exceeds 9.09% of the total number of Securities to be purchased on the
Delivery Date, and any remaining non-defaulting Underwriter shall not be
obligated to purchase more than 110% of the number of Securities which it
agreed to purchase on the Delivery Date pursuant to the terms of Section 2. If
the foregoing maximums are exceeded, the remaining non-defaulting Underwriters,
or those other underwriters satisfactory to the Representatives who so agree,
shall have the right, but shall not be obligated, to purchase, in such
proportion as may be agreed upon among them, all the Securities to be purchased
on the Delivery Date. If the remaining Underwriters or other underwriters
satisfactory to the Representatives do not elect to purchase the shares which
the defaulting Underwriter or Underwriters agreed but failed to purchase, this
Agreement shall terminate without liability on the part of any non-defaulting
Underwriter or the Company, except that the Company
<PAGE> 19
19
will continue to be liable for the payment of expenses of any non-defaulting
Underwriter to the extent set forth in Sections 6 and 11. As used in this
Agreement, the term "Underwriter" includes, for all purposes of this Agreement
unless the context requires otherwise, any party not listed in Schedule 1
hereto who, pursuant to this Section 9, purchases Securities which a defaulting
Underwriter agreed but failed to purchase.
Nothing contained herein shall relieve a defaulting
Underwriter of any liability it may have to the Company for damages caused by
its default. If other underwriters are obligated or agree to purchase the
Securities of a defaulting or withdrawing Underwriter, either the
Representatives or the Company may postpone the Delivery Date for up to seven
full business days in order to effect any changes that in the opinion of
counsel for the Company or counsel for the Underwriters may be necessary in the
Registration Statement, the Prospectus or in any other document or arrangement.
10. Effective Date and Termination.
(a) This Agreement shall become effective at 11:00 A.M., New
York City time, on the first full business day following the Effective Date, or
at such earlier time after the Registration Statement becomes effective as the
Representatives shall release the Securities for initial public offering. The
Representatives shall notify the Company immediately after they have taken any
action which causes this Agreement to become effective. Until this Agreement
is effective, it may be terminated by the Company by notice to the
Representatives or by the Representatives by notice to the Company. For
purposes of this Agreement, the release of the initial public offering of the
Securities shall be deemed to have been made when the Representatives release,
by telegram or otherwise, firm offers of the Securities to securities dealers
or release for publication a newspaper advertisement relating to the
Securities, whichever occurs first.
(b) The obligations of the Underwriters hereunder may be
terminated by the Representatives, by notice given to and received by the
Company prior to delivery of and payment for the Securities if, prior to that
time, any of the events described in Sections 7(h) , 7(i) or 7(j) shall have
occurred or if the Underwriters shall decline to purchase the Securities for
any reason permitted under this Agreement.
11. Reimbursement of Underwriters' Expenses. If (a)
notice shall have been given pursuant to Section 10(a) preventing this
Agreement from becoming effective, (b) the Company shall fail to tender the
Securities for delivery to the Underwriters for any reason permitted under this
Agreement or (c) the Underwriters shall decline to purchase the Securities for
any reason permitted under this Agreement (including the termination of this
Agreement pursuant to Section 10(b)), the Company shall reimburse the
Underwriters for the reasonable fees and expenses of their counsel and for such
other out-of-pocket expenses as shall have been incurred by them in connection
with this Agreement and the proposed purchase of the Securities, and upon
demand the Company shall pay the full amount thereof to the Representatives.
If this Agreement is terminated pursuant to Section 9 by reason of the default
of one or more Underwriters, the Company shall not be obligated to reimburse
any defaulting Underwriter on account of those expenses.
12. Notices, etc. All statements, requests, notices and
agreements hereunder shall be in writing, and:
(a) if to the Underwriters, shall be delivered or
sent by mail, telex or facsimile transmission to Lehman
Brothers Inc., 3 World Financial Center New York, New York
10285, Attention: Syndicate Department; (Fax: 212-528-8822);
(b) if to the Company, shall be delivered or sent by
mail, telex or facsimile transmission to the address of the
Company set forth in the Registration Statement, Attention:
Mark Moore; (Fax: 803-235-0841);
provided, however, that any notice to an Underwriter pursuant to Section 8(c)
shall be delivered or sent by mail, telex or facsimile transmission to such
Underwriter at its address set forth in its acceptance telex to the
Representatives, which address will be supplied to any other party hereto by
the Representatives upon request. Any such statements, requests, notices or
agreements shall take effect at the time of receipt thereof. The Company shall
be entitled to act
<PAGE> 20
20
and rely upon any request, consent, notice or agreement given or made on behalf
of the Underwriters by Lehman Brothers Inc. on behalf of the Representatives.
13. Persons Entitled to Benefit of Agreement. This
Agreement shall inure to the benefit of and be binding upon the Underwriters,
the Company and its subsidiaries and their respective successors. This
Agreement and the terms and provisions hereof are for the sole benefit of only
those persons, except that (A) the representations, warranties, indemnities and
agreements of the Company and its subsidiaries contained in this Agreement
shall also be deemed to be for the benefit of the officers and employees of
each Underwriter and the person or persons, if any, who control any Underwriter
within the meaning of Section 15 of the Securities Act and (B) the indemnity
agreement of the Underwriters contained in Section 8(b) of this Agreement shall
be deemed to be for the benefit of directors of the Company, officers of the
Company who have signed the Registration Statement, employees and any person
controlling the Company within the meaning of Section 15 of the Securities Act.
Nothing in this Agreement is intended or shall be construed to give any person,
other than the persons referred to in this Section 13, any legal or equitable
right, remedy or claim under or in respect of this Agreement or any provision
contained herein. The term "successor" as used in this Agreement shall be
deemed to include a purchaser from any Underwriter of any of the Securities in
his status as a purchaser.
14. Survival. The respective indemnities,
representations, warranties and agreements of the Company, its subsidiaries and
the Underwriters contained in this Agreement or made by or on behalf of them,
respectively, pursuant to this Agreement, shall survive the delivery of and
payment for the Securities and shall remain in full force and effect,
regardless of any investigation made by or on behalf of any of them or any
person controlling any of them.
15. Definition of the Terms "Business Day" and
"Subsidiary". For purposes of this Agreement, (a) "business day" means any day
on which the New York Stock Exchange, Inc. is open for trading and (b)
"subsidiary" has the meaning set forth in Rule 405 of the Rules and
Regulations.
16. Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY
AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.
17. Counterparts. This Agreement may be executed in one
or more counterparts and, if executed in more than one or more counterparts,
the executed counterparts shall each be deemed to be an original but all such
counterparts shall together constitute one and the same instrument.
18. Headings. The headings herein are inserted for
convenience of reference only and are not intended to be part of, or to affect
the meaning or interpretation of, this Agreement.
<PAGE> 21
21
If the foregoing correctly sets forth the agreement between
the Company and its subsidiaries and the Underwriters, please indicate your
acceptance in the space provided for that purpose below.
Very truly yours,
PCS DEVELOPMENT CORPORATION
By
---------------------------------
Title:
Accepted:
LEHMAN BROTHERS INC.
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
CHASE SECURITIES INC.
TORONTO DOMINION SECURITIES (USA) INC.
For themselves and as Representatives
for each of the several Underwriters
named in Schedule 1 hereto,
By LEHMAN BROTHERS INC.
By
-------------------------------------
Authorized Representative
<PAGE> 22
SCHEDULE 1
<TABLE>
<CAPTION>
Number of
Underwriters Units
- ------------ ----------
<S> <C>
Lehman Brothers Inc. . . . . . . . . . . . . . . . . . . . . .
Donaldson, Lufkin & Jenrette
Securities Corporation
Chase Securities Inc.
Toronto Dominion Securities (USA) Inc.
__________
Total . . . . . . . . . . . . . . . . . . . . . . . . . .
==========
</TABLE>
<PAGE> 1
EXHIBIT 4.1
================================================================================
PCS DEVELOPMENT CORPORATION,
as Issuer
and
UNITED STATES TRUST COMPANY OF NEW YORK,
as Trustee
__________________
Indenture
Dated as of July __, 1996
__________________
___% Senior Discount Notes due 2006
===============================================================================
<PAGE> 2
CROSS-REFERENCE TABLE
<TABLE>
<CAPTION>
TIA Sections Indenture Sections
- ------------ ------------------
<S> <C>
Section 310(a)(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.10
(a)(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.10
(b). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.3; 7.8
Section 311(a). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.3
(b). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.3
Section 312(a). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.3
Section 313(a). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.6
(c). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.5; 7.6; 10.2
Section 314(a). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.18; 10.2
(a)(4) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.17; 10.2
(c)(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10.3
(c)(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10.3
(e). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10.4
Section 315(a). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.2
(b). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.2; 7.5; 10.2
(c). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.2
(d). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.2
Section 316(A)(1)(A). . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.5; 6.6
(a)(1)(B). . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.4; 6.6
(b). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.7
Section 317(a)(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.8
(a)(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.9
(b). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.4
Section 318(a). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10.1
(c). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10.1
</TABLE>
Note: This Cross-Reference Table shall not for any purpose be deemed to be a
part of this Indenture.
<PAGE> 3
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C> <C>
RECITALS OF THE COMPANY . . . . . . . . . . . . . . . . . . . . . . 1
ARTICLE ONE
DEFINITIONS AND INCORPORATION BY REFERENCE . . . . . . . . . . . . . . . . . 1
SECTION 1.1. Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
SECTION 1.2. Incorporation by Reference of Trust Indenture Act . . . . . . . . . . . . . . . . . . . 17
SECTION 1.3. Rules of Construction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
ARTICLE TWO
THE NOTES . . . . . . . . . . . . . . . . . . . . . . . . . 17
SECTION 2.1. Form and Dating . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
SECTION 2.2. Execution, Authentication and Denominations . . . . . . . . . . . . . . . . . . . . . . 18
SECTION 2.3. Registrar and Paying Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
SECTION 2.4. Paying Agent to Hold Money in Trust . . . . . . . . . . . . . . . . . . . . . . . . . . 19
SECTION 2.5. Transfer and Exchange . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
SECTION 2.6. Book-Entry Provisions for the Global Note . . . . . . . . . . . . . . . . . . . . . . . 20
SECTION 2.7. Certificated Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
SECTION 2.8. Replacement Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
SECTION 2.9. Outstanding Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
SECTION 2.10. Temporary Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
SECTION 2.11. Cancellation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
SECTION 2.12. CUSIP Numbers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
SECTION 2.13. Defaulted Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
ARTICLE THREE
REDEMPTION . . . . . . . . . . . . . . . . . . . . . . . . . 22
SECTION 3.1. Optional Redemption . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
SECTION 3.2. Notices to Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
SECTION 3.3. Selection of Notes to be Redeemed . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
SECTION 3.4. Notice of Redemption . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
SECTION 3.5. Effect of Notice of Redemption . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
SECTION 3.6. Deposit of Redemption Price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
SECTION 3.7. Payment of Notes Called for Redemption . . . . . . . . . . . . . . . . . . . . . . . . . 24
SECTION 3.8. Notes Redeemed in Part . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
ARTICLE FOUR
COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . . 25
SECTION 4.1. Payment of Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
SECTION 4.2. Maintenance of Office or Agency . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
SECTION 4.3. Limitation on Indebtedness . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
SECTION 4.4. Limitation on Restricted Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
SECTION 4.5. Limitation on Dividend and Other Payment Restrictions Affecting
Restricted Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
SECTION 4.6. Limitation on the Issuance and Sale of Capital Stock of Restricted
Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
SECTION 4.7. Limitation on Issuances of Guarantees by Restricted Subsidiaries . . . . . . . . . . . . 30
</TABLE>
<PAGE> 4
<TABLE>
<S> <C> <C>
SECTION 4.8. Limitation on Transactions with Shareholders and Affiliates . . . . . . . . . . . . . . 30
SECTION 4.9. Limitation on Liens . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
SECTION 4.10. Limitation on Sale and Leaseback Transactions . . . . . . . . . . . . . . . . . . . . . 32
SECTION 4.11. Limitation on Asset Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
SECTION 4.12. Repurchase of Notes upon a Change of Control . . . . . . . . . . . . . . . . . . . . . . 32
SECTION 4.13. Existence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
SECTION 4.14. Payment of Taxes and Other Claims . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
SECTION 4.15. Maintenance of Properties and Insurance . . . . . . . . . . . . . . . . . . . . . . . . 33
SECTION 4.16. Notice of Defaults . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
SECTION 4.17. Compliance Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
SECTION 4.18. Commission Reports and Reports to Trustee and to Holders . . . . . . . . . . . . . . . . 34
SECTION 4.19. Waiver of Stay, Extension or Usury Laws . . . . . . . . . . . . . . . . . . . . . . . . 34
ARTICLE FIVE
CONSOLIDATION, MERGER AND SALE OF ASSETS . . . . . . . . . . . . . . . . . . 34
SECTION 5.1. When Company and Guarantor May Merge, Etc. . . . . . . . . . . . . . . . . . . . . . . . 34
SECTION 5.2. Successor Substituted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
ARTICLE SIX
DEFAULT AND REMEDIES . . . . . . . . . . . . . . . . . . . . . . . 35
SECTION 6.1. Events of Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
SECTION 6.2. Acceleration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
SECTION 6.3. Other Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
SECTION 6.4. Waiver of Past Defaults . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
SECTION 6.5. Control by Majority . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
SECTION 6.6. Limitation on Suits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
SECTION 6.7. Rights of Holders to Receive Payment . . . . . . . . . . . . . . . . . . . . . . . . . . 38
SECTION 6.8. Collection Suit by Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
SECTION 6.9. Trustee May File Proofs of Claim . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
SECTION 6.10. Priorities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
SECTION 6.11. Undertaking for Costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
SECTION 6.12. Restoration of Rights and Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
SECTION 6.13. Rights and Remedies Cumulative . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
SECTION 6.14. Delay or Omission Not Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
ARTICLE SEVEN
TRUSTEE . . . . . . . . . . . . . . . . . . . . . . . . . . 39
SECTION 7.1. General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
SECTION 7.2. Certain Rights of Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
SECTION 7.3. Individual Rights of Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
SECTION 7.4. Trustee's Disclaimer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
SECTION 7.5. Notice of Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
SECTION 7.6. Reports by Trustee to Holders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
SECTION 7.7. Compensation and Indemnity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
SECTION 7.8. Replacement of Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
SECTION 7.9. Successor Trustee by Merger, Etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
SECTION 7.10. Eligibility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
SECTION 7.11. Money Held in Trust . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
SECTION 7.12. Withholding Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
ARTICLE EIGHT
DISCHARGE OF INDENTURE . . . . . . . . . . . . . . . . . . . . . . 42
</TABLE>
<PAGE> 5
<TABLE>
<S> <C> <C>
SECTION 8.1. Termination of Company's Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . 42
SECTION 8.2. Defeasance and Discharge of Indenture . . . . . . . . . . . . . . . . . . . . . . . . . 43
SECTION 8.3. Defeasance of Certain Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
SECTION 8.4. Application of Trust Money . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
SECTION 8.5. Repayment to Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
SECTION 8.6. Reinstatement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
ARTICLE NINE
AMENDMENTS, SUPPLEMENTS AND WAIVERS . . . . . . . . . . . . . . . . . . . 45
SECTION 9.1. Without Consent of Holders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
SECTION 9.2. With Consent of Holders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
SECTION 9.3. Revocation and Effect of Consent . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
SECTION 9.4. Notation on or Exchange of Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
SECTION 9.5. Trustee to Sign Amendments, Etc . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
SECTION 9.6. Conformity with Trust Indenture Act . . . . . . . . . . . . . . . . . . . . . . . . . . 47
ARTICLE TEN
MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . 47
SECTION 10.1. Trust Indenture Act of 1939 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
SECTION 10.2. Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
SECTION 10.3. Certificate and Opinion as to Conditions Precedent . . . . . . . . . . . . . . . . . . . 48
SECTION 10.4. Statements Required in Certificate or Opinion . . . . . . . . . . . . . . . . . . . . . 48
SECTION 10.5. Rules by Trustee, Paying Agent or Registrar . . . . . . . . . . . . . . . . . . . . . . 49
SECTION 10.6. Payment Date Other Than a Business Day . . . . . . . . . . . . . . . . . . . . . . . . . 49
SECTION 10.7. Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
SECTION 10.8. No Adverse Interpretation of Other Agreements . . . . . . . . . . . . . . . . . . . . . 49
SECTION 10.9. No Recourse Against Others . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
SECTION 10.10. Successors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
SECTION 10.11. Duplicate Originals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
SECTION 10.12. Separability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
SECTION 10.13. Table of Contents, Headings, Etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
EXHIBIT A Form of Note . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-1
</TABLE>
<PAGE> 6
INDENTURE, dated as of July __, 1996, between PCS DEVELOPMENT
CORPORATION, a Delaware corporation, as Issuer (the "Company"), and UNITED
STATES TRUST COMPANY OF NEW YORK, as Trustee (in such capacity, the "Trustee").
RECITALS OF THE COMPANY
The Company has duly authorized the execution and delivery of
this Indenture to provide for the issuance of $________ aggregate principal
amount at maturity of the Company's _____% Senior Discount Notes due 2006 (the
"Notes") issuable as provided in this Indenture. Pursuant to the terms of an
Underwriting Agreement dated ______ __, 1996 (the "Underwriting Agreement")
among the Company and the underwriters named therein (the "Underwriters"), for
which Lehman Brothers Inc. is acting as representative, the Company has agreed
to issue and sell ________ units (the "Units") in accordance with the Unit
Agreement dated as of May __, 1996 (the "Unit Agreement") between the Company
and United States Trust Company of New York, as Unit Agent (in such capacity,
the "Unit Agent"), each Unit consisting of $1,000 principal amount at maturity
of the Notes and _____ warrants (the "Warrants") entitling the holder thereof
to purchase ______ shares of Class B Common Stock of the Company (the "Class B
Common Stock") from the Company at an exercise price of $0.01 per share,
subject to adjustment as provided in the Warrant Agreement dated as of May __,
1996 (the "Warrant Agreement") between the Company and United States Trust
Company of New York, as the Warrant Agent (in such capacity, the "Warrant
Agent"). The Notes and the Warrants will become separately transferable upon
the earliest to occur of (i) ________ __, 1996, (ii) such earlier date as may
be determined by Lehman Brothers Inc. and specified to the Company, the
Trustee, the Warrant Agent and the Unit Agent in writing, (iii) the occurrence
of a Change of Control and (iv) in the event of an Asset Sale, the date the
Company mails notice thereof to the holders of the Notes. All things necessary
to make this Indenture a valid agreement of the Company, in accordance with its
terms, have been done, and the Company has done all things necessary to make
the Notes, when executed by the Company and authenticated and delivered by the
Trustee hereunder and duly issued by the Company, the valid obligations of the
Company as hereinafter provided.
This Indenture is subject to, and shall be governed by, the
provisions of the Trust Indenture Act of 1939, as amended, that are required to
be a part of, and to govern, indentures qualified under the Trust Indenture Act
of 1939, as amended.
AND THIS INDENTURE FURTHER WITNESSETH
FOR AND IN consideration of the premises and the purchase of
the Notes by the Holders thereof, it is mutually covenanted and agreed, for the
equal and proportionate benefit of all Holders, as follows.
ARTICLE ONE
DEFINITIONS AND INCORPORATION BY REFERENCE
SECTION 1.1. Definitions.
"Accreted Value" is defined to mean, for any Specified Date,
the amount provided below with respect to each $1,000 principal amount at
maturity of Notes:
(i) if the Specified Date occurs on one of the following dates
(each a "Semi-Annual Accrual Date"), the Accreted Value will equal the
amount set forth below for such Semi-Annual Accrual Date:
<PAGE> 7
2
<TABLE>
<CAPTION>
ACCRETED
SEMI-ANNUAL ACCRUAL DATE VALUE
- ------------------------ -----
<S> <C>
1996 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
1997 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
1997 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
1998 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
1998 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
1999 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
1999 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
2000 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
2000 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
2001 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
2001 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,000.00
</TABLE>
(ii) if the Specified Date occurs before the first Semi-Annual
Accrual Date, the Accreted Value will equal the sum of (a) the
issue price (as determined for U.S. federal income tax
purposes) and (b) an amount equal to the product of (1) the
Accreted Value for the first Semi-Annual Accrual Date less the
original issue price multiplied by (2) a fraction, the
numerator of which is the number of days from the issue date
of the Notes to the Specified Date, using a 360-day year of
twelve 30-day months, and the denominator of which is the
number of days from the issue date of the Notes to the first
Semi-Annual Accrual Date, using a 360-day year of twelve
30-day months;
(iii) if the Specified Date occurs between two Semi-Annual Accrual
Dates, the Accreted Value will equal the sum of (a) the
Accreted Value for the Semi-Annual Accrual Date immediately
preceding such Specified Date and (b) an amount equal to the
product of (1) the Accreted Value for the immediately
following Semi-Annual Accrual Date less the Accreted Value for
the immediately preceding Semi Annual Accrual Date multiplied
by (2) a fraction, the numerator of which is the number of
days from the immediately preceding Semi-Annual Accrual Date
to the Specified Date, using a 360-day year of twelve 30-day
months, and the denominator of which is 180; or
(iv) if the Specified Date occurs after the last Semi-Annual
Accrual Date, the Accreted Value will equal $1,000.
The Company shall be responsible for calculating the Accreted
Value pursuant to (ii) and (iii) above and shall send written notice
to the Trustee of such calculation.
"Acquired Indebtedness" means Indebtedness of a Person
existing at the time such Person becomes a Restricted Subsidiary or assumed in
connection with an Asset Acquisition by the Company or a Restricted Subsidiary
and not incurred in connection with, or in anticipation of, such Person
becoming a Restricted Subsidiary or such Asset Acquisition, as the case may be;
provided that Indebtedness of such Person which is redeemed, defeased, retired
or otherwise repaid at the time of or immediately upon consummation of the
transactions by which such Person becomes a Restricted Subsidiary or such Asset
Acquisition shall not be Acquired Indebtedness.
"Adjusted Consolidated Net Income" means, for any period, the
aggregate net income (or loss) of the Company and its Restricted Subsidiaries
for such period determined in conformity with GAAP; provided that the following
items shall be excluded in computing Adjusted Consolidated Net Income (without
duplication): (i) the net income of any Person (other than net income
attributable to a Restricted Subsidiary) in which any Person (other than the
Company or any of its Restricted Subsidiaries) has a joint interest and the net
income of any Unrestricted Subsidiary, except to the extent of the amount of
dividends or other distributions actually paid to the Company or any of its
Restricted Subsidiaries by such other Person or such Unrestricted Subsidiary
during such period; (ii) solely for the purposes of calculating the amount of
Restricted Payments that may be made
<PAGE> 8
3
pursuant to clause (C) of the first paragraph of Section 4.4 (and in such case,
except to the extent includible pursuant to clause (i) above), the net income
(or loss) of any Person accrued prior to the date it becomes a Restricted
Subsidiary or is merged into or consolidated with the Company or any of its
Restricted Subsidiaries or all or substantially all of the property and assets
of such Person are acquired by the Company or any of its Restricted
Subsidiaries; (iii) the net income of any Restricted Subsidiary to the extent
that the declaration or payment of dividends or similar distributions by such
Restricted Subsidiary of such net income is not at the time permitted by the
operation of the terms of its charter or any agreement, instrument, judgment,
decree, order, statute, rule or governmental regulation applicable to such
Restricted Subsidiary; (iv) any gains or losses (on an after-tax basis)
attributable to Asset Sales; (v) any amount paid or accrued as dividends on
Preferred Stock of the Company or any Restricted Subsidiary owned by Persons
other than the Company and any of its Restricted Subsidiaries; and (vi) all
extraordinary gains and extraordinary losses.
"Affiliate" means, as applied to any Person, any other Person
directly or indirectly controlling, controlled by, or under direct or indirect
common control with, such Person. For purposes of this definition, "control"
(including, with correlative meanings, the terms "controlling," "controlled by"
and "under common control with"), as applied to any Person, means 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.
"Agent" means any Registrar, Paying Agent, authenticating agent
or co-Registrar.
"Agent Members" has the meaning provided in Section 2.6(a).
"Asset Acquisition" means (i) an investment by the Company or
any of its Restricted Subsidiaries in any other Person pursuant to which such
Person shall become a Restricted Subsidiary or shall be merged into or
consolidated with the Company or any Restricted Subsidiary; provided that such
Person's primary business is related, ancillary or complementary to the
businesses of the Company and its Restricted Subsidiaries on the date of such
investment, or (ii) an acquisition by the Company or any of its Restricted
Subsidiaries of the property and assets of any Person other than the Company or
any of its Restricted Subsidiaries that constitute substantially all of a
division or line of business of such Person; provided that the property and
assets acquired are related, ancillary or complementary to the businesses of
the Company and its Restricted Subsidiaries on the date of such acquisition.
"Asset Sale" means any sale, transfer or other disposition
(including by way of merger, consolidation, or sale-leaseback transactions) in
one transaction or a series of related transactions by the Company or any of
its Restricted Subsidiaries to any Person other than the Company or any of its
Restricted Subsidiaries of (i) all or any of the Capital Stock of any
Restricted Subsidiary, (ii) all or substantially all of the property and assets
of an operating unit or business of the Company or any of its Restricted
Subsidiaries or (iii) any other property and assets of the Company or any of
its Restricted Subsidiaries outside the ordinary course of business of the
Company or such Restricted Subsidiary and, in each case, that is not governed
by the provisions of Article Five; provided that "Asset Sale" shall not include
(i) sales or other dispositions of inventory, receivables and other current
assets in the ordinary course of business, (ii) substantially contemporaneous
exchanges by the Company or any Restricted Subsidiary of property or equipment
for other property or equipment; provided that the property or equipment
received in any such exchange by the Company or such Restricted Subsidiary (A)
constitutes Telecommunications Assets and (B) has at least substantially equal
market value to the Company or such Restricted Subsidiary (as determined by the
Board of Directors whose good faith determination shall be conclusive and
evidenced by a board resolution) or (iii) sales or other dispositions of assets
with a fair market value (as certified in an Officers' Certificate) not in
excess of $500,000.
"Attributable Value" means, as to any particular lease under
which any Person is at the time liable other than a Capitalized Lease
Obligation, and at any date as of which the amount thereof is to be determined,
the total net amount of rent required to be paid by such Person under such
lease during the initial term thereof as determined in accordance with GAAP,
discounted from the last date of such initial term to the date of determination
at a rate per annum equal to the discount rate which would be applicable to a
Capitalized
<PAGE> 9
4
Lease Obligation with a like term in accordance with GAAP. The net amount of
rent required to be paid under any such lease for any such period shall be the
aggregate amount of rent payable by the lessee with respect to such period
after excluding amounts required to be paid on account of insurance, taxes,
assessments, utility, operating and labor costs and similar charges. In the
case of any lease which is terminable by the lessee upon the payment of a
penalty, such net amount shall also include the amount of such penalty, but no
rent shall be considered as required to be paid under such lease subsequent to
the first date upon which it may be so terminated. "Attributable Value" means,
as to a Capitalized Lease Obligation under which any Person is at the time
liable and at any date as of which the amount thereof is to be determined, the
capitalized amount thereof that would appear on the face of a balance sheet of
such person in accordance with GAAP.
"Average Life" means, at any date of determination with
respect to any debt security, the quotient obtained by dividing (i) the sum of
the products of (a) the number of years from such date of determination to the
dates of each successive scheduled principal payment of such debt security and
(b) the amount of such principal payment by (ii) the sum of all such principal
payments.
"Board of Directors" means the Board of Directors of the
Company or any committee of such Board of Directors duly authorized to act
under this Indenture.
"Board Resolution" means a copy of a resolution, certified by
the Secretary or Assistant Secretary of the Company to have been duly adopted
by the Board of Directors and to be in full force and effect on the date of
such certification and delivered to the Trustee.
"Business Day" means any day except a Saturday, Sunday or
other day on which commercial banks in The City of New York, or in the city of
the Corporate Trust Office, are authorized by law to close.
"Capital Stock" means, with respect to any Person, any and all
shares, interests, participations or other equivalents (however designated,
whether voting or non-voting) in the equity of such Person, whether now
outstanding or issued after the date of the Indenture.
"Capitalized Lease" means, as applied to any Person, any lease
of any property (whether real, personal or mixed) of which the discounted
present value of the rental obligations of such Person as lessee, in conformity
with GAAP, is required to be capitalized on the balance sheet of such Person;
and "Capitalized Lease Obligations" means the discounted present value of the
rental obligations under such lease.
"Change of Control" means the occurrence of any of the
following events: (i) a "person" or "group" (within the meaning of Sections
13(d) and 14(d)(2) of the Exchange Act) becomes the "beneficial owner" (as
defined in Rule 13d-3 under the Exchange Act) of Voting Stock having more than
50% of the voting power of the total Voting Stock of the Company on a fully
diluted basis; (ii) individuals who at the beginning of any period of two
consecutive calendar years constituted the Board of Directors of the Company
(together with any new directors whose election by the Board of Directors or
whose nomination for election by the Company's shareholders was approved by a
vote of at least two-thirds of the members of the Board of Directors then in
office who either were members of the Board of Directors at the beginning of
such period or whose election or nomination for election was previously so
approved) cease for any reason to constitute a majority of the members of the
Board of Directors then in office; (iii) the sale, lease, transfer, conveyance
or other disposition (other than by way of merger or consolidation), in one or
a series of related transactions, of all or substantially all of the assets of
the Company and its Subsidiaries taken as a whole to any such "person" or
"group" (other than to the Company or a Wholly Owned Restricted Subsidiary);
(iv) the merger or consolidation of the Company with or into another
corporation or the merger of another corporation with or into the Company with
the effect that immediately after such transaction any such "person" or "group"
of persons or entities shall have become the beneficial owner of securities of
the surviving corporation of such merger or consolidation representing a
majority of the combined voting power of the outstanding securities of the
surviving corporation ordinarily having the right to vote in the election of
directors; or (v) the adoption of a plan relating to the liquidation or
dissolution of the Company; provided, that a Change of Control will be deemed
not to occur pursuant to clauses (i), (ii), (iii) or (iv) above if either (x)
the acquiring "person" is a corporation with
<PAGE> 10
5
outstanding senior, unsecured corporate debt securities having a maturity at
original issuance of at least one year and such debt securities are rated
Investment Grade (without giving effect to any third-party credit support or
enhancement) by S&P or Moody's for a period of at least 90 consecutive days,
beginning on the date of such event (which period will be extended up to 90
additional days for as long as the rating of such debt securities is under
publicly announced consideration for possible downgrading by the applicable
rating agency), or (y) in the event that the acquiring "person" is a corporation
that either (1) does not have any outstanding senior, unsecured corporate debt
securities that are rated by S&P or Moody's at any time during a period of 90
consecutive days beginning on the date of such event (which period will be
extended up to an additional 90 days for as long as any such rating agency has
publicly announced that such debt securities will be rated), or (2) after the
date of such event but during such 90 day period, has outstanding senior,
unsecured corporate debt securities having a maturity at original issuance of at
least one year that have been rated Investment Grade (without giving effect to
any third-party credit support or enhancement) by S&P or Moody's which rating
continues in effect for the remainder of the period specified in clause (x)
above, the Notes shall be rated Investment Grade immediately upon such Change of
Control.
"Class B Common Stock" has the meaning provided in the recitals
to this Indenture.
"Closing Date" means the date on which the Units are
originally issued under the Unit Agreement.
"Closing Price" on any Trading Day with respect to the per
share price of any shares of Capital Stock means the last reported sale price
regular way or, in case no such reported sale takes place on such day, the
average of the reported closing bid and asked prices regular way, in either
case on the New York Stock Exchange or, if such shares of Capital Stock are not
listed or admitted to trading on such exchange, on the principal national
securities exchange on which such shares are listed or admitted to trading or,
if not listed or admitted to trading on any national securities exchange, on
the Nasdaq National Market or, if such shares are not listed or admitted to
trading on any national securities exchange or quoted on such automated
quotation system, the average of the closing bid and asked prices in the
over-the-counter market as furnished by any New York Stock Exchange member firm
that is selected from time to time by the Company for that purpose and is
reasonably acceptable to the Trustee.
"Commission" means the Securities and Exchange Commission, as
from time to time constituted, created under the Exchange Act or, if at any
time after the execution of this instrument such Commission is not existing and
performing the duties now assigned to it under the TIA, then the body
performing such duties at such time.
"Common Stock" means, with respect to any Person, any and all
shares, interests, participations or other equivalents (however designated,
whether voting or non-voting) of such Person's common stock, whether now
outstanding or issued after the date of this Indenture, including, without
limitation, all series and classes of such common stock.
"Company" means the party named as such in the first paragraph
of this Indenture until a successor replaces it pursuant to Article Five and
thereafter means the successor.
"Company Order" means a written request or order signed in the
name of the Company (i) by its Chairman, a Vice Chairman, its President or a
Vice President and (ii) by its Treasurer, an Assistant Treasurer, its Secretary
or an Assistant Secretary and delivered to the Trustee; provided, however, that
such written request or order may be signed by any two of the officers or
directors listed in clause (i) above in lieu of being signed by one of such
officers or directors listed in such clause (i) and one of the officers listed
in clause (ii) above.
"Consolidated EBITDA" means, for any period, the sum of the
amounts for such period of (i) Adjusted Consolidated Net Income, (ii)
Consolidated Interest Expense to the extent such amount was deducted in
calculating Adjusted Consolidated Net Income, (iii) income taxes, to the extent
such amount was deducted in calculating Adjusted Consolidated Net Income (other
than income taxes (either positive or negative) attributable
<PAGE> 11
6
to extraordinary and non-recurring gains or losses or sales of assets), (iv)
depreciation expense, to the extent such amount was deducted in calculating
Adjusted Consolidated Net Income, (v) amortization expense, to the extent such
amount was deducted in calculating Adjusted Consolidated Net Income, and (vi)
all other non-cash charges (excluding any such non-cash charge to the extent
that it represents an accrual of or reserve for cash charges in any future
period) of such Person and its Subsidiaries for such period to the extent that
such other non cash charges were deducted in computing such Adjusted
Consolidated Net Income, less (vii) all non-cash items increasing Adjusted
Consolidated Net Income for such period (excluding any such non-cash income to
the extent it represents an accrual of cash income to be received in any future
period), in each case on a consolidated basis and determined in accordance with
GAAP; provided that, if any Restricted Subsidiary is not a Wholly Owned
Restricted Subsidiary, Consolidated EBITDA shall be reduced (to the extent not
otherwise reduced in accordance with GAAP) by an amount equal to (A) the amount
of the Adjusted Consolidated Net Income attributable to such Restricted
Subsidiary multiplied by (B) the quotient of (1) the number of outstanding
common shares of such Restricted Subsidiary not owned on the last day of such
period by the Company or any of its Restricted Subsidiaries divided by (2) the
total number of outstanding common shares of such Restricted Subsidiary on the
last day of such period.
"Consolidated Fixed Charges" of any Person means for any
period (i) Consolidated Interest Expense of such Person plus (ii) Preferred
Stock dividends declared and payable in cash in such period by such Person or
any of its Restricted Subsidiaries, other than any such dividends payable only
in shares of Common Stock or options, warrants or other rights to purchase or
acquire Common Stock, or payable by a Restricted Subsidiary of such Person to
such Person or one of its Wholly Owned Restricted Subsidiaries.
"Consolidated Indebtedness" means the aggregate amount of
Indebtedness of the Company and its Restricted Subsidiaries on a consolidated
basis.
"Consolidated Interest Expense" means, for any period, the
aggregate of the following amounts for such period determined on a consolidated
basis (without taking into account Unrestricted Subsidiaries) in accordance
with GAAP: the amount of interest in respect of Indebtedness (including
amortization of original issue discount on any Indebtedness; the interest
portion of any deferred payment obligation and any premiums, fees and expenses
(and any amortization thereof) payable in connection with Indebtedness; all
commissions, discounts and other fees and charges owed with respect to letters
of credit and bankers' acceptance financing; the net costs associated with
Interest Rate Agreements; interest on Indebtedness that is Guaranteed or
secured by the Company or any of its Restricted Subsidiaries; and amounts paid
to repurchase the Warrants to the extent such amounts have been expensed for
purposes of determining Adjusted Consolidated Net Income) and all but the
principal component of rentals in respect of Capitalized Lease Obligations
paid, accrued or scheduled to be paid or to be accrued by the Company and its
Restricted Subsidiaries during such period; excluding, however, any amount of
such interest of any Restricted Subsidiary if the net income of such Restricted
Subsidiary is excluded in the calculation of Adjusted Consolidated Net Income
pursuant to clause (iii) of the definition thereof (but only in the same
proportion as the net income of such Restricted Subsidiary is excluded from the
calculation of Adjusted Consolidated Net Income pursuant to clause (iii) of the
definition thereof).
"Consolidated Net Worth" means, at any date of determination,
shareholders' equity as set forth on the most recently available quarterly or
annual consolidated balance sheet of the Company and its Restricted
Subsidiaries (which shall be as of a date not more than 90 days prior to the
date of such computation, and which shall not take into account Unrestricted
Subsidiaries), less any amounts attributable to Redeemable Stock or any equity
security convertible into or exchangeable for Indebtedness, the cost of
treasury stock and the principal amount of any promissory notes receivable from
the sale of Capital Stock of the Company or any of its Restricted Subsidiaries,
each item to be determined in conformity with GAAP.
"Corporate Trust Office" means the office of the Trustee at
which the corporate trust business of the Trustee shall, at any particular
time, be principally administered, which office is, at the date of this
Indenture, located at 114 West 47th Street, New York, New York 10036,
Attention: ________________.
<PAGE> 12
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"Credit Facility" means the credit agreement to be entered
into prior to or simultaneously with the completion of the offering of the
Units, as such credit agreement may be amended, modified, supplemented,
restated or replaced from time to time.
"Default" means any event that is, or after notice or passage
of time or both would be, an Event of Default.
"Depository" shall mean The Depository Trust Company, its
nominees, and their respective successors.
"Dollar" or "$" means, unless specified otherwise, United
States dollars.
"Event of Default" has the meaning provided in Section 6.1.
"Excess Proceeds" has the meaning provided in Section 4.11.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"Excluded Holder" has the meaning provided in Section 4.20.
"FCC" means the Federal Communications Commission or any
successor governmental authority.
"GAAP" means generally accepted accounting principles in the
United States of America as in effect as of the date of the Indenture,
including, without limitation, those set forth in the opinions and
pronouncements of the Accounting Principles Board of the American Institute of
Certified Public Accountants and statements and pronouncements of the Financial
Accounting Standards Board or in such other statements by such other entity as
approved by a significant segment of the accounting profession.
"Global Note" has the meaning provided in Section 2.1.
"Global Note Holder" has the meaning provided in Section 2.2.
"Guarantee" means, with respect to any Person, any obligation,
contingent or otherwise, of such Person directly or indirectly guaranteeing any
Indebtedness or other obligation of any other Person and, without limiting the
generality of the foregoing, any obligation, direct or indirect, contingent or
otherwise, of such Person (i) to purchase or pay (or advance or supply funds
for the purchase or payment of) such Indebtedness or other obligation of such
other Person (whether arising by virtue of partnership arrangements, or by
agreements to keep-well, to purchase assets, goods, securities or services, to
take-or-pay, or to maintain financial statement conditions or otherwise) or
(ii) entered into for purposes of assuring in any other manner the obligee of
such Indebtedness or other obligation of the payment thereof or to protect such
obligee against loss in respect thereof (in whole or in part); provided that
the term "Guarantee" shall not include endorsements for collection or deposit
in the ordinary course of business. The term "Guarantee" used as a verb has a
corresponding meaning.
"Holder" or "Noteholder" means the registered holder of any
Note.
"Incur" means, with respect to any Indebtedness, to incur,
create, issue, assume, Guarantee or otherwise become liable for or with respect
to, or become responsible for, the payment of, contingently or otherwise, such
Indebtedness, including Acquired Indebtedness; provided that neither the
accrual of interest nor the accretion of original issue discount shall be
considered an Incurrence of Indebtedness.
"Indebtedness" means, with respect to any Person at any date
of determination (without duplication), (i) all indebtedness of such Person for
borrowed money, (ii) all obligations of such Person evidenced by bonds,
debentures, notes or other similar instruments, (other than the Company's
Series A Preferred
<PAGE> 13
8
Stock) (iii) all obligations of such Person in respect of letters of credit or
other similar instruments (including reimbursement obligations with respect
thereto), (iv) all obligations of such Person to pay the deferred and unpaid
purchase price of property or services, which purchase price is due more than
six months after the date of placing such property in service or taking
delivery and title thereto or the completion of such services, except trade
payables, (v) all obligations of such Person as lessee under Capitalized
Leases, (vi) all Indebtedness of other Persons secured by a Lien on any asset
of such Person, whether or not such Indebtedness is assumed by such Person;
provided that the amount of such Indebtedness shall be the lesser of (A) the
fair market value of such asset at such date of determination and (B) the
amount of such Indebtedness, (vii) all Indebtedness of other Persons Guaranteed
by such Person to the extent such Indebtedness is Guaranteed by such Person and
(viii) to the extent not otherwise included in this definition, obligations
under Interest Rate Agreements. The amount of Indebtedness of any Person at any
date shall be the outstanding balance at such date of all unconditional
obligations as described above and, with respect to contingent obligations, the
maximum liability upon the occurrence of the contingency giving rise to the
obligation, provided (i) that the amount outstanding at any time of any
Indebtedness issued with original issue discount is the accreted value of such
Indebtedness, (ii) that Indebtedness shall not include any liability for
federal, state, local or other taxes (iii) that Indebtedness shall not include
any liability under health, life, accident or disability plans for employees of
the Company or any Restricted Subsidiary generally, and (iv) Indebtedness shall
not include any commitment for the purchase by the Company or any Restricted
Subsidiary of equipment or telecommunications services requiring the Company or
such Restricted Subsidiary to purchase minimum quantities to achieve discount
pricing prior to the time the Company or such Restricted Subsidiary is required
pursuant to GAAP to record a liability on its balance sheet under such
commitment to pay increased prices.
"Indebtedness to EBITDA Ratio" means, as at any date of
determination (the "Determination Date"), the ratio of (i) Consolidated
Indebtedness at the Determination Date to (ii) the product of four times the
Consolidated EBITDA of the Company for the most recent full fiscal quarter for
which reports have been filed pursuant to Section 4.18 (such full fiscal
quarter being referred to herein as the "Most Recent Quarter"); provided that
(x) pro forma effect shall be given to (A) any Indebtedness Incurred during the
period commencing on the first day of the Most Recent Quarter through the
Determination Date (the "Reference Period"), including any Indebtedness
Incurred on the Determination Date, to the extent outstanding at the close of
the Determination Date, and (B) the discharge of any other Indebtedness
permanently retired, repaid, repurchased, defeased or otherwise discharged with
the proceeds of such new Indebtedness, in each case as if the Incurrence or
retirement of such Indebtedness had occurred on the first date of such
Reference Period, (y) if during the Reference Period, the Company or any of its
Restricted Subsidiaries shall have engaged in any Asset Sale, Consolidated
EBITDA for such period shall be decreased by an amount equal to the portion
thereof (if positive), or increased by an amount equal to the portion thereof
(if negative), directly attributable to the assets which are the subject of
such Asset Sale (including, as part of the amount directly attributable to such
Asset Sale, any transfer, retirement or other satisfaction of Indebtedness of
the Company or any of its Restricted Subsidiaries as part of the consideration
for such Asset Sale) as if such Asset Sale and related retirement of
Indebtedness had occurred on the first day of such Reference Period or (z) if
during such Reference Period the Company or any of its Restricted Subsidiaries
shall have made any Asset Acquisition, the Consolidated EBITDA of the Company
shall be calculated on a pro forma basis as if such Asset Acquisition and any
related financing had occurred on the first day of such Reference Period.
"Indenture" means this Indenture as originally executed or as
it may be amended or supplemented from time to time by one or more indentures
supplemental to this Indenture entered into pursuant to the applicable
provisions of this Indenture.
"Interest Payment Date" means each semiannual interest payment
date on ________ __ and ________ __ of each year, commencing ________ __, 2002.
"Interest Rate Agreement" means any interest rate protection
agreement, interest rate future agreement, interest rate option agreement,
interest rate swap agreement, interest rate cap agreement, interest rate collar
agreement, interest rate hedge agreement, option or future contract or other
similar agreement or arrangement designed to protect the Company or any of its
Subsidiaries against fluctuations in interest rates.
<PAGE> 14
9
"Investment" in any Person means any direct or indirect
advance, loan or other extension of credit (including, without limitation, by
way of Guarantee or similar arrangement; but excluding advances to customers in
the ordinary course of business that are, in conformity with GAAP, recorded as
accounts receivable on the balance sheet of the Company or its Restricted
Subsidiaries) to, capital contribution (by means of any transfer of cash or
other property to others or any payment for property or services for the
account or use of others) to, or any purchase or acquisition of Capital Stock,
bonds, notes, debentures or other similar instruments issued by, such Person
and shall include the designation of a newly formed or newly acquired
Subsidiary as an Unrestricted Subsidiary. For purposes of the definition of
"Unrestricted Subsidiary", Section 4.4 and Section 4.6, (i) "Investment" shall
include (a) the fair market value of the assets (net of liabilities) of any
newly formed or newly acquired Subsidiary of the Company at the time that such
newly formed or newly acquired Subsidiary is designated an Unrestricted
Subsidiary and (b) the fair market value, in the case of a sale of Capital
Stock in accordance with Section 4.6 such that a Person no longer constitutes a
Restricted Subsidiary, of the remaining assets (net of liabilities) of such
Person after such sale, and shall exclude the fair market value of the assets
(net of liabilities) of any Unrestricted Subsidiary at the time that such
Unrestricted Subsidiary is designated a Restricted Subsidiary of the Company
and (ii) any property transferred to or from an Unrestricted Subsidiary shall
be valued at its fair market value at the time of such transfer, in each case
as determined by the Board of Directors in good faith.
"Investment Grade" shall mean BBB- or higher by S&P or Baa3 or
higher by Moody's.
"L.A. Note" means the $500,000 aggregate principal amount
promissory note or notes of the Company issued to the seller in connection with
the acquisition of radio frequency licenses in Los Angeles, California.
"Lien" means any mortgage, pledge, security interest,
encumbrance, lien or charge of any kind (including, without limitation, any
conditional sale or other title retention agreement or lease in the nature
thereof, any sale with recourse against the seller or any Affiliate of the
seller, or any agreement to give any security interest).
"Moody's" means Moody's Investors Service, Inc. and its
successors.
"Net Cash Proceeds" means, (a) with respect to any Asset Sale,
the proceeds of such Asset Sale in the form of cash or cash equivalents,
including payments in respect of deferred payment obligations (to the extent
corresponding to the principal, but not interest, component thereof) when
received in the form of cash or cash equivalents (except to the extent such
obligations are financed or sold with recourse to the Company or any Restricted
Subsidiary of the Company) and proceeds from the conversion of other property
received when converted to cash or cash equivalents, net of (i) brokerage
commissions and other fees and expenses (including fees and expenses of counsel
and investment bankers) related to such Asset Sale, (ii) provisions for all
taxes (whether or not such taxes will actually be paid or are payable) as a
result of such Asset Sale without regard to the consolidated results of
operations of the Company and its Restricted Subsidiaries, taken as a whole,
(iii) payments made to repay Indebtedness or any other obligation outstanding
at the time of such Asset Sale that either (A) is secured by a Lien on the
property or assets sold or (B) is required to be paid as a result of such sale
and (iv) appropriate amounts to be provided by the Company or any Restricted
Subsidiary of the Company as a reserve against any liabilities associated with
such Asset Sale, including, without limitation, pension and other
post-employment benefit liabilities, liabilities related to environmental
matters and liabilities under any indemnification obligations associated with
such Asset Sale, all as determined in conformity with GAAP and (b) with respect
to any issuance or sale of Capital Stock, the proceeds of such issuance or sale
in the form of cash or cash equivalents, including payments in respect of
deferred payment obligations (to the extent corresponding to the principal, but
not interest, component thereof) when received in the form of cash or cash
equivalents (except to the extent such obligations are financed or sold with
recourse to the Company or any Restricted Subsidiary of the Company) and
proceeds from the conversion of other property received when converted to cash
or cash equivalents, net of attorneys' fees, accountants' fees, underwriters'
or placement agents' fees, discounts or commissions and brokerage, consultant
and other fees incurred in connection with such issuance or sale and net of
taxes paid or payable as a result thereof.
<PAGE> 15
10
"Notes" means any of the notes, as defined in the first
paragraph of the recitals hereof, that are authenticated and delivered under
this Indenture.
"Offer to Purchase" means an offer to purchase Notes by the
Company from the Holders commenced by mailing a notice to the Trustee and each
Holder stating: (i) the covenant pursuant to which the offer is being made and
that all Notes validly tendered will be accepted for payment on a pro rata
basis; (ii) the purchase price and the date of purchase (which shall be a
Business Day no earlier than 30 days nor later than 60 days from the date such
notice is mailed) (the "Payment Date"); (iii) that any Note not tendered will
continue to accrue interest (or accrete original issue discount) pursuant to its
terms; (iv) that, unless the Company defaults in the payment of the purchase
price, any Note accepted for payment pursuant to the Offer to Purchase shall
cease to accrue interest (or accrete original issue discount) on and after the
Payment Date; (v) that Holders electing to have a Note purchased pursuant to the
Offer to Purchase will be required to surrender the Note, together with the form
entitled "Option of the Holder to Elect Purchase" on the reverse side of the
Note completed, to the Paying Agent at the address specified in the notice prior
to the close of business on the Business Day immediately preceding the Payment
Date; (vi) that Holders will be entitled to withdraw their election if the
Paying Agent receives, not later than the close of business on the third
Business Day immediately preceding the Payment Date, a telegram, facsimile
transmission or letter setting forth the name of such Holder, the principal
amount of Notes delivered for purchase and a statement that such Holder is
withdrawing his election to have such Notes purchased; and (vii) that Holders
whose Notes are being purchased only in part will be issued new Notes equal in
principal amount to the unpurchased portion of the Notes surrendered; provided
that each Note purchased and each new Note issued shall be in a principal amount
of $1,000 or integral multiples thereof. On the Payment Date, the Company shall
(i) accept for payment on a pro rata basis Notes or portions thereof tendered
pursuant to an Offer to Purchase; (ii) deposit with the Paying Agent money
sufficient to pay the purchase price of all Notes or portions thereof so
accepted; and (iii) cause the Paying Agent to deliver to the Trustee all Notes
or portions thereof so accepted together with an Officers' Certificate
specifying the Notes or portions thereof accepted for payment by the Company.
The Paying Agent shall promptly mail to the Holders of Notes so accepted payment
in an amount equal to the purchase price, and the Trustee shall promptly
authenticate and mail to such Holders a new Note equal in principal amount to
any unpurchased portion of the Note surrendered; provided that each Note
purchased and each new Note issued shall be in a principal amount of $1,000 or
integral multiples thereof. The Company will publicly announce the results of an
Offer to Purchase as soon as practicable after the Payment Date. The Trustee
shall act as the Paying Agent for an Offer to Purchase. The Company will comply
with Rule 14e-1 under the Exchange Act and any other securities laws and
regulations thereunder to the extent such laws and regulations are applicable,
in the event that the Company is required to repurchase Notes pursuant to an
Offer to Purchase.
"Officer" means, with respect to the Company, (i) the
Chairman, a Vice Chairman, the President, any Vice President and (ii) the
Treasurer or any Assistant Treasurer, or the Secretary or any Assistant
Secretary.
"Officers' Certificate" means a certificate signed by one
Officer listed in clause (i) of the definition thereof and one Officer listed
in clause (ii) of the definition thereof, provided, however, that any such
certificate may be signed by any two of the Officers listed in clause (i) of
the definition thereof in lieu of being signed by one Officer listed in clause
(i) of the definition thereof and one Officer listed in clause (ii) of the
definition thereof. Each Officers' Certificate (other than certificates
provided pursuant to TIA Section 314(a)(4)) shall include the statements
provided for in TIA Section 314(e).
"Opinion of Counsel" means a written opinion signed by legal
counsel who may be an employee of or counsel to the Company. Each such Opinion
of Counsel shall include the statements provided for in TIA Section 314(e).
"Paying Agent" has the meaning provided in Section 2.3, except
that, for the purposes of Article Eight, the Paying Agent shall not be the
Company or a Subsidiary of the Company or an Affiliate of any of them. The
term "Paying Agent" includes any additional Paying Agent.
<PAGE> 16
11
"Payment Date" means the date of purchase of Notes pursuant to
an Offer to Purchase, which shall be a Business Day no earlier than 30 days nor
later than 60 days from the date a notice is mailed pursuant to such Offer to
Purchase.
"Permitted Investment" means (i) an Investment in a Restricted
Subsidiary or a Person which will, upon the making of such Investment, become a
Restricted Subsidiary or be merged or consolidated with or into or transfer or
convey all or substantially all its assets to, the Company or a Restricted
Subsidiary; provided that, such Person's primary business is related, ancillary
or complementary to the businesses of the Company and its Restricted
Subsidiaries on the date of such Investment; (ii) a Temporary Cash Investment;
(iii) payroll, travel and similar advances to cover matters that are expected
at the time of such advances ultimately to be treated as expenses in accordance
with GAAP; and (iv) loans or advances to employees made in the ordinary course
of business in accordance with past practice of the Company or its Restricted
Subsidiaries and that do not in the aggregate exceed $500,000 at any time
outstanding.
"Permitted Liens" means (i) Liens for taxes, assessments,
governmental charges or claims that are not yet delinquent or that are being
contested in good faith by appropriate legal proceedings promptly instituted
and diligently conducted and for which a reserve or other appropriate
provision, if any, as shall be required in conformity with GAAP shall have been
made; (ii) statutory Liens of landlords and carriers, warehousemen, mechanics,
suppliers, materialmen, repairmen or other similar Liens arising in the
ordinary course of business and with respect to amounts not yet delinquent or
being contested in good faith by appropriate legal proceedings promptly
instituted and diligently conducted and for which a reserve or other
appropriate provision, if any, as shall be required in conformity with GAAP
shall have been made; (iii) Liens incurred or deposits made in the ordinary
course of business in connection with workers' compensation, unemployment
insurance and other types of social security; (iv) Liens incurred or deposits
made to secure the performance of tenders, bids, leases, statutory or
regulatory obligations, bankers' acceptances, surety and appeal bonds,
government contracts, performance and return-of-money bonds and other
obligations of a similar nature incurred in the ordinary course of business
(exclusive of obligations for the payment of borrowed money); (v) easements,
rights-of-way, municipal and zoning ordinances and similar charges,
encumbrances, title defects or other irregularities that do not materially
interfere with the ordinary course of business of any Telecommunications
Subsidiary individually or the Company and its Restricted Subsidiaries taken as
a whole; (vi) Liens upon real or personal property acquired after the Closing
Date; provided that (a) such Lien is created solely for the purpose of securing
Indebtedness Incurred in accordance with Section 4.3, (1) to finance the cost
(including the cost of improvement or construction) of the item of property or
assets subject thereto and such Lien is created prior to, at the time of or
within six months after the later of the acquisition, the completion of
construction or the commencement of full operation of such property or (2) to
refinance any Indebtedness previously so secured, (b) the principal amount of
the Indebtedness secured by such Lien does not exceed 100% of such cost and (c)
any such Lien shall not extend to or cover any property or assets other than
such item of property or assets and any improvements on such item; (vii)
leases, subleases, licenses or sublicenses granted to others that do not
materially interfere with the ordinary course of business of the Company and
its Restricted Subsidiaries, taken as a whole; (viii) Liens encumbering
property or assets under construction arising from progress or partial payments
by a customer of the Company or its Restricted Subsidiaries relating to such
property or assets; (ix) any interest or title of a lessor in the property
subject to any Capitalized Lease or operating lease; (x) Liens arising from
filing Uniform Commercial Code financing statements (or substantially
equivalent filings outside of the United States) regarding leases; (xi) Liens
on property of, or on shares of stock or Indebtedness of, any corporation
existing at the time such corporation becomes, or becomes a part of, any
Restricted Subsidiary; provided that such Liens do not extend to or cover any
property or assets of the Company or any Restricted Subsidiary other than the
property or assets acquired or property or assets of the corporation that
becomes a Restricted Subsidiary; (xii) Liens in favor of the Company or any
Restricted Subsidiary; (xiii) Liens arising from the rendering of a final
judgment or order against the Company or any Restricted Subsidiary of the
Company that does not give rise to an Event of Default; (xiv) Liens securing
reimbursement obligations with respect to letters of credit that encumber
documents and other property relating to such letters of credit and the
products and proceeds thereof; (xv) Liens in favor of customs and revenue
authorities arising as a matter of law to secure payment of customs duties in
connection with the importation of goods; (xvi) Liens encumbering customary
initial deposits and margin deposits, and other Liens that are either within
the general parameters customary in the industry and incurred in the ordinary
course
<PAGE> 17
12
of business, in each case, securing Indebtedness under Interest Rate
Agreements; (xvii) Liens arising out of conditional sale, title retention,
consignment or similar arrangements for the sale of goods entered into by the
Company or any of its Restricted Subsidiaries in the ordinary course of
business of the Company and its Restricted Subsidiaries; (xviii) Liens on or
sales of receivables; (xix) Liens securing Indebtedness permitted to be
Incurred pursuant to clause (vi) of the second paragraph of Section 4.3
(including, without limitation, Indebtedness under the Credit Facility
permitted to be Incurred pursuant to such clause (vi)); provided, however, that
any such Indebtedness shall not be secured by any property or assets of the
Company or any Restricted Subsidiary of the Company other than the
Telecommunications Assets so constructed or acquired with the proceeds of such
Indebtedness or by the stock of any Restricted Subsidiary, the assets of which
consist solely of such Telecommunications Assets so constructed or acquired;
(xx) Liens on licenses granted by the FCC to utilize narrowband radio frequency
or on the interests in any entity, the material assets of which consist of such
licenses to the extent they secure Indebtedness permitted to be Incurred under
clauses (v) and (vii) of the second paragraph of Section 4.3, provided that
the aggregate amount of Indebtedness secured by any such Lien shall not at
any time exceed the amount of Indebtedness permitted to be Incurred pursuant to
such clauses (v) and (vii); (xxi) Liens (including Liens on Capital
Stock of any Restricted Subsidiary) to the extent they secure Indebtedness
outstanding under the Credit Facility, provided that the aggregate amount of
Indebtedness secured by any such Lien (without duplication of any Indebtedness
secured by Liens pursuant to clause (xix) above) shall not at any time exceed
the amount of Indebtedness permitted to be Incurred under any such facility
pursuant to the terms of the Indenture; (xxii) Liens (including Liens on
Capital Stock of any Restricted Subsidiary) to the extent they secure
Indebtedness outstanding permitted to be Incurred under clause (i) or (viii) of
the second paragraph of Section 4.3, provided that the fair market value, as
determined by the Board of Directors of the Company in good faith, of the
property and other assets subject to such Liens (determined at the time such
Liens are granted) does not exceed an amount equal to 150% of the amount of
such Indebtedness; and (xxiii) any extension, renewal or replacement, in whole
or in part, of any Lien described in clauses (i) through (xxii); provided that
any such extension, renewal or replacement shall not extend to any additional
property or assets.
"Person" means an individual, partnership, corporation, trust
or unincorporated organization, and a government or agency or political
subdivision thereof.
"Preferred Stock," as applied to the Capital Stock of any
Person, means Capital Stock of such Person of any class or classes (however
designated) that ranks prior, as to the payment of dividends or as to the
distribution of assets upon any voluntary or involuntary liquidation,
dissolution or winding up of such Person, to shares of Capital Stock of any
other class of such Person.
"principal" of a debt security, including the Notes, means the
principal amount due on the Stated Maturity as shown on such debt security.
"Redeemable Stock" means any class or series of Capital Stock
of any Person that by its terms or otherwise is (i) required to be redeemed
prior to the Stated Maturity of the Notes, (ii) redeemable at the option of the
holder of such class or series of Capital Stock at any time prior to the Stated
Maturity of the Notes or (iii) convertible into or exchangeable for Capital
Stock referred to in clause (i) or (ii) above or Indebtedness having a
scheduled maturity prior to the Stated Maturity of the Notes; provided that any
Capital Stock that would not constitute Redeemable Stock but for provisions
thereof giving holders thereof the right to require such Person to repurchase
or redeem such Capital Stock upon the occurrence of an "asset sale" or "change
of control" occurring prior to the Stated Maturity of the Notes shall not
constitute Redeemable Stock if the "asset sale" or "change of control"
provisions applicable to such Capital Stock are no more favorable to the
holders of such Capital Stock than the provisions contained in Section 4.11 and
Section 4.12 and such Capital Stock specifically provides that such Person will
not repurchase or redeem any such stock pursuant to such provision prior to the
expiration of the Company's Offer to Purchase Notes as required pursuant to
Section 4.11 and Section 4.12.
"Redemption Date", when used with respect to any Note to be
redeemed, means the date fixed for such redemption by or pursuant to this
Indenture.
<PAGE> 18
13
"Redemption Price", when used with respect to any Note to be
redeemed, means the price at which such Note is to be redeemed pursuant to this
Indenture.
"Refinancing Indebtedness" means Indebtedness of the Company
or any Restricted Subsidiary issued in exchange for, or the net proceeds of
which are used to refinance or refund, then outstanding Indebtedness of such
Person, other than Indebtedness Incurred under clause (i), (v) or (viii) of
the second paragraph of Section 4.3, and any refinancings thereof in an amount
not to exceed the amount so refinanced or refunded (plus premiums, accrued
interest, fees and expenses); provided that Indebtedness the proceeds of which
are used to refinance or refund the Notes or Indebtedness that is pari passu
with, or subordinated in right of payment to, the Notes shall only be permitted
if (A) in case the Notes are refinanced in part or the Indebtedness to be
refinanced is pari passu with the Notes, such new Indebtedness, by its terms or
by the terms of any agreement or instrument pursuant to which such new
Indebtedness is outstanding, is expressly made pari passu with, or subordinate
in right of payment to, the remaining Notes, (B) in case the Indebtedness to be
refinanced is subordinated in right of payment to the Notes, such new
Indebtedness, by its terms or by the terms of any agreement or instrument
pursuant to which such new Indebtedness is issued or remains outstanding, is
expressly made subordinate in right of payment to the Notes at least to the
extent that the Indebtedness to be refinanced is subordinated to the Notes and
(C) such new Indebtedness, determined as of the date of Incurrence of such new
Indebtedness, does not mature prior to the Stated Maturity of the Indebtedness
to be refinanced or refunded and the Average Life of such new Indebtedness is at
least equal to the remaining Average Life of the Indebtedness to be refinanced
or refunded; and provided further that in no event may Indebtedness of the
Company (other than the L.A. Note) be refinanced by means of any Indebtedness of
any Restricted Subsidiary pursuant to this definition.
"Registrar" has the meaning provided in Section 2.3.
"Regular Record Date" for the interest payable on any Interest
Payment Date means the ________ 1 or ________ 1 (whether or not a Business
Day), as the case may be, next preceding such Interest Payment Date.
"Responsible Officer", when used with respect to the Trustee,
means the chairman or any vice chairman of the board of directors, the chairman
or any vice chairman of the executive committee of the board of directors, the
chairman of the trust committee, the president, any vice president, any
assistant vice president, the secretary, any assistant secretary, the
treasurer, any assistant treasurer, the cashier, any assistant cashier, any
trust officer or assistant trust officer, the controller or any assistant
controller or any other officer of the Trustee customarily performing functions
similar to those performed by any of the above designated officers and also
means, with respect to a particular corporate trust matter, any other officer
to whom such matter is referred because of his or her knowledge of and
familiarity with the particular subject.
"Restricted Payments" has the meaning provided in Section 4.4.
"Restricted Subsidiary" means any Subsidiary of the Company
other than an Unrestricted Subsidiary.
"Sale and Leaseback Transaction" means any direct or indirect
arrangement with any Person or to which any such Person is a party providing
for the leasing to the Company or a Restricted Subsidiary of any property,
whether owned by the Company or any Restricted Subsidiary at the Closing Date
or later acquired, which has been or is to be sold or transferred by the
Company or such Restricted Subsidiary to such Person or to any other Person
from whom funds have been or are to be advanced by such Person on the security
of such property.
"Securities Act" means the Securities Act of 1933, as amended.
"Security Register" has the meaning provided in Section 2.3.
<PAGE> 19
14
"Separation Date" means the close of business on the earliest
to occur of (i) ___________, 1996, (ii) such earlier date as may be determined
by Lehman Brothers Inc. and specified to the Company, the Trustee, the Warrant
Agent and the Unit Agent in writing, (iii) the occurrence of a Change of
Control and (iv) in the event of an Asset Sale, the date the Company mails
notice thereof to the holders of the Notes.
"Series A Preferred Stock" means the Series A Preferred Stock
of the Company outstanding on the date hereof and any Series B Preferred Stock
of the Company issuable upon the exchange of such Series A Preferred Stock.
"Sloan Loan" means the promissory notes in favor of the
Company issued in connection with the original issuance of the Company's
Capital Stock, of which $1.7 million was outstanding on the date hereof.
"Specified Date" means any redemption date, any date of
purchase for any purchase of Notes pursuant to the covenants described in
Section 4.11 or Section 4.12 or any date on which the Notes first become due
and payable after an Event of Default.
"Spectrum Acquisition Debt" means Indebtedness Incurred solely
for the purpose of financing the costs of licenses or other rights granted by
the FCC to utilize radio frequency and which is either a direct obligation
owing to the FCC or recourse solely to such licenses or to the Capital Stock of
a Restricted Subsidiary which has no material assets other than such licenses.
"S&P" means Standard & Poor's Corporation and its successors.
"Stated Maturity" means, (i) with respect to any debt
security, the date specified in such debt security as the fixed date on which
the final installment of principal of such debt security is due and payable and
(ii) with respect to any scheduled installment of principal of or interest on
any debt security, the date specified in such debt security as the fixed date
on which such installment is due and payable.
"Strategic Equity Investor" means any Person the common stock
of which is publicly traded that, both as of the Trading Day immediately before
the day of a sale and the Trading Day immediately after the day of such sale,
has Total Common Equity of at least $400 million and is engaged in the business
of (a) providing emission, transmission or reception of signs, signals,
writing, images, sound, data or video; (b) the sale, resale, lease or provision
of cellular services, personal communications services, dispatch services,
paging services, telephone services and other telecommunications or
radiocommunications services; (c) the operation of personal communications
services networks and other telecommunications or radiocommunications networks;
(d) the provision of telecommunications or radiocommunications facilities or
equipment; or (e) any business ancillary or directly related to the businesses
referred to in clauses (a), (b), (c) or (d) above.
"Subsidiary" means, with respect to any Person, any
corporation, association or other business entity of which more than 50% of the
outstanding Voting Stock is owned, directly or indirectly, by such Person and
one or more other Subsidiaries of such Person.
"Taxes" has the meaning provided in Section 4.20.
"Telecommunications Assets" means (i) any entity or business
which holds telecommunications or radiocommunications licenses, or a
substantial portion of the revenues of which are derived from (a) providing
emission, transmission or reception of signs, signals, writing, images, sound,
data or video; (b) the sale, resale, lease or provision of cellular services,
personal communications services, dispatch services, paging services, telephone
services and other telecommunications or radiocommunications services; (c) the
operation of personal communications services networks and other
telecommunications or radiocommunications networks; (d) the provision of
telecommunications or radiocommunications facilities or equipment; or (e) any
business ancillary or directly related to the businesses referred in clauses
(a), (b), (c) or (d) above and (ii) any assets used primarily to
<PAGE> 20
15
provide such products or services or to conduct such businesses, including
licenses or other rights to use radio frequency.
"Telecommunications Subsidiary" means (i) PCSD Financial
Corp., SGI Communications, Inc., PCSD Spectrum, Inc., PCSD Network, Inc., and
their respective successors and (ii) any other Subsidiary of the Company that
holds more than a de minimis amount of Telecommunications Assets.
"Temporary Cash Investment" means any of the following: (i)
direct obligations of the United States or any agency thereof or obligations
fully and unconditionally guaranteed by the United States or any agency thereof
with maturities of twelve months or less from the date of acquisition, (ii) time
deposit accounts, certificates of deposit and money market deposits maturing
within 365 days of the date of acquisition thereof, bankers' acceptances with
maturities not exceeding 365 days, and overnight bank deposits, in each case
issued by or with a bank or trust company that is organized under the laws of
the United States or any state thereof and which bank or trust company has
capital, surplus and undivided profits aggregating in excess of $500 million and
has outstanding debt which is rated "A" (or such similar equivalent rating) or
higher by at least one nationally recognized statistical rating organization (as
defined in Rule 436 under the Securities Act), or any money market fund
sponsored by a registered broker dealer or mutual fund distributor, (iii)
repurchase obligations with a term of not more than 30 days for underlying
securities of the types described in clause (i) above entered into with a bank
meeting the qualifications described in clause (ii) above, (iv) commercial
paper, maturing not more than 365 days after the date of acquisition, issued by
a corporation (other than an Affiliate of the Company) organized and in
existence under the laws of the United States of America, any state thereof or
any foreign country recognized by the United States with a rating at the time as
of which any investment therein is made of "P-l" (or higher) according to
Moody's Investors Service, Inc. or "A-l" (or higher) according to Standard &
Poor's and (v) securities with maturities of twelve months or less from the date
of acquisition issued or fully and unconditionally guaranteed by any state,
commonwealth or territory of the United States, or by any political subdivision
or taxing authority thereof, and rated at least "A" by Standard & Poor's or
Moody's Investors Service, Inc.
"TIA" or "Trust Indenture Act" means the Trust Indenture Act
of 1939, as amended (15 U.S. Code Section Section 77aaa-77bbb), as in effect
on the date this Indenture was executed, except as provided in Section 9.6.
"Total Common Equity" of any Person means, as of any day of
determination, the product of (i) the aggregate number of outstanding shares of
Common Stock of such Person on such day (which shall not include any options or
warrants on, or securities convertible or exchangeable into, shares of Common
Stock of such person) and (ii) the average Closing Price of such Common Stock
over the 20 consecutive Trading Days immediately preceding such day. For
purposes of calculating Total Common Equity on the Trading Day immediately
following an event described under the definition of "Change of Control," the
average closing price shall be equal to the Closing Price on such Trading Day.
If no Closing Price exists with respect to shares of any such class, the value
of such shares for purposes of clause (ii) of the preceding sentence shall be
determined by a nationally recognized independent investment banking firm.
"Trading Day" with respect to a securities exchange or
automated quotation system, means a day on which such exchange or system is
open for a full day of trading.
"Transaction Date" means, with respect to the Incurrence of
any Indebtedness by the Company or any of its Restricted Subsidiaries, the date
such Indebtedness is to be Incurred and, with respect to any Restricted
Payment, the date such Restricted Payment is to be made.
"Trustee" means the party named as such in the first paragraph
of this Indenture until a successor replaces it in accordance with the
provisions of Article Seven of this Indenture and thereafter means such
successor.
"United States Bankruptcy Code" means the Bankruptcy Reform
Act of 1978, as amended and as codified in Title 11 of the United States Code,
as amended from time to time hereafter, or any successor federal bankruptcy law
of the United States of America.
<PAGE> 21
16
"U.S. Government Obligations" means securities that are (i)
direct obligations of the United States of America for the payment of which its
full faith and credit is pledged or (ii) obligations of a Person controlled or
supervised by and acting as an agency or instrumentality of the United States
of America the payment of which is unconditionally guaranteed as a full faith
and credit obligation by the United States of America, which, in either case,
are not callable or redeemable at the option of the issuer thereof at any time
prior to the Stated Maturity of the Notes, and shall also include a depository
receipt issued by a bank or trust company as custodian with respect to any such
U.S. Government Obligation or a specified payment of interest on or principal
of any such U.S. Government Obligation held by such custodian for the account
of the holder of a depository receipt; provided that (except as required by
law) such custodian is not authorized to make any deduction from the amount
payable to the holder of such depository receipt from any amount received by
the custodian in respect of the U.S. Government Obligation or the specific
payment of interest on or principal of the U.S. Government Obligation evidenced
by such depository receipt.
"Unit Agent" has the meaning provided in the recitals to this
Indenture.
"Unit Agreement" has the meaning provided in the recitals to
this Indenture.
"Units" has the meaning provided in the recitals to this
Indenture.
"Unrestricted Subsidiary" means (i) any Subsidiary of the
Company that at the time of determination shall be designated an Unrestricted
Subsidiary by the Board of Directors in the manner provided below and (ii) any
Subsidiary of such an Unrestricted Subsidiary. The Board of Directors may, at
the time of acquisition or formation, designate any Subsidiary of the Company
which has been either newly acquired or newly formed after the date hereof to
be an Unrestricted Subsidiary unless such Subsidiary owns any Capital Stock of,
or owns or holds any Lien on any property of, the Company or any Restricted
Subsidiary; provided that (i) either (A) the Subsidiary to be so designated has
total assets of $1,000 or less or (B) if such Subsidiary has assets greater
than $1,000, that such designation would be permitted under Section 4.4 and
(ii) the holders of any permitted Indebtedness of such Subsidiary do not have
direct or indirect recourse against the Company or any Restricted Subsidiary of
the Company and neither the Company nor any Restricted Subsidiary of the
Company otherwise has any liability for any payment obligations in respect of
such Indebtedness. The Board of Directors may designate any Unrestricted
Subsidiary to be a Restricted Subsidiary of the Company; provided that
immediately after giving effect to such designation (x) the Company could Incur
$1.00 of additional Indebtedness under the first paragraph of Section 4.3 and
(y) no Default or Event of Default shall have occurred and be continuing. Any
such designation by the Board of Directors shall be evidenced to the Trustee by
promptly filing with the Trustee a copy of the Board Resolution giving effect
to such designation and an Officers' Certificate certifying that such
designation complied with the foregoing provisions.
"Voting Stock" means, with respect to any Person, Capital
Stock of any class or kind ordinarily having the power to vote for the election
of directors, managers or other voting members of the governing body of such
Person.
"Warrant Agent" has the meaning provided in the recitals to
this Indenture.
"Warrant Agreement" has the meaning provided in the recitals
to this Indenture.
"Warrants" has the meaning provided in the recitals to this
Indenture.
"Wholly Owned" means, with respect to any Subsidiary of any
Person, such Subsidiary if all of the outstanding Capital Stock in such
Subsidiary (other than any director's qualifying shares or Investments by
foreign nationals mandated by applicable law) is owned by such Person or one or
more Wholly Owned Subsidiaries of such Person.
<PAGE> 22
17
SECTION 1.2. Incorporation by Reference of Trust Indenture
Act. Whenever this Indenture refers to a provision of the TIA, the provision
is incorporated by reference in and made a part of this Indenture. The
following TIA terms used in this Indenture have the following meanings:
"indenture securities" means the Notes;
"indenture security holder" means a Holder or a Noteholder;
"indenture to be qualified" means this Indenture;
"indenture trustee" or "institutional trustee" means the
Trustee; and
"obligor" on the indenture securities means the Company or any
other obligor on the Notes.
All other TIA terms used in this Indenture that are defined by
the TIA, defined by TIA reference to another statute or defined by a rule of
the Commission and not otherwise defined herein have the meanings assigned to
them therein.
SECTION 1.3. Rules of Construction. Unless the context
otherwise requires:
(i) a term has the meaning assigned to it;
(ii) an accounting term not otherwise defined has the
meaning assigned to it in accordance with GAAP;
(iii) "or" is not exclusive;
(iv) words in the singular include the plural, and
words in the plural include the singular;
(v) provisions apply to successive events and
transactions;
(vi) "herein," "hereof" and other words of similar
import refer to this Indenture as a whole and not to any particular
Article, Section or other subdivision;
(vii) "including" shall be deemed to be followed by
"without limitation";
(viii) all ratios and computations based on GAAP
contained in this Indenture shall be computed in conformity with GAAP
applied on a consistent basis; and
(ix) all references to Sections or Articles refer to
Sections or Articles of this Indenture unless otherwise indicated.
ARTICLE TWO
THE NOTES
SECTION 2.1. Form and Dating. The Notes and the Trustee's
certificate of authentication shall be substantially in the form annexed hereto
as Exhibit A. The Notes may have such appropriate insertions, omissions,
substitutions and other variations as are required or permitted by this
Indenture and may have letters, notations, legends or endorsements required by
law, stock exchange agreements to which the Company is subject or usage. Any
portion of the text of any Note may be set forth on the reverse thereof, with
an appropriate reference thereof on the face of the Note. The Company shall
approve the form of the Notes and any notation, legend or endorsement on the
Notes. Each Note shall be dated the date of its authentication.
<PAGE> 23
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The terms and provisions contained in the form of the Notes
annexed hereto as Exhibit A shall constitute, and are hereby expressly made, a
part of this Indenture. Each of the Company and the Trustee, by its execution
and delivery of this Indenture, expressly agrees to the terms and provisions of
the Notes applicable to it and to be bound thereby.
The Notes shall be issued initially in the form of one or more
Global Notes (the "Global Note") held in book-entry form, substantially in the
form set forth in Exhibit A, deposited on the Closing Date with, or on behalf
of, the Depository, duly executed by the Company and authenticated by the
Trustee as hereinafter provided. Each Global Note shall bear such legends as
may be required or reasonably requested by the Depository.
Definitive Notes shall be typed, printed, lithographed or
engraved or produced by any combination of these methods or may be produced in
any other manner permitted by the rules of any securities exchange on which the
Notes may be listed, all as determined by the Officers executing such Notes, as
evidenced by their execution of such Notes.
SECTION 2.2. Execution, Authentication and Denominations.
Two Officers shall execute the Notes for the Company by facsimile or manual
signature in the name and on behalf of the Company.
If an Officer whose signature is on a Note no longer holds
that office at the time the Trustee or authenticating agent authenticates the
Note, the Note shall be valid nevertheless.
A Note shall not be valid until the Trustee or authenticating
agent manually signs the certificate of authentication on the Note. The
signature shall be conclusive evidence that the Note has been authenticated
under this Indenture.
The Trustee or an authenticating agent shall upon receipt of a
Company Order authenticate for original issue the Global Note in the aggregate
principal amount at maturity of $________ registered in the name of the
Depository or the nominee of the Depository (the "Global Note Holder") and
shall deliver the Global Note to the Depository or pursuant to the Depository's
instructions; provided that the Trustee shall be entitled to receive an
Officers' Certificate and an Opinion of Counsel of the Company in connection
with such authentication and delivery of the Global Note. The Opinion of
Counsel shall, if requested by the Trustee, be to the effect that:
(a) the form and terms of such Notes have been established by
or pursuant to a Board Resolution or an indenture supplemental hereto
in conformity with the provisions of this Indenture;
(b) such supplemental indenture, if any, when executed and
delivered by the Company and the Trustee, will constitute a valid and
binding obligation of the Company; and
(c) such Notes, when authenticated and delivered by the
Trustee and issued by the Company in the manner and subject to any
conditions specified in such Opinion of Counsel, will constitute valid
and binding obligations of the Company in accordance with their terms
and will be entitled to the benefits of this Indenture, subject to
bankruptcy, insolvency, fraudulent transfer, reorganization,
moratorium and similar laws of general applicability relating to or
affecting creditors' rights and to general equity principles.
Such Company Order shall specify the amount of the Global Note to be
authenticated and the date on which the original issue of Notes is to be
authenticated. The aggregate principal amount at maturity of Notes outstanding
at any time may not exceed the amount set forth above except for Notes
authenticated and delivered upon registration of transfer of, or in exchange
for, or in lieu of, other Notes pursuant to Section 2.5, 2.8, 2.9 or 2.10.
The Trustee may appoint an authenticating agent to
authenticate Notes. An authenticating agent may authenticate Notes whenever
the Trustee may do so. Each reference in this Indenture to authentication by
<PAGE> 24
19
the Trustee includes authentication by such authenticating agent. An
authenticating agent has the same rights as an Agent to deal with the Company
or an Affiliate of the Company.
The Notes shall be issuable only in registered form without
coupons and only in denominations of $1,000 in principal amount at maturity and
any integral multiple of $1,000 in excess thereof.
SECTION 2.3. Registrar and Paying Agent. The Company shall
maintain an office or agency where Notes may be presented for registration of
transfer or for exchange (the "Registrar"), an office or agency where Notes may
be presented for payment (the "Paying Agent") and an office or agency where
notices and demands to or upon the Company in respect of the Notes and this
Indenture may be served, which shall be in the Borough of Manhattan, The City
of New York. The company shall cause the Registrar to keep a register of the
Notes and of their transfer and exchange (the "Security Register"). The
Company may have one or more co-Registrars and one or more additional Paying
Agents. The Company and any such Registrar, Paying Agent, co-Registrar and
additional Paying Agent shall at all times be subject to and in compliance with
TIA Section 312(a).
The Company shall enter into an appropriate agency agreement
with any Agent not a party to this Indenture. The agreement shall implement
the provisions of this Indenture that relate to such Agent. The Company shall
give prompt written notice to the Trustee of the name and address of any such
Agent and any change in the address of such Agent. If the Company fails to
maintain a Registrar, Paying Agent and/or agent for service of notices and
demands, the Trustee shall act as such Registrar, Paying Agent and/or agent for
service of notices and demands for so long as such failure shall continue. The
Company may remove any Agent upon written notice to such Agent and the Trustee;
provided that no such removal shall become effective until (i) the acceptance
of an appointment by a successor Agent to such Agent as evidenced by an
appropriate agency agreement entered into by the Company and such successor
Agent and delivered to the Trustee or (ii) notification to the Trustee that the
Trustee shall serve as such Agent until the appointment of a successor Agent in
accordance with clause (i) of this proviso. The Company, any Subsidiary of the
Company, or any Affiliate of any of them may act as Paying Agent, Registrar or
co-Registrar, and/or agent for service of notice and demands; provided,
however, that neither the Company, a Subsidiary of the Company nor an Affiliate
of any of them shall act as Paying Agent in connection with the defeasance of
the Notes or the discharge of this Indenture under Article Eight.
The Company initially appoints the Trustee as Registrar,
Paying Agent, authenticating agent and agent for service of notice and demands.
If, at any time, the Trustee is not the Registrar, the Registrar shall make
available to the Trustee before each Interest Payment Date and at such other
time as the Trustee may reasonably request, the names and addresses of the
Holders as they appear in the Security Registrar.
SECTION 2.4. Paying Agent to Hold Money in Trust. Not later
than 10:00 a.m. (New York City time) on each due date of the principal,
premium, if any, and interest on any Notes, the Company shall deposit with the
Paying Agent money in immediately available funds sufficient to pay such
principal, premium, if any, and interest so becoming due. The Company shall
require each Paying Agent, if any, other than the Trustee to agree in writing
that such Paying Agent shall hold in trust for the benefit of the Holders or
the Trustee all money held by the Paying Agent for the payment of principal of,
premium, if any, and interest on the Notes (whether such money has been paid to
it by the Company or any other obligor on the Notes), and that such Paying
Agent shall promptly notify the Trustee in writing of any default by the
Company (or any other obligor on the Notes) in making any such payment. The
Company at any time may require a Paying Agent to pay all money held by it to
the Trustee and account for any funds disbursed, and the Trustee may at any
time during the continuance of any payment default, upon written request to a
Paying Agent, require such Paying Agent to pay all money held by it to the
Trustee and to account for any funds disbursed. Upon doing so, the Paying
Agent shall have no further liability for the money so paid over to the
Trustee. If the Company or any Subsidiary of the Company or any Affiliate of
any of them acts as Paying Agent, it will, on or before each due date of any
principal of, premium, if any, or interest on the Notes, segregate and hold in
a separate trust fund for the benefit of the Holders a sum of money sufficient
to pay such principal, premium, if any, or interest so becoming due until such
sum of money shall be paid to such Holders or otherwise disposed of as provided
in
<PAGE> 25
20
this Indenture, and will promptly notify the Trustee in writing of its action
or failure to act as required by this Section 2.4.
SECTION 2.5. Transfer and Exchange. The Notes are issuable
only in registered form. A Holder may transfer a Note by written application
to the Registrar stating the name of the proposed transferee and otherwise,
complying with the terms of this Indenture. No such transfer shall be effected
until, and such transferee shall succeed to the rights of a Holder only upon
registration of, the transfer by the Registrar in the Security Register. Prior
to the registration of any transfer by a Holder as provided herein, the
Company, the Trustee and any agent of the Company shall treat the person in
whose name the Note is registered as the owner thereof for all purposes whether
or not the Note shall be overdue, and neither the Company, the Trustee, nor any
such agent shall be affected by notice to the contrary. Furthermore, the
Global Note Holder shall, by acceptance of the Global Note, agree that
transfers of beneficial interests in such Global Note may be effected only
through a book-entry system maintained by the Depository (or its agent), and
that ownership of a beneficial interest in the Global Note shall be required to
be reflected in a book entry. When Notes are presented to the Registrar or a
co-Registrar with a request to register the transfer or to exchange them for an
equal principal amount at maturity of Notes of other authorized denominations,
the Registrar shall register the transfer or make the exchange as requested if
its requirements for such transactions are met. To permit registrations of
transfers and exchanges in accordance with the terms, conditions and
restrictions hereof, the Company shall execute and the Trustee shall
authenticate Notes at the Registrar's request. No service charge shall be made
to any Holder for any registration of transfer or exchange or redemption of the
Notes, but the Company may require payment of a sum sufficient to cover any
transfer tax or similar governmental charge payable in connection therewith
(other than any such transfer taxes or other similar governmental charge
payable upon transfers, exchanges or redemptions pursuant to Section 2.10, 3.8,
4.11, 4.12 or 9.4).
The Notes shall initially be issued as part of the issuance of
the Units. Prior to the Separation Date, the Notes may not be transferred or
exchanged separately from, but may be transferred or exchanged only together
with, the Warrants issued as part of such Units.
The Registrar shall not be required (i) to issue, register the
transfer of or exchange any Note during a period beginning at the opening of
business 15 days before the day of the mailing of a notice of redemption of
Notes selected for redemption under Section 3.3 or Section 3.8 and ending at
the close of business an the day of such mailing, or (ii) to register the
transfer of or exchange any Note so selected for redemption in whole or in
part, except the unredeemed portion of any Note being redeemed in part.
SECTION 2.6. Book-Entry Provisions for the Global Note. (a)
The Global Note initially shall (i) be registered in the name of the Global
Note Holder and (ii) be delivered to the Trustee as custodian for the
Depository.
Members of, or participants in, the Depository ("Agent
Members") shall have no rights under this Indenture with respect to any Global
Note held on their behalf by the Depository, or the Trustee as its custodian,
or under any Global Note, and the Global Note Holder may be treated by the
Company, the Trustee and any agent of the Company or the Trustee as the
absolute owner of such Global Note under the Indenture for all purposes
whatsoever, so long as the Global Note Holder is the registered owner of any
Notes. Beneficial owners of Notes evidenced by any Global Note will not be
considered the owners or Holders thereof under the Indenture for any purpose,
including with respect to the giving of any directions, instructions or
approvals to the Trustee thereunder. Notwithstanding the foregoing, nothing
herein shall prevent the Company, the Trustee or any agent of the Company or
the Trustee from giving effect to any written certification, proxy or other
authorization furnished by the Depository or impair, as between the Depository
and its Agent Members, the operation of customary practices governing the
exercise of the rights of a beneficial owner of any Note.
(b) Transfers of the Global Note shall be limited to
transfers of the Global Note in whole, but not in part, to the Depository, its
successors or their respective nominees. Interests of beneficial owners in the
Global Note may be transferred in accordance with the applicable rules and
procedures of the Depository and the provisions of Section 2.5.
<PAGE> 26
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(c) The registered holder of the Global Note may grant
proxies and otherwise authorize any person, including Agent Members and persons
that may hold interests through Agent Members, to take any action which a
Holder is entitled to take under this Indenture or the Notes.
SECTION 2.7. Certificated Notes. Any beneficial owners of
interests in the Global Note may, upon request to the Trustee, exchange such
interests for certificated Notes in accordance with the procedures of the
Depository. In connection with the execution and delivery of such certificated
Notes, the Trustee shall reflect on its books and records a decrease in the
principal amount of the Global Note equal to the number of such certificated
Notes and the Company shall execute and the Trustee shall authenticate and
deliver one or more certificated Notes in an equal aggregate number. In
addition, if (i) the Company notifies the Trustee in writing that the
Depository is no longer willing or able to act as a depository and the Company
is unable to locate a qualified successor within 90 days or (ii) the Company,
at its option, notifies the Trustee in writing that it elects to cause the
issuance of Notes in the form of certificated Notes under the Indenture, then,
upon surrender by the Global Note Holder of its Global Note, Notes in such form
will be issued to each person that the Global Note Holder and the Depository
identify as being the beneficial owner of the related Notes.
SECTION 2.8. Replacement Notes. If a mutilated Note is
surrendered to the Trustee or if the Holder claims that the Note has been lost,
destroyed or wrongfully taken, the Company shall issue and the Trustee shall
authenticate a replacement Note of like tenor and principal amount and bearing
a number not contemporaneously outstanding; provided that the requirements of
the second paragraph of Section 2.9 are met. If required by the Trustee or the
Company, an indemnity bond must be furnished that is sufficient in the judgment
of both the Trustee and the Company to protect the Company, the Trustee or any
Agent from any loss that any of them may suffer if a Note is replaced. The
Company may charge such Holder for its expenses and the expenses of the Trustee
in replacing a Note. In case any such mutilated, lost, destroyed or wrongfully
taken Note has become or is about to become due and payable, the Company in its
discretion may pay such Note instead of issuing a new Note in replacement
thereof.
Every replacement Note is an additional obligation of the
Company and shall be entitled to the benefits of this Indenture.
SECTION 2.9. Outstanding Notes. Notes outstanding at any
time are all Notes that have been authenticated by the Trustee except for those
canceled by it, those delivered to it for cancellation and those described in
this Section 2.9 as not outstanding.
If a Note is replaced pursuant to Section 2.8, it ceases to be
outstanding unless and until the Trustee and the Company receive proof
satisfactory to them that the replaced Note is held by a bona fide purchaser.
If the Paying Agent (other than the Company or an Affiliate of
the Company) holds on the maturity date money sufficient to pay Notes payable
on that date, then on and after that date such Notes shall cease to be
outstanding and interest on them shall cease to accrue.
Notes, or portions thereof, for the payment or redemption of
which moneys or U.S. Government Obligations (as provided for in Article Eight)
in the necessary amount shall have been deposited in trust with the Trustee or
with any Paying Agent (other than the Company) or shall have been set aside,
segregated and held in trust by the Company for the Holders of such Notes (if
the Company shall act as its own Paying Agent), on and after that time shall
cease to be outstanding and, in the case of redemption, interest on such Notes
shall cease to accrue; provided that if such Notes, or portions thereof, are to
be redeemed prior to the maturity thereof, notice of such redemption shall have
been given as herein provided, or provision satisfactory to the Trustee shall
have been made for giving such notice.
A Note does not cease to be outstanding because the Company or
one of its Affiliates holds such Note; provided, however, that, in determining
whether the Holders of the requisite principal amount at maturity of the
outstanding Notes have given any request, demand, authorization, direction,
notice, consent or
<PAGE> 27
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waiver hereunder, Notes owned by the Company or any other obligor upon the
Notes, or any Affiliate of the Company or of such other obligor shall be
disregarded and deemed not to be outstanding, except that, in determining
whether the Trustee shall be protected in relying upon any such request,
demand, authorization, direction, notice, consent or waiver, only Notes which
the Trustee knows to be so owned shall be so disregarded. Notes so owned which
have been pledged in good faith may be regarded as outstanding if the pledgee
establishes to the satisfaction of the Trustee the pledgee's right so to act
with respect to such Notes and that the pledge is not the Company or any other
obligor upon the Notes or any Affiliate of the Company or of such other
obligor.
SECTION 2.10. Temporary Notes. Until definitive Notes are
ready for delivery, the Company may prepare and the Trustee shall authenticate
temporary Notes. Temporary Notes shall be substantially in the form of
definitive Notes but may have insertions, substitutions, omissions and other
variations determined to be appropriate by the Officers executing the temporary
Notes, as evidenced by their execution of such temporary Notes. If temporary
Notes are issued, the Company will cause definitive Notes to be prepared
without unreasonable delay. After the preparation of definitive Notes, the
temporary Notes shall be exchangeable for definitive Notes upon surrender of
the temporary Notes at the office or agency of the Company designated for such
purpose pursuant to Section 4.2, without charge to the Holder. Upon surrender
for cancellation of any one or more temporary Notes the Company shall execute
and the Trustee shall authenticate and deliver in exchange therefor a like
principal amount at maturity of definitive Notes of authorized denominations.
Until so exchanged, the temporary Notes shall be entitled to the same benefits
under this Indenture as definitive Notes.
SECTION 2.11. Cancellation. The Company at any time may
deliver to the Trustee for cancellation any Notes previously authenticated and
delivered hereunder which the Company may have acquired in any manner
whatsoever, and may deliver to the Trustee for cancellation any Notes
previously authenticated hereunder which the Company has not issued and sold.
The Registrar and the Paying Agent shall forward to the Trustee any Notes
surrendered to them for transfer, exchange or payment. The Trustee shall
cancel all Notes surrendered for transfer, exchange, payment or cancellation
and shall destroy them in accordance with its normal procedure. The Company
shall not issue new Notes to replace Notes it has paid in full or delivered to
the Trustee for cancellation.
SECTION 2.12. CUSIP Numbers. The Company in issuing the
Notes may use CUSIP numbers (if then generally in use), and, if so, the Trustee
shall use CUSIP numbers in notices of redemption or exchange as a convenience
to Holders; provided that any such notice shall state that no representation is
made as to the correctness of such numbers either as printed on the Securities
or as contained in any notice of redemption or exchange and that reliance may
be placed only on the other identification numbers printed on the Securities;
and provided, further, that failure to use CUSIP numbers in any notice of
redemption or exchange shall not affect the validity or sufficiency of such
notice.
SECTION 2.13. Defaulted Interest. If the Company defaults in
a payment of interest on the Notes, it shall pay, or shall deposit with the
Paying Agent money in immediately available funds sufficient to pay the
defaulted interest, plus (to the extent lawful) any interest payable on the
defaulted interest, to the Persons who are Holder on a subsequent special
record date. A subsequent special record date, as used in this Section 2.13
with respect to the payment of any defaulted interest, shall mean the 15th day
next preceding the date fixed by the Company for the payment of defaulted
interest, whether or not such day is a Business Day. At least 15 days before
the subsequent special record date, the Company shall mail to each Holder and
to the Trustee a notice that states the subsequent special record date, the
payment date and the amount of defaulted interest to be paid.
ARTICLE THREE
REDEMPTION
SECTION 3.1. Optional Redemption. (a) The Notes may be
redeemed at the election of the Company, in whole or in part, at any time and
from time to time on or after ________, 2001 and prior to maturity, upon not
less than 30 nor more than 60 days' prior notice mailed by first-class mail to
each Holder's
<PAGE> 28
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last address as it appears in the Security Registrar, at the following
Redemption Prices (expressed in percentages of their principal amount at
maturity), plus accrued and unpaid interest, if any, to the Redemption Date
(subject to the right of Holders of record on the relevant Regular Record Date
that is on or prior to the Redemption Date to receive interest due on an
Interest Payment Date that is on or prior to the Redemption Date) if redeemed
during the 12-month period commencing on __________ of the applicable year set
forth below:
<TABLE>
<CAPTION>
Year Redemption Price
---- ----------------
<S> <C>
2001. . . . . . . . . . . . . . . . . . . . . . %
2002. . . . . . . . . . . . . . . . . . . . . . %
2003. . . . . . . . . . . . . . . . . . . . . . %
2004 and thereafter . . . . . . . . . . . . . . 100.000%
</TABLE>
(b) Notwithstanding the foregoing, prior to ,
1999, the Company may on any one or more occasions redeem up to 33% of the
aggregate principal amount of the Notes at a redemption price of % of the
Accreted Value thereof with the net proceeds of either (A) one or more public
offerings of Common Stock of the Company registered under the Securities Act or
(B) a sale by the Company of at least $25.0 million of its Capital Stock (other
than Redeemable Stock or Preferred Stock) to a Strategic Equity Investor in a
single transaction; provided in each case that at least 67% of the aggregate
principal amount at maturity of the Notes remains outstanding immediately after
the occurrence of any such redemption; and provided, further, that any such
redemption shall occur within 90 days of the date of the closing of any such
public offering of Common Stock or sale to Strategic Equity Investor of Capital
Stock (other than Redeemable Stock or Preferred Stock) of the Company, as the
case may be.
SECTION 3.2. Notices to Trustee. If the Company elects to
redeem Notes pursuant to Section 3.1, it shall notify the Trustee in writing of
the Redemption Date and the principal amount at maturity of Notes to be
redeemed.
The Company shall give each notice provided for in this
Section 3.2 in an Officers' Certificate at least 60 days before the Redemption
Date (unless a shorter period shall be satisfactory to the Trustee).
SECTION 3.3. Selection of Notes to be Redeemed. If less than
all of the Notes are to be redeemed at any time, the Trustee shall select the
Notes to be redeemed in compliance with the requirements, as certified to it by
the Company, of the principal national securities exchange, if any, on which
the Notes are listed or, if the Notes are not listed on a national securities
exchange, on a pro rata basis or by lot; provided that no Notes of $1,000 in
principal amount at maturity or less shall be redeemed in part.
The Trustee shall make the selection from the Notes
outstanding and not previously called for redemption. Notes in denominations
of $1,000 in principal amount at maturity may only be redeemed in whole. The
Trustee may elect for redemption portions (equal to $1,000 in principal amount
at maturity or any integral multiple thereof) of Notes that have denominations
larger than $1,000 in principal amount at maturity. Provisions of this
Indenture that apply to Notes called for redemption also apply to portions of
Notes called for redemption. The Trustee shall notify the Company and the
Registrar promptly in writing of the Notes or portions of Notes to be called
for redemption.
SECTION 3.4. Notice of Redemption. With respect to any
redemption of Notes pursuant to Section 3.1, at least 30 days but not more than
60 days before a Redemption Date, the Company shall mail a notice of redemption
by first class mail to each Holder whose Notes are to be redeemed.
The notice shall identify the Notes to be redeemed and shall
state:
(i) the Redemption Date;
(ii) the Redemption Price;
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(iii) the name and address of the Paying Agent;
(iv) that Notes called for redemption must be
surrendered to the Paying Agent in order to collect the Redemption
Price;
(v) that, unless the Company defaults in making the
redemption payment, interest on Notes called for redemption ceases to
accrue on and after the Redemption Date and the only remaining right
of the Holders is to receive payment of the Redemption Price plus
accrued interest to the Redemption Date upon surrender of the Notes to
the Paying Agent;
(vi) that, if any Note is being redeemed in part, the
portion of the principal amount at maturity (equal to $1,000 in
principal amount at maturity or any integral multiple thereof) of such
Note to be redeemed and that, on and after the Redemption Date, upon
surrender of such Note, a new Note or Notes in principal amount at
maturity equal to the unredeemed portion thereof will be reissued;
(vii) that, if any Note contains a CUSIP number as
provided in Section 2.12, no representation is being made as to the
correctness of the CUSIP number either as printed on the Notes or as
contained in the notice of redemption and that reliance may be placed
only on the other identification numbers printed on the Notes; and
(viii) the aggregate principal amount of Notes being
redeemed.
At the Company's request (which request may be revoked by the
Company at any time prior to the time at which the Trustee shall have given
such notice to the Holders), made in writing to the Trustee at least 60 days
(or such shorter period as shall be satisfactory to the Trustee) before a
Redemption Date, the Trustee shall give the notice of redemption in the name
and at the expense of the Company. If, however, the Company gives such notice
to the Holders, the Company shall concurrently deliver to the Trustee an
Officers' Certificate stating that such notice has been given.
SECTION 3.5. Effect of Notice of Redemption. Once notice of
redemption is mailed, Notes called for redemption become due and payable on the
Redemption Date and at the Redemption Price. Upon surrender of any Notes to
the Paying Agent, such Notes shall be paid at the Redemption Price, plus
accrued interest, if any, to the Redemption Date.
Notice of redemption shall be deemed to be given when mailed,
whether or not the Holder receives the notice. In any event, failure to give
such notice, or any defect therein, shall not affect the validity of the
proceedings for the redemption of Notes held by Holders to whom such notice was
properly given.
SECTION 3.6. Deposit of Redemption Price. Prior to any
Redemption Date, the Company shall deposit with the Paying Agent (or, if the
Company is acting as its own Paying Agent, shall segregate and hold in trust as
provided in Section 2.4) money sufficient to pay the Redemption Price of and
accrued interest on all Notes to be redeemed on that date other than Notes or
portions thereof called for redemption on that date that have been delivered by
the Company to the Trustee for cancellation.
SECTION 3.7. Payment of Notes Called for Redemption. If
notice of redemption has been given in the manner provided above, the Notes or
portion of Notes specified in such notice to be redeemed shall become due and
payable on the Redemption Date at the Redemption Price stated therein, together
with accrued interest to such Redemption Date, and on and after such date
(unless the Company shall default in the payment of such Notes at the
Redemption Price and accrued interest to the Redemption Date, in which case the
principal, until paid, shall bear interest from the Redemption Date at the rate
prescribed in the Notes), such Notes shall cease to accrue interest. Upon
surrender of any Note for redemption in accordance with a notice of redemption,
such Note shall be paid and redeemed by the Company at the Redemption Price,
together with accrued interest, if any, to the Redemption Date; provided that
installments of interest whose Stated Maturity is on or prior to the
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Redemption Date shall be payable to the Holders registered as such at the close
of business on the relevant Regular Record Date.
SECTION 3.8. Notes Redeemed in Part. Upon surrender of any
Note that is redeemed in part, the Company shall execute and the Trustee shall
authenticate and deliver to the Holder a new Note equal in principal amount at
maturity to the unredeemed portion of such surrendered Note.
ARTICLE FOUR
COVENANTS
SECTION 4.1. Payment of Notes. The Company shall pay the
principal of, premium, if any, and interest on the Notes on the dates and in
the manner provided in the Notes and this Indenture. An installment of
principal, premium, if any, or interest shall be considered paid on the date
due if the Trustee or Paying Agent (other than the Company, a Subsidiary of the
Company, or any Affiliate of any of them) holds on that date money designated
for and sufficient to pay the installment. If the Company or any Subsidiary of
the Company or any Affiliate of any of them, acts as Paying Agent, an
installment of principal, premium, if any, or interest shall be considered paid
on the due date if the entity acting as Paying Agent complies with the last
Section of Section 2.4. As provided in Section 6.9, upon any bankruptcy or
reorganization procedure relative to the Company, the Trustee shall serve as
the Paying Agent and conversion agent, if any, for the Notes.
The Company shall pay interest on overdue principal, premium,
if any, and interest on overdue installments of interest, to the extent lawful,
at the rate per annum specified in the Notes.
SECTION 4.2. Maintenance of Office or Agency. The Company
will maintain in the Borough of Manhattan, the City of New York an office or
agency where Notes may be surrendered for registration of transfer or exchange
or for presentation for payment and where notices and demands to or upon the
Company in respect of the Notes and this Indenture may be served. The Company
will give prompt written notice to the Trustee of the location, and any change
in the location, of such office or agency. If at any time the Company shall
fail to maintain any such required office or agency or shall fail to furnish
the Trustee with the address thereof, such presentations, surrenders, notices
and demands may be made or served at the address of the Trustee set forth in
Section 11.2.
The Company may also from time to time designate one or more
other offices or agencies where the Notes may be presented or surrendered for
any or all such purposes and may from time to time rescind such designations;
provided that no such designation or rescission shall in any manner relieve the
Company of its obligation to maintain an office or agency in the Borough of
Manhattan, the City of New York for such purposes. The Company will give
prompt written notice to the Trustee of any such decision or rescission and of
any change in the location of any such other office or agency.
The Company hereby initially designates the Corporate Trust
Office of the Trustee, located in the Borough of Manhattan, the City of New
York, as such office of the Company in accordance with Section 2.3.
SECTION 4.3. Limitation on Indebtedness. (a) The Company will
not, and will not permit any of its Restricted Subsidiaries to, Incur any
Indebtedness (other than the Notes and Indebtedness existing on the Closing
Date); provided that the Company or any Restricted Subsidiary may Incur
Indebtedness if, after giving effect to the Incurrence of such Indebtedness and
the receipt and application of the net proceeds therefrom, the Indebtedness to
EBITDA Ratio would be greater than zero and less than 5.5:1.
Notwithstanding the foregoing, the Company, and (except as
specified below) any Restricted Subsidiary, may Incur each and all of the
following:
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(i) Indebtedness of the Company or any Restricted Subsidiary
under one or more commercial bank credit facilities in an aggregate
principal amount not to exceed at any time $20.0 million, less up to
an equal amount of Indebtedness permanently repaid as provided under
Section 4.11;
(ii) Indebtedness of the Company or any Restricted Subsidiary
to the Company or any of its Wholly Owned Restricted Subsidiaries;
provided that any subsequent issuance or transfer of any Capital Stock
which results in any such Wholly Owned Restricted Subsidiary ceasing
to be a Wholly Owned Restricted Subsidiary or any subsequent transfer
of such Indebtedness (other than to the Company or another Wholly
Owned Restricted Subsidiary) shall be deemed, in each case, to
constitute an Incurrence of such Indebtedness not permitted by this
clause (ii);
(iii) Refinancing Indebtedness;
(iv) Indebtedness of the Company or any Restricted Subsidiary
(A) in respect of performance, surety or appeal bonds provided in the
ordinary course of business, (B) under Interest Rate Agreements;
provided that such Interest Rate Agreements do not increase the
Indebtedness of the obligor outstanding at any time other than as a
result of fluctuations in interest rates or by reason of fees,
indemnities and compensation payable thereunder; and (C) arising from
agreements providing for indemnification, adjustment of purchase price
or similar obligations, or from Guarantees or letters of credit,
surety bonds or performance bonds securing any obligations of the
Company or any of its Restricted Subsidiaries pursuant to such
agreements, in any case Incurred in connection with the disposition of
any business, assets or Restricted Subsidiary of the Company (other
than Guarantees of Indebtedness Incurred by any Person acquiring all
or any portion of such business, assets or Restricted Subsidiary for
the purpose of financing such acquisition), in a principal amount not
to exceed the gross proceeds actually received by the Company or any
Restricted Subsidiary in connection with such disposition;
(v) Indebtedness of the Company (or of any Restricted
Subsidiary to the extent and only to the extent that such Indebtedness
is Spectrum Acquisition Debt and is a direct obligation owing to the
FCC), not to exceed, at any one time outstanding, an amount equal to
2.0 times the amount of Net Cash Proceeds received by the Company
after the Closing Date from the issuance and sale of its Capital Stock
or rights to purchase its Capital Stock (in each case other than
Redeemable Stock or Preferred Stock) to a Person that is not a
Subsidiary of the Company, less the amount of any Investments made
pursuant to clause (vi) of the second paragraph of Section 4.4;
provided that such Indebtedness (other than such Spectrum Acquisition
Debt) does not mature prior to the Stated Maturity of the Notes and
has an Average Life longer than the remaining Average Life of the
Notes;
(vi) Indebtedness of the Company or any Restricted Subsidiary
(including, without limitation, Indebtedness under the Credit
Facility) Incurred solely for the purpose of financing the cost
(including the cost of design, development, site acquisition,
construction, installation or integration) of personal communications
services systems or other wireless telecommunications networks for
which the Company or any Restricted Subsidiary has obtained the
applicable licenses or authorizations to utilize the radio frequencies
necessary for the operation of such systems or networks;
(vii) Spectrum Acquisition Debt of the Company or any
Restricted Subsidiary outstanding at any time in an aggregate
principal amount not to exceed $25.0 million; and
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(viii) Indebtedness of the Company or any Restricted Subsidiary
outstanding at any time in an aggregate amount not to exceed $20.0
million, less up to an equal amount of Indebtedness permanently repaid
as provided under Section 4.11.
(b) For purposes of determining any particular amount of
Indebtedness under this Section 4.3, Guarantees, Liens or obligations with
respect to letters of credit supporting Indebtedness otherwise included in the
determination of such particular amount shall not be included. For purposes of
determining compliance with this Section 4.3, in the event that an item of
Indebtedness meets the criteria of more than one of the types of Indebtedness
described in the above clauses, the Company, in its sole discretion, shall
classify such item of Indebtedness and only be required to include the amount
and type of such Indebtedness in one of such clauses.
(c) Notwithstanding any other provision of this Section 4.3,
the Company shall not, and shall not permit any Restricted Subsidiary to, Incur
any Guarantee of Indebtedness of any Unrestricted Subsidiary.
SECTION 4.4. Limitation on Restricted Payments. So long as
any of the Notes are outstanding, the Company shall not, and shall not permit
any Restricted Subsidiary to, directly or indirectly, (i) declare or pay any
dividend or make any distribution on its Capital Stock (other than dividends or
distributions payable solely in shares of the Company's Capital Stock (other
than Redeemable Stock) of the same class held by such holders or in options,
warrants or other rights to acquire such shares of Capital Stock) held by
Persons other than the Company or any of its Wholly Owned Restricted
Subsidiaries (and other than pro rata dividends or distributions on common
stock of Restricted Subsidiaries), (ii) purchase, redeem, retire or otherwise
acquire for value any shares of Capital Stock of the Company or any Subsidiary
(including options, warrants or other rights to acquire such shares of Capital
Stock) held by Persons other than the Company or any of its Wholly Owned
Restricted Subsidiaries, (iii) make any voluntary or optional principal
payment, or voluntary or optional redemption, repurchase, defeasance or other
acquisition or retirement for value, of Indebtedness of the Company that is
subordinated in right of payment to the Notes, or (iv) make any Investment,
other than a Permitted Investment, in any Person (such payments or any other
actions described in clauses (i) through (iv) being collectively "Restricted
Payments") if, at the time of, and after giving effect to, the proposed
Restricted Payment: (A) a Default or Event of Default shall have occurred and
be continuing, (B) the Company could not Incur at least $1.00 of Indebtedness
under the first paragraph of Section 4.3 or (C) the aggregate amount expended
for all Restricted Payments (the amount so expended, if other than in cash, to
be determined in good faith by the Board of Directors, whose determination
shall be conclusive and evidenced by a Board Resolution) after the date of the
Indenture shall exceed the sum of (1) the excess of (x) 100% of Consolidated
EBITDA from the first day of the fiscal quarter beginning after the Closing
Date through the last day of the last full fiscal quarter immediately preceding
the Transaction Date for which reports have been filed pursuant to Section 4.18
over (y) the product of 2.0 times cumulative Consolidated Fixed Charges from
the first day of the fiscal quarter beginning after the Closing Date through
the last day of the last full fiscal quarter immediately preceding such
Transaction Date for which such reports have been filed, plus (2) the aggregate
Net Cash Proceeds received by the Company after the Closing Date from the
issuance and sale permitted by the Indenture of its Capital Stock (other than
Redeemable Stock) to a Person who is not a Subsidiary of the Company, or from
the issuance to a Person who is not a Subsidiary of the Company of any options,
warrants or other rights to acquire Capital Stock of the Company (in each case,
exclusive of any Redeemable Stock or any options, warrants or other rights that
are redeemable at the option of the holder, or are required to be redeemed,
prior to the Stated Maturity of the Notes) plus (3) an amount equal to the net
reduction in Investments (other than reductions in Permitted Investments) in
any Person resulting from payments of interest on Indebtedness, dividends,
repayments of loans or advances, or other transfers of assets, in each case to
the Company or any Restricted Subsidiary from such Person (except to the extent
any such payment is included in the calculation of Adjusted Consolidated Net
Income), or from redesignations of Unrestricted Subsidiaries as Restricted
Subsidiaries (valued in each case as provided in the definition of
"Investments"), not to exceed the amount of Investments previously made by the
Company and its Restricted Subsidiaries in such Person.
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The foregoing provision shall not be violated by reason of:
(i) the payment of any dividend within 60 days after the date
of declaration thereof if, at said date of declaration, such payment
would comply with the foregoing paragraph;
(ii) the redemption, repurchase, defeasance or other
acquisition or retirement for value of Indebtedness that is
subordinated in right of payment to the Notes, including premium, if
any, and accrued and unpaid interest, with the proceeds of, or in
exchange for, permitted Refinancing Indebtedness;
(iii) the repurchase, redemption or other acquisition of
Capital Stock of the Company in exchange for, or out of the proceeds
of a substantially concurrent issuance or sale of, shares of Capital
Stock (other than Redeemable Stock) of the Company;
(iv) the acquisition of Indebtedness of the Company which is
subordinated in right of payment to the Notes, in exchange for, or out
of the proceeds of, a substantially concurrent issuance or sale of,
shares of Capital Stock (other than Redeemable Stock) of the Company;
(v) Investments in an aggregate amount not to exceed $15
million, in any Person the primary business of which is related,
ancillary or complementary to the businesses of the Company and its
Restricted Subsidiaries on the date of such Investments;
(vi) Investments in an aggregate amount not to exceed the Net
Cash Proceeds received by the Company after the Closing Date from the
issuance and sale of its Capital Stock or rights to purchase its
Capital Stock (other than Redeemable Stock and Preferred Stock) to a
Person that is not a Subsidiary of the Company, provided that the
Investment is made within 12 months after the sale of such Capital
Stock;
(vii) the purchase, redemption, acquisition, cancellation or
other retirement for value of shares of Capital Stock of the Company
to the extent necessary, in the judgment of the Board of Directors of
the Company, to prevent the loss or secure the renewal or
reinstatement of any license or franchise held by the Company or any
Restricted Subsidiary from any governmental agency or to retain the
financial benefits of the Company's "Designated Entity" status as a
"Small Business" or as a "Business Owned by Members of Minority Groups
and/or Women" as such terms are defined by the FCC;
(viii) the purchase, redemption, acquisition, cancellation or
other retirement for value of shares of Capital Stock of the Company,
or options to acquire shares of such Capital Stock, held by any
employee or former employee of the Company or any of their respective
heirs or administrators or executors of their respective estates, or
by any Person substantially all the beneficial ownership of which is
held by members of such employee's or former employee's family, in
each case in connection with such employee's or former employee's
termination of employment with the Company, the aggregate payments of
which shall (A) have been approved by a majority of the Board of
Directors of the Company, including the approval of a majority of the
independent, disinterested directors, as fair to the Company from a
financial point of view and is evidenced by a resolution of the Board
of Directors of the Company and (B) not exceed $1 million in any
single calendar year;
(ix) the cancellation and retirement after November 10, 2004,
through conversion at the option of the holders thereof into
subordinated Indebtedness of the Company, of the Company's Series A
Preferred Stock in accordance with the terms thereof; and
(x) the purchase for value of the Warrants pursuant to an
offer to purchase the Warrants in accordance with the terms of the
Warrant Agreement; provided, that, except in the case of clause (i)
above, no Default or Event of Default shall have occurred and be
continuing or occur as a consequence of the actions or payments set
forth therein.
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Each Restricted Payment permitted pursuant to the preceding
paragraph (other than the Restricted Payments referred to in clauses (ii) and
(ix) thereof), and the Net Cash Proceeds from any issuance of Capital Stock
referred to in clause (iii), (iv) and (vi) shall be included in calculating
whether the conditions of clause (C) of the first paragraph of this Section 4.4
have been met with respect to any subsequent Restricted Payments.
SECTION 4.5. Limitation on Dividend and Other Payment
Restrictions Affecting Restricted Subsidiaries. So long as any of the Notes
are outstanding, the Company will not, and will not permit any Restricted
Subsidiary to, create or otherwise cause or suffer to exist or become effective
any consensual encumbrance or restriction of any kind on the ability of any
Restricted Subsidiary to (i) pay dividends or make any other distributions
permitted by applicable law on any Capital Stock of such Restricted Subsidiary
owned by the Company or any other Restricted Subsidiary, (ii) pay any
Indebtedness owed to the Company or any other Restricted Subsidiary, (iii) make
loans or advances to the Company or any other Restricted Subsidiary, (iv)
transfer any of its property or assets to the Company or any other Restricted
Subsidiary or (v) make any payments to the Company for the purpose of
satisfying any tax liabilities or obligations of the Company.
The foregoing provisions shall not apply to any encumbrances
or restrictions:
(i) existing on the Closing Date in any agreement in effect on
the Closing Date, including, without limitation, in the Credit
Facility, and any extensions, refinancings, renewals or replacements
of such agreements; provided that the encumbrances and restrictions in
any such extensions, refinancings, renewals or replacements are no
less favorable in any material respect to the Holders than those
encumbrances or restrictions that are then in effect and that are
being extended, refinanced, renewed or replaced;
(ii) existing under or by reason of applicable law;
(iii) existing with respect to any Person or the property or
assets of such Person acquired by the Company or any Restricted
Subsidiary, existing at the time of such acquisition and not incurred
in contemplation thereof, which encumbrances or restrictions are not
applicable to any Person or the property or assets of any Person other
than such Person or the property or assets of such Person so acquired;
(iv) in the case of clause (iv) of the first paragraph of this
Section 4.5, (A) that restrict in a customary manner the subletting,
assignment or transfer of any property or asset that is a lease,
license, conveyance or contract or similar property or asset, (B)
existing by virtue of any transfer of, agreement to transfer, option
or right with respect to, or Lien on, any property or assets of the
Company or any Restricted Subsidiary not otherwise prohibited by the
Indenture or (C) arising or agreed to in the ordinary course of
business, not relating to any Indebtedness, and that do not,
individually or in the aggregate, detract from the value of property
or assets of the Company or any Restricted Subsidiary in any manner
material to the Company or any Restricted Subsidiary; or
(v) with respect to a Restricted Subsidiary and imposed
pursuant to an agreement that has been entered into for the sale or
disposition of all or substantially all of the Capital Stock of, or
property and assets of, such Restricted Subsidiary.
Nothing contained in this Section 4.5 shall prevent the Company or any
Restricted Subsidiary from (1) creating, incurring, assuming or suffering to
exist any Liens otherwise permitted in Section 4.9 or (2) restricting the sale
or other disposition of property or assets of the Company or any of its
Restricted Subsidiaries that secure Indebtedness of the Company or any of its
Restricted Subsidiaries.
SECTION 4.6. Limitation on the Issuance and Sale of Capital
Stock of Restricted Subsidiaries. The Company will not, and will not permit
any Restricted Subsidiary, directly or indirectly, to issue, transfer, convey,
sell, lease or otherwise dispose of any shares of Capital Stock (including
options, warrants or other rights
<PAGE> 35
30
to purchase shares of such Capital Stock) of such or any other Restricted
Subsidiary to any Person (other than to the Company or a Wholly Owned
Restricted Subsidiary) unless (A) the Net Cash Proceeds from such issuance,
transfer, conveyance, sale, lease or other disposition are applied in
accordance with the provisions of Section 4.11 and (B) if, immediately after
giving effect to such issuance or sale, such Restricted Subsidiary would no
longer constitute a Restricted Subsidiary, any Investment in such Person
remaining after giving effect to such issuance or sale would have been
permitted to be made under Section 4.4 if made on the date of such sale (valued
as provided in the definition of "Investments"). Notwithstanding the
foregoing, for as long as any of the Notes are outstanding the Company will own
100% of the Common Stock of PCSD Financial Corp.
SECTION 4.7. Limitation on Issuances of Guarantees by
Restricted Subsidiaries. The Company will not permit any Restricted
Subsidiary, directly or indirectly, to Guarantee any Indebtedness of the
Company, unless (i) such Restricted Subsidiary simultaneously executes and
delivers a supplemental indenture to the Indenture providing for a Guarantee of
payment of the Notes by such Restricted Subsidiary (a "Subsidiary Guarantee")
and (ii) such Restricted Subsidiary waives and will not in any manner
whatsoever claim or take the benefit or advantage of, any rights of
reimbursement, indemnity or subrogation or any other rights against the Company
or any other Restricted Subsidiary as a result of any payment by such
Restricted Subsidiary under its Subsidiary Guarantee; provided that this
paragraph shall not be applicable to any Guarantee of any Restricted Subsidiary
that existed at the time such Person became a Restricted Subsidiary and was not
Incurred in connection with, or in contemplation of, such Person becoming a
Restricted Subsidiary. If the Guaranteed Indebtedness is (A) pari passu with
the Notes, then the Guarantee of such Guaranteed Indebtedness shall be pari
passu with, or subordinated to, the Subsidiary Guarantee or (B) subordinated to
the Notes, then the Guarantee of such Guaranteed Indebtedness shall be
subordinated to the Subsidiary Guarantee at least to the extent that the
Guaranteed Indebtedness is subordinated to the Notes.
Notwithstanding the foregoing, any Subsidiary Guarantee by a
Restricted Subsidiary shall provide by its terms that it shall be automatically
and unconditionally released and discharged upon any sale, exchange or
transfer, to any Person that is not an Affiliate of the Company of all of the
Company's and each Restricted Subsidiary's Capital Stock in, or all or
substantially all the assets of, such Restricted Subsidiary (which sale,
exchange or transfer is not prohibited by this Indenture). The release or
discharge of the Indebtedness or the Guarantee which resulted in the creation
of such Subsidiary Guarantee will not release or discharge such Subsidiary
Guarantee.
SECTION 4.8. Limitation on Transactions with Shareholders and
Affiliates. The Company will not, and will not permit any Restricted
Subsidiary to, directly or indirectly, enter into, renew or extend any
transaction or series of related transactions (including, without limitation,
the purchase, sale, lease or exchange of property or assets, or the rendering
of any service) with any holder of 5% or more of any class of Capital Stock of
the Company (or any Affiliate of such holder) or with any Affiliate of the
Company or any Restricted Subsidiary, unless (i) such transaction or series of
transactions is on terms no less favorable to the Company or such Restricted
Subsidiary than those that could be obtained, at the time of such transaction
or at the time of the execution of the agreement providing therefor, in a
comparable arm's-length transaction with a Person that is not such a holder or
an Affiliate and (ii) if such transaction or series of transactions involves
aggregate payments and other consideration having a fair market value at the
time of the transaction or series of transactions in excess of $1 million, (A)
such transaction or series of transactions is approved by a majority of the
Board of Directors of the Company, including the approval of a majority of the
independent, disinterested directors, as fair to the Company from a financial
point of view and is evidenced by a resolution of the Board of Directors of the
Company or (B) the Company shall have obtained and delivered to the Trustee a
written opinion of a nationally recognized investment banking firm stating that
such transaction or series of transactions is fair to the Company or such
Restricted Subsidiary from a financial point of view.
The foregoing limitation does not limit, and shall not apply
to:
(i) any transaction between the Company and any of its Wholly
Owned Restricted Subsidiaries or between Wholly Owned Restricted
Subsidiaries;
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(ii) the payment of reasonable and customary regular fees to
directors of the Company who are not employees of the Company;
(iii) any payments or other transactions pursuant to any
tax-sharing agreement between the Company and any other Person with
which the Company files a consolidated tax return or with which the
Company is part of a consolidated group for tax purposes;
(iv) any Restricted Payment not prohibited by Section 4.4;
(v) any extension, renewal or modification of the terms and
provisions of the Sloan Loan, which extension, renewal or modification
shall have been previously approved by a majority of the Board of
Directors of the Company, including the approval of a majority of the
independent, disinterested directors, as fair to the Company from a
financial point of view and evidenced by a resolution of the Board of
Directors; and
(vi) the execution of any reseller agreement, operating
agreement, network build-out agreement, management agreement or joint
venture relating to the telecommunications business with any Person
who was a stockholder on the date of this Indenture, which execution
shall have been previously approved by a majority of the Board of
Directors of the Company, including the approval of a majority of the
independent, disinterested directors, as fair to the Company from a
financial point of view and evidenced by a resolution of the Board of
Directors.
SECTION 4.9. Limitation on Liens. The Company will not, and
will not permit any Restricted Subsidiary to, create, incur, assume or suffer
to exist any Lien on any of its assets or properties of any character, or any
shares of Capital Stock or Indebtedness of any Restricted Subsidiary, without
making effective provision for all of the Notes and all other amounts due under
this Indenture to be directly secured at least equally and ratably with the
obligation or liability secured by such Lien.
The foregoing limitation does not apply to:
(i) Liens created pursuant to agreements existing on the
Closing Date;
(ii) Liens granted after the Closing Date on any assets or
Capital Stock of the Company or its Restricted Subsidiaries created in
favor of the Holders;
(iii) Liens with respect to the assets of a Restricted
Subsidiary granted by such Restricted Subsidiary to the Company or a
Wholly Owned Restricted Subsidiary to secure Indebtedness owing to the
Company or such other Wholly Owned Restricted Subsidiary;
(iv) Liens securing permitted Refinancing Indebtedness which
is Incurred to refinance secured Indebtedness; provided that such
Liens do not extend to or cover any property or assets of the Company
or any Restricted Subsidiary other than the property or assets
securing the Indebtedness being refinanced;
(v) Liens with respect to assets or properties of any Person
that becomes a Restricted Subsidiary after the Closing Date; provided
that such Liens do not extend to or cover any assets or properties of
the Company or any of its Restricted Subsidiaries other than the
assets or properties of such Person subject to such Liens on the date
such Person becomes a Restricted Subsidiary; and provided further that
such Liens are not incurred in contemplation of, or in connection
with, such Person becoming a Restricted Subsidiary; or
(vi) Permitted Liens.
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SECTION 4.10. Limitation on Sale and Leaseback Transactions.
Neither the Company nor any Restricted Subsidiary will, directly or indirectly,
enter into any Sale and Leaseback Transaction, except that the Company or any
Restricted Subsidiary may enter into a Sale and Leaseback Transaction if (i)
immediately prior thereto, and after giving effect to such Sale and Leaseback
Transaction (the Indebtedness thereunder being equivalent to the Attributable
Value thereof), the Company could Incur at least $1.00 of additional
Indebtedness under the first paragraph of Section 4.3 and (ii) the Sale and
Leaseback Transaction constitutes an Asset Sale effected in accordance with the
requirements of Section 4.11.
SECTION 4.11. Limitation on Asset Sales. The Company will
not, and will not permit any Restricted Subsidiary to, consummate any Asset
Sale, unless (I) the consideration received by the Company or such Restricted
Subsidiary is at least equal to the fair market value of the assets sold or
disposed of and (II) at least 80% of the consideration received consists of
cash or Temporary Cash Investments or the assumption of unsubordinated
Indebtedness of the Company to the extent that the Company or such Restricted
Subsidiary is released from all liability on such unsubordinated Indebtedness.
In the event of an Asset Sale, the Company shall or shall cause the relevant
Restricted Subsidiary to (i) within nine months after the date the Net Cash
Proceeds are received either (A) apply an amount equal to such Net Cash
Proceeds to permanently repay unsubordinated Indebtedness of the Company (other
than the Notes), or Indebtedness of any Restricted Subsidiary, in each case
owing to a Person other than the Company or any of its Restricted Subsidiaries
or (B) invest an equal amount, or the amount not so applied pursuant to clause
(A) (or enter into a definitive agreement committing to invest, and actually
invest, such Net Cash Proceeds within one year of the receipt of such Net Cash
Proceeds), in property or assets (other than current assets) of a nature or
type or that are used in a business (or in a company having property and assets
of a nature or type, or engaged in a business) similar or related to the nature
or type of the property and assets of, or the business of, the Company and its
Restricted Subsidiaries existing on the date of such investment (as determined
in good faith by the Board of Directors, whose determination shall be
conclusive and evidenced by a Board Resolution) and (ii) apply (no later than
the end of the nine-month or one-year period, as the case may be, referred to
in clause (i)) such Net Cash Proceeds (to the extent not applied pursuant to
clause (i)) as provided in the following paragraph of this Section 4.11. The
amount of such Net Cash Proceeds required to be applied (or to be committed to
be applied) during such nine-month or one-year period, as the case may be, as
set forth in clause (i) of the preceding sentence and not applied as so
required by the end of such period, as the case may be, shall constitute
"Excess Proceeds."
If, as of the first day of any calendar month, the aggregate
amount of Excess Proceeds totals at least $10.0 million, the Company must
commence, not later than the fifteenth Business Day of such month, and
consummate an Offer to Purchase from the Holders on a pro rata basis an
aggregate Accreted Value of Notes equal to the Excess Proceeds on such date, at
a purchase price equal to the Accreted Value of the Notes, plus, in each case,
accrued interest (if any) to the date of purchase. To the extent that the
Accreted Value of Notes tendered pursuant to such Offer to Purchase is less
than the Excess Proceeds, the Company may use such deficiency for general
corporate purposes. If the Accreted Value of Notes validly tendered and not
withdrawn by Holders thereof exceeds the Excess Proceeds, Notes to be purchased
will be selected on a pro rata basis. Upon completion of such Offer to
Purchase, the amount of Excess Proceeds will be reset to zero.
SECTION 4.12. Repurchase of Notes upon a Change of Control.
The Company must commence, within 30 days of the occurrence of a Change of
Control, and consummate an Offer to Purchase in respect of all Notes then
outstanding, at a purchase price equal to 101% of the Accreted Value thereof,
plus accrued interest (if any) to the date of purchase.
Prior to the mailing of the notice to Holders commencing such
Offer to Purchase, but in any event within 30 days following any Change of
Control, the Company shall (i) repay in full all indebtedness of the Company
that would prohibit the repurchase of the Notes pursuant to such Offer to
Purchase or (ii) obtain any requisite consents under instruments governing any
such indebtedness of the Company to permit the repurchase of the Notes. The
Company shall first comply with the provisions of the immediately preceding
sentence before it shall be required to repurchase Notes pursuant to this
Section 4.12.
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SECTION 4.13. Existence Subject to Articles Four and Five of
this Indenture, the Company will do or cause to be done all things necessary to
preserve and keep in full force and effect its existence and the existence of
each of its Restricted Subsidiaries in accordance with the respective
organizational documents of the Company and each such Restricted Subsidiary and
the rights (whether pursuant to charter, partnership certificate, agreement,
statute or otherwise), material licenses and franchises of the Company and each
such Restricted Subsidiary; provided that the Company shall not be required to
preserve any such right, license or franchise, or the existence of any
Restricted Subsidiary, if the maintenance or preservation thereof is no longer
desirable in the conduct of the business of the Company and its Restricted
Subsidiaries taken as a whole; and provided, further, that the Company will not
permit any Restricted Subsidiary to engage in any business other than the
telecommunications business and related activities and services. In addition,
the Company agrees to take such actions, within a reasonable time after the
Closing Date (and in any event prior to any proceeding initiated regarding the
dissolution of the Company), as may be necessary to ensure that it shall be in
good standing under the laws of the jurisdiction of its incorporation.
SECTION 4.14. Payment of Taxes and Other Claims. The Company
will pay or discharge and shall cause each of its Subsidiaries to pay or
discharge, or cause to be paid or discharged, before the same shall become
delinquent (i) all material taxes, assessments and governmental charges levied
or imposed upon (a) the Company or any such Subsidiary, (b) the income or
profits of any Subsidiary which is a corporation or (c) the property of the
Company or any such Subsidiary and (ii) all material lawful claims for labor,
materials and supplies that, if unpaid, might by law become a Lien upon the
property of the Company or any such Subsidiary; provided that the Company shall
not be required to pay or discharge, or cause to be paid or discharged, any
such tax, assessment, charge or claim the amount, applicability or validity of
which is being contested in good faith by appropriate proceedings and for which
adequate reserves have been established.
SECTION 4.15. Maintenance of Properties and Insurance. The
Company will cause all properties used or useful in the conduct of its business
or the business of any of its Restricted Subsidiaries, to be maintained and
kept in good condition, repair and working order and supplied with all
necessary equipment and will cause to be made all necessary repairs, renewals,
replacements, betterment and improvements thereof, all as in the judgment of
the Company may be necessary so that the business carried on in connection
therewith may be properly and advantageously conducted at all times; provided
that nothing in this Section 4.15 shall prevent the Company or any such
Subsidiary from discontinuing the use, operation or maintenance of any of such
properties or disposing of any of them, if such discontinuance or disposal is,
in the judgment of the Company, desirable in the conduct of the business of the
Company or such Subsidiary.
The Company will provide or cause to be provided, for itself
and its Restricted Subsidiaries, insurance (including appropriate
self-insurance) against loss or damage of the kinds customarily insured against
by corporations similarly situated and owning like properties, including, but
not limited to, products liability insurance and public liability insurance,
with reputable insurers, in such amounts, with such deductibles and by such
methods as shall be customary for corporations similarly situated in the
industry in which the Company or such Restricted Subsidiary, as the case may
be, is then conducting business.
SECTION 4.16. Notice of Defaults. In the event that the
Company becomes aware of any Default or Event of Default, the Company, promptly
after it becomes aware thereof, will give written notice thereof to the
Trustee.
SECTION 4.17. Compliance Certificates. (a) The Company
shall deliver to the Trustee, within 90 days after the end of each fiscal year
and within 45 days after the end of the first, second and third quarters of
each fiscal year of the Company, an Officers' Certificate stating whether or
not the signers know of any Default or Event of Default that occurred during
such fiscal year. Such certificates shall contain a certification from the
principal executive officer, principal financial officer or principal
accounting officer of the Company that a review has been conducted of the
activities of the Company and the Restricted Subsidiaries and the Company's and
the Restricted Subsidiaries' performance under this Indenture and that the
Company has complied with all conditions and covenants and fulfilled all
obligations under this Indenture. For purposes of this Section 4.17, such
compliance shall be determined without regard to any period of grace or
requirement of
<PAGE> 39
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notice provided under this Indenture. If any such officer knows of such a
Default or Event of Default, the certificate shall describe any such Default or
Event of Default and its status.
(b) The Company shall deliver to the Trustee, within 90 days
after the end of its fiscal year, a certificate signed by the Company's
independent certified public accountants stating (i) that their audit
examination has included a review of the terms of this Indenture and the Notes
as they relate to accounting matters, (ii) that they have read the most recent
Officers' Certificate delivered to the Trustee pursuant to paragraph (a) of
this Section 4.17 and (iii) whether, in connection with their audit
examination, anything came to their attention that caused them to believe that
the Company was not in compliance with any of the terms, covenants, provisions
or conditions of Article Four and Section 5.1 of this Indenture as they pertain
to accounting matters and, if any Default or Event of Default has come to their
attention, specifying the nature and period of existence thereof; provided that
such independent certified public accountants shall not be liable in respect of
such statement by reason of any failure to obtain knowledge of any such Default
or Event of Default that would not be disclosed in the course of an audit
examination conducted in accordance with generally accepted auditing standards
in effect at the date of such examination.
(c) Within 90 days of the end of each of the Company's fiscal
year, the Company shall deliver to the Trustee a list of all Subsidiaries. The
Trustee shall have no duty with respect to any such list except to keep it on
file and available for inspection by the Holders.
SECTION 4.18. Commission Reports and Reports to Trustee and
to Holders. So long as any of the Notes are outstanding, whether or not the
Company is subject to Section 13(a) or 15(d) of the Exchange Act, the Company
shall file with the Commission the annual reports, quarterly reports and other
documents which the Company would have been required to file with the
Commission pursuant to such Sections 13(a) and 15(d) if the Company were so
subject, such documents to be filed with the Commission on or prior to the
respective dates (the "Required Filing Dates") by which the Company would have
been required so to file such documents if the Company were so subject. The
Company shall also in any event (x) within 15 days of each Required Filing Date
(i) transmit by mail to all Holders, as their names and addresses appear in the
Security Register, without cost to such Holders; and (ii) file with the Trustee
copies of the annual reports, quarterly reports and other documents which the
Company would have been required to file with the Commission pursuant to
Sections 13(a) and 15(d) of the Exchange Act if the Company were subject to
such Sections and (y) if filing such documents by the Company with the
Commission is not permitted under the Exchange Act, promptly upon written
request supply copies of such documents to any prospective Holder.
SECTION 4.19. Waiver of Stay, Extension or Usury Laws. The
Company covenants (to the extent that it may lawfully do so) that it will not
at any time insist upon, or plead, or in any manner whatsoever claim or take
the benefit or advantage of, any stay or extension law or any usury law or
other law that would prohibit or forgive the Company from paying all or any
portion of the principal of, premium, if any, or interest on the Notes as
contemplated herein, wherever enacted, now or at any time hereafter in force,
or that may affect the covenants or the performance of this Indenture; and (to
the extent that it may lawfully do so) the Company hereby expressly waives all
benefit or advantage of any such law and covenants that it will not hinder,
delay or impede the execution of any power herein granted to the Trustee, but
will suffer and permit the execution of every such power as though no such law
had been enacted.
SECTION 4.20. Activities of the Company and Restricted
Subsidiaries. The Company shall not, and shall not permit any Restricted
Subsidiary to, engage in any business other than the telecommunications
business and related activities and services.
ARTICLE FIVE
CONSOLIDATION, MERGER AND SALE OF ASSETS
SECTION 5.1. When Company and Guarantor May Merge, Etc. The
Company shall not consolidate with, merge with or into, or sell, convey,
transfer, lease or otherwise dispose of all or substantially
<PAGE> 40
35
all of its property and assets (as an entirety or substantially an entirety in
one transaction or a series of related transactions) to, any Person or permit
any Person to merge with or into the Company unless:
(i) the Company shall be the continuing Person, or the
Person (if only than the Company) formed by such consolidation or into
which the Company is merged or that acquired or leased such property
and assets of the Company shall be a corporation organized and validly
existing under the laws of the United States or any jurisdiction
thereof and shall expressly assume, by a supplemental indenture,
executed and delivered to the Trustee, in form reasonably satisfactory
to the Trustee, all of the obligations of the Company in respect of
all of the Notes and under this Indenture.
(ii) immediately after giving effect to such transaction,
no Default or Event of Default shall have occurred and be continuing;
(iii) immediately after giving effect to such transaction
on a pro forma basis, the Company, or any Person becoming the
successor obligor of the Notes, as the case may be, could Incur at
least $1.00 of Indebtedness under the first paragraph of Section
4.3(a); and
(iv) the Company delivers to the Trustee an Officers'
Certificate (attaching the arithmetic computations to demonstrate
compliance with clause (iii) of this Section 5.1) and an Opinion of
Counsel, in each case stating that such consolidation, merger or
transfer and such supplemental indenture complies with this provision
and that all conditions precedent provided for herein relating to such
transaction have been complied with;
provided that the provisions of clause (iii) of this Section 5.1 shall not
apply to transactions described above which are between or among two or more
Wholly Owned Subsidiaries of the Company.
Notwithstanding the immediately preceding paragraph, the
provisions of this Section 5.1 shall not prohibit a transaction the sole
purpose of which (as determined in good faith by the Board of Directors of the
Company) is to change the state of incorporation of the Company.
SECTION 5.2. Successor Substituted. Upon any consolidation
or merger, or any sale, conveyance, transfer or other disposition of all or
substantially all of the property and assets of the Company in accordance with
Section 5.1, the successor Person formed by such consolidation or into which
the Company is merged or consolidated or to which such sale, conveyance,
transfer or other disposition is made shall succeed to, and be substituted for,
and may exercise every right and power of, the Company under this Indenture
with the same effect as if such successor Person had been named as the Company
herein.
ARTICLE SIX
DEFAULT AND REMEDIES
SECTION 6.1. Events of Default. An "Event of Default" shall
occur with respect to the Notes if:
(a) the Company defaults in the payment of the principal of
(or premium, if any, on) any Note when the same becomes due and
payable at maturity, upon acceleration, redemption or otherwise;
(b) the Company defaults in the payment of interest on any
Note when the same becomes due and payable, and such default continues
for a period of 30 days;
(c) the Company defaults in the payment of principal (or
premium, if any) and interest on Notes required to be purchased
pursuant to an Offer to Purchase as described in Section 4.11 or
Section 4.12 when due and payable;
(d) the Company fails to perform or comply with the
provisions described in Article Five;
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(e) the Company defaults in the performance of or breaches
any other covenant or agreement of the Company in this Indenture or
under the Notes and such default or breach continues for a period of
60 consecutive days after written notice to the Company by the Trustee
or the Holders of 25% or more in aggregate principal amount of the
Notes;
(f) there occurs with respect to any issue or issues of
Indebtedness of the Company or any Restricted Subsidiary having an
outstanding principal amount at maturity of $5.0 million or more in the
aggregate for all such issues of all such Persons, whether such
Indebtedness now exists or shall hereafter be created, (I) an event of
default that has caused the holder thereof to declare such
Indebtedness to be due and payable prior to its Stated Maturity and/or
(II) the failure to make a payment when due of principal, premium, if
any, or interest and such defaulted payment shall not have been made,
waived or extended by the earliest of (x) the expiration of any
applicable grace period and (y) the 30th day after such payment
default;
(g) any final judgment or order (not covered by insurance)
for the payment of money in excess of $5.0 million in the aggregate for
all such final judgments or orders against all such Persons (treating
any deductibles, self-insurance or retention as not so covered) shall
be rendered against the Company or any Restricted Subsidiary and shall
not be paid or discharged, and there shall be any period of 60
consecutive days following entry of the final judgment or order that
causes the aggregate amount for all such final judgments or orders
outstanding and not paid or discharged against all such Persons to
exceed $5.0 million during which a stay of enforcement of such final
judgment or order, by reason of a pending appeal or otherwise, shall
not be in effect;
(h) a court having jurisdiction in the premises enters a
decree or order for (A) relief in respect of the Company or any
Restricted Subsidiary in an involuntary case under any applicable
bankruptcy, insolvency or other similar law now or hereafter in
effect, (B) appointment of a receiver, liquidator, assignee,
custodian, trustee, sequestrator or similar official of the Company or
any Restricted Subsidiary or for all or substantially all of the
property and assets of the Company or any Restricted Subsidiary or (C)
the winding up or liquidation of the affairs of the Company or any
Restricted Subsidiary and, in each case, such decree or order shall
remain unstayed and in effect for a period of 30 consecutive days; or
(i) the Company or any Restricted Subsidiary (A) commences a
voluntary case under any applicable bankruptcy, insolvency or other
similar law now or hereafter in effect, or consents to the entry of an
order for relief in an involuntary case under any such law, (B)
consents to the appointment of or taking possession by a receiver,
liquidator, assignee, custodian, trustee, sequestrator or similar
official of the Company or any Restricted Subsidiary or for all or
substantially all of the property and assets of the Company or any
Restricted Subsidiary or (C) effects any general assignment for the
benefit of creditors.
SECTION 6.2. Acceleration. If an Event of Default (other
than an Event of Default specified in clause (h) or (i) above) occurs and is
continuing under this Indenture, the Trustee or the Holders of at least 25% in
aggregate principal amount of the Notes, then outstanding, by written notice to
the Company (and to the Trustee if such notice is given by the Holders), may,
and the Trustee at the request of such Holders shall, declare that the Accreted
Value of, premium, if any, and accrued interest, if any, to be immediately due
and payable. Upon a declaration of acceleration, such Accreted Value of,
premium if any, and accrued interest shall be immediately due and payable. In
the event of a declaration of acceleration because an Event of Default set
forth in clause (f) of Section 6.1 has occurred and is continuing, such
declaration of acceleration shall be automatically rescinded and annulled if
the event of default triggering such Event of Default pursuant to clause (f)
shall be remedied or cured by the Company or the relevant Subsidiary or waived
by the holders of the relevant Indebtedness within 30 days after the
declaration of acceleration with respect thereto. If an Event of Default
specified in clause (h) or (i) of Section 6.1 occurs with respect to the
Company, the Accreted Value of, premium, if any, and accrued interest, if any,
on the Notes then outstanding shall ipso facto become and be immediately due
and payable without any declaration or other act on the part of the Trustee or
any Holder.
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The Holders of at least a majority in principal amount at
maturity of the outstanding Notes by written notice to the Company and to the
Trustee may waive all past Defaults and rescind and annul such declaration of
acceleration and its consequences if (i) all existing Events of Default, other
than the nonpayment of the principal of, premium, if any, and interest on the
Notes that have become due solely by such declaration of acceleration, have
been cured or waived, and (ii) the rescission would not conflict with any
judgment or decree of a court of competent jurisdiction.
SECTION 6.3. Other Remedies. If an Event of Default occurs
and is continuing, the Trustee may pursue any available remedy by proceeding at
law or in equity to collect the payment of principal of, premium, if any, or
interest on the Notes or to enforce the performance of any provision of the
Notes or this Indenture.
The Trustee may maintain a proceeding even if it does not
possess any of the Notes or does not produce any of them in the proceeding.
SECTION 6.4. Waiver of Past Defaults. Subject to Sections
6.2, 6.7 and 9.2, the Holders of at least a majority in principal amount of the
outstanding Notes, by notice to the Trustee, may waive an existing Default or
Event of Default and its consequences, except a Default in the payment of
principal of, premium, if any, or interest on any Note as specified in clause
(a), (b) or (c) of Section 6.1 or in respect of a covenant or provision of this
Indenture which cannot be modified or amended without the consent of the Holder
of each outstanding Note affected. Upon any such waiver, such Default shall
cease to exist, and any Event of Default arising therefrom shall be deemed to
have been cured, for every purpose of this Indenture; but no such waiver shall
extend to any subsequent or other Default or Event of Default or impair any
right consequent thereto.
SECTION 6.5. Control by Majority. The Holders of at least a
majority in aggregate principal amount of the outstanding Notes may direct the
time, method and place of conducting any proceeding for any remedy available to
the Trustee or exercising any trust or power conferred on the Trustee; provided
that the Trustee may refuse to follow any direction that conflicts with law or
this Indenture, that may involve the Trustee in personal liability, or that the
Trustee determines in good faith may be unduly prejudicial to the rights of
Holders of Notes not joining in the giving of such direction; and provided,
further, that the Trustee may take any other action it deems proper that is not
inconsistent with any directions received from Holders of Notes pursuant to
this Section 6.5.
SECTION 6.6. Limitation on Suits. A Holder may not institute
any proceeding, judicial or otherwise, with respect to this Indenture or the
Notes, or for the appointment of a receiver or trustee, or for any other remedy
hereunder or with respect to the Notes; unless;
(i) such Holder has previously given to the Trustee
written notice of a continuing Event of Default;
(ii) the Holders of at least 25% in aggregate principal
amount of outstanding Notes shall have made written request to the
Trustee to institute proceedings in respect of such Event of Default
in its own name as Trustee hereunder;
(iii) such Holder or Holders have offered to the Trustee
indemnity satisfactory to the Trustee against any costs, liabilities
or expenses to be incurred in compliance with such request;
(iv) the Trustee does not comply with the request within
60 days after the receipt of the request and the offer of indemnity;
and
(v) during such 60-day period, the Holders of a majority
in aggregate principal amount of the outstanding Notes have not given
the Trustee a direction that is inconsistent with such written
request.
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For purposes of Section 6.5 of this Indenture and this Section
6.6, the Trustee shall comply with TIA Section 316(a) in making any
determination of whether the Holders of the required aggregate principal amount
at maturity of outstanding Notes have concurred in any request or direction of
the Trustee to pursue any remedy available to the Trustee or the Holders with
respect to this Indenture or the Notes or otherwise under the law.
A Holder may not use this Indenture to prejudice the rights of
another Holder or to obtain a preference or priority over such other Holder.
SECTION 6.7. Rights of Holders to Receive Payment.
Notwithstanding any other provision of this Indenture, the right of any Holder
of a Note to receive payment of principal of, premium, if any, or interest on
such Holder's Note or to bring suit for the enforcement of any such payment, on
or after the due date expressed in the Notes, shall not be impaired or affected
without the consent of such Holder.
SECTION 6.8. Collection Suit by Trustee. If an Event of
Default in payment of principal, premium or interest specified in clause (a),
(b), (c), (d) or (e) of Section 6.1 occurs and is continuing, the Trustee may
recover judgment in its own name and as trustee of an express trust against the
Company or any other obligor of the Notes for the whole amount of principal,
premium, if any, and accrued interest remaining unpaid, together with interest
on overdue principal, premium, if any, and, to the extent that payment of such
interest is lawful, interest on overdue installments of interest, in each case
at the rate specified in the Notes, and such further amount as shall be
sufficient to cover the costs and expenses of collection, including the
reasonable compensation, expenses, disbursements and advances of the Trustee,
its agents and counsel.
SECTION 6.9. Trustee May File Proofs of Claim. The Trustee
may file such proofs of claim and other papers or documents as may be necessary
or advisable in order to have the claims of the Trustee (including any claim
for the reasonable compensation, expenses, disbursements and advances of the
Trustee, its agents and counsel, and any other amounts due the Trustee under
Section 7.7) and the Holders allowed in any judicial proceedings relative to
the Company (or any other obligor of the Notes), its creditors or its property
and shall be entitled and empowered to collect and receive any monies,
securities or other property payable or deliverable upon conversion or exchange
of the Notes or upon any such claims and to distribute the same, and any
custodian, receiver, assignee, trustee, liquidator, sequestrator or other
similar official in any such judicial proceeding is hereby authorized by each
Holder to make such payments to the Trustee and, in the event that the Trustee
shall consent to the making of such payments directly to the Holders, to pay to
the Trustee any amount due to it for the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agent and counsel, and any other
amounts due the Trustee under Section 7.7. Nothing herein contained shall be
deemed to empower the Trustee to authorize or consent to, or accept or adopt on
behalf of any Holder, any plan of reorganization, arrangement, adjustment or
composition affecting the Notes or the rights of any Holder thereof, or to
authorize the Trustee to vote in respect of the claim of any Holder in any such
proceeding.
SECTION 6.10. Priorities. If the Trustee collects any money
pursuant to this Article Six, it shall pay out the money in the following
order:
First: to the Trustee for all amounts due under Section 7.7;
Second: to Holders for amounts then due and unpaid for
principal of, premium, if any, and interest on the Notes in respect of
which or for the benefit of which such money has been collected,
ratably, without preference or priority of any kind, according to the
amounts due and payable on such Notes for principal, premium, if any,
and interest, respectively; and
Third: to the Company or any other obligors of the Notes, as
their interests may appear, or as a court of competent jurisdiction
may direct.
The Trustee, upon prior written notice to the Company, may fix
a record date and payment date for any payment to Holders pursuant to this
Section 6.10.
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SECTION 6.11. Undertaking for Costs. In any suit for the
enforcement of any right or remedy under this Indenture or in any suit against
the Trustee for any action taken or omitted by it as Trustee, a court may
require any party litigant in such suit to file an undertaking to pay the costs
of the suit, and the court may assess reasonable costs, including reasonable
attorneys' fees, against any party litigant in the suit having due regard to
the merits and good faith of the claims or defenses made by the party litigant.
This Section 6.11 does not apply to a suit by the Trustee, a suit by a Holder
pursuant to Section 6.7 of this Indenture, or a suit by Holders of more than
10% in principal amount at maturity of the outstanding Notes.
SECTION 6.12. Restoration of Rights and Remedies. If the
Trustee or any Holder has instituted any proceeding to enforce any right or
remedy under this Indenture and such proceeding has been discontinued or
abandoned for any reason, or has been determined adversely to the Trustee or to
such Holder, then, and in every such case, subject to any determination in such
proceeding, the Company, the Trustee and the Holders shall be restored
severally and respectively to their former positions hereunder and thereafter
all rights and remedies of the Company, Trustee and the Holders shall continue
as though no such proceeding had been instituted.
SECTION 6.13. Rights and Remedies Cumulative. Except as
otherwise provided with respect to the replacement or payment of mutilated,
destroyed, lost or wrongfully taken Notes in Section 2.8, no right or remedy
herein conferred upon or reserved to the Trustee or to the Holders is intended
to be exclusive of any other right or remedy, and every right and remedy shall,
to the extent permitted by law, be cumulative and in addition to every other
right and remedy given hereunder or now or hereafter existing at law or in
equity or otherwise. The assertion or employment of any right or remedy
hereunder, or otherwise, shall not prevent the concurrent assertion or
employment of any other appropriate right or remedy.
SECTION 6.14. Delay or Omission Not Waiver. No delay or
omission of the Trustee or of any Holder to exercise any right or remedy
accruing upon any Event of Default shall impair any such right or remedy or
constitute a waiver of any such Event of Default or an acquiescence therein.
Every right and remedy given by this Article Six or by law to the Trustee or to
the Holders may be exercised from time to time, and as often as may be deemed
expedient, by the Trustee or by the Holders, as the case may be.
ARTICLE SEVEN
TRUSTEE
SECTION 7.1. General. The duties and responsibilities of the
Trustee shall be as provided by the TIA and as set forth herein.
Notwithstanding the foregoing, no provision of this Indenture shall require the
Trustee to expend or risk its own funds or otherwise incur any financial
liability in the performance of any of its duties hereunder, or in the exercise
of any of its rights or powers, if it shall have reasonable grounds for
believing that repayment of such funds or adequate indemnity against such risk
or liability is not reasonably assured to it. Whether or not therein expressly
so provided, every provision of this Indenture relating to the conduct or
affecting the liability of or affording protection to the Trustee shall be
subject to the provisions of this Article Seven.
SECTION 7.2. Certain Rights of Trustee. Subject to TIA
Sections 315(a) through (d):
(i) in the absence of bad faith on its part, the Trustee
may rely and shall be protected in acting or refraining from acting
upon any resolution, certificate, statement, instrument, opinion,
report, notice, request, direction, consent, order, bond, debenture,
note, other evidence of indebtedness or other paper or document
believed by it to be genuine and to have been signed or presented by
the proper person. The Trustee need not investigate any fact or
matter stated in the document and may in good faith conclusively rely
as to the truth of the statements and the correctness of the opinions
therein;
(ii) before the Trustee acts or refrains from acting, it
may require an Officers' Certificate or an Opinion of Counsel, which
shall conform to Section 10.4. The Trustee shall not be liable for
any
<PAGE> 45
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action it takes or omits to take in good faith in reliance on such
certificate, opinion and/or an accountants' certificate if required
under the TIA;
(iii) in case an Event of Default has occurred and is
continuing, the Trustee shall exercise such of the rights and powers
vested in it by this Indenture, and use the same degree of care and
skill in their exercise, as a prudent person would exercise or use
under the circumstances in the conduct of such person's own affairs;
(iv) the Trustee may act through its attorneys and agents
and shall not be responsible for the misconduct or negligence of any
agent appointed with due care;
(v) the Trustee shall be under no obligation to exercise
any of the rights or powers vested in it by this Indenture at the
request or direction of any of the Holders, unless such Holders shall
have offered to the Trustee security or indemnity reasonably
satisfactory to it against the costs, expenses and liabilities that
might be incurred by it in compliance with such request or direction;
(vi) the Trustee shall not be liable for any action it
takes or omits to take in good faith that it believes to be authorized
or within its rights or powers or for any action it takes or omits to
take in accordance with the direction of the Holders of a majority in
principal amount at maturity of the outstanding Notes relating to the
time, method and place of conducting any proceeding for any remedy
available to the Trustee, or exercising any trust or power conferred
upon the Trustee, under this Indenture; provided that the Trustee's
conduct does not constitute gross negligence or bad faith;
(vii) whenever in the administration of this Indenture the
Trustee shall deem it desirable that a matter be proved or established
prior to taking, suffering or omitting any action hereunder, the
Trustee (unless other evidence be herein specifically prescribed) may,
in the absence of bad faith on its part, rely upon an Officers'
Certificate; and
(viii) the Trustee shall not be bound to make any
investigation into the facts or matters stated in any resolution,
certificate, statement, instrument, opinion, report, notice, request,
direction, consent, order, bond, debenture, note, other evidence of
indebtedness or other paper or document, but the Trustee, in its
discretion, may make such further inquiry or investigation into such
facts or matters as it may see fit, and, if the Trustee shall
determine to make such further inquiry or investigation, it shall be
entitled to examine the books, records and premises of the Company
personally or by agent or attorney.
SECTION 7.3. Individual Rights of Trustee. The Trustee, in
its individual or any other capacity, may become the owner or pledgee of Notes
and may otherwise deal with the Company or its Affiliates with the same rights
it would have if it were not the Trustee. Any Agent may do the same with like
rights. However, the Trustee is subject to TIA Sections 310(b) and 311.
SECTION 7.4. Trustee's Disclaimer. The Trustee (i) makes no
representation as to the validity or adequacy of this Indenture or the Notes,
(ii) shall not be accountable for the Company's use or application of the
proceeds from the Notes and (iii) shall not be responsible for any statement in
the Notes other than its certificate of authentication.
SECTION 7.5. Notice of Default. If any Default or any Event
of Default occurs and is continuing and if such Default or Event of Default is
known to a trust officer of the Trustee, the Trustee shall mail to each Holder
in the manner and to the extent provided in TIA Section 313(c) notice of the
Default or Event of Default within 90 days after it occurs, unless such Default
or Event of Default has been cured; provided, however, that, except in the case
of a default in the payment of the principal of, premium, if any, or interest
on any Note, the Trustee shall be protected in withholding such notice if and
so long as the board of directors, the executive committee or a trust committee
of directors and/or Responsible Officers of the Trustee in good faith determine
that the withholding of such notice is in the interest of the Holders.
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SECTION 7.6. Reports by Trustee to Holders. Within 60 days
after each May 15, beginning 1997, the Trustee shall mail to each Holder as
provided in TIA Section 313(c) a brief report that complies with TIA Section
313(a) dated as of such May 15, if required by TIA Section 313(a).
SECTION 7.7. Compensation and Indemnity. The Company shall
pay to the Trustee such compensation as shall be agreed upon in writing for its
services. The compensation of the Trustee shall not be limited by any law on
compensation of a trustee of an express trust. The Company shall reimburse the
Trustee upon request for all reasonable out-of-pocket expenses, including costs
of collection, and advances incurred or made by the Trustee. Such expenses
shall include the reasonable compensation and expenses of the Trustee's agents
and counsel.
The Company shall indemnify the Trustee for, and hold it
harmless against, any loss or liability or expense incurred by it without
negligence or bad faith on its part in connection with the acceptance or
administration of this Indenture and its duties under this Indenture and the
Notes, including the costs and expenses of defending itself against any claim
or liability and of complying with any process served upon it or any of its
officers in connection with the exercise or performance of any of its powers or
duties under this Indenture and the Notes.
To secure the Company's payment obligations in this Section
7.7, the Trustee shall have a lien prior to the Notes on all money or property
held or collected by the Trustee, in its capacity as Trustee, except money or
property held in trust to pay principal of, premium, if any, and interest on
particular Notes.
If the Trustee incurs expenses or renders services after the
occurrence of an Event of Default specified in clause (h) or (i) of Section
6.1, the expenses and the compensation for the services will be intended to
constitute expenses of administration under Title 11 of the United States
Bankruptcy Code or any other applicable law for the relief of debtors.
SECTION 7.8. Replacement of Trustee. A resignation or
removal of the Trustee and appointment of a successor Trustee shall become
effective only upon the successor Trustee's acceptance of appointment as
provided in this Section 7.8.
The Trustee may resign at any time by so notifying the Company
in writing at least 30 days prior to the date of the proposed resignation. The
Holders of a majority in principal amount of the outstanding Notes may remove
the Trustee by so notifying the Trustee in writing and may appoint a successor
Trustee with the consent of the Company. The Company may at any time remove
the Trustee, by Company Order given at least 30 days prior to the date of the
proposed removal.
If the Trustee resigns or its removed, or if a vacancy exists
in the office of Trustee for any reason, the Company shall promptly appoint a
successor Trustee. Within one year after the successor Trustee takes office,
the Holders of a majority in principal amount of the outstanding Notes may
appoint a successor Trustee to replace the successor Trustee appointed by the
Company. If the successor Trustee does not deliver its written acceptance
required by the next succeeding paragraph of this Section 7.8 within 30 days
after the retiring Trustee resigns or its removed, the retiring Trustee, the
Company or the Holders of a majority in principal amount of the outstanding
Notes may petition any court of competent jurisdiction for the appointment of a
successor Trustee.
A successor Trustee shall deliver a written acceptance of this
appointment to the retiring Trustee and to the Company. Immediately after the
delivery of such written acceptance, subject to the lien provided in Section
7.7, (i) the retiring Trustee shall transfer all property held by it as Trustee
to the successor Trustee, (ii) the resignation or removal of the retiring
Trustee shall become effective and (iii) the successor Trustee shall have all
the rights, powers and duties of the Trustee under this Indenture. A successor
Trustee shall mail notice of its succession to each Holder.
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If the Trustee is no longer eligible under Section 7.10, any
Holder who satisfies the requirements of TIA Section 310(b) may petition any
court of competent jurisdiction for the removal of the Trustee and the
appointment of a successor Trustee.
The Company shall give notice of any resignation and any
removal of the Trustee and each appointment of a successor Trustee to all
Holders. Each notice shall include the name of the successor Trustee and the
address of its Corporate Trust Office.
Notwithstanding replacement of the Trustee pursuant to this
Section 7.8, the Company's obligation under Section 7.7 shall continue for the
benefit of the retiring Trustee.
SECTION 7.9. Successor Trustee by Merger, Etc. If the
Trustee consolidates with, mergers or converts into, or transfers all or
substantially all of its corporate trust business to, another corporation or
national banking association, the resulting, surviving or transferee
corporation or national banking association without any further act shall be
the successor Trustee with the same effect as if the successor Trustee had been
named as the Trustee herein.
SECTION 7.10. Eligibility. This Indenture shall always have
a Trustee who satisfies the requirements of TIA Section 310(a)(1). The Trustee
shall have a combined capital and surplus of at least $25,000,000 as set forth
in its most recent published annual report of condition.
SECTION 7.11. Money Held in Trust. The Trustee shall not be
liable for interest on any money received by it except as the Trustee may agree
with the Company. Money held in trust by the Trustee need not be segregated
from other funds except to the extent required by law and except for money held
in trust under Article Eight.
SECTION 7.12. Withholding Taxes. The Trustee, as agent for
the Company, shall exclude and withhold from each payment of principal and
interest and other amounts due hereunder or under the Notes any and all
withholding taxes applicable thereto as required by law. The Trustee agrees to
act as such withholding agent and, in connection therewith, whenever any
present or future taxes or similar charges are required to be withheld with
respect to any amounts payable in respect of the Notes, to withhold such
amounts and timely pay the same to the appropriate authority in the name of and
on behalf of the Holders of the Notes, that it will file any necessary
withholding tax returns or statements when due, and that, as promptly as
possible after the payment thereof, it will deliver to each holder of a Note
appropriate documentation showing the payment thereof, together with such
additional documentary evidence as such holders may reasonably request from
time to time.
ARTICLE EIGHT
DISCHARGE OF INDENTURE
SECTION 8.1. Termination of Company's Obligations. Except as
otherwise provided in this Section 8.1, the Company may terminate its
obligations under the Notes and the Indenture if:
(i) all Notes previously authenticated and delivered
(other than destroyed, lost or stolen Notes that have been replaced or
Notes that are paid pursuant to Section 4.1 or Notes for whose payment
money or securities have theretofore been held in trust and thereafter
repaid to the Company, as provided in Section 8.5) have been delivered
to the Trustee for cancellation and the Company has paid all sums
payable by it hereunder; or
(ii) (A) the Notes mature within one year or all of them
are to be called for redemption within one year under arrangements
satisfactory to the Trustee for giving the notice of redemption, (B)
the Company irrevocably deposits in trust with the Trustee during such
one-year period, under the terms of an irrevocable trust agreement in
form and substance satisfactory to the Trustee, as trust funds solely
for the benefit of the Holders for that purpose, money or U.S.
Government Obligations sufficient (in the
<PAGE> 48
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opinion of a nationally recognized firm of independent public
accountants expressed in a written certification thereof delivered to
the Trustee), without consideration of any reinvestment of any
interest thereon, to pay principal, premium, if any, and interest on
the Notes to maturity or redemption, as the case may be, and to pay
all other sums payable by it hereunder, (C) no Default or Event of
Default with respect to the Notes shall have occurred and be
continuing on the date of such deposit, (D) such deposit will not
result in a breach or violation of, or constitute a default under,
this Indenture or any other agreement or instrument to which the
Company is a party or by which it is bound and (E) the Company has
delivered to the Trustee an Officers' Certificate and an Opinion of
Counsel, in each case stating that all conditions precedent provided
for herein relating to the satisfaction and discharge of this
Indenture have been complied with.
With respect to the foregoing clause (i), the Company's
obligations under Section 7.7 shall survive. With respect to the foregoing
clause (ii), the Company's obligations in Sections 2.2, 2.3, 2.4, 2.5, 2.6,
2.7, 2.8, 2.13, 4.1, 4.2, 7.7, 7.8, 8.4, 8.5 and 8.6 shall survive until the
Notes are no longer outstanding. Thereafter, only the Company's obligations in
Sections 7.7, 8.5 and 8.6 shall survive. After any such irrevocable deposit,
the Trustee upon request shall acknowledge in writing the discharge of the
Company's obligations, as the case may be, under the Notes and this Indenture
except for those surviving obligations specified above.
SECTION 8.2. Defeasance and Discharge of Indenture. The
Company will be deemed to have paid and will be discharged from any and all
obligations in respect of the Notes on the 123rd day after the date of the
deposit referred to in clause (A) of this Section 8.2 if:
(A) Company has deposited with the Trustee, in trust,
money and/or U.S. Government Obligations that through the payment of
interest and principal in respect thereof in accordance with their
terms will provide money in an amount sufficient to pay the principal
of, premium, if any, and accrued interest on the Notes on the Stated
Maturity of such payments in accordance with the terms of the
Indenture and the Notes;
(B) the Company has delivered to the Trustee (i) either
(x) an Opinion of Counsel to the effect that Holders will not
recognize income, gain or loss for federal income tax purposes as a
result of the Company's exercise of its option under this Section 8.2
and will be subject to federal income tax on the same amount and in
the same manner and at the same times as would have been the case if
such deposit, defeasance and discharge had not occurred, which Opinion
of Counsel must be based upon (and accompanied by a copy of) a ruling
of the Internal Revenue Service to the same effect unless there has
been a change in applicable federal income tax law after the date of
the Indenture such that a ruling is no longer required or (y) a ruling
directed to the Trustee received from the Internal Revenue Service to
the same effect as the aforementioned Opinion of Counsel and (ii) and
Opinion of Counsel to the effect that the creation of the defeasance
trust does not violate the Investment Company Act of 1940, as amended,
and after the passage of 123 days following the deposit, the trust
fund will not be subject to the effect of Section 547 of the United
States Bankruptcy Code or Section 15 of the New York Debtor and
Creditor Law;
(C) immediately after giving effect to such deposit on a
pro forma basis, no Event of Default, or event that after the giving
of notice or lapse of time or both would become an Event of Default,
shall have occurred and be continuing on the date of such deposit or
during the period ending on the 123rd day after the date of such
deposit;
(D) such deposit shall not result in a breach or
violation of, or constitute a default under, any other agreement or
instrument to which the Company or any of its Subsidiaries is a party
or by which the Company or any of its Subsidiaries is bound;
(E) if at such time the Notes are listed on a national
securities exchange, the Company has delivered to the Trustee an
Opinion of Counsel to the effect that the Notes will not be delisted
as a result of such deposit, defeasance and discharge; and
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(F) the Company has delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, in each case stating that all
conditions precedent provided for herein relating to the defeasance
contemplated by this Section 8.2 have been complied with.
Notwithstanding the foregoing prior to the end of the 123-day
period referred to in clause (B)(ii) of this Section 8.2, none of the Company's
obligations under this Indenture shall be discharged. Subsequent to the end of
such 123-day period with respect to this Section 8.2, the Company's obligations
in Sections 2.2, 2.3, 2.4, 2.5, 2.6, 2.7, 2.8, 2.13, 4.1, 4.2, 7.7, 7.8, 8.5
and 8.6 shall survive until the Notes are no longer outstanding. Thereafter,
only the Company's obligations in Sections 7.7, 8.5 and 8.6 shall survive. If
and when a ruling from the Internal Revenue Service or an Opinion of Counsel
referred to in clause (B)(x) of this Section 8.2 may be provided specifically
without regard to, and not in reliance upon, the continuance of the Company's
obligations under Section 4.1, then the Company's obligations under such
Section 4.1 shall cease upon delivery to the Trustee of such ruling or Opinion
of Counsel and compliance with the other conditions precedent provided for
herein relating to the defeasance contemplated by this Section 8.2.
After any such deposit, the Trustee upon request shall
acknowledge in writing the discharge of the Company's obligations under the
Notes and this Indenture except for those surviving obligations in the
immediately preceding paragraph.
SECTION 8.3. Defeasance of Certain Obligations. The Company
may omit to comply with any term, provision or condition set forth in clause
(iii) of Section 5.1 and Sections 4.3 through 4.18, and clause (e) of Section
6.1 with respect to clause (iii) of Section 5.1 and Sections 4.3 through 4.18,
and clauses (f) and (g) of Section 6.1 shall be deemed not to be Events of
Default, in each case with respect to the outstanding Notes if:
(i) the Company has deposited with the Trustee, in
trust, money and/or U.S. Government Obligations that through the
payment of interest and principal in respect thereof in accordance
with their terms will provide money in an amount sufficient to pay the
principal of, premium, if any, and accrued interest on the Notes at
the Stated Maturity of such payments in accordance with the terms of
this Indenture and the Notes;
(ii) the Company has delivered to the Trustee (x) either
(a) an Opinion of Counsel to the effect that Holders will not
recognize income, gain or loss for federal income tax purposes as a
result of the Company's exercise of its option under this Section 8.2
and will be subject to federal income tax on the same amount and in
the same manner and at the same times as would have been the case if
such deposit, defeasance and discharge had not occurred, which Opinion
of Counsel must be based upon (and accompanied by a copy of) a ruling
of the Internal Revenue Service to the same effect unless there has
been a change in applicable federal income tax law after the date of
the Indenture such that a ruling is no longer required or (b) a ruling
directed to the Trustee received from the Internal Revenue Service to
the same effect as the aforementioned Opinion of Counsel and (y) an
Opinion of Counsel to the effect that the creation of the defeasance
trust does not violate the Investment Company Act of 1940, as amended,
and after the passage of 123 days following the deposit, the trust
fund will not be subject to the effect of Section 547 of the United
States Bankruptcy Code or Section 15 of the New York Debtor and
Creditor Law;
(iii) immediately after giving effect to such deposit on
a pro forma basis, no Event of Default, or event that after the giving
of notice or lapse of time or both would become an Event of Default,
shall have occurred and be continuing on the date of such deposit or
during the period ending on the 123rd day after the date of such
deposit;
(iv) such deposit shall not result in a breach or
violation of, or constitute a default under, any other agreement or
instrument to which the Company or any of its Subsidiaries is a party
or by which the Company or any of its Subsidiaries is bound;
<PAGE> 50
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(v) if at such time the Notes are listed on a national
securities exchange, the Company has delivered to the Trustee an
Opinion of Counsel to the effect that the Notes will not be delisted
as a result of such deposit, defeasance and discharge; and
(vi) the Company has delivered to the Trustee an
Officers' Certificate and an Opinion of Counsel, in each case stating
that all conditions precedent provided for herein relating to the
defeasance contemplated by this Section 8.3 have been complied with.
SECTION 8.4. Application of Trust Money. Subject to Section
8.6, the Trustee or Paying Agent shall hold in trust money or U.S. Government
Obligations deposited with it pursuant to Section 8.1, 8.2 or 8.3, as the case
may be, and shall apply the deposited money and the money from U.S. Government
Obligations in accordance with the Notes and this Indenture to the payment of
principal of, premium, if any, and interest on the Notes; but such money need
not be segregated from other funds except to the extent required by law.
SECTION 8.5. Repayment to Company. Subject to Sections 7.7,
8.1, 8.2 and 8.3, the Trustee and the Paying Agent shall promptly pay to the
Company upon request set forth in an Officers' Certificate any excess money
held by them at any time and thereupon shall be relieved from all liability
with request to such money. The Trustee and the Paying Agent shall pay to the
Company upon request any money held by them for the payment of principal,
premium, if any, or interest that remains unclaimed for two years; provided
that the Trustee of such Paying Agent before being required to make any payment
may cause to be published at the expense of the Company once in a newspaper of
general circulation in the City of New York or mail to each Holder entitled to
such money at such Holder's address (as set forth in the Security Register)
notice that such money remains unclaimed and that after a date specified
therein (which shall be at least 30 days from the date of such publication or
mailing) any unclaimed balance of such money then remaining will be repaid to
the Company. After payment to the Company, Holders entitled to such money must
look to the Company for payment as general creditors unless an applicable law
designates another Person, and all liability of the Trustee and such Paying
Agent with respect to such money shall cease.
SECTION 8.6. Reinstatement. If the Trustee or Paying Agent
is unable to apply any money or U.S. Government Obligations in accordance with
Section 8.1, 8.2 or 8.3, as the case may be, by reason of any legal proceeding
or by reason of any order or judgment of any court or governmental authority
enjoining, restraining or otherwise prohibiting such application, the Company's
obligations under this Indenture and the Notes shall be revived and reinstated
as though no deposit had occurred pursuant to Section 8.1, 8.2 or 8.3, as the
case may be, until such time as the Trustee or Paying Agent is permitted to
apply all such money or U.S. Government Obligations in accordance with Section
8.1, 8.2 or 8.3, as the case may be; provided that, if the Company has made any
payment of principal of, premium, if any, or interest on any Notes because of
the reinstatement of its obligations, the Company shall be subrogated to the
rights of the Holders of such Notes to receive such payment from the money or
U.S. Government Obligations held by the Trustee or Paying Agent.
ARTICLE NINE
AMENDMENTS, SUPPLEMENTS AND WAIVERS
SECTION 9.1. Without Consent of Holders. The Company, when
authorized by resolutions of its Board of Directors, and the Trustee may amend
or supplement this Indenture or the Notes without notice to or the consent of
any Holder:
(1) to cure any ambiguity, defect or inconsistency in
this Indenture; provided that such amendments or supplements shall not
adversely affect the interests of the Holders in any material respect;
(2) to comply with Article Five;
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(3) to comply with any requirements of the Commission in
connection with the qualification of this Indenture under the TIA;
(4) to evidence and provide for the acceptance of
appointment hereunder by a successor Trustee; or
(5) to make any change that, in the opinion of the Board
of Directors of the Company evidenced by a Board Resolution, does not
materially and adversely affect the rights of any Holder.
SECTION 9.2. With Consent of Holders. Subject to Sections
6.4 and 6.7 and without prior notice to the Holders, the Company, when
authorized by its Boards of Directors (as evidenced by a Board Resolution), and
the Trustee may amend this Indenture and the Notes with the written consent of
the Holders of a majority in principal amount of the Notes then outstanding,
and the Holders of a majority in principal amount at maturity of the Notes then
outstanding by written notice to the Trustee may waive future compliance by the
Company with any provision of this Indenture or the Notes.
Notwithstanding the provisions of this Section 9.2, without
the consent of each Holder affected, an amendment or waiver, including a waiver
pursuant to Section 6.4, may not:
(i) change the Stated Maturity of the principal of, or
any installment of interest on, any Note, or reduce the principal
amount at maturity thereof or the rate of interest thereon or any
premium payable upon the redemption thereof, or adversely affect any
right of repayment at the option of any Holder of any Note, or the
place or currency in which, any Note or any premium or the interest
thereon is payable, or impair the right to institute suit for the
enforcement of any such payment on or after the Stated Maturity thereof
(or, in the case of redemption, on or after the Redemption Date);
(ii) reduce the percentage in principal amount at
maturity of outstanding Notes the consent of whose Holders is required
for any such supplemental indenture, for any waiver of compliance with
certain provisions of this Indenture or certain Defaults and their
consequences provided for in this Indenture;
(iii) waive a Default in the payment of principal of,
premium, if any, or interest on, any Note;
(iv) following the mailing of an offer with respect to
an Offer to Purchase the Notes as described in Sections 4.11 and 4.12,
modify the Indenture with respect to such Offer to Purchase in a
manner adverse to such Holders; or
(v) modify any of the provisions of this Section 9.2,
except to increase any such percentage or to provide that certain
other provisions of this Indenture cannot be modified or waived
without the consent of the Holder of each outstanding Note affected
thereby.
It shall not be necessary for the consent of the Holders under
this Section 9.2 to approve the particular form of any proposed amendment,
supplement or waiver, but it shall be sufficient if such consent approves the
substance thereof.
After an amendment, supplement or waiver under this Section
9.2 becomes effective, the Company shall mail to the Holders affected thereby a
notice briefly describing the amendment, supplement or waiver. The Company
will mail supplemental indentures to Holders upon request. Any failure of the
Company to mail such notice, or any defect therein, shall not, however, in any
way impair or affect the validity of any such supplemental indenture or waiver.
SECTION 9.3. Revocation and Effect of Consent. Until an
amendment or waiver becomes effective, a consent to it by a Holder is a
continuing consent by the Holder and every subsequent Holder of a
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Note or portion of a Note that evidences the same debt as the Note of the
consenting Holder, even if notation of the consent is not made on any Note.
However, any such Holder or subsequent Holder may revoke the consent as to its
Note or portion of its Note. Such revocation shall be effective only if the
Trustee receives the notice of revocation before the date the amendment,
supplement or waiver becomes effective. An amendment, supplement or waiver
shall become effective on receipt by the Trustee of written consents from the
Holders of the requisite percentage in principal amount at maturity of the
outstanding Notes.
The Company may, but shall not be obligated to, fix a record
date for the purpose of determining the Holders entitled to consent to any
amendment, supplement or waiver. If a record date is fixed, then,
notwithstanding the last two sentences of the immediately preceding paragraph,
those persons who were Holders at such record date (or their duly designated
proxies) and only those persons shall be entitled to consent to such amendment,
supplement or waiver or to revoke any consent previously given, whether or not
such persons continue to be Holders after such record date. No such consent
shall be valid or effective for more than 90 days after such record date.
After an amendment, supplement or waiver becomes effective, it
shall bind every Holder unless it is of the type described in any of clauses
(i) through (v) of Section 9.2. In case of an amendment or waiver of the type
described in clause (i) through (v) of Section 9.2, the amendment or waiver
shall bind each Holder who has consented to it and every subsequent Holder of a
Note that evidences the same indebtedness as the Note of the consenting Holder.
SECTION 9.4. Notation on or Exchange of Notes. If an
amendment, supplement or waiver changes the terms of a Note, the Trustee may
require the Holder to deliver it to the Trustee. At the Company's expense, the
Trustee may place an appropriate notation on the Note concerning the changed
terms and return it to the Holder and the Trustee may place an appropriate
notation on any Note thereafter authenticated. Alternatively, if the Company
or the Trustee so determines, the Company in exchange for the Note shall issue
and the Trustee shall authenticate a new Note that reflects the changed terms.
SECTION 9.5. Trustee to Sign Amendments, Etc. The Trustee
shall be entitled to receive, and shall be fully protected in relying upon, an
Opinion of Counsel stating that the execution of any amendment, supplement or
waiver authorized pursuant to this Article Nine is authorized or permitted by
this Indenture. Subject to the preceding sentence, the Trustee shall sign such
amendment, supplement or waiver if the same does not adversely affect the
rights of the Trustee. The Trustee may, but shall not be obligated to, execute
any such amendment, supplement or waiver that affects the Trustee's own rights,
duties or immunities under this Indenture or otherwise.
SECTION 9.6. Conformity with Trust Indenture Act. Every
supplemental indenture executed pursuant to this Article Nine shall conform to
the requirements of the TIA as then in effect.
ARTICLE TEN
MISCELLANEOUS
SECTION 10.1. Trust Indenture Act of 1939. This Indenture
shall be subject to the provisions of the TIA that are required to be a part of
this Indenture and shall, to the extent applicable, be governed by such
provisions.
SECTION 10.2. Notices. Any notice or communication shall be
sufficiently given if in writing and delivered in person or mailed by first
class mail addressed as follows:
if to the Company:
PCS Development Corporation
15 South Main Street
<PAGE> 53
48
Suite 810
Greenville, South Carolina 29601
Attention: Chief Executive Officer
if to the Trustee:
United States Trust Company of New York
114 West 47th Street
New York, New York 10036
Attention: Corporate Trust Department
The Company or the Trustee by notice to the other may
designate additional or different addresses for subsequent notices or
communications.
Any notice or communication mailed to a Holder shall be mailed
to such Holder at the address as it appears on the Security Register by first
class mail and shall be sufficiently given to such Holder if so mailed within
the time prescribed. Copies of any such communication or notice to a Holder
shall also be mailed to the Trustee and each Agent at the same time.
Failure to mail a notice or communication to a Holder or any
defect in it shall not affect its sufficiency with respect to other Holders.
Except for a notice to the Trustee, which is deemed given only when received,
and except as otherwise provided in this Indenture, if a notice or
communication is mailed in the manner provided in this Section 10.2, it is duly
given, whether or not the addressee receives it.
Where this Indenture provides for notice in any manner, such
notice may be waived in writing by the Person entitled to receive such notice,
either before or after the event, and such waiver shall be the equivalent of
such notice. Waivers of notice by Holders shall he filed with the Trustee, but
such filing shall not be a condition precedent to the validity of any action
taken in reliance upon such waiver.
In case by reason of the suspension of regular mail service or
by of any other cause it shall be impracticable to give such notice by mail,
then such notification as shall be made with the approval of the Trustee shall
constitute a sufficient notification for every purpose hereunder.
SECTION 10.3. Certificate and Opinion as to Conditions
Precedent. Upon any request or application by the Company to the Trustee to
take any action under this Indenture, the Company shall furnish to the Trustee:
(i) an Officers' Certificate stating that, in the
opinion of the signatories thereto, all conditions precedent, if any,
provided for in this Indenture relating to the proposed action have
been complied with; and
(ii) an Opinion of Counsel stating that, in the opinion
of such Counsel, all such conditions precedent have been complied
with.
SECTION 10.4. Statements Required in Certificate or Opinion.
Each certificate or opinion with respect to compliance with a condition or
covenant provided for in this Indenture shall include:
(i) a statement that each person signing such
certificate or opinion has read such covenant or condition and the
definitions herein relating thereto;
(ii) a brief statement as to the nature and scope of the
examination or investigation upon which the statement or opinion
contained in such certificate or opinion is based;
<PAGE> 54
49
(iii) a statement that, in the opinion of each such
person, such person has made such examination or investigation as is
necessary to enable such person to express an informed opinion as to
whether or not such covenant or condition has been complied with; and
(iv) a statement as to whether or not, in the opinion of
each such person, such condition or covenant has been complied with;
provided, however, that, with respect to matters of fact, an Opinion
of Counsel may rely on an Officers' Certificate or certificates of
public officials.
SECTION 10.5. Rules by Trustee, Paying Agent or Registrar.
The Trustee may make reasonable rules for action by or at a meeting of Holders.
The Paying Agent or Registrar may make reasonable rules for its functions.
SECTION 10.6. Payment Date Other Than a Business Day. If an
Interest Payment Date, Redemption Date, Change of Control Payment Date, Excess
Proceeds Payment Date, Stated Maturity or date of maturity of any Note shall
not be a Business Day, then payment of principal of, premium, if any, or
interest on such Note, as the case may be, need not be made on such date, but
may be made on the next succeeding Business Day with the same force and effect
as if made on the Interest Payment Date, Change of Control Payment Date, Excess
Proceeds Payment Date, or Redemption Date, or at the Stated Maturity or date of
maturity of such Note; provided that no interest shall accrue for the period
from and after such Interest Payment Date, Change of Control Payment Date,
Excess Proceeds Payment Date, Redemption Date, Stated Maturity or date of
maturity, as the case may be.
SECTION 10.7. Governing Law. THE LAWS OF THE STATE OF NEW
YORK APPLICABLE TO CONTRACTS TO BE PERFORMED ENTIRELY IN THAT STATE SHALL
GOVERN THIS INDENTURE AND THE NOTES.
SECTION 10.8. No Adverse Interpretation of Other Agreements.
This Indenture may not bc used to interpret another indenture, loan or debt
agreement of the Company or any Subsidiary of the Company. Any such indenture,
loan or debt agreement may not be used to interpret this Indenture.
SECTION 10.9. No Recourse Against Others. No recourse for
the payment of the principal of, premium, if any, or interest on any of the
Notes, or for any claim based thereon or otherwise in respect thereof, and no
recourse under or upon any obligation, covenant or agreement of the Company
contained in this indenture, or in any of the Notes, or because of the creation
of any Indebtedness represented thereby, shall be had against any incorporator
or against any past, present or future partner, shareholder, other equity
holder, officer, director, employee or controlling person, as such, of the
Company or of any successor Person, either directly or through the Company or
any successor Person, whether by virtue of any constitution, statute or rule of
law, or by the enforcement of any assessment or penalty or otherwise; it being
expressly understood that all such liability is hereby expressly waived and
released as a condition of, and as a consideration for, the execution of this
Indenture and the issue of the Notes.
SECTION 10.10. Successors. All agreements of the Company in
this Indenture and the Notes shall bind its successors. All agreements of the
Trustee in this Indenture shall bind its successors.
SECTION 10.11. Duplicate Originals. The parties may sign any
number of copies of this Indenture. Each signed copy shall be an original, but
all of them together represent the same agreement.
SECTION 10.12. Separability. In case any provision in this
Indenture or in the Notes shall be invalid, illegal or unenforceable, the
validity, legality and enforceability of the remaining provisions shall not in
any way be affected or impaired thereby.
<PAGE> 55
50
SECTION 10.13. Table of Contents, Headings, Etc. The Table
of Contents, Cross-Reference Table and headings of the Articles and Sections of
this Indenture have been inserted for convenience of reference only, are not to
be considered a part hereof and shall in no way modify or restrict any of the
terms and provisions hereof.
<PAGE> 56
51
SIGNATURES
IN WITNESS WHEREOF, the parties hereto have caused this
Indenture to be duly executed, all as of the date first written above.
PCS DEVELOPMENT CORPORATION
By:
-------------------------------------
Name:
Title:
UNITED STATES TRUST COMPANY
OF NEW YORK
By:
-------------------------------------
Name:
Title:
<PAGE> 57
EXHIBIT A
[FACE OF NOTE]
[Any Global Note authenticated and delivered hereunder shall
bear a legend (which would be in addition to any other legends required under
the Indenture) in substantially the following form:
THIS SECURITY IS A GLOBAL NOTE WITHIN THE MEANING OF THE
INDENTURE HEREINAFTER REFERRED TO AND IS REGISTERED IN THE NAME OF A
DEPOSITORY OR A NOMINEE OF A DEPOSITORY OR A SUCCESSOR DEPOSITORY.
THIS SECURITY IS NOT EXCHANGEABLE FOR SECURITIES REGISTERED IN THE
NAME OF A PERSON OTHER THAN THE DEPOSITORY OR ITS NOMINEE EXCEPT IN
THE LIMITED CIRCUMSTANCES DESCRIBED IN THE INDENTURE, AND NO TRANSFER
OF THIS SECURITY (OTHER THAN A TRANSFER OF THIS SECURITY AS A WHOLE BY
THE DEPOSITORY TO A NOMINEE OF THE DEPOSITORY OR BY A NOMINEE OF THE
DEPOSITORY TO THE DEPOSITORY OR ANOTHER NOMINEE OF THE DEPOSITORY) MAY
BE REGISTERED EXCEPT IN THE LIMITED CIRCUMSTANCES DESCRIBED IN THE
INDENTURE.
UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED
REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION
("DTC"), TO ISSUER OR ITS AGENT FOR REGISTRATION OF TRANSFER,
EXCHANGE, OR PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE
NAME OF CEDE & CO. OR IN SUCH OTHER NAME AS IS REQUESTED BY AN
AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO CEDE &
CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED
REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR
VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE
REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.]
Prior to the Separation Date, each Note shall bear a legend
(which would be in addition to any other legends required under the Indenture)
in substantially the following form:
THIS NOTE IS INITIALLY ISSUED AS PART OF AN ISSUANCE OF UNITS,
EACH OF WHICH CONSISTS OF $1,000 PRINCIPAL AMOUNT AT MATURITY OF __%
SENIOR DISCOUNT NOTES DUE 2006 OF PCS DEVELOPMENT CORPORATION (THE
"NOTES") AND WARRANTS ENTITLING THE HOLDER THEREOF TO PURCHASE ___
SHARES OF CLASS B COMMON STOCK OF PCS DEVELOPMENT CORPORATION (THE
"WARRANTS"). PRIOR TO THE CLOSE OF BUSINESS ON THE EARLIEST OF (i)
________, 1996, (ii) SUCH EARLIER DATE AS MAY BE DETERMINED BY LEHMAN
BROTHERS INC. AND SPECIFIED TO THE COMPANY, THE TRUSTEE, THE WARRANT
AGENT AND THE UNIT AGENT IN WRITING, (iii) THE OCCURRENCE OF A CHANGE
OF CONTROL AND (iv) IN THE EVENT OF AN ASSET SALE, THE DATE THE
COMPANY MAILS NOTICE THEREOF TO THE HOLDERS OF THE NOTES, THIS NOTE
MAY NOT BE TRANSFERRED OR EXCHANGED SEPARATELY FROM, BUT MAY BE
TRANSFERRED OR EXCHANGED ONLY TOGETHER WITH, THE WARRANTS.
PCS DEVELOPMENT CORPORATION
___% Senior Discount Note Due 2006
CUSIP ___________
No.________________ $________________
A-1
<PAGE> 58
The following information is supplied for purposes of Sections
1273 and 1275 of the Internal Revenue Code:
<TABLE>
<S> <C>
Issue Date: ____________, 1996 Original issue discount under Section 1273 of the
Internal Revenue Code (for each $1,000 principal
Yield to maturity for period from Issue Date to amount at maturity): $_______
________, 2006: ______%, compounded semi-annually
on _______ and _______ commencing _______, 1996 Issue Price (for each $1,000 principal amount at
maturity): $_______ (based on the allocation of the
issue price for the Units of $_______ per Unit)
</TABLE>
PCS DEVELOPMENT CORPORATION, a Delaware corporation (the
"Company," which term includes any successor under the Indenture hereinafter
referred to), for value received, promises to pay to _________, or its
registered assigns, the principal sum of $_______ on ___________, 2006.
Interest Payment Dates: ____ and ____, commencing ____, 2001.
Regular Record Dates: ____ and ____.
Reference is hereby made to the further provisions of this
Note set forth on the reverse hereof, which further provisions shall for all
purposes have the same effect as if set forth at this place.
A-2
<PAGE> 59
IN WITNESS WHEREOF, the Company has caused this Note to be
signed manually or by facsimile by its duly authorized officers.
Date: PCS DEVELOPMENT CORPORATION
---------------------
By:
---------------------------------
Name:
Title:
By:
---------------------------------
Name:
Title:
(Form of Trustee's Certificate of Authentication)
This is one of the __% Senior Discount Notes due 2006 described in the
within-mentioned Indenture.
UNITED STATES TRUST COMPANY
OF NEW YORK, as Trustee
By:
---------------------------------
Authorized Signatory
A-3
<PAGE> 60
[REVERSE SIDE OF NOTE]
PCS DEVELOPMENT CORPORATION
__% Senior Discount Note due 2006
1. Principal and Interest.
The Company will pay the principal of this Note on ________,
2006.
The Company promises to pay interest on the principal amount
of this Note on each Interest Payment Date, as set forth below, at the rate per
annum shown above (subject to adjustment as provided below).
Interest will be payable semiannually (to the holders of
record of the Notes at the close of business on the _______ or _______
immediately preceding the Interest Payment Date) on each Interest Payment Date,
commencing _______, 2001; provided that no interest shall accrue on the
principal amount of this Note prior to _______, 2001 and no interest shall be
paid on this Note prior to _______, 2001.
From and after _______, 2001, interest on the Notes will
accrue from the most recent date to which interest has been paid or, if no
interest has been paid, from _______, 2001; provided that, if there is no
existing default in the payment of interest and this Note is authenticated
between a Regular Record Date referred to on the face hereof and the next
succeeding Interest Payment Date, interest shall accrue from such Interest
Payment Date. Interest will be computed on the basis of a 360-day year of
twelve 30-day months.
The Company shall pay interest on overdue principal and
premium, if any, and interest on overdue installments of interest, to the
extent lawful, at a rate per annum that is ___% in excess of the rate otherwise
payable.
2. Method of Payment.
The Company will pay principal provided above and interest
(except defaulted interest) on the principal amount of the Notes as provided
above on each _______ and _______ to the persons who are Holders (as reflected
in the Security Register at the close of business on _______ and _______
immediately preceding the Interest Payment Date), in each case, even if the
Note is canceled on registration of transfer or registration of exchange after
such record date; provided that, with respect to the payment of principal, the
Company will not make payment to the Holder unless this Note is surrendered to
a Paying Agent.
The Company will pay principal, premium, if any, and, as
provided above, interest in money of the United States that at the time of
payment is legal tender for payment of public and private debts. However, the
Company may pay principal, premium, if any, and interest by its check payable
in such money. It may mail an interest check to a Holder's registered address
(as reflected in the Security Register). If a payment date is a date other
than a Business Day at a place of payment, payment may be made at that place on
the next succeeding day that is a Business Day and no interest shall accrue for
the intervening period.
3. Paying Agent and Registrar.
Initially, the Trustee will act as authenticating agent,
Paying Agent and Registrar. The Company may change any authenticating agent,
Paying Agent or Registrar without notice. The Company, any Subsidiary or any
Affiliate of any of them may act as Paying Agent, Registrar or co-Registrar.
4. Indenture; Limitations.
The Company issued the Notes under an Indenture dated as of
July __, 1996 (the "Indenture"), between the Company and United States Trust
Company of New York, as trustee (the "Trustee"). Capitalized
1
<PAGE> 61
terms herein are used as defined in the Indenture unless otherwise indicated.
The terms of the Notes include those stated in the Indenture and those made
part of the Indenture by reference to the TIA. The Notes are subject to all
such terms, and Holders are referred to the Indenture and the TIA for a
statement of all such terms. To the extent permitted by applicable law, in the
event of any inconsistency between the terms of this Note and the terms of the
Indenture, the terms of the Indenture shall control.
The Notes are senior, unsecured obligations of the Company
ranking pari passu in right of payment with all existing and future
unsubordinated unsecured Indebtedness of the Company and senior in right of
payment to all existing and future subordinated Indebtedness of the Company.
The Indenture limits the original aggregate principal amount at maturity of the
Notes to $_______.
5. Optional Redemption.
The Notes will be redeemable, at the Company's option, in
whole or in part, at any time or from time to time, on or after ,
2001 and prior to maturity, upon not less than 30 nor more than 60 days' prior
notice mailed by first class mail to each Holders' last address as it appears
in the Security Register, at the following Redemption Prices (expressed in
percentages of principal amount at maturity), plus accrued and unpaid interest,
if any, to the Redemption Date (subject to the right of Holders of record on
the relevant Regular Record Date that is on or prior to the Redemption Date to
receive interest due on an Interest Payment Date), if redeemed during the
12-month period commencing on _______ __ of the applicable years set forth
below:
<TABLE>
<CAPTION>
Redemption
YEAR Price
---- ----------
<S> <C>
2001 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . %
2002 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . %
2003 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . %
2004 and thereafter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100.000%
</TABLE>
Notwithstanding the foregoing, prior to , 1999,
the Company may on any one or more occasions redeem up to 33% of the aggregate
principal amount of the Notes at a redemption price of % of the Accreted
Value thereof with the net proceeds of either (A) one or more public offerings
of common stock of the Company registered under the Securities Act or (B) a
sale by the Company of at least $25.0 million of its Capital Stock (other than
Redeemable Stock or Preferred Stock) to a Strategic Equity Investor in a single
transaction; provided in each case that at least 67% of the aggregate principal
amount at maturity of the Notes remains outstanding immediately after the
occurrence of any such redemption; and provided, further, that any such
redemption shall occur within 90 days of the date of the closing of any such
public offering of common stock or sale to Strategic Equity Investor of Capital
Stock (other than Redeemable Stock or Preferred Stock) of the Company, as the
case may be.
6. Notice of Redemption.
Notice of any optional redemption will be mailed at least 30
days but not more than 60 days before the Redemption Date to each Holder of
Notes to be redeemed at his last address as it appears in the Security
Register. Notes in original denominations larger than $1,000 may be redeemed
in part. On and after the Redemption Date, interest ceases to accrue on Notes
or portions of Notes called for redemption, unless the Company defaults in the
payment of the Redemption Price.
7. Repurchase upon Change in Control.
Within 30 days of the occurrence of any Change of Control,
each Holder shall have the right to require the repurchase of its Notes by the
Company in cash pursuant to the offer described in the Indenture at a purchase
price equal to 101% of the Accreted Value thereof plus accrued and unpaid
interest, if any, to the date of purchase (the "Change of Control Payment").
2
<PAGE> 62
A notice of such Change of Control will be mailed within 30
days after any Change of Control occurs to each Holder at his last address as
it appears in the Security Register. Notes in original denominations larger
than $1,000 may be sold to the Company in part. On and after the Change of
Control Payment Date, interest ceases to accrue on Notes or portions of Notes
surrendered for purchase by the Company, unless the Company defaults in the
payment of the Change of Control Payment.
8. Denominations; Transfer; Exchange.
The Notes are in registered form without coupons in
denominations of $1,000 of principal amount at maturity and multiples of $1,000
in excess thereof. A Holder may register the transfer or exchange of Notes in
accordance with the Indenture. The Registrar may require a Holder, among other
things, to furnish appropriate endorsements and transfer documents and to pay
any taxes and fees required by law or permitted by the Indenture. The
Registrar need not register the transfer or exchange of any Notes selected for
redemption. Also, it need not register the transfer or exchange of any Notes
for a period of 15 days before a selection of Notes to be redeemed is made.
9. Persons Deemed Owners.
A registered Holder shall be treated as the owner of a Note for all purposes.
10. Unclaimed Money.
If money for the payment of principal, premium, if any, or
interest remains unclaimed for two years, the Trustee and the Paying Agent will
pay the money back to the Company at its request. After that, Holders entitled
to the money must look to the Company for payment, unless an abandoned property
law designates another Person, and all liability of the Trustee and such Paying
Agent with respect to such money shall cease.
11. Discharge Prior to Redemption or Maturity.
If the Company deposits with the Trustee money or U.S.
Government Obligations sufficient to pay the then outstanding principal of,
premium, if any, and accrued interest on the Notes (a) to redemption or
maturity, the Company will be discharged from the Indenture and the Notes,
except in certain circumstances for certain sections thereof, and (b) to the
Stated Maturity, the Company will be discharged from certain covenants set
forth in the Indenture.
12. Amendment; Supplement; Waiver.
Subject to certain exceptions, the Indenture or the Notes may
be amended or supplemented with the consent of the Holders of at least a
majority in principal amount of the Notes then outstanding, and any existing
default or compliance with any provision may be waived with the consent of the
Holders of at least a majority in principal amount of the Notes then
outstanding. Without notice to or the consent of any Holder, the parties
thereto may amend or supplement the Indenture or the Notes to, among other
things, cure any ambiguity, defect or inconsistency and make any change that
does not materially and adversely affect the rights of any Holder.
13. Restrictive Covenants.
The Indenture imposes certain limitations on the ability of
the Company and its Restricted Subsidiaries, among other things, to Incur
Indebtedness, make Restricted Payments, use the proceeds from Asset Sales,
engage in transactions with Affiliates or, with respect to the Company, merge,
consolidate or transfer substantially all of its assets. Within 90 days after
the end of the last fiscal quarter of each year, the Company must report to the
Trustee on compliance with such limitations.
3
<PAGE> 63
14. Successor Persons.
When a successor person or other entity assumes all the
obligations of its predecessor under the Notes and the Indenture, the
predecessor person will be released from those obligations.
15. Defaults and Remedies.
The following events constitute "Events of Default" in the
Indenture: (a) default in the payment of principal of (or premium, if any, on)
any Note when the same becomes due and payable, whether at maturity, upon
acceleration, redemption or otherwise; (b) default in the payment of interest
on any Note when the same becomes due and payable, and such default continues
for a period of 30 days; (c) default in the payment of principal (or premium,
if any) and interest on Notes required to be purchased pursuant to an Offer to
Purchase as described under the "Limitation on Asset Sales" covenant and under
"Repurchase of Notes upon a Change of Control" when due and payable; (d)
failure to perform or comply with the provisions described under the
"Consolidation, Merger and Sale of Assets" covenant; (e) default in the
performance of or breach of any other covenant or agreement of the Company in
the Indenture or under the Notes and such default or breach continues for a
period of 60 consecutive days after written notice by the Trustee or the
Holders of 25% or more in aggregate principal amount of the Notes; (f) there
occurs with respect to any issue or issues of Indebtedness of the Company or
any Restricted Subsidiary having an outstanding principal amount of $5 million
or more in the aggregate for all such issues of all such Persons, whether such
Indebtedness now exists or shall hereafter be created, (I) an event of default
that has caused the holder thereof to declare such Indebtedness to be due and
payable prior to its Stated Maturity and/or (II) the failure to make a payment
when due of principal, premium, if any, or interest and such defaulted payment
shall not have been made, waived or extended by the earliest of (x) the
expiration of any applicable grace period and (y) the 30th day after such
payment default; (g) any final judgment or order (not covered by insurance) for
the payment of money in excess of $5 million in the aggregate for all such
final judgments or orders against all such Persons (treating any deductibles,
self-insurance or retention as not so covered) shall be rendered against the
Company or any Restricted Subsidiary and shall not be paid or discharged, and
there shall be any period of 60 consecutive days following entry of the final
judgment or order that causes the aggregate amount for all such final judgments
or orders outstanding and not paid or discharged against all such Persons to
exceed $5 million during which a stay of enforcement of such final judgment or
order, by reason of a pending appeal or otherwise, shall not be in effect; (h)
a court having jurisdiction in the premises enters a decree or order for (A)
relief in respect of the Company or any Restricted Subsidiary in an involuntary
case under any applicable bankruptcy, insolvency or other similar law now or
hereafter in effect, (B) appointment of a receiver, liquidator, assignee,
custodian, trustee, sequestrator or similar official of the Company or any
Restricted Subsidiary or for all or substantially all of the property and
assets of the Company or any Restricted Subsidiary or (C) the winding up or
liquidation of the affairs of the Company or any Restricted Subsidiary and, in
each case, such decree or order shall remain unstayed and in effect for a
period of 30 consecutive days; or (i) the Company or any Restricted Subsidiary
(A) commences a voluntary case under any applicable bankruptcy, insolvency or
other similar law now or hereafter in effect, or consents to the entry of an
order for relief in an involuntary case under any such law, (B) consents to the
appointment of or taking possession by a receiver, liquidator, assignee,
custodian, trustee, sequestrator or similar official of the Company or any
Restricted Subsidiary or for all or substantially all of the property and
assets of the Company or any Restricted Subsidiary or (C) effects any general
assignment for the benefit of creditors.
If a bankruptcy or insolvency default with respect to the
Company or any Restricted Subsidiary occurs and is continuing, Accreted Value
of, premium, if any, and accrued interest, if any, on the Notes automatically
become due and payable. Holders may not enforce the Indenture or the Notes
except as provided in the Indenture. The Trustee may require indemnity
satisfactory to it before it enforces the Indenture or the Notes. Subject to
certain limitations, Holders of at least a majority in principal amount of the
Notes then outstanding may direct the Trustee in its exercise of any trust or
power.
4
<PAGE> 64
16. Trustee Dealings with Company.
The Trustee under the Indenture, in its individual or any
other capacity, may make loans to, accept deposits from and perform services
for the Company or its Affiliates and may otherwise deal with the Company or
its Affiliates as if it were not the Trustee.
17. No Recourse Against Others.
No incorporator or any past, present or future partner,
shareholder, other equity holder, officer, director, employee or controlling
person as such, of the Company or of any successor Person shall have any
liability for any obligations of the Company under the Notes or the Indenture
or for any claim based on, in respect of or by reason of, such obligations or
their creation. Each Holder by accepting a Note waives and releases all such
liability. The waiver and release are part of the consideration for the
issuance of the Notes.
18. Authentication.
This Note shall not be valid until the Trustee or
authenticating agent signs the certificate of authentication on the other side
of this Note.
19. Abbreviations.
Customary abbreviations may be used in the name of a Holder or
an assignee, such as: TEN COM (= tenants in common), TEN ENT (= tenants by the
entireties), JT TEN (= joint tenants with right of survivorship and not as
tenants in common), CUST (= Custodian) and U/G/M/A (= Uniform Gifts to Minors
Act).
The Company will furnish to any Holder upon written request
and without charge a copy of the Indenture. Requests may be made to PCS
Development Corporation, 15 South Main Street, Suite 810, Greenville, South
Carolina 29601, Attention: Chief Financial Officer.
5
<PAGE> 65
[FORM OF TRANSFER NOTICE]
FOR VALUE RECEIVED the undersigned registered holder hereby sell(s),
assign(s) and transfer(s) unto
Insert Taxpayer Identification No.
________________________________________________________________________________
Please print or typewrite name and address including zip code of assignee
________________________________________________________________________________
the within Note and all rights thereunder, hereby irrevocably constituting and
appointing ____________________________ attorney to transfer said Note on the
books of the Company with full power of substitution in the premises.
Date:___________ ___________________________________
NOTICE: The signature to this assignment must
correspond with the name as written upon the face of
the within-mentioned instrument in every particular,
without alteration or any change whatsoever.
6
<PAGE> 66
OPTION OF HOLDER TO ELECT PURCHASE
If you wish to have this Note purchased by the Company pursuant to
Section 4.11 or Section 4.12 of the Indenture, check the Box: [ ]
If you wish to have a portion of this Note purchased by the
Company pursuant to Section 4.11 or Section 4.12 of the Indenture, state the
amount (in principal amount at maturity): $____________.
Date: ___________
Your Signature:_________________________________________________________________
(Sign exactly as your name appears on the other side of this Note)
Signature Guarantee: ______________________
7
<PAGE> 1
7
will notify the Unit Agent of any additional requirements in connection with a
particular transfer or exchange.
Following the Separability Date, no Unit Certificates shall be
issued upon transfer or exchange of Unit Certificates, or otherwise.
SECTION 7. Rights of Unit Holders. The registered owner of
a Unit Certificate shall have all the rights and privileges of a registered
owner of the principal amount of Notes represented thereby and the number of
Warrants represented thereby and shall be treated as the registered owner
thereof for all purposes. The Company agrees that it shall be bound by all
provisions of the Indenture, the Notes, the Warrant Agreement and the Warrants
and that the Notes and Warrants represented by each Unit Certificate shall be
deemed legal, valid and binding obligations of the Company and that upon
exercise of the Warrants, the Warrant Shares will be validly issued, fully paid
and nonassessable.
SECTION 8. Unit Agent. The Unit Agent undertakes the duties
and obligations imposed by this Agreement upon the following terms and
conditions, by which the Company and the holders of Units, by their acceptance
thereof, shall be bound:
(a) The statements contained herein and in the Unit
Certificates shall be taken as statements of the Company, and the Unit
Agent assumes no responsibility for the correctness of any of the
same, other than with respect to the certificate of authentication,
except such as describe the Unit Agent or action taken or to be taken
by it. The Unit Agent assumes no responsibility with respect to the
distribution of the Unit Certificates except as herein otherwise
specifically provided.
(b) The Unit Agent shall not be responsible for any
failure of the Company to comply with any of the covenants in this
Agreement, Unit Certificates, the Indenture or the Warrant Agreement
to be complied with by the Company.
(c) The Unit Agent may consult at any time with counsel
satisfactory to it (who may be counsel for the Company) and the Unit
Agent shall incur no liability or responsibility to the Company or to
any holder of any Unit Certificate in respect of any action taken,
suffered or omitted by it hereunder in good faith and in accordance
with the written opinion or the written advice of such counsel.
(d) The Unit Agent shall incur no liability or
responsibility to the Company or to any holder of any Unit Certificate
for any action taken in reliance on any Unit Certificate, certificate
of shares, notice, resolution, waiver, consent, order, certificate, or
other paper, document or instrument reasonably believed by the Unit
Agent
<PAGE> 2
8
to be genuine and to have been signed, sent or presented by the proper
party or parties.
(e) The Company agrees to pay to the Unit Agent
reasonable compensation for all services rendered by the Unit Agent in
connection with this Agreement, to reimburse the Unit Agent for all
expenses, taxes and governmental charges and other charges of any kind
and nature incurred by the Unit Agent in connection with this
Agreement and to indemnify the Unit Agent and save it harmless against
any and all losses and liabilities, including judgments, costs and
counsel fees and actual expenses, for any action taken or omitted by
the Unit Agent or arising in connection with this Agreement and the
exercise by the Unit Agent of its rights hereunder and the performance
by the Unit Agent of any of its obligations hereunder except as a
result of the Unit Agent's gross negligence or bad faith or willful
misconduct.
(f) The Unit Agent, and any stockholder, director,
officer, affiliate or employee ("Related Parties") of it, may buy,
sell or deal in any of the Units, Notes, Warrants, Class B Common
Stock or other securities of the Company or become pecuniarily
interested in any transaction in which the Company may be interested,
or contract with or lend money to the Company or otherwise act as
fully and freely as though it were not Unit Agent under this
Agreement. Nothing herein shall preclude the Unit Agent or such
Related Parties from acting in any other capacity for the Company or
for any other legal entity.
(g) The Unit Agent shall act hereunder solely as agent
for the Company, the Trustee and the Warrant Agent, and its duties
shall be determined solely by the provisions hereof. The Unit Agent
shall not be liable for anything which it may do or refrain from doing
in connection with this Agreement except for its own gross negligence
or bad faith or willful misconduct.
(h) No provision of this Agreement shall require the Unit
Agent to expend or risk its own funds or otherwise incur any financial
liability in the performance of any of its duties hereunder or in the
exercise of any of its rights or powers if it shall have reasonable
grounds for believing that repayment of such funds or adequate
indemnity against such risk or liability is not reasonably assured to
it.
(i) The Unit Agent shall be under no obligation to
institute any action, suit or legal proceeding or to take any other
action unless the Company or one or more registered holders of Unit
Certificates shall furnish the Unit Agent with security and indemnity
for any costs and expenses which may be incurred acceptable to the
Unit Agent. This provision shall not affect the power of the Unit
Agent to
<PAGE> 3
9
take such action as it may consider proper, whether with or without
any such security or indemnity.
All rights of action under this Agreement or under any of the Units
may be enforced by the Unit Agent without the possession of any of the
Unit Certificates or the production thereof at any trial or other
proceeding relative thereto, and any such action, suit or proceeding
instituted by the Unit Agent shall be brought in its name as Unit
Agent and any recovery of judgment shall be for the ratable benefit of
the registered holders of the Units, as their respective rights or
interests may appear.
(j) Before the Unit Agent acts or refrains from acting
with respect to any matter contemplated by this Unit Agreement, it may
require:
(1) an Officers' Certificate stating that, in the
opinion of the signers, all conditions precedent, if any,
provided for in this Unit Agreement relating to the proposed
action have been complied with; and
(2) an opinion of counsel for the Company stating
that, in the opinion of such counsel, all such conditions
precedent have been complied with.
Each Officers' Certificate or opinion of counsel with respect
to compliance with a condition or covenant provided for in this Unit Agreement
shall include:
(1) a statement that the person making such
certificate or opinion has read such covenant or condition;
(2) a brief statement as to the nature and scope
of the examination or investigation upon which the statements
or opinions contained in such certificate or opinion are based;
(3) a statement that, in the opinion of such
person, he or she has made such examination or investigation
as is necessary to enable him or her to express an informed
opinion as to whether or not such covenant or condition has
been complied with; and
(4) a statement as to whether or not, in the
opinion of such person, such condition or covenant has been
complied with.
The Unit Agent shall not be liable for any action it takes or
omits to take in good faith in reliance on any such certificate or opinion.
<PAGE> 4
10
(k) In the absence of bad faith on its part, the Unit
Agent may conclusively rely, as to the truth of the statements and the
correctness of the opinions expressed therein, upon certificates or
opinions furnished to the Unit Agent and conforming to the
requirements of this Unit Agreement. However, the Unit Agent shall
examine the certificates and opinions to determine whether or not they
conform to the requirements of this Unit Agreement.
(l) The Unit Agent may rely and shall be fully protected
in relying upon any document believed by it to be genuine and to have
been signed or presented by the proper person. The Unit Agent need
not investigate any fact or matter stated in the document.
(m) The Unit Agent may act through agents and shall not
be responsible for the misconduct or negligence of any agent appointed
with due care.
SECTION 9. Resignation and Appointment of
Successor. (a) The Company agrees, for the benefit of the holders from time
to time of the Unit Certificates, that there shall at all times be a Unit Agent
hereunder.
(b) The Unit Agent may at any time resign as Unit Agent
by giving written notice to the Company of such intention on its part,
specifying the date on which its desired resignation shall become effective,
provided that such date shall be at least 90 days after the date on which such
notice is given unless the Company agrees to accept less notice. Upon
receiving such notice of resignation, the Company shall promptly appoint a
successor Unit Agent, qualified as provided in Section 9(d) hereof, by written
instrument in duplicate signed on behalf of the Company, one copy of which
shall be delivered to the resigning Unit Agent and one copy to the successor
Unit Agent. As provided in Section 9(d) hereof, such resignation shall become
effective upon the earlier of (x) the acceptance of the appointment by the
successor Unit Agent or (y) 90 days after receipt by the Company of notice of
such resignation. The Company may, at any time and for any reason, and shall,
upon any event set forth in the next succeeding sentence, remove the Unit Agent
and appoint a successor Unit Agent by written instrument in duplicate,
specifying such removal and the date on which it is intended to become
effective, signed on behalf of the Company, one copy of which shall be
delivered to the Unit Agent being removed and one copy to the successor Unit
Agent. The Unit Agent shall be removed as aforesaid if it shall become
incapable of acting, or shall be adjudged a bankrupt or insolvent, or a
receiver of the Unit Agent or of its property shall be appointed, or any public
officer shall take charge or control of it or of its property or affairs for
the purpose of rehabilitation, conservation or liquidation. Any removal of the
Unit Agent and any appointment of a successor Unit Agent shall become effective
upon acceptance of appointment by the successor Unit Agent as provided in
Section
<PAGE> 5
11
9(d). As soon as practicable after appointment of the successor Unit Agent,
the Company shall cause written notice of the change in the Unit Agent to be
given to each of the registered holders of the Units in the manner provided for
in Section 10 hereof.
(c) Upon resignation or removal of the Unit Agent, if the
Company shall fail to appoint a successor Unit Agent within a period of 90 days
after receipt of such notice of resignation or removal, then the holder of any
Unit Certificate or the Unit Agent may apply to a court of competent
jurisdiction for the appointment of a successor to the Unit Agent. Pending
appointment of a successor to the Unit Agent, either by the Company or by such
a court, the duties of the Unit Agent shall be carried out by the Company.
(d) Any successor Unit Agent, whether appointed by the
Company or by a court, shall be a bank or trust company in good standing,
incorporated under the laws of the United States of America or any State
thereof and having, at the time of its appointment, a combined capital surplus
of at least $50 million. Such successor Unit Agent shall execute and deliver
to its predecessor and to the Company an instrument accepting such appointment
hereunder and all the provisions of this Agreement, and thereupon such
successor Unit Agent, without any further act, deed or conveyance, shall become
vested with all the rights, powers, duties and obligations of its predecessor
hereunder, with like effect as if originally named as Unit Agent hereunder, and
such predecessor shall thereupon become obligated to (i) transfer and deliver,
and such successor Unit Agent shall be entitled to receive, all securities,
records or other property on deposit with or held by such predecessor as Unit
Agent hereunder and (ii) upon payment of the amounts then due it pursuant to
Section 8(e) hereof, pay over, and such successor Unit Agent shall be entitled
to receive, all monies deposited with or held by any predecessor Unit Agent
hereunder.
(e) Any corporation or bank into which the Unit Agent
hereunder may be merged or converted, or any corporation or bank with which the
Unit Agent may be consolidated, or any corporation or bank resulting from any
merger, conversion or consolidation to which the Unit Agent shall be a party,
or any corporation or bank to which the Unit Agent shall sell or otherwise
transfer all or substantially all of its corporate trust business, shall be the
successor to the Unit Agent under this Agreement (provided that such
corporation or bank shall be qualified as aforesaid) without the execution or
filing of any document or any further act on the part of any of the parties
hereto.
(f) No Unit Agent under this Unit Agreement shall be
personally liable for any action or omission of any successor Unit Agent.
SECTION 10. Notices to the Company and Unit Agent, Trustee
and Warrant Agent. Any notice or demand authorized by
<PAGE> 6
12
this Agreement to be given or made to or on the Company shall be sufficiently
given or made when and if deposited in the mail, first class or registered,
postage paid, addressed
If to the Company:
PCS Development Corporation
15 South Main Street
Suite 810
Greenville, South Carolina 29601
Attention: Chief Executive Officer
If to the Unit Agent, Warrant Agent or the Trustee:
United States Trust Company of New York
114 West 47th Street
New York, New York 10036
Attention: _____________________
The parties hereto by notice to the other parties may
designate additional or different addresses for subsequent communications or
notice.
Any notice to be mailed to a holder of Units shall be mailed
to him or her at the address that appears on the register of Units maintained
by the Unit Agent. Copies of any such communication shall also be mailed to
the Unit Agent, Trustee and Warrant Agent. The Unit Agent shall furnish the
Company, the Trustee or the Warrant Agent promptly when requested with a list
of registered holders of Units for the purpose of mailing any notice or
communication to the holders of the Notes or Warrants and at such other times
as may be reasonably requested.
SECTION 11. Supplements and Amendments. The Company and the
Unit Agent may from time to time supplement or amend this Agreement without the
approval of any holders of Unit Certificates in order to cure any ambiguity or
to correct or supplement any provision contained herein which may be defective
or inconsistent with any other provision herein, or to make any other
provisions in regard to matters or questions arising hereunder which the
Company, the Trustee, the Warrant Agent and the Unit Agent may deem necessary
or desirable and which shall not in any way materially and adversely affects
the interests of the holders of Unit Certificates. Any amendment or supplement
to this Agreement that has a material adverse effect on the interests of Unit
holders shall require the written consent of registered holders of the then
outstanding Units representing not less than a majority in principal amount of
the then outstanding Units.
SECTION 12. Successors. All the covenants and provisions of
this Agreement by or for the benefit of the Company, the Trustee, the Warrant
Agent or the Unit Agent shall
<PAGE> 7
13
bind and inure to the benefit of their respective successors and assigns
hereunder.
SECTION 13. Governing Law. THIS AGREEMENT AND EACH UNIT
CERTIFICATE ISSUED HEREUNDER SHALL BE DEEMED TO BE A CONTRACT MADE UNDER THE
LAWS OF THE STATE OF NEW YORK AND SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF SAID STATE, WITHOUT REGARD TO THE CONFLICT OF LAW
RULES THEREOF.
SECTION 14. Benefits of This Agreement. Nothing in this
Agreement shall be construed to give to any person or corporation other than
the Company, the Trustee, the Warrant Agent, the Unit Agent and the registered
holders of the Unit Certificates any legal or equitable right, remedy or claim
under this Agreement; but this Agreement shall be for the sole and exclusive
benefit of the Company, the Trustee, the Warrant Agent, the Unit Agent and the
registered holders of the Unit Certificates.
SECTION 15. Counterparts. This Agreement may be executed in
any number of counterparts and each of such counterparts shall for all purposes
be deemed to be an original, and all such counterparts shall together
constitute but one and the same instrument.
<PAGE> 8
14
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed, as of the day and year first above written.
PCS DEVELOPMENT CORPORATION
By:
-------------------------------------
Name:
Title:
UNITED STATES TRUST COMPANY OF
NEW YORK, as Unit Agent
By:
-------------------------------------
Name:
Title:
UNITED STATES TRUST COMPANY OF
NEW YORK, as Trustee
By:
-------------------------------------
Name:
Title:
UNITED STATES TRUST COMPANY OF
NEW YORK, as Warrant Agent
By:
-------------------------------------
Name:
Title:
<PAGE> 9
EXHIBIT A
[FORM OF UNIT CERTIFICATE]
THE NOTE COMPRISING A PART OF THIS SECURITY WAS ISSUED WITH
ORIGINAL ISSUE DISCOUNT WITHIN THE MEANING OF SECTION 1273(a) OF THE INTERNAL
REVENUE CODE OF 1986. THE ISSUE PRICE IS $___ FOR EACH $1,000 OF STATED
PRINCIPAL AMOUNT. THE ORIGINAL ISSUE DISCOUNT IS $__ FOR EACH $1,000 OF STATED
PRINCIPAL AMOUNT. THE ISSUE DATE IS ________, 1996. THE YIELD TO MATURITY IS
_____% COMPOUNDED SEMIANNUALLY. ORIGINAL ISSUE DISCOUNT WILL BE ALLOCATED
BASED ON ACCRUAL PERIODS ENDING ON EACH DATE ON WHICH AN INTEREST PAYMENT IS
DUE AND THE 360 DAYS PER YEAR CONVENTION.
THE EXERCISE OF THE WARRANTS COMPRISING A PART OF THIS
SECURITY (AND THE OWNERSHIP OF CLASS B COMMON STOCK ISSUABLE UPON THE EXERCISE
THEREOF) MAY BE LIMITED BY THE COMPANY IN ORDER TO ENSURE COMPLIANCE WITH THE
RULES AND REGULATIONS OF THE FEDERAL COMMUNICATIONS COMMISSION (THE "FCC"), AND
THE WARRANTS WILL NOT BE EXERCISABLE BY ANY HOLDER IF SUCH EXERCISE WOULD CAUSE
THE COMPANY TO BE IN VIOLATION OF THE COMMUNICATIONS ACT OR THE FCC'S RULES,
REGULATIONS OR POLICIES.
PCS DEVELOPMENT CORPORATION
Units Consisting of $___________ Aggregate Principal Amount ____% Senior
Discount Notes due 2006 and Warrants to Purchase ______ Warrant Shares of Class
B Common Stock
No. _____ CUSIP No. ____
PCS Development Corporation, a Delaware corporation (the
"Company," which term includes any successor corporation), hereby certifies
that ___________________ is the owner of ______ Units as described above,
transferable only on the books of the Company by the holder thereof in person
or by his or her duly authorized attorney, on surrender of the Certificate
properly endorsed.
Each Unit consists of one $1,000 principal amount _____%
Senior Discount Note due 2006 of the Company (collectively, the "Notes") and
___ warrants (collectively, the "Warrants") to purchase ___ shares of Class B
Common Stock of the Company, par value $1.00 per share (the "Class B Common
Stock"). This Unit is issued pursuant to the Unit Agreement (the "Unit
Agreement") dated as of ________, 1996 between the Company and United States
Trust Company of New York, (the "Unit Agent") and is subject to the terms and
provisions contained therein, to all of which terms and provisions the holder
of this Unit Certificate consents by acceptance hereof. The terms of the Notes
are governed by an Indenture (the "Indenture") dated as of ________, 1996
between the Company and United States Trust Company of New York, as Trustee
(the "Trustee"), and are subject to the terms and provisions contained therein,
to all of which terms and provisions the holder of this Unit Certificate
consents by acceptance hereof.
A-1
<PAGE> 10
The terms of the Warrants are governed by a Warrant Agreement
dated __________, 1996 (the "Warrant Agreement") between the Company and United
States Trust Company of New York, as Warrant Agent (the "Warrant Agent") and
are subject to the terms and provisions contained therein, to all of which
terms and provisions the holder of this Unit Certificate consents by acceptance
hereof. The Company will furnish to any Holder of a Security upon written
request and without charge a copy of the Unit Agreement, the Indenture and the
Warrant Agreement. Requests may be made to: PCS Development Corporation, 15
South Main Street, Suite 810, Greenville, South Carolina 29601, Attn: Chief
Financial Officer.
The Notes and Warrants represented by this Unit Certificate
shall be non-detachable and not separately transferable until the earliest to
occur of: (i) _______, 1996, (ii) such earlier date as may be determined by
Lehman Brothers Inc. and specified to the Company, the Trustee, the Warrant
Agent and the Unit Agent in writing, (iii) the occurrence of a Change of
Control, and (iv) in the event of an Offer to Purchase in connection with any
Asset Sale (each as defined in the Indenture) the date the Company mails notice
thereof to the holders of the Notes.
Dated:
PCS DEVELOPMENT CORPORATION
By:
-------------------------------------
Name:
Title:
By:
-------------------------------------
Name:
Title:
Certificate of Authentication: This
is one of the Units referred to
in the above mentioned Unit
Agreement.
UNITED STATES TRUST COMPANY OF
NEW YORK, as Unit Agent
By:
--------------------------------------
Authorized Signatory
A-2
<PAGE> 11
PCS DEVELOPMENT CORPORATION
Units Consisting of $___________ Aggregate Principal Amount of _____%
Senior Discount Notes due 2006 and Warrants to Purchase ______ Shares
of Class B Common Stock
I. PROVISIONS RELATING TO THE NOTES
1. Principal and Interest.
The Company will pay the principal of this Note on ________,
2006.
The Company promises to pay interest on the principal amount
of this Note on each Interest Payment Date, as set forth below, at the rate per
annum shown above (subject to adjustment as provided below).
Interest will be payable semiannually (to the holders of
record of the Notes at the close of business on the _______ or _______
immediately preceding the Interest Payment Date) on each Interest Payment Date,
commencing _______, 2001; provided that no interest shall accrue on the
principal amount of this Note prior to _______, 2001 and no interest shall be
paid on this Note prior to _______, 2001.
From and after _______, 2001, interest on the Notes will
accrue from the most recent date to which interest has been paid or, if no
interest has been paid, from _______, 2001; provided that, if there is no
existing default in the payment of interest and this Note is authenticated
between a Regular Record Date referred to on the face hereof and the next
succeeding Interest Payment Date, interest shall accrue from such Interest
Payment Date. Interest will be computed on the basis of a 360-day year of
twelve 30-day months.
The Company shall pay interest on overdue principal and
premium, if any, and interest on overdue installments of interest, to the
extent lawful, at a rate per annum that is ___% in excess of the rate otherwise
payable.
2. Method of Payment.
The Company will pay principal provided above and interest
(except defaulted interest) on the principal amount of the Notes as provided
above on each _______ and _______ to the persons who are Holders (as reflected
in the Security Register at the close of business on _______ and _______
immediately
<PAGE> 12
preceding the Interest Payment Date), in each case, even if the Note is
canceled on registration of transfer or registration of exchange after such
record date; provided that, with respect to the payment of principal, the
Company will not make payment to the Holder unless this Note is surrendered to
a Paying Agent.
The Company will pay principal, premium, if any, and, as
provided above, interest in money of the United States that at the time of
payment is legal tender for payment of public and private debts. However, the
Company may pay principal, premium, if any, and interest by its check payable
in such money. It may mail an interest check to a Holder's registered address
(as reflected in the Security Register). If a payment date is a date other
than a Business Day at a place of payment, payment may be made at that place on
the next succeeding day that is a Business Day and no interest shall accrue for
the intervening period.
3. Paying Agent and Registrar.
Initially, the Trustee will act as authenticating agent,
Paying Agent and Registrar. The Company may change any authenticating agent,
Paying Agent or Registrar without notice. The Company, any Subsidiary or any
Affiliate of any of them may act as Paying Agent, Registrar or co-Registrar.
4. Indenture; Limitations.
The Company issued the Notes under an Indenture dated as of
July __, 1996 (the "Indenture"), between the Company and United States Trust
Company of New York, as trustee (the "Trustee"). Capitalized terms herein are
used as defined in the Indenture unless otherwise indicated. The terms of the
Notes include those stated in the Indenture and those made part of the
Indenture by reference to the TIA. The Notes are subject to all such terms,
and Holders are referred to the Indenture and the TIA for a statement of all
such terms. To the extent permitted by applicable law, in the event of any
inconsistency between the terms of this Note and the terms of the Indenture,
the terms of the Indenture shall control.
The Notes are senior, unsecured obligations of the Company
ranking pari passu in right of payment with all existing and future
unsubordinated unsecured Indebtedness of the Company and senior in right of
payment to all existing and future subordinated Indebtedness of the Company.
The Indenture limits the original aggregate principal amount at maturity of the
Notes to $_______.
5. Optional Redemption.
The Notes will be redeemable, at the Company's option, in
whole or in part, at any time or from time to time, on or after ,
2001 and prior to maturity, upon not less than 30 nor more than 60 days' prior
notice mailed by first class
-2-
<PAGE> 13
mail to each Holders' last address as it appears in the Security Register, at
the following Redemption Prices (expressed in percentages of principal amount
at maturity), plus accrued and unpaid interest, if any, to the Redemption Date
(subject to the right of Holders of record on the relevant Regular Record Date
that is on or prior to the Redemption Date to receive interest due on an
Interest Payment Date), if redeemed during the 12-month period commencing on
_______ __ of the applicable years set forth below:
<TABLE>
<CAPTION>
Redemption
YEAR Price
---- -----
<S> <C>
2001 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . %
2002 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . %
2003 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . %
2004 and thereafter . . . . . . . . . . . . . . . . . . . . . . . 100.000%
</TABLE>
Notwithstanding the foregoing, prior to , 1999,
the Company may on any one or more occasions redeem up to 33% of the aggregate
principal amount of the Notes at a redemption price of % of the Accreted
Value thereof with the net proceeds of either (A) one or more public offerings
of common stock of the Company registered under the Securities Act or (B) a
sale by the Company of at least $25.0 million of its Capital Stock (other than
Redeemable Stock or Preferred Stock) to a Strategic Equity Investor in a single
transaction; provided in each case that at least 67% of the aggregate principal
amount at maturity of the Notes remains outstanding immediately after the
occurrence of any such redemption; and provided, further, that any such
redemption shall occur within 90 days of the date of the closing of any such
public offering of common stock or sale to Strategic Equity Investor of Capital
Stock (other than Redeemable Stock or Preferred Stock) of the Company, as the
case may be.
6. Notice of Redemption.
Notice of any optional redemption will be mailed at least 30
days but not more than 60 days before the Redemption Date to each Holder of
Notes to be redeemed at his last address as it appears in the Security
Register. Notes in original denominations larger than $1,000 may be redeemed
in part. On and after the Redemption Date, interest ceases to accrue on Notes
or portions of Notes called for redemption, unless the Company defaults in the
payment of the Redemption Price.
7. Repurchase upon Change in Control.
Within 30 days of the occurrence of any Change of Control,
each Holder shall have the right to require the repurchase of its Notes by the
Company in cash pursuant to the offer described in the Indenture at a purchase
price equal to 101% of the Accreted Value thereof plus accrued and unpaid
-3-
<PAGE> 14
interest, if any, to the date of purchase (the "Change of Control Payment").
A notice of such Change of Control will be mailed within 30
days after any Change of Control occurs to each Holder at his last address as
it appears in the Security Register. Notes in original denominations larger
than $1,000 may be sold to the Company in part. On and after the Change of
Control Payment Date, interest ceases to accrue on Notes or portions of Notes
surrendered for purchase by the Company, unless the Company defaults in the
payment of the Change of Control Payment.
8. Denominations; Transfer; Exchange.
The Notes are in registered form without coupons in
denominations of $1,000 of principal amount at maturity and multiples of $1,000
in excess thereof. A Holder may register the transfer or exchange of Notes in
accordance with the Indenture. The Registrar may require a Holder, among other
things, to furnish appropriate endorsements and transfer documents and to pay
any taxes and fees required by law or permitted by the Indenture. The
Registrar need not register the transfer or exchange of any Notes selected for
redemption. Also, it need not register the transfer or exchange of any Notes
for a period of 15 days before a selection of Notes to be redeemed is made.
9. Persons Deemed Owners.
A registered Holder shall be treated as the owner of a Note
for all purposes.
10. Unclaimed Money.
If money for the payment of principal, premium, if any, or
interest remains unclaimed for two years, the Trustee and the Paying Agent will
pay the money back to the Company at its request. After that, Holders entitled
to the money must look to the Company for payment, unless an abandoned property
law designates another Person, and all liability of the Trustee and such Paying
Agent with respect to such money shall cease.
11. Discharge Prior to Redemption or Maturity.
If the Company deposits with the Trustee money or U.S.
Government Obligations sufficient to pay the then outstanding principal of,
premium, if any, and accrued interest on the Notes (a) to redemption or
maturity, the Company will be discharged from the Indenture and the Notes,
except in certain circumstances for certain sections thereof, and (b) to the
Stated Maturity, the Company will be discharged from certain covenants set
forth in the Indenture.
-4-
<PAGE> 15
12. Amendment; Supplement; Waiver.
Subject to certain exceptions, the Indenture or the Notes may
be amended or supplemented with the consent of the Holders of at least a
majority in principal amount of the Notes then outstanding, and any existing
default or compliance with any provision may be waived with the consent of the
Holders of at least a majority in principal amount of the Notes then
outstanding. Without notice to or the consent of any Holder, the parties
thereto may amend or supplement the Indenture or the Notes to, among other
things, cure any ambiguity, defect or inconsistency and make any change that
does not materially and adversely affect the rights of any Holder.
13. Restrictive Covenants.
The Indenture imposes certain limitations on the ability of
the Company and its Restricted Subsidiaries, among other things, to Incur
Indebtedness, make Restricted Payments, use the proceeds from Asset Sales,
engage in transactions with Affiliates or, with respect to the Company, merge,
consolidate or transfer substantially all of its assets. Within 90 days after
the end of the last fiscal quarter of each year, the Company must report to the
Trustee on compliance with such limitations.
14. Successor Persons.
When a successor person or other entity assumes all the
obligations of its predecessor under the Notes and the Indenture, the
predecessor person will be released from those obligations.
15. Defaults and Remedies.
The following events constitute "Events of Default" in the
Indenture: (a) default in the payment of principal of (or premium, if any, on)
any Note when the same becomes due and payable, whether at maturity, upon
acceleration, redemption or otherwise; (b) default in the payment of interest
on any Note when the same becomes due and payable, and such default continues
for a period of 30 days; (c) default in the payment of principal (or premium,
if any) and interest on Notes required to be purchased pursuant to an Offer to
Purchase as described under the "Limitation on Asset Sales" covenant and under
"Repurchase of Notes upon a Change of Control" when due and payable; (d)
failure to perform or comply with the provisions described under the
"Consolidation, Merger and Sale of Assets" covenant; (e) default in the
performance of or breach of any other covenant or agreement of the Company in
the Indenture or under the Notes and such default or breach continues for a
period of 60 consecutive days after written notice by the Trustee or the
Holders of 25% or more in aggregate principal amount of the Notes; (f) there
occurs with respect to any issue or issues of Indebtedness of the Company or
any Restricted Subsidiary having an outstanding principal amount of $5 million
or more in the aggregate for all
-5-
<PAGE> 16
such issues of all such Persons, whether such Indebtedness now exists or shall
hereafter be created, (I) an event of default that has caused the holder
thereof to declare such Indebtedness to be due and payable prior to its Stated
Maturity and/or (II) the failure to make a payment when due of principal,
premium, if any, or interest and such defaulted payment shall not have been
made, waived or extended by the earliest of (x) the expiration of any
applicable grace period and (y) the 30th day after such payment default; (g)
any final judgment or order (not covered by insurance) for the payment of money
in excess of $5 million in the aggregate for all such final judgments or orders
against all such Persons (treating any deductibles, self-insurance or retention
as not so covered) shall be rendered against the Company or any Restricted
Subsidiary and shall not be paid or discharged, and there shall be any period
of 60 consecutive days following entry of the final judgment or order that
causes the aggregate amount for all such final judgments or orders outstanding
and not paid or discharged against all such Persons to exceed $5 million during
which a stay of enforcement of such final judgment or order, by reason of a
pending appeal or otherwise, shall not be in effect; (h) a court having
jurisdiction in the premises enters a decree or order for (A) relief in respect
of the Company or any Restricted Subsidiary in an involuntary case under any
applicable bankruptcy, insolvency or other similar law now or hereafter in
effect, (B) appointment of a receiver, liquidator, assignee, custodian,
trustee, sequestrator or similar official of the Company or any Restricted
Subsidiary or for all or substantially all of the property and assets of the
Company or any Restricted Subsidiary or (C) the winding up or liquidation of
the affairs of the Company or any Restricted Subsidiary and, in each case, such
decree or order shall remain unstayed and in effect for a period of 30
consecutive days; or (i) the Company or any Restricted Subsidiary (A) commences
a voluntary case under any applicable bankruptcy, insolvency or other similar
law now or hereafter in effect, or consents to the entry of an order for relief
in an involuntary case under any such law, (B) consents to the appointment of
or taking possession by a receiver, liquidator, assignee, custodian, trustee,
sequestrator or similar official of the Company or any Restricted Subsidiary or
for all or substantially all of the property and assets of the Company or any
Restricted Subsidiary or (C) effects any general assignment for the benefit of
creditors.
If a bankruptcy or insolvency default with respect to the
Company or any Restricted Subsidiary occurs and is continuing, Accreted Value
of, premium, if any, and accrued interest, if any, on the Notes automatically
become due and payable. Holders may not enforce the Indenture or the Notes
except as provided in the Indenture. The Trustee may require indemnity
satisfactory to it before it enforces the Indenture or the Notes. Subject to
certain limitations, Holders of at least a majority in principal amount of the
Notes then outstanding may direct the Trustee in its exercise of any trust or
power.
-6-
<PAGE> 17
16. Trustee Dealings with Company.
The Trustee under the Indenture, in its individual or any
other capacity, may make loans to, accept deposits from and perform services
for the Company or its Affiliates and may otherwise deal with the Company or
its Affiliates as if it were not the Trustee.
17. No Recourse Against Others.
No incorporator or any past, present or future partner,
shareholder, other equity holder, officer, director, employee or controlling
person as such, of the Company or of any successor Person shall have any
liability for any obligations of the Company under the Notes or the Indenture
or for any claim based on, in respect of or by reason of, such obligations or
their creation. Each Holder by accepting a Note waives and releases all such
liability. The waiver and release are part of the consideration for the
issuance of the Notes.
18. Authentication.
This Note shall not be valid until the Trustee or
authenticating agent signs the certificate of authentication on the other side
of this Note.
19. Abbreviations.
Customary abbreviations may be used in the name of a Holder or
an assignee, such as: TEN COM (= tenants in common), TEN ENT (= tenants by the
entireties), JT TEN (= joint tenants with right of survivorship and not as
tenants in common), CUST (= Custodian) and U/G/M/A (= Uniform Gifts to Minors
Act).
The Company will furnish to any Holder upon written request
and without charge a copy of the Indenture. Requests may be made to PCS
Development Corporation, 15 South Main Street, Suite 810, Greenville, South
Carolina 29601, Attention: Chief Financial Officer.
II. PROVISIONS RELATING TO THE WARRANTS
The Warrants are part of a duly authorized issue of Warrants
expiring at 5:00 p.m., New York City time, on the earlier to occur of (a) 180
days after an Exercise Event which causes such Warrants to become exercisable
or (b) __________, 2006 (the "Expiration Date"), each of which represents the
right to purchase from the Company at any time on or after the Exercisability
Date (as defined in the Warrant Agreement) one share of Class B Common Stock,
par value $1.00 per share, of the Company, subject to adjustment as set forth
in the Warrant Agreement. The Warrants are issued pursuant to a Warrant
Agreement dated as of ______, 1996 (the "Warrant Agreement"),
-7-
<PAGE> 18
duly executed and delivered by the Company and UNITED STATES TRUST COMPANY OF
NEW YORK, a New York corporation, not in its individual capacity but solely as
Warrant Agent (the "Warrant Agent"), which Warrant Agreement is hereby
incorporated by reference in and made a part of this instrument and is hereby
referred to for a description of the rights, limitation of rights, obligations,
duties and immunities thereunder of the Warrant Agent, the Company and the
holders (the words "holders" or "holder" meaning the registered holders or
registered holder) of the Warrants.
"Exercise Event" means, with respect to each Warrant as to
which such event is applicable, the date of the earliest of: (1) the occurrence
of a Change of Control (as defined in the Warrant Agreement), (2) the
consummation of a Public Equity Offering after which there shall exist a Public
Market (each as defined in the Warrant Agreement), and (3) _______, 2006.
Warrants may be exercised at any time from 9:00 a.m. on or
after the date of occurrence of an Exercise Event, or if the Exercise Event
occurs prior to the Separability Date (as defined in the Warrant Agreement),
the Separability Date, until 5:00 p.m., New York City time on the date of
expiration as described above. If all of the items required for exercise of
Warrants evidenced by Warrant Certificates are received by the Warrant Agent at
or prior to 2:00 p.m., New York City time, on a Business Day, the exercise of
the Warrant to which such items relate will be effective on such Business Day.
If any such items are received after 2:00 p.m., New York City time, on a
Business Day, the exercise of the Warrants to which such item relates will be
deemed to be effective on the next succeeding Business Day. Notwithstanding
the foregoing, in the case of an exercise of Warrants on ______, 2006, if all
of the items required for exercise of this Warrant are received by the Warrant
Agent at or prior to 5:00 p.m., New York City time, on such Expiration Date,
the exercise of the Warrants to which such items relate will be effective on
the Expiration Date.
As soon as practicable after the exercise of any Warrant or
Warrants, the Company shall issue or cause to be issued to or upon the written
order of the registered holder of a Warrant Certificate, a certificate or
certificates evidencing the Warrant Shares to which such holder is entitled, in
fully registered form. Such certificate or certificates evidencing the Warrant
Shares shall be deemed to have been issued and any persons who are designated
to be named therein shall be deemed to have become the holder of record of such
Warrant Shares as of the close of business on the date upon which the exercise
of this Warrant was deemed to be effective as provided in the preceding
paragraph.
The Warrant Agreement provides that the Company will not be
required to issue fractional shares of Class B Common Stock upon exercise of
the Warrants or distribute certificates
-8-
<PAGE> 19
that evidence fractional shares of Class B Common Stock. In lieu of fractional
shares of Class B Common Stock, there shall be paid to the registered holder of
this Warrant Certificate at the time such Warrant Certificate is exercised an
amount in cash equal to the same fraction of the Current Market Value (as
defined in the Warrant Agreement) per share on the Business Day preceding the
date this Warrant Certificate is surrendered for exercise.
The Company is party to a Registration Rights Agreement
pursuant to which it has certain registration obligations with respect to the
Class B Common Stock issuable upon exercise of the Warrants.
Warrant Certificates, when surrendered at any office or agency
maintained by the Company for that purpose by the registered holder thereof in
person or by legal representative or attorney duly authorized in writing, may
be exchanged for a new Warrant Certificate or new Warrant Certificates
evidencing in the aggregate a like number of Warrants, in the manner and
subject to the limitations provided in the Warrant Agreement, without charge
except for any tax or other governmental charge imposed in connection therewith.
Upon due presentment for registration of transfer of this
Warrant Certificate at any office or agency maintained by the Company for that
purpose, a new Warrant Certificate evidencing in the aggregate a like number of
Warrants shall be issued to the transferee in exchange for this Warrant
Certificate, subject to the limitations provided in the Warrant Agreement,
without charge except for any tax or other governmental charge imposed in
connection therewith.
The Company and the Warrant Agent may deem and treat the
registered holder hereof as the absolute owner of this Warrant Certificate
(notwithstanding any notation of ownership or other writing hereon made by
anyone) for the purpose of any exercise hereof and for all other purposes, and
neither the Company nor the Warrant Agent shall be affected by any notice to
the contrary.
Upon the occurrence of an Exercise Event, the Company shall
have the right to make an offer to purchase all outstanding Warrants and
Warrant Shares in cash, within 120 days after such Exercise Event, at a price
equal to the Current Market Value thereof. The offers to purchase set forth in
this and the preceding paragraph will be made in the manner and upon the terms
set forth in the Warrant Agreement.
The Warrant Agreement provides that (i) subject to certain
exceptions upon the issuance of any dividend or distribution pro rata to all
holders of Common Stock, the holders will be entitled to such dividend or
distribution on the terms set forth in the Warrant Agreement and (ii) upon the
occurrence of certain events the number of Warrant Shares of Class B Common
-9-
<PAGE> 20
Stock issuable upon the exercise of each Warrant shall be adjusted.
The term "Business Day" shall mean any day on which (i) banks
in New York City, (ii) the principal national securities exchange or market, if
any, on which the Common Stock is listed or admitted to trading and (iii) the
principal national securities exchange or market, if any, on which the Warrants
are listed or admitted to trading are open for business.
-10-
<PAGE> 21
ASSIGNMENT FORM
I or we assign and transfer this Unit to
________________________________________________________________________________
________________________________________________________________________________
(Print or type name, address and zip code of assignee)
________________________________________________________________________________
(Insert Social Security or other identifying number of assignee)
and irrevocably appoint_________________________________________________________
agent to transfer this Unit on the books of the Company. The agent may
substitute another to act for him.
Dated:__________________ Signed:_______________________________________________
(Sign exactly as name appears on
the other side of this Unit)
Signature Guarantee:____________________________________________________________
Participant in a recognized Signature Guarantee
Medallion Program (or other signature guarantor
program reasonably acceptable to the Trustee)
<PAGE> 22
SCHEDULE OF EXCHANGES OF CERTIFICATED UNITS(1)
The following exchanges of a part of this Global Unit for certificated Units
have been made:
<TABLE>
<CAPTION>
Number of Units of
Decrease in Increase in this Global Signature of
Number of Number of Unit following authorized
Units of this Units of this such decrease officer of
Date of Exchange Global Unit Global Unit (or increase) Unit Agent
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
</TABLE>
- ----------------------------------
(1) This is to be included only if the Unit is in global form.
<PAGE> 23
EXHIBIT B
FORM OF LEGEND FOR GLOBAL UNIT
Any Global Unit authenticated and delivered hereunder shall
bear a legend (which would be in addition to any other legends required in the
case of a Restricted Security) in substantially the following form:
THIS SECURITY IS A GLOBAL UNIT WITHIN THE MEANING OF THE UNIT
AGREEMENT HEREINAFTER REFERRED TO AND IS REGISTERED IN THE NAME OF A
DEPOSITORY OR A NOMINEE OF A DEPOSITORY OR A SUCCESSOR DEPOSITORY.
THIS SECURITY IS NOT EXCHANGEABLE FOR SECURITIES REGISTERED IN THE
NAME OF A PERSON OTHER THAN THE DEPOSITORY OR ITS NOMINEE EXCEPT IN
THE LIMITED CIRCUMSTANCES DESCRIBED IN THE UNIT AGREEMENT, AND NO
TRANSFER OF THIS SECURITY (OTHER THAN A TRANSFER OF THIS SECURITY AS A
WHOLE BY THE DEPOSITORY TO A NOMINEE OF THE DEPOSITORY OR BY A NOMINEE
OF THE DEPOSITORY TO THE DEPOSITORY OR ANOTHER NOMINEE OF THE
DEPOSITORY) MAY BE REGISTERED EXCEPT IN THE LIMITED CIRCUMSTANCES
DESCRIBED IN THE UNIT AGREEMENT.
UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED
REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION
("DTC"), TO ISSUER OR ITS AGENT FOR REGISTRATION OF TRANSFER,
EXCHANGE, OR PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE
NAME OF CEDE & CO. OR IN SUCH OTHER NAME AS IS REQUESTED BY AN
AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO CEDE &
CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED
REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR
VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE
REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.
<PAGE> 1
EXHIBIT 4.11
WARRANT AGREEMENT
Dated as of ________, 1996
Between
PCS DEVELOPMENT CORPORATION,
and
UNITED STATES TRUST COMPANY OF NEW YORK,
as Warrant Agent
----------------
[______]
Warrants to Purchase Class B Common Stock
Par Value $1.00 Per Share
of PCS Development Corporation
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
ARTICLE I
CERTAIN DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . 2
ARTICLE II
ISSUANCE, FORM, EXECUTION, DELIVERY AND
REGISTRATION OF WARRANT CERTIFICATES . . . . . . . . . . . . . . . . . . 5
SECTION 2.1. Issuance of Warrants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
SECTION 2.2. Form of Warrant Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
SECTION 2.3. Execution of Warrant Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
SECTION 2.4. Authentication and Delivery . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
SECTION 2.5. Temporary Warrant Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
SECTION 2.6. Separation of Warrants and Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
SECTION 2.7. Registration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
SECTION 2.8. Registration of Transfers and Exchanges . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
SECTION 2.9. Lost, Stolen, Destroyed, Defaced or Mutilated Warrant Certificates . . . . . . . . . . . . . . 11
SECTION 2.10. Offices for Exercise, etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
ARTICLE III
DURATION, EXERCISE OF WARRANTS AND EXERCISE PRICE . . . . . . . . . . . . . . . 13
SECTION 3.1. Duration of Warrants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
SECTION 3.2. Exercise, Exercise Price, Settlement and Delivery . . . . . . . . . . . . . . . . . . . . . . 13
SECTION 3.3. Cancellation of Warrant Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
SECTION 3.4. Notice of an Exercise Event . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
ARTICLE IV
OTHER PROVISIONS RELATING TO
RIGHTS OF HOLDERS OF WARRANTS . . . . . . . . . . . . . . . . . . . . 16
SECTION 4.1. Enforcement of Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
ARTICLE V
CERTAIN COVENANTS OF THE COMPANY . . . . . . . . . . . . . . . . . . . . 16
SECTION 5.1. Payment of Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
SECTION 5.2. Obtaining Stock Exchange Listings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
SECTION 5.3. Filings with the Commission . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
ARTICLE VI
ADJUSTMENTS . . . . . . . . . . . . . . . . . . . . . . . . . 17
SECTION 6.1. Adjustment of Exercise Rate; Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
</TABLE>
-i-
<PAGE> 3
<TABLE>
<CAPTION>
page
----
<S> <C>
SECTION 6.2. Fractional Warrant Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
SECTION 6.3. Distribution Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
ARTICLE VII
OFFERS TO REPURCHASE . . . . . . . . . . . . . . . . . . . . . . . 23
SECTION 7.1. Offers to Repurchase . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
SECTION 7.2. Procedures for Repurchase . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
SECTION 7.3. Registration and Qualification Under the Securities Laws . . . . . . . . . . . . . . . . . . . 24
ARTICLE VIII
CONCERNING THE WARRANT AGENT . . . . . . . . . . . . . . . . . . . . . 26
SECTION 8.1. Warrant Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
SECTION 8.2. Conditions of Warrant Agent's Obligations. . . . . . . . . . . . . . . . . . . . . . . . . . . 26
SECTION 8.3. Resignation and Appointment of Successor . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
ARTICLE IX
MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . 32
SECTION 9.1. Amendment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
SECTION 9.2. Notices and Demands to the Company and Warrant Agent . . . . . . . . . . . . . . . . . . . . . 32
SECTION 9.3. Addresses for Notices to Parties and for Transmission of Documents . . . . . . . . . . . . . . 32
SECTION 9.4. Notices to Holders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
SECTION 9.5. APPLICABLE LAW . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
SECTION 9.6. Obtaining of Governmental Approvals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
SECTION 9.7. Persons Having Rights Under Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
SECTION 9.8. Headings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
SECTION 9.9. Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
SECTION 9.10. Inspection of Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
EXHIBIT A - Form of Warrant Certificate
</TABLE>
-ii-
<PAGE> 4
INDEX OF DEFINED TERMS
<TABLE>
<CAPTION>
Defined Terms Pages
- ------------- -----
<S> <C>
Affiliate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Business Day . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Capital Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Change of Control . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Commission . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Common Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Communications Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Current Market Value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Definitive Warrants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Distribution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Distribution Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Election to Exercise . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Eligible Guarantor Institution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Exchange Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Exercisability Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Exercise Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Exercise Event . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Exercise Price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Exercise Rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Expiration Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
FCC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Global Warrants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Indenture . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Independent Financial Expert . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
MSP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Officers' Certificate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Prospectus . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Public Equity Offering . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Public Market . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Registrar . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Related Parties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Securities Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
SEMP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Separability Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Separated . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Separation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
STAMP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Time of Determination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Underwriters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Unit Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Unit Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Unit Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Units . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Warrant Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Warrant Agent Office . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
</TABLE>
-iii-
<PAGE> 5
<TABLE>
<CAPTION>
Defined Term Pages
- ------------ -----
<S> <C>
Warrant Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Warrant Exercise Office . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Warrant Register . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Warrant Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Warrants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
</TABLE>
-iv-
<PAGE> 6
WARRANT AGREEMENT
WARRANT AGREEMENT (the "Agreement"), dated as of ________,
1996 by PCS DEVELOPMENT CORPORATION, a Delaware corporation (together with any
successor thereto, the "Company") and UNITED STATES TRUST COMPANY OF NEW YORK,
a New York corporation, not in its individual capacity but solely as warrant
agent (with any successor warrant agent, the "Warrant Agent").
WHEREAS, the Company has entered into an Underwriting
Agreement dated ________, 1996 with Lehman Brothers Inc., Donaldson, Lufkin &
Jenrette Securities Corporation, Chase Securities Inc. and Toronto Dominion
Securities (USA) Inc. (the "Underwriters") in which the Company has agreed to
sell to the Underwriters _______ Units (the "Units") consisting in the
aggregate of (i) $___________ aggregate principal amount at maturity of ___%
Senior Discount Notes due 2006 (the "Notes") to be issued under an indenture
dated as of ___, 1996 (the "Indenture"), between the Company and United States
Trust Company of New York, as trustee (in such capacity, the "Trustee"), and
(ii) _______ Warrants (the "Warrants" and the certificates evidencing the
Warrants being hereinafter referred to as "Warrant Certificates"), each
representing the right to purchase one share of Class B Common Stock, par value
$1.00 per share, of the Company (the "Class B Common Stock"), subject to
adjustment in accordance with the terms hereof;
WHEREAS, each Unit will consist of one Note in the principal
amount of $1,000 and ___ Warrants, and, prior to the separation of the Notes
from the Warrants issued as part of the Units as described herein, the Units
shall be represented by a global unit certificate (the "Unit Certificate")
issued pursuant to the Unit Agreement dated ________, 1996 (the "Unit
Agreement") between the Company, the Warrant Agent, the Trustee and United
States Trust Company of New York, as unit agent (in such capacity, the "Unit
Agent");
WHEREAS, the Warrants and the Notes each comprising part of
the Units shall not be separately transferable until such time on or after the
Separability Date (as defined below) as the registered holder of a Unit or
Units shall have surrendered the Unit Certificate to the Unit Agent, for the
exchange of such Unit or Units, in whole or in part, for a Warrant Certificate
or Certificates evidencing the underlying Warrants and for a Note or Notes of a
like aggregate principal amount of authorized denominations; and
WHEREAS, the Company desires the Warrant Agent to assist the
Company in connection with the issuance, exchange, cancellation, replacement
and exercise of the Warrants, and in this Agreement wishes to set forth, among
other things, the terms and conditions on which the Warrants may be issued,
exchanged, cancelled, replaced and exercised;
<PAGE> 7
2
NOW, THEREFORE, the parties hereto agree as follows:
ARTICLE I
CERTAIN DEFINITIONS
As used in this Agreement, the following terms shall have the
following respective meanings:
"Affiliate" means, when used with reference to any Person, any
other Person directly or indirectly controlling, controlled by, or
under direct or indirect common control with, the referent Person or
such other Person, as the case may be. For the purposes of this
definition, "control" when used with respect to any specified Person
means the power to direct or cause the direction of management or
policies of such Person, directly or indirectly, whether through the
ownership of voting securities, by contract or otherwise; and the
terms "controlling" and "controlled" have meanings corrective of the
foregoing.
"Business Day" means any day on which (i) banks in New York
City, (ii) the principal national securities exchange or market, if
any, on which the Common Stock is listed or admitted to trading and
(iii) the principal national securities exchange or market, if any, on
which the Warrants are listed or admitted to trading are open for
business.
"Capital Stock" means (i) with respect to any person that is a
corporation, any and all shares, interests, participations or other
equivalents (however designated and whether or not voting) or
corporate stock, including each class of common stock and preferred
stock of such person and (ii) with respect to any person that is not a
corporation, any and all partnership or other equity interests of such
person.
"Change of Control" means the occurrence of any of the
following events: (i) a "person" or "group" (within the meaning of
Sections 13(d) and 14(d)(2) of the Exchange Act) becomes the
"beneficial owner" (as defined in Rule 13d-3 under the Exchange Act)
of voting stock having more than 50% of the voting power of the total
voting stock of the Company on a fully diluted basis; (ii) individuals
who at the beginning of any period of two consecutive calendar years
constituted the Board of Directors of the Company (together with any
new directors whose election by the Board of Directors or whose
nomination for election by the Company's shareholders was approved by
a vote of at least two-thirds of the members of the Board of Directors
then in office who either were members of the Board of Directors at
the beginning of such period or whose election or nomination for
election was previously so approved) cease for any reason to
<PAGE> 8
3
constitute a majority of the members of the Board of Directors then in
office; (iii) the sale, lease, transfer, conveyance or other
disposition (other than by way of merger or consolidation), in one or
a series of related transactions, of all or substantially all of the
assets of the Company and its Subsidiaries (as defined in the
Indenture) taken as a whole to any such "person" (other than to the
Company or a Wholly Owned Restricted Subsidiary (as defined in the
Indenture)); (iv) the merger or consolidation of the Company with or
into another corporation or the merger of another corporation with or
into the Company with the effect that immediately after such
transaction any "person" or "group" of persons or entities shall have
become the beneficial owner of securities of the surviving corporation
of such merger or consolidation representing a majority of the
combined voting power of the outstanding securities of the surviving
corporation ordinarily having the right to vote in the election of
directors; or (v) the adoption of a plan relating to the liquidation
or dissolution of the Company.
"Commission" means the Securities and Exchange Commission.
"Common Stock" means both the Class A Common Stock, par value
$1.00 per share, and the Class B Common Stock of the Company, par
value $1.00 per share, and any other Capital Stock of the Company into
which such Common Stock may be converted or reclassified or that may
be issued in respect of, in exchange for, or in substitution for, such
Common Stock by reason of any stock splits, stock dividends,
distributions, mergers, consolidations or other like events.
"Communications Act" means the Communications Act of 1934, as
amended, and the rules and regulations of the FCC thereunder.
"Current Market Value" per share of Class B Common Stock or
any other security at any date means (1) if the security is not
registered under the Exchange Act, the value of the security
determined as of such date by the Independent Financial Expert
(selected in accordance with Section 7.1. hereof) and approved by the
Board of Directors of the Company, or (2) if the security is
registered under the Exchange Act, the average of the daily closing
bid prices for each Business Day during the period commencing 15
Business Days before such date and ending on the date one day prior to
such date or, if the security has been registered under the Exchange
Act for less than 15 consecutive Business Days before such date, then
the average of the daily closing bid prices for all of the Business
Days before such date for which daily closing bids prices are
available. If the closing bid price is not determinable for at least
10 Business Days in such period, the Current Market Value of the
security shall be determined as if the security was not registered
under the Exchange Act. Current Market Value with respect to a
Warrant means the Current Market
<PAGE> 9
4
Value of a Warrant Share and all other property acquirable upon
exercise in full of such Warrant. Current Market Value shall be
determined without any discount for lack of liquidity, the amount of
Class B Common Stock proposed to be sold or the fact that the Warrant
Shares or Class B Common Stock held may represent a minority interest
in a private company.
"Exchange Act" means the Exchange Act of 1934, as amended, and
the rules and regulations of the Commission thereunder.
"Exercisability Date" means the date of occurrences of any
Exercise Event, provided that if an Exercise Event occurs prior to the
Separability Date, the Separability Date shall instead be the
Exercisability Date.
"Exercise Event" means, with respect to each Warrant as to
which such event is applicable, the date of the earliest of: (1) the
occurrence of a Change of Control, (2) the consummation of a Public
Equity Offering after which there shall exist a Public Market and (3)
, 2006.
"FCC" means the Federal Communications Commission.
"Independent Financial Expert" means a nationally recognized
investment banking firm which is not an affiliate of the Company.
"Public Equity Offering" means a primary public offering
(whether or not underwritten, but excluding any offering pursuant to
Form S-4 or S-8 under the Securities Act) of Common Stock of the
Company pursuant to an effective registration statement under the
Securities Act.
"Public Market" means any time after (x) a Public Equity
Offering has been consummated and (y) at least 20% of the total issued
and outstanding Common Stock of the Company has been distributed by
means of an effective registration statement under the Securities Act.
"Securities Act" means the Securities Act of 1933, as amended,
and the rules and regulations of the Commission thereunder.
"Separability Date" shall mean the earliest to occur of: (i)
_______, 1996, (ii) such earlier date as may be determined by Lehman
Brothers Inc. and specified to the Company, the Trustee, the Warrant
Agent and the Unit Agent in writing, (iii) the occurrence of a Change
of Control and (iv) in the event of an Offer to Purchase in connection
with
<PAGE> 10
5
any Asset Sale (each as defined in the Indenture), the date the
Company mails notice thereof to the holders of the Notes, at which
time the Notes and the Warrants will become separately transferable.
"Time of Determination" means the time and date of the
determination of stockholders entitled to receive rights, warrants or
options, in each case, to which Section 6.1(b) hereof applies.
ARTICLE II
ISSUANCE, FORM, EXECUTION, DELIVERY AND
REGISTRATION OF WARRANT CERTIFICATES
SECTION 2.1. Issuance of Warrants. Warrants comprising part
of the Units shall be originally issued in connection with the issuance of the
Units and such Warrants shall not be separately transferable from the Notes
until on or after the Separability Date as provided in Section 2.6. hereof.
Each Warrant Certificate shall evidence the number of Warrants
specified therein, and each Warrant evidenced thereby shall represent the
right, subject to the provisions contained herein and therein, to purchase from
the Company (and the Company shall issue and sell to such holder of the
Warrant) one fully paid and non-assessable share of Class B Common Stock (the
shares of Class B Common Stock purchasable upon exercise of a Warrant being
hereinafter referred to as the "Warrant Shares" and, where appropriate, such
term shall also mean the other securities or property purchasable and
deliverable upon exercise of a Warrant as provided in Article VI) at the price
specified herein and therein, in each case subject to adjustment as provided
herein and therein.
SECTION 2.2. Form of Warrant Certificates. The Warrant
Certificates will initially be issued in registered, global form (the "Global
Warrants"), substantially in the form of Exhibit A attached hereto (including
footnote 1 thereto) and may also be issued in registered form as definitive
Warrant Certificates (the "Definitive Warrants"). The Warrant Certificates
evidencing the Global Warrants or the Definitive Warrants to be delivered
pursuant to this Agreement shall be substantially in the form set forth in
Exhibit A attached hereto. Any certificates evidencing Global Warrants shall
bear the legend set forth in Exhibit B attached hereto. Such Global Warrants
shall represent such of the outstanding Warrants as shall be specified therein
and each shall provide that it shall represent the aggregate number of
outstanding Warrants from time to time endorsed thereon and that the aggregate
number of outstanding Warrants represented thereby may from time to time be
reduced or increased, as appropriate. Any endorsement of a Global Warrant to
reflect the amount of any increase or decrease in the number
<PAGE> 11
6
of outstanding Warrants represented thereby shall be made by the Warrant Agent
and the Depositary (as defined below) in accordance with instructions given by
the holder thereof. The Depository Trust Company shall act as the Depositary
with respect to the Global Warrants until a successor shall be appointed by the
Company and the Warrant Agent. Upon written request, a Warrant holder may
receive from the Warrant Agent Definitive Warrants as set forth in Section 2.8.
hereof.
SECTION 2.3. Execution of Warrant Certificates. The Warrant
Certificates shall be executed on behalf of the Company by the chairman of its
Board of Directors, its president or any vice president and attested by its
secretary or assistant secretary, under its corporate seal. Such signatures
may be the manual or facsimile signatures of any person who is an officer or
assistant secretary as of or subsequent to the date hereof. The seal of the
Company may be in the form of a facsimile thereof and may be impressed,
affixed, imprinted or otherwise reproduced on the Warrant Certificates.
Typographical and other minor errors or defects in any such reproduction of the
seal or any such signature shall not affect the validity or enforceability of
any Warrant Certificate that has been duly countersigned and delivered by the
Warrant Agent.
In case any officer of the Company who shall have signed any
of the Warrant Certificates shall cease to be such officer before the Warrant
Certificate so signed shall be countersigned and delivered by the Warrant Agent
or disposed of by the Company, such Warrant Certificate nevertheless may be
countersigned and delivered or disposed of as though the person who signed such
Warrant Certificate had not ceased to be such officer of the Company; and any
Warrant Certificate may be signed on behalf of the Company by such persons as,
at the actual date of the execution of such Warrant Certificate, shall be the
proper officers of the Company, although at the date of the execution and
delivery of this Agreement any such person was not such an officer.
SECTION 2.4. Authentication and Delivery. Subject to the
immediately following paragraph, Warrant Certificates shall be authenticated by
manual signature and dated the date of authentication by the Warrant Agent and
shall not be valid for any purpose unless so authenticated and dated. The
Warrant Certificates shall be numbered and shall be registered in the Warrant
Register.
Upon the receipt by the Warrant Agent of a written order of
the Company, which order shall be signed by the chairman of its Board of
Directors, its president or any vice president and attested by its secretary or
assistant secretary, and shall specify the amount of Warrants to be
authenticated, whether the Warrants are to be Global Warrants or Definitive
Warrants, the date of such Warrants and such other information as the Warrant
Agent may reasonably request, without any further action by the
<PAGE> 12
7
Company, the Warrant Agent is authorized, upon receipt from the Company at any
time and from time to time of the Warrant Certificates, duly executed as
provided in Section 2.3. hereof, to authenticate the Warrant Certificates and
deliver them; provided that subsequent to the original issuance of a Warrant
Certificate evidencing Warrants, the Warrant Agent shall authenticate a new
Warrant Certificate evidencing such Warrants only if such Warrant Certificate
is issued in exchange or substitution for one or more previously authenticated
Warrant Certificates evidencing such Warrants or in connection with their
transfer as hereinafter provided. Such authentication shall be by a duly
authorized signatory of the Warrant Agent (although it shall not be necessary
for the same signatory to sign all Warrant Certificates).
In case any authorized signatory of the Warrant Agent who
shall have authenticated any of the Warrant Certificates shall cease to be such
authorized signatory before the Warrant Certificate shall be disposed of by the
Company, such Warrant Certificate nevertheless may be delivered or disposed of
as though the person who authenticated such Warrant Certificate had not ceased
to be such authorized signatory of the Warrant Agent; and any Warrant
Certificate may be authenticated on behalf of the Warrant Agent by such persons
as, at the actual time of authentication of such Warrant Certificates, shall be
the duly authorized signatories of the Warrant Agent, although at the time of
the execution and delivery of this Agreement any such person is not such an
authorized signatory.
The Warrant Agent's authentication on all Warrant Certificates
shall be in substantially the form set forth in Exhibit A hereto.
SECTION 2.5. Temporary Warrant Certificates. Pending the
preparation of definitive Warrant Certificates, the Company may execute, and
the Warrant Agent shall authenticate and deliver, temporary Warrant
Certificates, which are printed, lithographed, typewritten or otherwise
produced, substantially of the tenor of the definitive Warrant Certificates in
lieu of which they are issued and with such appropriate insertions, omissions,
substitutions and other variations as the officers executing such Warrant
Certificates may determine, as evidenced by their execution of such Warrant
Certificates.
If temporary Warrant Certificates are issued, the Company will
cause definitive Warrant Certificates to be prepared without unreasonable
delay. After the preparation of definitive Warrant Certificates, the temporary
Warrant Certificates shall be exchangeable for definitive Warrant Certificates
upon surrender of the temporary Warrant Certificates at any office or agency
maintained by the Company for that purpose pursuant to Section 2.10. hereof.
Subject to the provisions of Section 5.1. hereof, such exchange shall be
without charge to the holder. Upon surrender for cancellation of any one or
more temporary Warrant
<PAGE> 13
8
Certificates, the Company shall execute, and the Warrant Agent shall
authenticate and deliver in exchange therefor, one or more definitive Warrant
Certificates representing in the aggregate a like number of Warrants. Until so
exchanged, the holder of a temporary Warrant Certificate shall in all respects
be entitled to the same benefits under this Agreement as a holder of a
definitive Warrant Certificate.
SECTION 2.6. Separation of Warrants and Notes. The Notes and
Warrants will not be separately transferable until the Separability Date. The
surrender of a Unit Certificate for separate Warrant and Note certificates is
herein referred to as a "Separation", the related Warrants being referred to as
"Separated".
SECTION 2.7. Registration. The Company will keep, at the
office or agency maintained by the Company for such purpose, a register or
registers in which, subject to such reasonable regulations as it may prescribe,
the Company shall provide for the registration of, and registration of transfer
and exchange of, Warrants as provided in this Article. Each person designated
by the Company from time to time as a person authorized to register the
transfer and exchange of the Warrants is hereinafter called, individually and
collectively, the "Registrar". The Company hereby initially appoints the
Warrant Agent as Registrar. Upon written notice to the Warrant Agent and any
acting Registrar, the Company may appoint a successor Registrar for such
purposes.
The Company will at all times designate one person (who may be
the Company and who need not be a Registrar) to act as repository of a master
list of names and addresses of the holders of Warrants (the "Warrant
Register"). The Warrant Agent will act as such repository unless and until
some other person is, by written notice from the Company to the Warrant Agent
and the Registrar, designated by the Company to act as such. The Company shall
cause each Registrar to furnish to such repository, on a current basis, such
information as to all registrations of transfer and exchanges effected by such
Registrar, as may be necessary to enable such repository to maintain the
Warrant Register on as current a basis as is practicable.
SECTION 2.8. Registration of Transfers and Exchanges.
(a) Transfer and Exchange of Definitive Warrants. When
Definitive Warrants are presented to the Warrant Agent with a request (i) to
register the transfer of Definitive Warrants or (ii) to exchange such
Definitive Warrants for an equal number of Definitive Warrants, the Warrant
Agent shall register the transfer or make the exchange as requested so long as
the Definitive Warrants presented or surrendered for registration of transfer
or exchange shall be duly endorsed or accompanied by a written instruction of
transfer in form satisfactory to the
<PAGE> 14
9
Company and the Warrant Agent, duly executed by the holder thereof or by his
attorney, duly authorized in writing.
(b) Transfer of a Definitive Warrant for a Beneficial
Interest in the Global Warrant. A Definitive Warrant may not be exchanged for
a beneficial interest in a Global Warrant except upon receipt by the Warrant
Agent of a Definitive Warrant, duly endorsed or accompanied by appropriate
instruments of transfer, in form satisfactory to the Warrant Agent, together
with written instructions directing the Warrant Agent to make, or to direct the
Depositary to make, an endorsement on the Global Warrant to reflect an increase
in the aggregate number of the Warrants represented by the Global Warrant,
after which the Warrant Agent shall cancel such Definitive Warrant and cause,
or direct the Depositary to cause, in accordance with the standing instructions
and procedures existing between the Depositary and the Warrant Agent, the
number of Warrants represented by the Global Warrant to be increased
accordingly. If no Global Warrant is then outstanding, the Company shall issue
and the Warrant Agent shall authenticate a new Global Warrant in the
appropriate amount.
(c) Transfer and Exchange of the Global Warrant. The
transfer and exchange of the Global Warrant or beneficial interests therein
shall be effected through the Depositary, in accordance with this Warrant
Agreement and the procedures of the Depositary therefor. Notwithstanding any
other provisions of this Warrant Agreement (other than the provisions set forth
in subsection (f) of this Section 2.8.), the Global Warrant may not be
transferred as a whole except by the Depositary to a nominee of the Depositary
or by a nominee of the Depositary to the Depositary or another nominee of the
Depositary or by the Depositary or any such nominee to a successor Depositary
or a nominee of such successor Depositary, provided that if at any time:
(i) the Depositary for the Warrants notifies the Company
that the Depositary is unwilling or unable to continue as Depositary
for the Global Warrant and a successor Depositary for the Global
Warrant is not appointed by the Company within 90 days after delivery
of such notice; or
(ii) the Company, at its sole discretion, notifies the
Warrant Agent in writing that it elects to cause the issuance of
Definitive Warrants under this Warrant Agreement,
then the Company will execute, and the Warrant Agent, upon receipt of an
officers' certificate signed by two officers of the Company (one of whom must
be the principal executive officer, principal financial officer or principal
accounting officer) (an "Officers' Certificate") requesting the authentication
and delivery of Definitive Warrants, will authenticate and deliver Definitive
Warrants, in an aggregate number equal to the
<PAGE> 15
10
aggregate number of warrants represented by the Global Warrant, in exchange for
such Global Warrant.
(d) Transfer of a Beneficial Interest in the Global
Warrant for a Definitive Warrant.
(i) Any person having a beneficial interest in the Global
Warrant may upon request exchange such beneficial interest for a
Definitive Warrant (as described below). Upon receipt by the Warrant
Agent of written instructions or such other form of instructions as is
customary for the Depositary from the Depositary or its nominee on
behalf of any person having a beneficial interest in the Global
Warrant and upon receipt by the Warrant Agent of a written order or
such other form of instructions as is customary for the Depositary or
the person designated by the Depositary as having such a beneficial
interest containing registration instructions, then the Warrant Agent
will cause, in accordance with the standing instructions and
procedures existing between the Depositary and the Warrant Agent, the
aggregate number of Warrants represented by the Global Warrant to be
reduced and, following such reduction, the Company will execute and,
upon receipt of an authentication order in the form of an Officers'
Certificate, the Warrant Agent will authenticate and deliver to the
transferee a Definitive Warrant.
(ii) Definitive Warrants issued in exchange for a
beneficial interest in the Global Warrant pursuant to this Section
2.8(d) shall be registered in such names and for such number of
Warrants as the Depositary, pursuant to instructions from its direct
or indirect participants or otherwise, shall instruct the Warrant
Agent in writing. The Warrant Agent shall deliver such Definitive
Warrants to the persons in whose names such Warrants are so
registered.
(e) Legends. Each Warrant Certificate evidencing the Global
Warrants and the Definitive Warrants (and all Warrants issued in exchange
therefor or substitution thereof) shall bear the legends substantially in the
form set forth on the face of the Form of the Warrant Certificate attached
hereto as Exhibit A, and, in the case of the Global Warrant, shall also bear
the legend substantially in the form attached hereto as Exhibit B.
(f) Cancellation and/or Adjustment of the Global Warrant.
At such time as all beneficial interests in the Global Warrant have either been
exchanged for Definitive Warrants, redeemed, repurchased or cancelled, such
Global Warrant shall be returned to or retained and cancelled by the Warrant
Agent. At any time prior to such cancellation, if any beneficial interest in
the Global Warrant is exchanged for Definitive Warrants, redeemed, repurchased
or cancelled, the number of Warrants represented by such Global Warrant shall
be reduced and an
<PAGE> 16
11
endorsement shall be made on such Global Warrant, by the Warrant Agent to
reflect such reduction.
(g) Obligations with Respect to Transfers and Exchanges of
Definitive Warrants. To permit registrations of transfers and exchanges, the
Company shall execute, at the Warrant Agent's request, and the Warrant Agent
shall authenticate Definitive Warrants and Global Warrants. All Definitive
Warrants and Global Warrants issued upon any registration, transfer or exchange
of Definitive Warrants or Global Warrants shall be the valid obligations of the
Company, entitled to the same benefits under this Warrant Agreement as the
Definitive Warrants or Global Warrants surrendered upon such registration,
transfer or exchange. Prior to due presentment for registration or transfer of
any Warrant, the Warrant Agent and the Company may deem and treat the person in
whose name any Warrant is registered as the absolute owner of such Warrant, and
neither the Warrant Agent nor the Company shall be affected by notice to the
contrary.
SECTION 2.9. Lost, Stolen, Destroyed, Defaced or Mutilated
Warrant Certificates. Upon receipt by the Company and the Warrant Agent (or
any agent of the Company or the Warrant Agent, if requested by the Company) of
evidence satisfactory to them of the loss, theft, destruction, defacement, or
mutilation of any Warrant Certificate and of indemnity satisfactory to them
and, in the case of mutilation or defacement, upon surrender thereof to the
Warrant Agent for cancellation, then, in the absence of notice to the Company
or the Warrant Agent that such Warrant Certificate has been acquired by a bona
fide purchaser or holder in due course, the Company shall execute, and an
authorized signatory of the Warrant Agent shall manually authenticate and
deliver, in exchange for or in lieu of the lost, stolen, destroyed, defaced or
mutilated Warrant Certificate, a new Warrant Certificate representing a like
number of Warrants, bearing a number or other distinguishing symbol not
contemporaneously outstanding. Upon the issuance of any new Warrant
Certificate under this Section 2.9., the Company may require the payment from
the holder of such Warrant Certificate of a sum sufficient to cover any tax,
stamp tax or other governmental charge that may be imposed in relation thereto
and any other expenses (including the fees and expenses of the Warrant Agent
and the Registrar) in connection therewith. Every substitute Warrant
Certificate executed and delivered pursuant to this Section 2.9. in lieu of any
lost, stolen or destroyed Warrant Certificate shall constitute an additional
contractual obligation of the Company, whether or not the lost, stolen or
destroyed Warrant Certificate shall be at any time enforceable by anyone, and
shall be entitled to the benefits of (but shall be subject to all the
limitations of rights set forth in) this Agreement equally and proportionately
with any and all other Warrant Certificates duly executed and delivered
hereunder. The provisions of this Section 2.9. are exclusive with respect to
the replacement of lost, stolen, destroyed, defaced or mutilated Warrant
Certificates and shall preclude (to the extent lawful)
<PAGE> 17
12
any and all other rights or remedies notwithstanding any law or statute
existing or hereafter enacted to the contrary with respect to the replacement
of lost, stolen, destroyed, defaced or mutilated Warrant Certificates.
The Warrant Agent is hereby authorized to authenticate in
accordance with the provisions of this Agreement, and deliver the new Warrant
Certificates required pursuant to the provisions of this Section.
SECTION 2.10. Offices for Exercise, etc. So long as any of
the Warrants remain outstanding, the Company will designate and maintain in the
Borough of Manhattan, The City of New York: (a) an office or agency where the
Warrant Certificates may be presented for exercise, (b) an office or agency
where the Warrant Certificates may be presented for registration of transfer
and for exchange (including the exchange of temporary Warrant Certificates for
definitive Warrant Certificates pursuant to Section 2.5. hereof), and (c) an
office or agency where notices and demands to or upon the Company in respect of
the Warrants or of this Agreement may be served. The Company may from time to
time change or rescind such designation, as it may deem desirable or expedient;
provided, however, that an office or agency shall at all times be maintained in
the Borough of Manhattan, The City of New York, as provided in the first
sentence of this Section. In addition to such office or offices or agency or
agencies, the Company may from time to time designate and maintain one or more
additional offices or agencies within or outside The City of New York, where
Warrant Certificates may be presented for exercise or for registration of
transfer or for exchange, and the Company may from time to time change or
rescind such designation, as it may deem desirable or expedient. The Company
will give to the Warrant Agent written notice of the location of any such
office or agency and of any change of location thereof. The Company hereby
designates the Warrant Agent at its corporate trust office in the Borough of
Manhattan, The City of New York (the "Warrant Agent Office"), as the initial
agency maintained for each such purpose. In case the Company shall fail to
maintain any such office or agency or shall fail to give such notice of the
location or of any change in the location thereof, presentations and demands
may be made and notice may be served at the Warrant Agent Office and the
Company appoints the Warrant Agent as its agent to receive all such
presentations, surrenders, notices and demands.
ARTICLE III
DURATION, EXERCISE OF WARRANTS AND EXERCISE PRICE
SECTION 3.1. Duration of Warrants. Subject to the terms and
conditions established herein, unless exercised, the Warrants shall expire at
5:00 p.m., New York City time, on the earlier to occur of (i) 180 days after an
Exercise Event and (ii)
<PAGE> 18
13
________, 2006 (the "Expiration Date"). Each Warrant may be exercised on any
Business Day on or after the Exercisability Date and on or prior to the
Expiration Date.
Any Warrant not exercised before the close of business on the
Expiration Date shall become void, and all rights of the holder under the
Warrant Certificate evidencing such Warrant and under this Agreement shall
cease.
SECTION 3.2. Exercise, Exercise Price, Settlement and
Delivery. (a) Subject to the provisions of this Agreement, each holder of a
Warrant shall have the right to purchase from the Company on or after the
Exercisability Date, and on or prior to the Expiration Date, one fully paid,
registered and non-assessable Warrant Share, subject to adjustment in
accordance with Article VI hereof, at a purchase price of $0.01 for each
Warrant exercised (the "Exercise Price"). The number and kind of Warrant
Shares for which a Warrant may be exercised (the "Exercise Rate") shall be
subject to adjustment from time to time as set forth in Article VI hereof.
(b) Warrants may be exercised on or after the Exercisability
Date by (i) surrendering at any office or agency maintained for that purpose by
the Company pursuant to Section 2.10. (each a "Warrant Exercise Office") the
Warrant Certificate or Warrant Certificates evidencing such Warrants with the
form of election to purchase Warrant Shares set forth on the reverse side of
each Warrant Certificate (the "Election to Exercise") duly completed and signed
by the registered holder or holders thereof or by the duly appointed legal
representative thereof or by a duly authorized attorney, and in the case of a
transfer, such signature shall be guaranteed by an Eligible Guarantor
Institution (as defined below), and (ii) paying in full the Exercise Price for
each such Warrant exercised and any other amounts required to be paid pursuant
to Section 2.8(h) hereof. Each Warrant may be exercised only in whole.
"Eligible Guarantor Institution" shall mean a member of the Securities Transfer
Agents Medallion Program ("STAMP"), the New York Stock Exchange Medallion
Signature Program ("MSP") or the Stock Exchange Medallion Program ("SEMP").
The registered holder of the Global Warrant shall not be able to exercise the
Global Warrant for Warrant Shares. In order to exercise the Warrants
represented by the Global Warrant, the beneficial owner thereof must either (x)
first obtain a Definitive Warrant pursuant to the provision of the Agreement
and comply with the procedures set forth in this paragraph (b) or (y) instruct
the Warrant Agent to arrange for a book-entry delivery of the Warrants to be
exercised to an account maintained by the Depositary for the Warrant Agent if
such arrangement is then available.
(c) Simultaneously with the exercise of each Warrant, payment
in full of the Exercise Price shall be made either (i) in cash or by certified
or official bank check or (ii) in accordance with the next succeeding sentence,
in each case to be delivered
<PAGE> 19
14
to the office or agency where the Warrant Certificate is being surrendered.
Each holder may also exercise its right to receive Warrant Shares on a net
basis, such that, without the exchange of any funds, the holder receives that
number of Warrant Shares otherwise issuable upon exercise of the Warrants less
that number of Warrant Shares having a value equal to the aggregate Exercise
Price that would otherwise have been paid by the holder of the Warrant Shares.
The Company reserves the right at any time and from time to time to waive the
amount of the Exercise Price upon the exercise of the Warrants.
(d) Upon such surrender of a Warrant Certificate and payment
and collection of the Exercise Price at any Warrant Exercise Office (other than
any Warrant Exercise Office that also is an office of the Warrant Agent), such
Warrant Certificate and payment shall be promptly delivered to the Warrant
Agent. The "Exercise Date" for a Warrant shall be the date when all of the
items referred to in the first sentence of paragraphs (b) and (c) of this
Section 3.2. are received by the Warrant Agent at or prior to 2:00 p.m., New
York City time, on a Business Day and the exercise of the Warrants will be
effective as of such Exercise Date. If any items referred to in the first
sentence of paragraphs (b) and (c) are received after 2:00 p.m., New York City
time, on a Business Day, the exercise of the Warrants to which such item
relates will be effective on the next succeeding Business Day. Notwithstanding
the foregoing, in the case of an exercise of Warrants on the Expiration Date,
if all of the items referred to in the first sentence of paragraphs (b) and (c)
are received by the Warrant Agent at or prior to 5:00 p.m., New York City time,
on such Expiration Date, the exercise of the Warrants to which such items
relate will be effective on the Expiration Date.
(e) Upon the exercise of a Warrant in accordance with the
terms hereof, the receipt of a Warrant Certificate and payment of the Exercise
Price, the Warrant Agent shall: (i) cause an amount equal to any cash Exercise
Price to be paid to the Company by crediting the same to the account designated
by the Company in writing to the Warrant Agent for that purpose; (ii) advise
the Company immediately by telephone of any amount so deposited to the
Company's account and promptly confirm such telephonic advice in writing; and
(iii) as soon as practicable, advise the Company in writing of the number of
Warrants exercised in accordance with the terms and conditions of this
Agreement and the Warrant Certificates, the instructions of each exercising
holder of the Warrant Certificates with respect to delivery of the Warrant
Shares to which such holder is entitled upon such exercise, and such other
information as the Company shall reasonably request.
(f) Subject to Section 6.2. hereof, as soon as practicable
after the exercise of any Warrant or Warrants in accordance with the terms
hereof, the Company shall issue or cause to be issued to or upon the written
order of the registered
<PAGE> 20
15
holder of the Warrant Certificate evidencing such exercised Warrant or
Warrants, a certificate or certificates evidencing the Warrant Shares to which
such holder is entitled, in fully registered form, registered in such name or
names as may be directed by such holder pursuant to the Election to Exercise,
as set forth on the reverse of the Warrant Certificate. Such certificate or
certificates evidencing the Warrant Shares shall be deemed to have been issued
and any persons who are designated to be named therein shall be deemed to have
become the holder of record of such shares as of the close of business on the
Exercise Date. After such exercise of any Warrant or Warrants, the Company
shall also issue or cause to be issued to or upon the written order of the
registered holder of such Warrant Certificate, a new Warrant Certificate,
countersigned by the Warrant Agent pursuant to written instruction, evidencing
the number of Warrants, if any, remaining unexercised unless such Warrants
shall have expired.
(g) NOTWITHSTANDING THE FOREGOING, THE EXERCISE OF THE
WARRANTS (AND THE OWNERSHIP OF CLASS B COMMON STOCK ISSUABLE UPON THE EXERCISE
THEREOF) MAY BE LIMITED BY THE COMPANY IN ORDER TO ENSURE COMPLIANCE WITH THE
RULES AND REGULATIONS OF THE FCC, AND THE WARRANTS WILL NOT BE EXERCISABLE BY
ANY HOLDER IF SUCH EXERCISE WOULD CAUSE THE COMPANY TO BE IN VIOLATION OF THE
COMMUNICATIONS ACT OR THE FCC'S RULES, REGULATIONS OR POLICIES.
In the event the Company is restricted by the Communications
Act or the FCC's rules, regulations or policies from issuing Warrant Shares
upon exercise of any Warrants, the Company shall be required to pay to each
holder of each Warrant seeking to exercise such Warrant an amount per Warrant
in cash equal to the Current Market Value thereof as of the date of such
proposed exercise.
SECTION 3.3. Cancellation of Warrant Certificates. In the
event the Company shall purchase or otherwise acquire Warrants, the Warrant
Certificates evidencing such Warrants may thereupon be delivered to the Warrant
Agent, and if so delivered, shall be canceled by it and retired. The Warrant
Agent shall cancel all Warrant Certificates properly surrendered for exchange,
substitution, transfer or exercise. The Warrant Agent shall destroy canceled
Warrant Certificates held by it and deliver a certificate of destruction to the
Company.
SECTION 3.4. Notice of an Exercise Event. Upon the
occurrence of an Exercise Event, the Company shall (i) send promptly to each
holder of Warrants, by first-class mail, at the addresses appearing on the
Warrant Register a notice of such Exercise Event, which notice shall describe
the type of Exercise Event and the date of the occurrence thereof and the date
of expiration of the right to exercise the Warrants prominently set forth in
the face of such notice and (ii) cause a notice of such Exercise Event to be
published in the Wall Street Journal, National Edition, for two consecutive
Business Days; such notice
<PAGE> 21
16
shall identify the Warrants and describe the type of Exercise Event and give
the date of the occurrence thereof and the Expiration Date.
ARTICLE IV
OTHER PROVISIONS RELATING TO
RIGHTS OF HOLDERS OF WARRANTS
SECTION 4.1. Enforcement of Rights. (a) Notwithstanding any
of the provisions of this Agreement, any holder of any Warrant Certificate,
without the consent of the Warrant Agent, the holder of any shares or the
holder of any other Warrant Certificate, may, in and for his own behalf,
enforce, and may institute and maintain any suit, action or proceeding against
the Company suitable to enforce, his right to exercise the Warrant or Warrants
evidenced by his Warrant Certificate in the manner provided in such Warrant
Certificate and in this Agreement.
(b) Subject to Section 6.3. hereof, neither the Warrants nor
any Warrant Certificate shall entitle the holders thereof, by virtue of being
such holders, to any of the rights of a holder of shares of Common Stock,
including, without limitation, the right to vote or to consent or to receive
notice as stockholders in respect of the meetings of stockholders or for the
election of directors of the Company or any other matter.
ARTICLE V
CERTAIN COVENANTS OF THE COMPANY
SECTION 5.1. Payment of Taxes. The Company will pay all
documentary stamp taxes attributable to the initial issuance of the Warrants
and of the Warrant Shares upon the exercise of the Warrants or to any
Separation; provided, however, that the Company shall not be required to pay
any tax or other governmental charge which may be payable in respect of any
transfer or exchange of any Warrant Certificate or any certificate for Warrant
Shares in a name other than the registered holder of a Warrant Certificate
surrendered upon the exercise of a Warrant. In any such case, no transfer or
exchange shall be made unless or until the person or persons requesting
issuance thereof shall have paid to the Company the amount of such tax or other
governmental charge or shall have established to the satisfaction of the
Company that such tax or other governmental charge has been paid or an
exemption is available therefrom.
SECTION 5.2. Obtaining Stock Exchange Listings. The Company
will from time to time take all action which may be
<PAGE> 22
17
necessary so that the Warrant Shares, immediately upon their issuance upon the
exercise of the Warrants, will be listed on the principal securities exchanges
and markets (including, without limitation, the NASDAQ/NMS) within the United
States of America, if any, on which other shares of Common Stock are then
listed. Upon the listing of such Warrant Shares,the Company shall notify the
Warrant Agent in writing. The Company will obtain and keep all required
permits and records in connection with such listing.
SECTION 5.3. Filings with the Commission. So long as any of
the Warrants or Warrant Shares are outstanding, the Company will file with the
Commission the annual reports, quarterly reports and other documents which the
Company would have been required to file with the Commission pursuant to
Section 13(a) or 15(d) of the Exchange Act if the Company were subject to such
Sections and will also provide to all holders of the Warrants or Warrant Shares
and file with the Warrant Agent copies of such reports.
ARTICLE VI
ADJUSTMENTS
SECTION 6.1. Adjustment of Exercise Rate; Notices. The
Exercise Rate is subject to adjustment from time to time as provided in this
Section.
(a) Adjustment for Change in Capital Stock. If, after the
date hereof, the Company:
(i) subdivides its outstanding shares of Common Stock
into a greater number of shares;
(ii) combines its outstanding shares of Common Stock into
a smaller number of shares; or
(iii) issues by reclassification of its Common Stock any
shares of its Common Stock (other than rights, warrants or options for
its Common Stock);
then the Exercise Rate in effect immediately prior to such action shall be
adjusted so that the holder of a Warrant thereafter exercised may receive the
number of shares of Capital Stock of the Company which such holder would have
owned immediately following the action(s) specified in clause (i), (ii) or
(iii) above if such holder had exercised the Warrant immediately prior to such
action or immediately prior to the record date applicable thereto, if any.
The adjustment shall become effective immediately after the
effective date. In the event that such subdivision, combination or
reclassification is not effected, the Exercise
<PAGE> 23
18
Rate shall again be adjusted to be the Exercise Rate which would then be in
effect if such effective date had not been so fixed.
If after an adjustment a holder of a Warrant upon exercise of
such Warrant may receive shares of two or more classes of Capital Stock of the
Company, the Exercise Rate shall thereafter be subject to adjustment upon the
occurrence of an action taken with respect to any such class of Capital Stock
as is contemplated by this Article VI with respect to the Common Stock, on
terms comparable to those applicable to Common Stock in this Article VI.
(b) Adjustment for Sale of Common Stock Below Current Market
Value. If, after the date hereof, the Company sells any Common Stock or any
securities convertible into or exchangeable or exercisable for the Common Stock
(other than (1) pursuant to the exercise of the Warrants, (2) any security
convertible into, or exchangeable or exercisable for, the Common Stock as to
which the issuance thereof has previously been the subject of any required
adjustment pursuant to this Article VI and (3) grants to employees of options
to purchase shares of Common Stock in the ordinary course of business in
accordance with past practice) at a price per share less than the Current
Market Value, the Exercise Rate shall be adjusted in accordance with the
formula:
(O + N)
E' = E x ---------------
(O + (N x P/M))
where:
E' = the adjusted Exercise Rate;
E = the current Exercise Rate;
O = the number of shares of Common Stock outstanding on
the date of sale of Common Stock (or securities
convertible into or exchangeable or exercisable for
such Common Stock) at a price per share less than the
Current Market Value to which this paragraph (b)
applies;
N = the number of shares of Common Stock so sold or the
maximum stated number of shares of Common Stock
issuable upon the conversion, exchange, or exercise of
any such convertible, exchangeable or exercisable
securities, as the case may be;
p = the offering price per share pursuant to any such
convertible, exchangeable or exercisable securities
so sold or the sale price of the shares so sold, as
the case may be; and
<PAGE> 24
19
M = the Current Market Value as of the Time of
Determination or at the time of sale, as the case may
be.
The adjustment shall become effective immediately after the
record date for the determination of stockholders entitled to receive the
rights, warrants or options to which this paragraph (b) applies or upon
consummation of the sale of Common Stock, or securities convertible into or
exchangeable or exercisable for such Common Stock, as the case may be. To the
extent that shares of Common Stock are not delivered after the expiration of
such rights or warrants, the Exercise Rate shall be readjusted to the Exercise
Rate which would otherwise be in effect had the adjustment made upon the
issuance of such rights or warrants been made on the basis of delivery of only
the number of shares of Common Stock actually delivered. In the event that
such rights or warrants are not so issued, the Exercise Rate shall again be
adjusted to be the Exercise Rate which would then be in effect if such date
fixed for determination of stockholders entitled to receive such rights or
warrants had not been so fixed.
(c) Notice of Adjustment, Whenever the Exercise Rate is
adjusted, the Company shall promptly mail to holders of Warrants at their
addresses appearing on the Warrant Register a notice of the adjustment. The
Company shall file with the Warrant Agent and any other Registrar such notice
and a certificate from the Company's independent public accountants briefly
stating the facts requiring the adjustment and the manner of computing it. The
certificate shall be conclusive evidence that the adjustment is correct.
Neither the Warrant Agent nor any such Registrar shall be under any duty or
responsibility with respect to any such certificate except to exhibit the same
during normal business hours to any holder desiring inspection thereof.
(d) When Adjustment May Be Deferred. No adjustment in the
Exercise Rate need be made unless the adjustment would require an increase or
decrease of at least 1% in the Exercise Rate. Any adjustments that are not
made shall be carried forward and taken into account in any subsequent
adjustment. All calculations under this Article VI shall be made to the
nearest 1/1,000th of a share.
(e) When No Adjustment Required. No adjustment need be made
for a change in the par value or no par value of the Common Stock.
(f) Reorganization of Company; Special Distributions. If the
Company, in a single transaction or through a series of related transactions,
consolidates with or merges with or into any other person or transfers (by
lease, assignment, sale or otherwise) all or substantially all of its
properties and assets to another person or group of affiliated persons or is a
party to a merger or binding share exchange which reclassifies or changes
<PAGE> 25
20
its outstanding Common Stock, the person obligated to deliver securities, cash
or other assets upon exercise of Warrants shall enter into a supplemental
warrant agreement. If the issuer of securities deliverable upon exercise of
Warrants is an affiliate of the successor Company, that issuer shall join in
the supplemental warrant agreement.
The supplemental warrant agreement shall provide that the
holder of a Warrant may exercise it for the kind and amount of securities, cash
or other assets which such holder would have received immediately after the
consolidation, merger, binding share exchange or transfer if such holder had
exercised the Warrant immediately before the effective date of the transaction
(whether or not the Warrants were then exercisable hereunder), assuming (to the
extent applicable) that such holder (i) was not a constituent person or an
Affiliate of a constituent person to such transaction; (ii) made no election
with respect thereto; and (iii) was treated alike with the plurality of
non-electing holders. The supplemental warrant agreement shall provide for
adjustments which shall be as nearly equivalent as may be practicable to the
adjustments provided for in this Article VI. The successor Company shall mail
to holders of Warrants at their addresses appearing on the Warrant Register a
notice briefly describing the supplemental warrant agreement.
If this paragraph (f) applies then neither paragraph (a) nor
(b) shall apply.
(g) Warrant Agent's Adjustment Disclaimer. The Warrant Agent
has no duty to determine when an adjustment under this Article VI should be
made, how it should be made or what it should be. The Warrant Agent has no
duty to determine whether a supplemental warrant agreement under paragraph (f)
need be entered into or whether any provisions of any supplemental warrant
agreement are correct. The Warrant Agent shall not be accountable for and
makes no representation as to the validity or value of any securities or assets
issued upon exercise of Warrants. The Warrant Agent shall not be responsible
for the Company's failure to comply with this Article VI.
(h) Adjustment for Tax Purposes. The Company may make such
increases in the Exercise Rate, in addition to those otherwise required by this
Section, as it considers to be advisable in order that any event treated for
Federal income tax purposes as a dividend of stock or stock rights shall not be
taxable to the recipients.
(i) Underlying Warrant Shares. The Company shall at all
times reserve and keep available, free from preemptive rights, out of its
authorized but unissued Class B Common Stock or Class B Common Stock held in
the treasury of the Company, for the purpose of effecting the exercise of
Warrants, the full number of Warrant Shares then deliverable upon the exercise
of all Warrants then outstanding.
<PAGE> 26
21
The transfer agent for the Class B Common Stock (the "Transfer
Agent") and every subsequent transfer agent for any shares of the Company's
Capital Stock issuable upon the exercise of any of the rights of purchase
aforesaid will be irrevocably authorized and directed at all times to reserve
such number of authorized shares as shall be required for such purpose. The
Company will keep a copy of this Agreement on file with the Transfer Agent and
with every subsequent transfer agent for any shares of the Company's Capital
Stock issuable upon the exercise of the Warrants. The Warrant Agent is hereby
irrevocably authorized to requisition from time to time from such Transfer
Agent the stock certificates required to honor outstanding Warrants upon
exercise thereof in accordance with the terms of this Agreement. The Company
will supply such Transfer Agent with duly executed certificates for such
purposes and will provide or otherwise make available any cash which may be
payable as provided in Section 6.2. The Company will furnish such Transfer
Agent a copy of all notices of adjustments and certificates related thereto,
transmitted to each holder of the Warrants pursuant to Section 6.1(c) hereof.
The Company covenants that all Warrant Shares which may be
issued upon exercise of Warrants will, upon issue, be duly and validly issued,
fully paid, nonassessable, free of preemptive rights and free from all taxes,
liens, charges and security interests with respect to the issue thereof.
(j) Specificity of Adjustment. Irrespective of any
adjustments in the number or kind of shares purchasable upon the exercise of
the Warrants, Warrant Certificates theretofore or thereafter issued may
continue to express the same number and kind of Warrant Shares per Warrant as
are stated on the Warrant Certificates initially issuable pursuant to this
Agreement.
(k) Adjustments to Par Value. The Company shall make such
adjustments to the par value of the Class B Common Stock in order that, upon
exercise of the Warrants, the Warrant Shares will be fully paid and
non-assessable.
(l) Voluntary Adjustment. The Company from time to time may
increase the Exercise Rate by any number and for any period of time, provided
that such period is not less than 20 Business Days. Whenever the Exercise Rate
is so increased, the Company shall mail to holders at the addresses appearing
on the Warrant Register and file with the Warrant Agent a notice of the
increase. The Company shall give the notice at least 15 days before the date
the increased Exercise Rate takes effect. The notice shall state the increased
Exercise Rate and the period it will be in effect. A voluntary increase in the
Exercise Rate does not change or adjust the Exercise Rate otherwise in effect
as determined by this Section 6.1.
<PAGE> 27
22
(m) No Other Adjustment for Dividends. Except as provided in
this Article VI, no payment or adjustment will be made for dividends on any
Common Stock.
(n) Multiple Adjustments. After an adjustment to the
Exercise Rate under this Article VI, any subsequent event requiring an
adjustment under this Article VI shall cause an adjustment to the Exercise Rate
as so adjusted.
(o) Other Adjustments. In the event that at any time, as a
result of an adjustment made pursuant to this Section 6.1., the Holders shall
become entitled to receive any securities of the Company other than shares of
Class B Common Stock, thereafter the number of such other securities so
receivable upon exercise of the Warrants and the Exercise Price applicable to
such exercise shall be subject to adjustment from time to time in a manner and
on terms as nearly equivalent as practicable to the provisions with respect to
the shares of Common Stock contained in this Section 6.1.
SECTION 6.2. Fractional Warrant Shares. The Company will not
be required to issue fractional Warrant Shares upon exercise of the Warrants or
distribute Warrant Share certificates that evidence fractional Warrant Shares.
In lieu of fractional Warrant Shares, there shall be paid to the registered
holders of Warrant Certificates at the time Warrants evidenced thereby are
exercised as herein provided an amount in cash equal to the same fraction of
the Current Market Value per Share on the Business Day preceding the date the
Warrant Certificates evidencing such Warrants are surrendered for exercise.
Such payments will be made by check or by transfer to an account maintained by
such registered holder with a bank in The City of New York. If any holder
surrenders for exercise more than one Warrant Certificate, the number of
Warrant Shares deliverable to such holder may, at the option of the Company, be
computed on the basis of the aggregate amount of all the Warrants exercised by
such holder.
SECTION 6.3. Distribution Rights. If at any time the Company
(i) grants, issues or sells options, convertible securities, or rights to
purchase Capital Stock, warrants or other securities pro rata to the record
holders of the Common Stock (the "Distribution Rights"), or (ii) without
duplication, makes any dividend or otherwise makes any distribution on shares
of Common Stock (a "Distribution"), then the Company shall grant, issue, sell
or make to each registered holder of Warrants the aggregate Distribution Rights
or Distribution, as the case may be, which such holder would have acquired if
such holder had held the maximum number of Warrant Shares acquirable upon
complete exercise of such holder's Warrants immediately before the record date
for the grant, issuance or sale of such Distribution Rights or such
Distribution, as the case may be, or, if there is no such record date, the date
as of which the record holders of Common Stock are to be determined for the
grant, issue or sale of such Distribution Rights or Distribution, as the case
may be.
<PAGE> 28
23
ARTICLE VII
OFFERS TO REPURCHASE
SECTION 7.1. Offers to Repurchase. Upon the occurrence of an
Exercise Event, the Company shall have the right to make an offer to purchase
all outstanding Warrants and Warrant Shares in cash, within 120 days after such
Exercise Event, at a price equal to the Current Market Value thereof. In the
event the Company makes such an offer the Company shall have selected an
Independent Financial Expert reasonably satisfactory to a majority of the
holders of Warrants and Warrant Shares prior to 90 days before the Expiration
Date. If the Company has not selected an Independent Financial Expert prior to
90 days before the Expiration Date, then a majority of the holders of Warrants
and Warrant Shares shall have the right to select one at the expense of the
Company. In the event that the Company elects to make an offer to purchase all
outstanding Warrants and Warrant Shares, then the holders' right to receive
payment shall survive any termination of the Warrants in the event of a delay
in selecting an Independent Financial Expert.
SECTION 7.2. Procedures for Repurchase. (a) Upon the
occurrence of an Exercise Event followed by the election by the Company to make
an offer to purchase as set forth in Section 7.1. hereof, the Company shall
mail a notice to all holders of Warrants and Warrant Shares, by first class
mail, not less than 30 or more than 60 days before the proposed date upon which
payment shall be made (which shall be within 120 days after such Exercise
Event) (the "Purchase Date"), at their addresses appearing on the Warrant
Register. The notice will contain all instructions and materials necessary to
enable such holders of Warrants and Warrant Shares to tender such Warrants and
Warrant Shares, including:
(i) the identity of the Independent Financial Expert;
(ii) the Current Market Value of a Warrant and a Warrant
Share, if each is outstanding;
(iii) the Purchase Date (which shall be at least 20
Business Days from the date of mailing such notice or such longer
period as may be required by law);
(iv) that holders electing to have Warrants purchased will
be required to surrender (x) their Warrant Certificates, with the form
entitled "Election of Holder to Elect Purchase" on the reverse
thereof, duly completed, to the Company and (y) their certificates for
Warrant Shares to the Company, in each case at the address set forth
in the notice, no later than the close of business on the Business Day
prior to the Purchase Date;
<PAGE> 29
24
(v) that holders will be entitled to withdraw their
election if the Company receives, prior to the Purchase Date, a
telegram, telex or facsimile transmission not later than five Business
Days prior to the Purchase Date setting forth the name of the holder,
the number of Warrants and/or Warrant Shares delivered for purchase
and a statement that such holder is withdrawing his election to have
his Warrants and/or Warrant Shares purchased; and
(vi) that holders whose Warrants and/or Warrant Shares are
purchased in part will be issued new Warrants and/or Warrant Shares in
number equal to the unpurchased portion of the Warrants or Warrant
Shares, respectively, surrendered.
On the Purchase Date, the Company will accept all Warrants and/or
Warrant Shares surrendered, pay to the holders thereof the Current Market Value
of the Warrants and/or Warrant Shares surrendered by them for purchase, issue
and authenticate certificates for the Warrants and/or Warrant Shares not so
purchased, and deliver to the Warrant Agent the Warrant Certificates
representing the Warrants so purchased for cancellation. The Company shall
comply with Rule 14e-1 under the Exchange Act and any other securities laws and
regulations thereunder to the extent such laws and regulations are applicable
in connection with the purchase set forth in this Section 7.2.
(b) In the event the Company shall not have selected an
Independent Financial Expert at the time they are required to send the notice
set forth in paragraph (a) above, then the notice delivered pursuant to such
paragraph (a) will set forth the facts of the event that give rise to the
option to purchase. The Majority Holders shall then select the Independent
Financial Expert and so notify the Company. Within 10 days of the receipt of
such notice, the Company shall send the notice required under paragraph (a) of
this Section 7.2. with the Purchase Date reset accordingly.
SECTION 7.3. Registration and Qualification Under the
Securities Laws. (a) Notwithstanding any offer by the Company to purchase all
outstanding Warrants and Warrant Shares pursuant to Section 7.1. hereof, the
Company agrees to file and use its best efforts to make effective by the
Exercisability Date a shelf registration statement on an appropriate form
covering the issuance of the Warrant Shares, unless, in the opinion of counsel
to the Company as further described in, and subject to the provisions of,
Section 7.3(b), an exemption from the registration requirements under the
Securities Act is then available for the issuance and subsequent resale by any
person who is not an Affiliate of the Company of the Warrant Shares. The
parties agree that the intent of the first sentence of this paragraph is to
provide that holders of Warrants who exercise their Warrants receive Warrant
Shares that are freely tradeable under the Securities Act. Accordingly, for
the purpose of the first sentence of this paragraph, reliance upon Rule 144 or
Section
<PAGE> 30
25
4(2) of the Securities Act shall not constitute an exemption from the
registration requirements under the Securities Act. The Company will keep such
registration statement effective until the Expiration Date of the Warrants.
The Company will file such amendments and/or supplements to such registration
statement under the Securities Act and under any state securities laws covering
the issuance of such Warrant Shares and supplement and keep current any
prospectus forming a part of such registration statement as may be necessary to
permit the Company to deliver to each person exercising a Warrant a prospectus
meeting the requirements of Section 10(a)(3) of the Securities Act (a
"Prospectus") and the regulations of the Commission and otherwise complying
with the Securities Act and regulations thereunder, and as may be necessary to
comply with any applicable state securities laws. The Company shall, upon the
request of any holder of Warrants that may be required pursuant to the
Securities Act to deliver a prospectus in connection with any sale or other
disposition of Warrant Shares, include within the plan of distribution section
of the Prospectus and in such other places in the Prospectus as may be
necessary, all information necessary under the Securities Act to enable such
holder to deliver such Prospectus in connection with sales or other
dispositions of such Warrant Shares, and the Company shall also take such
action as may be necessary under the Securities Act with respect to the related
registration statement to enable such holder to effect such delivery in
connection with such sale or other disposition. The Company further agrees to
provide any holder who may be required to deliver a prospectus upon the sale or
other disposition of such Warrant Shares such number of copies of the
Prospectus as such holder reasonably requests. The Warrant Agent shall have no
duty to monitor when such registration or qualification is necessary nor shall
the Warrant Agent be responsible for the Company's failure to comply with this
Section 7.3.
(b) The Company shall not be required by this Agreement to
effect a shelf registration statement pursuant to Section 7.3(a) hereof if (i)
in the written opinion of counsel to the Company, addressed to the holders and
delivered to them, (x) the Company, upon exercise of the Warrants, would be
able to issue Warrant Shares to the holders thereof without registration under
the Securities Act (without reliance on Section 4(2) of the Securities Act) and
(y) the holders of such Warrant Shares would be free to sell, and the
transferees of such holders, in each case other than Affiliates of the Company,
would be free to resell all such Warrant Shares, without registration under the
Securities Act (without reliance on Rule 144 under the Securities Act) and (ii)
all requirements under the Securities Act for effecting such issuance, sales
and resales are satisfied at such time. In the event the Company breaches its
obligations under this Section 7.3, the Expiration Date shall be extended by a
number of days equal to the number of days during which no shelf registration
statement shall have been effective or no opinion of
<PAGE> 31
26
counsel shall have been delivered to the holders, in each case as described in
this Section 7.3.
(c) All expenses incident to the Company's performance of or
compliance with this Section 7.3 will be borne by the Company, including
without limitation: (i) all registration and filing fees and expenses; (ii) all
fees and expenses of compliance with federal securities and state Blue Sky or
securities laws; (iii) all expenses of printing (including printing
certificates for the Warrant Shares and printing of Prospectuses), messenger
and delivery services and telephone calls; (iv) all fees and disbursements of
counsel for the Company; (v) all fees and disbursements of independent
certified public accountants of the Company (including the expenses of any
special audit and comfort letters required by or incident to such performance);
and (vi) the Company's internal expenses (including, without limitation, all
salaries and expenses of their officers and employees performing legal or
accounting duties), the expenses of any annual audit and the fees and expenses
of any person, including special experts, retained by the Company.
ARTICLE VIII
CONCERNING THE WARRANT AGENT
SECTION 8.1. Warrant Agent. The Company hereby appoints
United States Trust Company of New York as Warrant Agent of the Company in
respect of the Warrants and the Warrant Certificates upon the terms and subject
to the conditions herein and in the Warrant Certificates set forth; and United
States Trust Company of New York hereby accepts such appointment. The Warrant
Agent shall have the powers and authority specifically granted to and conferred
upon it in the Warrant Certificates and hereby and such further powers and
authority to act on behalf of the Company as the Company may hereafter grant to
or confer upon it and it shall accept in writing. All of the terms and
provisions with respect to such powers and authority contained in the Warrant
Certificates are subject to and governed by the terms and provisions hereof.
SECTION 8.2. Conditions of Warrant Agent's Obligations. The
Warrant Agent accepts its obligations herein set forth upon the terms and
conditions hereof and in the Warrant Certificates, including the following, to
all of which the Company agrees and to all of which the rights hereunder of the
holders from time to time of the Warrant Certificates shall be subject:
(a) The Warrant Agent shall be entitled to compensation
to be agreed upon with the Company in writing for all services
rendered by it and the Company agrees promptly to pay such
compensation and to reimburse the
<PAGE> 32
27
Warrant Agent for its reasonable out-of-pocket expenses (including
reasonable fees and expenses of counsel) incurred without negligence
or willful misconduct on its part in connection with the services
rendered by it hereunder. The Company also agrees to indemnify the
Warrant Agent, its directors, officers, affiliates, agents and
employees for, and to hold it and its directors, officers, affiliates,
agents and employees harmless against, any loss, liability or expense
of any nature whatsoever (including, without limitation, reasonable
fees and expenses of counsel) incurred without negligence or willful
misconduct on the part of the Warrant Agent, arising out of or in
connection with its acting as such Warrant Agent hereunder and its
exercise of its rights and performance of its obligations hereunder.
The obligations of the Company under this Section 8.2. shall survive
the exercise and the expiration of the Warrant Certificates and the
resignation and removal of the Warrant Agent.
(b) In acting under this Agreement and in connection with
the Warrant Certificates, the Warrant Agent is acting solely as agent
of the Company and does not assume any obligation or relationship of
agency or trust for or with any of the owners or holders of the
Warrant Certificates.
(c) The Warrant Agent may consult with counsel and any
advice or written opinion of such counsel shall be full and complete
authorization and protection in respect of any action taken, suffered
or omitted by it hereunder in good faith and in accordance with such
advice or opinion.
(d) The Warrant Agent shall be fully protected and shall
incur no liability for or in respect of any action taken or omitted to
be taken or thing suffered by it in reliance upon any Warrant
Certificate, notice, direction, consent, certificate, affidavit,
opinion of counsel, instruction, statement or other paper or document
reasonably believed by it to be genuine and to have been presented or
signed by the proper parties.
(e) The Warrant Agent, and its officers, directors,
affiliates and employees ("Related Parties"), may become the owners
of, or acquire any interest in, Warrant Certificates, shares or other
obligations of the Company with the same rights that it or they would
have it if were not the Warrant Agent hereunder and, to the extent
permitted by applicable law, it or they may engage or be interested in
any financial or other transaction with the Company and may act on, or
as depositary, trustee or agent for, any committee or body of holders
of shares or other obligations of the Company as freely as if it were
not the Warrant Agent hereunder. Nothing in this Agreement shall be
deemed to prevent the Warrant Agent or such Related Parties from
acting in any other capacity for the Company.
<PAGE> 33
28
(f) The Warrant Agent shall not be under any liability
for interest on, and shall not be required to invest, any monies at
any time received by it pursuant to any of the provisions of this
Agreement or of the Warrant Certificates.
(g) The Warrant Agent shall not be under any
responsibility in respect of the validity of this Agreement (or any
term or provision hereof) or the execution and delivery hereof (except
the due execution and delivery hereof by the Warrant Agent) or in
respect of the validity or execution of any Warrant Certificate
(except its authentication thereof).
(h) The recitals and other statements contained herein
and in the Warrant Certificates (except as to the Warrant Agent's
authentication thereon) shall be taken as the statements of the
Company and the Warrant Agent assumes no responsibility for the
correctness of the same, except such as describe the Warrant Agent or
action taken or to be taken by it. The Warrant Agent does not make
any representation as to the validity or sufficiency of this Agreement
or the Warrant Certificates, except for its due execution and delivery
of this Agreement; provided, however, that the Warrant Agent shall not
be relieved of its duty to authenticate the Warrant Certificates as
authorized by this Agreement. The Warrant Agent shall not be
accountable for the use or application by the Company of the proceeds
of the exercise of any Warrant.
(i) Before the Warrant Agent acts or refrains from acting
with respect to any matter contemplated by this Warrant Agreement, it
may require:
(1) an Officers' Certificate stating that, in the
opinion of the signers, all conditions precedent, if any,
provided for in this Warrant Agreement relating to the
proposed action have been complied with; and
(2) if required in the reasonable judgment of the
Warrant Agent, an opinion of counsel for the Company stating
that, in the opinion of such counsel, all such conditions
precedent have been complied with.
(j) The Warrant Agent shall be obligated to perform such
duties as are herein and in the Warrant Certificates specifically set
forth and no implied duties or obligations shall be read into this
Agreement or the Warrant Certificates against the Warrant Agent. The
Warrant Agent shall not be accountable or under any duty or
responsibility for the use by the Company of any of the Warrant
Certificates authenticated by the Warrant Agent and delivered by it to
the Company pursuant to this Agreement. The Warrant Agent shall have
no duty or responsibility in case of any default by the Company in the
performance of its
<PAGE> 34
29
covenants or agreements contained in the Warrant Certificates or in
the case of the receipt of any written demand from a holder of a
Warrant Certificate with respect to such default, including, without
limiting the generality of the foregoing, any duty or responsibility
to initiate or attempt to initiate any proceedings at law or otherwise
or, except as provided in Section 8.2. hereof, to make any demand upon
the Company.
(k) Unless otherwise specifically provided herein, any
order, certificate, notice, request, direction or other communication
from the Company made or given under any provision of this Agreement
shall be sufficient if signed by its chairman of the Board of
Directors, its president, its treasurer, its controller or any vice
president or its secretary or any assistant secretary.
(l) The Warrant Agent shall have no responsibility in
respect of any adjustment pursuant to Article V hereof.
(m) The Company agrees that it will perform, execute,
acknowledge and deliver, or cause to be performed, executed,
acknowledged and delivered, all such further and other acts,
instruments and assurances as may reasonably be required by the
Warrant Agent for the carrying out or performing by the Warrant Agent
of the provisions of this Agreement.
(n) The Warrant Agent is hereby authorized and directed
to accept written instructions with respect to the performance of its
duties hereunder from any one of the chairman of the Board of
Directors, the president, the treasurer, the controller, any vice
president or the secretary of the Company or any other officer or
official of the Company reasonably believed to be authorized to give
such instructions and to apply to such officers or officials for
advice or instructions in connection with its duties, and it shall not
be liable for any action taken or suffered to be taken by it in good
faith in accordance with instructions with respect to any matter
arising in connection with the Warrant Agent's duties and obligations
arising under this Agreement. Such application by the Warrant Agent
for written instructions from the Company may, at the option of the
Warrant Agent, set forth in writing any action proposed to be taken or
omitted by the Warrant Agent with respect to its duties or obligations
under this Agreement and the date on or after which such action shall
be taken and the Warrant Agent shall not be liable for any action
taken or omitted in accordance with a proposal included in any such
application on or after the date specified therein (which date shall
be not less than 10 Business Days after the Company receives such
application unless the Company consents to a shorter period), provided
that (i) such application includes a statement to the effect that it
is being made pursuant to this paragraph (n) and
<PAGE> 35
30
that unless objected to prior to such date specified in the
application, the Warrant Agent will not be liable for any such action
or omission to the extent set forth in such paragraph (n) and (ii)
prior to taking or omitting any such action, the Warrant Agent has not
received written instructions objecting to such proposed action or
omission.
(o) Whenever in the performance of its duties under this
Agreement the Warrant Agent shall deem it necessary or desirable that
any fact or matter be proved or established by the Company prior to
taking or suffering any action hereunder, such fact or matter (unless
other evidence in respect thereof be herein specifically prescribed)
may be deemed to be conclusively proved and established by a
certificate signed by any one of the chairman of the Board of
Directors, the president, the treasurer, the controller, any vice
president or the secretary of the Company or any other officer or
official of the Company reasonably believed to be authorized to give
such instructions and delivered to the Warrant Agent; and such
certificate shall be full authorization to the Warrant Agent for any
action taken or suffered in good faith by it under the provisions of
this Agreement in reliance upon such certificate.
(p) The Warrant Agent shall not be required to risk or
expend its own funds in the performance of its obligations and duties
hereunder.
SECTION 8.3. Resignation and Appointment of Successor. (a)
The Company agrees, for the benefit of the holders from time to time of the
Warrant Certificates, that there shall at all times be a Warrant Agent
hereunder.
(b) The Warrant Agent may at any time resign as Warrant
Agent by giving written notice to the Company of such intention on its part,
specifying the date on which its desired resignation shall become effective,
provided that such date shall be at least 90 days after the date on which such
notice is given unless the Company agrees to accept less notice. Upon
receiving such notice of resignation, the Company shall promptly appoint a
successor Warrant Agent, qualified as provided in Section 8.3(d) hereof, by
written instrument in duplicate signed on behalf of the Company, one copy of
which shall be delivered to the resigning Warrant Agent and one copy to the
successor Warrant Agent. As provided in Section 8.3(d) hereof, such
resignation shall become effective upon the earlier of (x) the acceptance of
the appointment by the successor Warrant Agent or (y) 90 days after receipt by
the Company of notice of such resignation. The Company may, at any time and
for any reason, and shall, upon any event set forth in the next succeeding
sentence, remove the Warrant Agent and appoint a successor Warrant Agent by
written instrument in duplicate, specifying such removal and the date on which
it is intended to become effective, signed on behalf of the Company, one copy
of which shall be delivered to the Warrant
<PAGE> 36
31
Agent being removed and one copy to the successor Warrant Agent. The Warrant
Agent shall be removed as aforesaid if it shall become incapable of acting, or
shall be adjudged a bankrupt or insolvent, or a receiver of the Warrant Agent
or of its property shall be appointed, or any public officer shall take charge
or control of it or of its property or affairs for the purpose of
rehabilitation, conservation or liquidation. Any removal of the Warrant Agent
and any appointment of a successor Warrant Agent shall become effective upon
acceptance of appointment by the successor Warrant Agent as provided in Section
8.3(d). As soon as practicable after appointment of the successor Warrant
Agent, the Company shall cause written notice of the change in the Warrant
Agent to be given to each of the registered holders of the Warrants in the
manner provided for in Section 9.3. hereof.
(c) Upon resignation or removal of the Warrant Agent, if the
Company shall fail to appoint a successor Warrant Agent within a period of 90
days after receipt of such notice of resignation or removal, then the holder of
any Warrant Certificate or the Warrant Agent may apply to a court of competent
jurisdiction for the appointment of a successor to the Warrant Agent. Pending
appointment of a successor to the Warrant Agent, either by the Company or by
such a court, the duties of the Warrant Agent shall be carried out by the
Company.
(d) Any successor Warrant Agent, whether appointed by the
Company or by a court, shall be a bank or trust company in good standing,
incorporated under the laws of the United States of America or any State
thereof and having, at the time of its appointment, a combined capital surplus
of at least $50 million. Such successor Warrant Agent shall execute and
deliver to its predecessor and to the Company an instrument accepting such
appointment hereunder and all the provisions of this Agreement, and thereupon
such successor Warrant Agent, without any further act, deed or conveyance,
shall become vested with all the rights, powers, duties and obligations of its
predecessor hereunder, with like effect as if originally named as Warrant Agent
hereunder, and such predecessor shall thereupon become obligated to (i)
transfer and deliver, and such successor Warrant Agent shall be entitled to
receive, all securities, records or other property on deposit with or held by
such predecessor as Warrant Agent hereunder and (ii) upon payment of the
amounts then due it pursuant to Section 8.2(a) hereof, pay over, and such
successor Warrant Agent shall be entitled to receive, all monies deposited with
or held by any predecessor Warrant Agent hereunder.
(e) Any corporation or bank into which the Warrant Agent
hereunder may be merged or converted, or any corporation or bank with which the
Warrant Agent may be consolidated, or any corporation or bank resulting from
any merger, conversion or consolidation to which the Warrant Agent shall be a
party, or any corporation or bank to which the Warrant Agent shall sell or
otherwise transfer all or substantially all of its corporate trust business,
shall be the successor to the Warrant Agent under
<PAGE> 37
32
this Agreement (provided that such corporation or bank shall be qualified as
aforesaid) without the execution or filing of any document or any further act
on the part of any of the parties hereto.
(f) No Warrant Agent under this Warrant Agreement shall
be personally liable for any action or omission of any successor Warrant Agent.
ARTICLE IX
MISCELLANEOUS
SECTION 9.1. Amendment. This Agreement and the terms of the
Warrants may be amended by the Company and the Warrant Agent, without the
consent of the holder of any Warrant Certificate, for the purpose of curing any
ambiguity, or of curing, correcting or supplementing any defective or
inconsistent provision contained herein or therein, or to effect any
assumptions of the Company's obligations hereunder and thereunder by a
successor corporation under the circumstances described in Section 6.1(f)
hereof or in any other manner which the Company may deem necessary or desirable
and which shall not adversely affect in any material respect the interests of
the holders of the Warrant Certificates.
The Company and the Warrant Agent may modify this Agreement
and the terms of the Warrants with the consent of not less than a majority in
number of the then outstanding Warrants for the purpose of adding any provision
to or changing in any manner or eliminating any of the provisions of this
Agreement or modifying in any manner the rights of the holders of the
outstanding Warrants; provided, however, that no such modification that
decreases the Exercise Rate, reduces the period of time during which the
Warrants are exercisable hereunder, otherwise materially and adversely affects
the exercise rights of the holders of the Warrants, reduces the percentage
required for modification, or effects any change to this Section 9.1. may be
made with respect to an outstanding Warrant without the consent of the holder
of such Warrant.
Any modification or amendment made in accordance with this
Agreement will be conclusive and binding on all present and future holders of
Warrant Certificates whether or not they have consented to such modification or
amendment or waiver and whether or not notation of such modification or
amendment is made upon such Warrant Certificates. Any instrument given by or
on behalf of any holder of a Warrant Certificate in connection with any consent
to any modification or amendment will be conclusive and binding on all
subsequent holders of such Warrant Certificate.
SECTION 9.2. Notices and Demands to the Company and Warrant
Agent. If the Warrant Agent shall receive any notice or
<PAGE> 38
33
demand addressed to the Company by the holder of a Warrant Certificate pursuant
to the provisions hereof or of the Warrant Certificates, the Warrant Agent
shall promptly forward such notice or demand to the Company.
SECTION 9.3. Addresses for Notices to Parties and for
Transmission of Documents. All notices hereunder to the parties hereto shall
be deemed to have been given when sent by certified or registered mail, postage
prepaid, or by telex or telecopy, confirmed by first class mail, postage
prepaid, addressed to any party hereto as follows:
To the Company:
PCS Development Corporation
15 South Main Street
Suite 810
Greenville, South Carolina 29601
Attention: Chief Financial Officer
To the Warrant Agent:
United States Trust Company of New York
114 West 47th Street
New York, New York 10036
Attention:
or at any other address of which either of the foregoing shall have notified
the other in writing.
SECTION 9.4. Notices to Holders. Notices to holders of
Warrants shall be mailed to such holders at the addresses of such holders as
they appear in the Warrant Register. Any such notice shall be sufficiently
given if sent by first-class mail, postage prepaid.
SECTION 9.5. APPLICABLE LAW. THE VALIDITY, INTERPRETATION
AND PERFORMANCE OF THIS AGREEMENT AND EACH WARRANT CERTIFICATE ISSUED HEREUNDER
AND OF THE RESPECTIVE TERMS AND PROVISIONS THEREOF SHALL BE GOVERNED BY THE
LAWS OF THE STATE OF NEW YORK, WITHOUT GIVING EFFECT TO THE CONFLICT OF LAWS
PROVISIONS THEREOF.
SECTION 9.6. Obtaining of Governmental Approvals. The
Company will from time to time take all action required to be taken by it which
may be necessary to obtain and keep effective any and all permits, consents and
approvals of governmental agencies and authorities and securities acts filings
under United States Federal and State laws, and the rules and regulations of
all stock exchanges on which the Warrants are listed which may be or become
requisite in connection with the issuance, sale, transfer, and delivery of the
Warrant Certificates, the exercise of the Warrants or the issuance, sale,
transfer and delivery of the Warrant Shares issued upon exercise of the
Warrants.
<PAGE> 39
34
SECTION 9.7. Persons Having Rights Under Agreement. (a)
Other than as specified in paragraph (b) hereof, nothing in this Agreement
expressed or implied and nothing that may be inferred from any of the
provisions hereof is intended, or shall be construed, to confer upon, or give
to, any person or corporation other than the Company, the Warrant Agent and the
holders of the Warrant Certificates any right, remedy or claim under or by
reason of this Agreement or of any covenant, condition, stipulation, promise or
agreement hereof; and all covenants, conditions, stipulations, promises and
agreements in this Agreement contained shall be for the sole and exclusive
benefit of the Company and the Warrant Agent and their successors and of the
holders of the Warrant Certificates.
(b) The holders of Warrant Shares shall be third party
beneficiaries to the agreements made hereunder between the Company and the
Warrant Agent solely with respect to Article VI hereof, and such holders shall
have the right to enforce such agreements directly to the extent they deem such
enforcement necessary or advisable to protect their rights or the rights of
holders of Warrants hereunder.
SECTION 9.8. Headings. The descriptive headings of the
several Articles and Sections of this Agreement are inserted for convenience
only and shall not control or affect the meaning or construction of any of the
provisions hereof.
SECTION 9.9. Counterparts. This Agreement may be executed in
any number of counterparts, each of which so executed shall be deemed to be an
original; but such counterparts shall together constitute but one and the same
instrument.
SECTION 9.10. Inspection of Agreement. A copy of this Agreement
shall be available at all reasonable times at the principal corporate trust
office of the Warrant Agent, for inspection by the holder of any Warrant
Certificate. The Warrant Agent may require such holder to submit his Warrant
Certificate for inspection by it.
<PAGE> 40
35
IN WITNESS WHEREOF, this Agreement has been duly executed by
the parties hereto as of the day and year first above written.
PCS DEVELOPMENT CORPORATION
By:
-----------------------------------
Name:
Title:
UNITED STATES TRUST COMPANY OF
NEW YORK, as Warrant Agent
By:
-----------------------------------
Name:
Title:
<PAGE> 41
EXHIBIT A
[FORM OF WARRANT CERTIFICATE]
[FACE]
THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO A CLASS
B COMMON STOCK AND WARRANT REGISTRATION RIGHTS AGREEMENT DATED AS OF
__________, 1996 AMONG PCS DEVELOPMENT CORPORATION (THE "COMPANY") AND
LEHMAN BROTHERS INC., ON BEHALF OF ITSELF AND DONALDSON, LUFKIN &
JENRETTE SECURITIES CORPORATION, CHASE SECURITIES INC. AND TORONTO
DOMINION SECURITIES (USA) INC. (THE "UNDERWRITERS"), A COPY OF WHICH
IS ON FILE WITH THE SECRETARY OF THE COMPANY.
THE EXERCISE OF THE WARRANTS (AND THE OWNERSHIP OF CLASS B COMMON
STOCK ISSUABLE UPON THE EXERCISE THEREOF) MAY BE LIMITED BY THE
COMPANY IN ORDER TO ENSURE COMPLIANCE WITH THE RULES AND REGULATIONS
OF THE FEDERAL COMMUNICATIONS COMMISSION (THE "FCC"), AND THE WARRANTS
WILL NOT BE EXERCISABLE BY ANY HOLDER IF SUCH EXERCISE WOULD CAUSE THE
COMPANY TO BE IN VIOLATION OF THE COMMUNICATIONS ACT OR THE FCC'S
RULES, REGULATIONS OR POLICIES.
A-1
<PAGE> 42
CUSIP #_____________
No.____________ __________ Warrants
WARRANT CERTIFICATE
PCS DEVELOPMENT CORPORATION
This Warrant Certificate certifies that [CEDE & CO.] or
registered assigns, is the registered holder of Warrants (the "Warrants") to
purchase shares of Class B Common Stock, par value $1.00 per share (the "the
Class B Common Stock"), of PCS DEVELOPMENT CORPORATION, a Delaware corporation
(the "Company"). Each Warrant entitles the holder to purchase from the Company
at any time from 9:00 a.m. on or after the date of occurrence of an Exercise
Event, or if the Exercise Event occurs prior to the Separability Date, the
Separability Date, until 5:00 p.m., New York City time, on the earlier to occur
of (a) 180 days after an Exercise Event or (b) , 2006 (the
"Expiration Date"), ____ fully paid and non-assessable shares of Class B Common
Stock (as adjusted, the "Warrant Shares", which may also include any other
securities or property purchasable upon exercise of a Warrant, such adjustment
and inclusion each as provided in the Warrant Agreement) at the exercise price
(the "Exercise Price") of $0.01 per Warrant upon surrender of this Warrant
Certificate and payment of the Exercise Price at any office or agency
maintained for that purpose by the Company (the "Warrant Agent Office"),
subject to the conditions set forth herein and in the Warrant Agreement.
"Exercise Event" means, with respect to each Warrant as to
which such event is applicable, the date of the earliest of: (1) the occurrence
of a Change of Control, (2) the consummation of a Public Equity Offering after
which there shall exist a Public Market, and (3) , 2006.
"Separability Date" shall mean the earliest to occur of: (i)
, 1996, (ii) such earlier date as may be determined by Lehman Brothers Inc. and
specified to the Company, the Trustee, the Warrant Agent and the Unit Agent in
writing, (iii) the occurrence of a Change of Control and (iv) in the event of
an Offer to Purchase in connection with any Asset Sale (each as defined in the
Indenture), the date the Company mails notice thereof to holders of the Notes,
at which time the Notes and Warrants will become separately transferrable.
The Exercise Price shall be payable either (i) in cash or by
certified check or official bank check or by such other means as is acceptable
to the Company in the lawful currency of the United States of America which as
of the time of payment is legal tender for payment of public or private debts
or (ii) in accordance with the next succeeding sentence, in each case to be
delivered to the office or agency where the Warrant Certificate is being
surrendered. Each holder may also exercise its right to receive Warrant Shares
on a net basis, such that, without the
A-2
<PAGE> 43
exchange of any funds, the holder receives that number of Warrant Shares
otherwise issuable upon exercise of the Warrants less that number of Warrant
Shares having a value equal to the aggregate Exercise Price that would
otherwise have been paid by the Holder of the Warrant Shares. The Company
reserves the right at any time and from time to time to waive the payment of
the Exercise Price upon the exercise of the Warrants. The Company has
initially designated the corporate trust office of the Warrant Agent in the
Borough of Manhattan, The City of New York, as the initial Warrant Agent
Office. The number and kind of Warrant Shares issuable upon exercise of the
Warrants ("Exercise Rate") is subject to adjustment upon the occurrence of
certain events set forth in the Warrant Agreement.
Any Warrants not exercised on or prior to 5:00 p.m., New York
City time, on ____________, 2006 shall thereafter be void.
Reference is hereby made to the further provisions on the
reverse hereof which provisions shall for all purposes have the same effect as
though fully set forth at this place.
This Warrant Certificate shall not be valid unless
authenticated by the Warrant Agent, as such term is used in the Warrant
Agreement.
THIS WARRANT CERTIFICATE SHALL BE CONSTRUED IN ACCORDANCE WITH
THE LAWS OF THE STATE OF NEW YORK WITHOUT GIVING EFFECT TO THE CONFLICT OF LAWS
PROVISIONS THEREOF.
WITNESS the facsimile seal of the Company and facsimile
signatures of its duly authorized officers.
Dated:
PCS DEVELOPMENT CORPORATION
By:
----------------------------------
Name:
Title:
Attest:
By:
------------------------------------
Name:
Title:
Certificate of Authentication:
This is one of the Warrants
referred to in the within
mentioned Warrant Agreement:
UNITED STATES TRUST COMPANY
OF NEW YORK, as Warrant Agent
By:
------------------------------------
Authorized Signatory
A-3
<PAGE> 44
[FORM OF WARRANT CERTIFICATE]
[REVERSE]
PCS DEVELOPMENT CORPORATION
The Warrants evidenced by this Warrant Certificate are part of
a duly authorized issue of Warrants expiring at 5:00 p.m., New York City time,
on the earlier to occur of (a) 180 days after an Exercise Event which causes
such Warrants to become exercisable or (b) the Expiration Date, each of which
represents the right to purchase from the Company at any time on or after the
Exercisability Date (as defined in the Warrant Agreement) one share of Class B
Common Stock of the Company, subject to adjustment as set forth in the Warrant
Agreement. The Warrants are issued pursuant to a Warrant Agreement dated as of
_______, 1996 (the "Warrant Agreement"), duly executed and delivered by the
Company and UNITED STATES TRUST COMPANY OF NEW YORK, a New York corporation not
in its individual capacity but solely as Warrant Agent (the "Warrant Agent"),
which Warrant Agreement is hereby incorporated by reference in and made a part
of this instrument and is hereby referred to for a description of the rights,
limitation of rights, obligations, duties and immunities thereunder of the
Warrant Agent, the Company and the holders (the words "holders" or "holder"
meaning the registered holders or registered holder) of the Warrants.
If all of the items required for exercise of this Warrant are
received by the Warrant Agent at or prior to 2:00 p.m., New York City time, on
a Business Day, the exercise of the Warrant to which such items relate will be
effective on such Business Day. If any such items are received after 2:00
p.m., New York City time, on a Business Day, the exercise of the Warrants to
which such item relates will be deemed to be effective on the next succeeding
Business Day. Notwithstanding the foregoing, in the case of an exercise of
Warrants on ______, 2006, if all of the items required for exercise of this
Warrant are received by the Warrant Agent at or prior to 5:00 p.m., New York
City time, on such Expiration Date, the exercise of the Warrants to which such
items relate will be effective on the Expiration Date.
As soon as practicable after the exercise of any Warrant or
Warrants, the Company shall issue or cause to be issued to or upon the written
order of the registered holder of this Warrant Certificate, a certificate or
certificates evidencing the Warrant Shares to which such holder is entitled, in
fully registered form, registered in such name or names as may be directed by
such holder pursuant to the Election to Exercise, as set forth on the reverse
of this Warrant Certificate. Such certificate or certificates evidencing the
Warrant Shares shall be deemed to have been issued and any persons who are
designated to be named therein shall be deemed to have become the holder of
record of such Warrant Shares as of the close of business on the
A-1
<PAGE> 45
date upon which the exercise of this Warrant was deemed to be effective as
provided in the preceding paragraph.
The Company will not be required to issue fractional shares of
Class B Common Stock upon exercise of the Warrants or distribute certificates
that evidence fractional shares of Class B Common Stock. In lieu of fractional
shares of Class B Common Stock, there shall be paid to the registered holder of
this Warrant Certificate at the time such Warrant Certificate is exercised an
amount in cash equal to the same fraction of the Current Market Value (as
defined in the Warrant Agreement) per share on the Business Day preceding the
date this Warrant Certificate is surrendered for exercise.
Warrant Certificates, when surrendered at any office or agency
maintained by the Company for that purpose by the registered holder thereof in
person or by legal representative or attorney duly authorized in writing, may
be exchanged for a new Warrant Certificate or new Warrant Certificates
evidencing in the aggregate a like number of Warrants, in the manner and
subject to the limitations provided in the Warrant Agreement, without charge
except for any tax or other governmental charge imposed in connection
therewith.
Upon due presentment for registration of transfer of this
Warrant Certificate at any office or agency maintained by the Company for that
purpose, a new Warrant Certificate evidencing in the aggregate a like number of
Warrants shall be issued to the transferee in exchange for this Warrant
Certificate, subject to the limitations provided in the Warrant Agreement,
without charge except for any tax or other governmental charge imposed in
connection therewith.
The Company and the Warrant Agent may deem and treat the
registered holder hereof as the absolute owner of this Warrant Certificate
(notwithstanding any notation of ownership or other writing hereon made by
anyone) for the purpose of any exercise hereof and for all other purposes, and
neither the Company nor the Warrant Agent shall be affected by any notice to
the contrary.
Upon the occurrence of an Exercise Event, the Company shall
have the right to make an offer to purchase all outstanding Warrants and
Warrant Shares in cash, within 120 days after such Exercise Event, at a price
equal to the Current Market Value thereof. The offers to purchase set forth in
this and the preceding paragraph will be made in the manner and upon the terms
set forth in the Warrant Agreement.
The Warrant Agreement provides that (i) subject to certain
exceptions upon the issuance of any dividend or distribution pro rata to all
holders of Common Stock, the holders will be entitled to such dividend or
distribution on the terms set forth in the Warrant Agreement and (ii) upon the
occurrence of certain events the number of Warrant Shares of Class B Common
A-2
<PAGE> 46
Stock issuable upon the exercise of each Warrant shall be adjusted.
The term "Business Day" shall mean any day on which (i) banks
in New York City, (ii) the principal national securities exchange or market, if
any, on which the Common Stock is listed or admitted to trading and (iii) the
principal national securities exchange or market, if any, on which the Warrants
are listed or admitted to trading are open for business.
A-3
<PAGE> 47
(FORM OF ELECTION TO EXERCISE)
(To be executed upon exercise of Warrants on the Exercise Date)
The undersigned hereby irrevocably elects to exercise _______
of the Warrants represented by this Warrant Certificate and purchase the whole
number of Warrant Shares issuable upon the exercise of such Warrants and
(unless the payment of the Exercise Price has been waived by the Company)
herewith tenders payment for such Warrant Shares either (x) in the amount of
$________ in cash or by certified or official bank check or (y) in the case of
payment by surrendering unexercised Warrants, by surrendering Warrant Shares
having a value equal to $_________, in each case in accordance with the terms
hereof.
The undersigned requests that (1) a certificate representing
such Warrant Shares be registered in the name of ________________ whose address
is ___________________ and that such certificate be delivered to
__________________ whose address is _________________ and (2) a Warrant
Certificate representing any remaining Warrants not exercised be registered in
the name of _______________ whose address is and that such certificate be
delivered to ________ whose address is ____________ Any cash payments to be
paid in lieu of a fractional Share should be made to ____________ whose address
is ___________________ and the check representing payment thereof should be
delivered to _________________ whose address is _______________________.
Dated _____________, ____
Name of holder of
Warrant Certificate: ___________________________________________________________
(Please Print)
Tax Identification or
Social Security Number: ________________________________________________________
Address:________________________________________________________________________
________________________________________________________________________
Signature: _____________________________________________________________________
Note: The above signature must correspond with the name as written
upon the face of this Warrant Certificate in every particular,
without alteration or enlargement or any change whatever and
if the certificate representing the Warrant Shares or any
Warrant Certificate representing Warrants not exercised is to
be registered in a name other than that in which this Warrant
Certificate is registered, or if any cash payment to be paid
in lieu of a
A-1
<PAGE> 48
fractional share is to be made to a person other than the
registered holder of this Warrant Certificate, the signature
of the holder hereof must be guaranteed as provided in the
Warrant Agreement.
Dated ____________, ____
Signature Guaranteed: _________________________________________
A-2
<PAGE> 49
(FORM OF ASSIGNMENT)
For value received ___________________ hereby sells, assigns
and transfers unto _______________________ the within Warrant Certificate,
together with all right, title and interest therein, and does hereby
irrevocably constitute and appoint _________________________ attorney, to
transfer said Warrant Certificate on the books of the within-named Company,
with full power of substitution in the premises.
Dated ______________, ____
Signature: ____________________________________________________
Note: The above signature must correspond with the
name as written upon the face of this Warrant
Certificate in every particular, without
alteration or enlargement or any change
whatever or the signature of the holder
thereof must be guaranteed as provided in the
Warrant Agreement.
Signature Guaranteed: _________________________________________
A-1
<PAGE> 50
[FORM OF OPTION OF HOLDER TO ELECT PURCHASE]
If you want to elect to have this Warrant purchased by the
Company pursuant to Section 7.1. of the Warrant Agreement, check the box below:
[ ]
If you want to elect to have only part of this Warrant
purchased by the Company pursuant to Section 7.1. of the Warrant Agreement,
state the amount:
Number of Warrants: __________________________________
Date: _______________________
Signature: ___________________________________________
The above signature must correspond with
the name as written upon the face of this
Warrant Certificate in every particular,
without alteration or enlargement or any
change whatsoever or the signature of the
holder thereof must be guaranteed as
provided in the Warrant Agreement
Signature Guarantee: ___________________________________________________________
A-1
<PAGE> 51
SCHEDULE OF EXCHANGES OF CERTIFICATED WARRANTS(2)
The following exchanges of a part of this Global Warrant for certificated
Warrants have been made:
<TABLE>
<CAPTION>
Number of Warrants
Decrease in Number Increase in Number of this Global
of Warrants of of Warrants of Warrant following Signature of
this Global this Global such decrease (or authorized officer
Date of Exchange Warrant Warrant increase) of Warrant Agent
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
</TABLE>
- ----------------------------------
2 This is to be included only if the Warrant is in global form.
A-1
<PAGE> 52
EXHIBIT B
FORM OF LEGEND FOR GLOBAL WARRANT
Any Global Warrant authenticated and delivered hereunder shall
bear a legend (which would be in addition to any other legends required in the
case of a Warrant Certificate) in substantially the following form:
THIS SECURITY IS A GLOBAL WARRANT WITHIN THE MEANING OF THE
WARRANT AGREEMENT HEREINAFTER REFERRED TO AND IS REGISTERED IN THE
NAME OF A DEPOSITORY OR A NOMINEE OF A DEPOSITORY OR A SUCCESSOR
DEPOSITORY. THIS SECURITY IS NOT EXCHANGEABLE FOR SECURITIES
REGISTERED IN THE NAME OF A PERSON OTHER THAN THE DEPOSITORY OR ITS
NOMINEE EXCEPT IN THE LIMITED CIRCUMSTANCES DESCRIBED IN THE WARRANT
AGREEMENT, AND NO TRANSFER OF THIS SECURITY (OTHER THAN A TRANSFER OF
THIS SECURITY AS A WHOLE BY THE DEPOSITORY TO A NOMINEE OF THE
DEPOSITORY OR BY A NOMINEE OF THE DEPOSITORY TO THE DEPOSITORY OR
ANOTHER NOMINEE OF THE DEPOSITORY) MAY BE REGISTERED EXCEPT IN THE
LIMITED CIRCUMSTANCES DESCRIBED IN THE WARRANT AGREEMENT.
UNLESS AND UNTIL IT IS EXCHANGED IN WHOLE OR IN PART FOR
WARRANTS IN CERTIFICATED FORM, UNLESS THIS CERTIFICATE IS PRESENTED BY
AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY, A NEW
YORK CORPORATION ("DTC"), TO ISSUER OR ITS AGENT FOR REGISTRATION OF
TRANSFER, EXCHANGE, OR PAYMENT, AND ANY CERTIFICATE ISSUED IS
REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER NAME AS IS
REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS
MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN
AUTHORIZED REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER USE
HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH
AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.
<PAGE> 1
EXHIBIT 4.12
================================================================================
CLASS B COMMON STOCK AND
WARRANT REGISTRATION RIGHTS AGREEMENT
Dated as of ________ __, 1996
Among
PCS DEVELOPMENT CORPORATION
as Issuer,
and
LEHMAN BROTHERS INC.
on behalf of itself and
DONALDSON LUFKIN & JENRETTE SECURITIES CORPORATION
CHASE SECURITIES INC. and
TORONTO DOMINION SECURITIES (USA) INC.
as Underwriters
================================================================================
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
1. Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
2. Registration Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
3. Piggy-Back Registration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
4. Limitations, Conditions and Qualifications
to Obligations Under Registration Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
5. Registration Procedures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
6. Registration Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
7. Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
8. Restrictions on Sale by the Company and Others . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
9. Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
(a) No Inconsistent Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
(b) Adjustments Affecting Registrable Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
(c) Amendments and Waivers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
(d) Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
(e) Successors and Assigns . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
(f) Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
(g) Headings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
(h) Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
(i) Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
(j) Securities Held by the Company or its Affiliates . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
(k) Third Party Beneficiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
(l) Entire Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
</TABLE>
- i -
<PAGE> 3
CLASS B COMMON STOCK AND
WARRANT REGISTRATION RIGHTS AGREEMENT
This Class B Common Stock and Warrant Registration Rights
Agreement (the "Agreement") is dated as of ________ __, 1996, among PCS
Development Corporation, a Delaware corporation (the "Company"), and Lehman
Brothers Inc., on behalf of itself and Donaldson, Lufkin & Jenrette Securities
Corporation, Chase Securities Inc. and Toronto Dominion Securities (USA) Inc.
(the "Underwriters").
This Agreement is entered into in connection with the
Underwriting Agreement, dated ________ __, 1996, among the Company and Lehman
Brothers Inc. on behalf of the Underwriters (the "Underwriting Agreement"),
which provides for the sale by the Company to the Underwriters of ________
units (the "Units") consisting of $___________ aggregate principal amount of
the Company's ____% Senior Discount Notes due 2006 and an aggregate of ________
Warrants each to purchase one share of the Company's Class B common stock, par
value $1.00 per share (the "Class B Common Stock"). In order to induce the
Underwriters to enter into the Underwriting Agreement, the Company has agreed
to provide the registration rights set forth in this Agreement for the benefit
of the Underwriters and their direct and indirect transferees and assigns. The
execution and delivery of this Agreement is a condition to the Underwriters'
obligation to purchase the Units pursuant to the Underwriting Agreement.
The parties hereby agree as follows:
1. Definitions
As used in this Agreement, the following terms shall have the
following meanings:
Advice: See Section 5 hereof.
Affiliate: When used with reference to any Person, any other
Person directly or indirectly controlling, controlled by, or under
direct or indirect common control with, the referent Person or such
other Person, as the case may be. For the purposes of this
definition, "control" when used with respect to any specified Person
means the power to direct or cause the direction of management or
policies of such Person, directly or indirectly, whether through the
ownership of voting securities, by contract or otherwise; and the
terms "controlling" and "controlled" have meanings correlative of the
foregoing.
Agreement: See the introductory paragraphs hereto.
Class B Common Stock: See the introductory paragraphs hereto.
<PAGE> 4
2
Company: See the introductory paragraphs hereto.
Current Market Value: Current Market Value as defined in the
Warrant Agreement.
Demand Registration: See Section 2(a) hereof.
Exchange Act: The Securities Exchange Act of 1934, as
amended, and the rules and regulations of the SEC promulgated
thereunder.
Exercise Event: Exercise Event as defined in the Warrant
Agreement.
Holder: Each of the Underwriters, for so long as it owns any
Warrants and/or Warrant Shares, and each of its successors, assigns
and direct or indirect transferees who become registered owners of
such Warrants or Warrant Shares.
Included Securities: See Section 2(a) hereof.
Indemnified Person: See Section 7(c) hereof.
Indemnifying Person: See Section 7(c) hereof.
Independent Financial Expert: Independent Financial Expert as
defined in the Warrant Agreement.
Inspectors: See Section 5(n) hereof.
NASD: The National Association of Securities Dealers, Inc.
Participant: See Section 7(a) hereof.
Person: An individual, trustee, corporation, partnership,
joint stock company, trust, unincorporated association, union,
business association, firm or other legal entity.
Piggy-Back Registration: See Section 3(a) hereof.
Prospectus: The prospectus included in any Registration
Statement (including, without limitation, any prospectus subject to
completion and a prospectus that includes any information previously
omitted from a prospectus filed as part of an effective registration
statement in reliance upon Rule 430A promulgated under the Securities
Act), as amended or supplemented by any prospectus supplement, and all
other amendments and supplements to the Prospectus, including
post-effective amendments, and all material incorporated by reference
or deemed to be incorporated by reference in such Prospectus.
<PAGE> 5
3
Purchase Date: See Section 2(b) hereof.
Records: See Section 5(n) hereof.
Registrable Securities: Each Warrant Share and any other
securities issued or issuable with respect to any Registrable
Securities by way of stock dividend or stock split or in connection
with a combination of shares, recapitalization, merger, consolidation
or other reorganization or otherwise until the earliest to occur of
(i) a Registration Statement covering such Warrant Share (and other
securities, if any) has been declared effective by the SEC and such
Warrant Share (and other securities, if any) has been sold,
transferred or disposed of in accordance with such Registration
Statement, (ii) such Warrant Shares shall have ceased to be
outstanding or (iii) such Warrant Shares shall have been distributed
to the public under Rule 144.
Registration Statement: Any registration statement or an
appropriate form of the Company filed with the SEC pursuant to the
Securities Act which covers any of the Registrable Securities pursuant
to the provisions of this Agreement and all amendments and supplements
to any such Registration Statement, including post-effective
amendments, in each case including the Prospectus contained therein,
all exhibits thereto and all material incorporated by reference
therein.
Requisite Securities: A number of Registrable Securities
equal to not less than 25% of the then-outstanding Registrable
Securities held in the aggregate by all Holders.
Rule 144: Rule 144 promulgated under the Securities Act, as
such Rule may be amended from time to time, or any similar rule (other
than Rule 144A) or regulation hereafter adopted by the SEC providing
for offers and sales of securities made in compliance therewith
resulting in offers and sales by subsequent holders that are not
affiliates of an issuer of such securities being free of the
registration and prospectus delivery requirements of the Securities
Act.
Rule 415: Rule 415 promulgated under the Securities Act, as
such Rule may be amended from time to time, or any similar rule or
regulation hereafter adopted by the SEC.
SEC: The Securities and Exchange Commission.
Securities Act: The Securities Act of 1933, as amended, and
the rules and regulations of the SEC promulgated thereunder.
<PAGE> 6
4
Selling Holder: A Holder who is selling Registrable
Securities in accordance with the provisions of Section 2 or 3 hereof.
Underwritten Registration or Underwritten Offering: A
registration in which securities of the Company are sold to an
underwriter for resale to the public.
Underwriters: See the introductory paragraphs hereto.
Underwriting Agreement: See the introductory paragraphs
hereto.
Units: See the introductory paragraphs hereto.
Warrant Agreement: The Warrant Agreement, dated as of
________ __, 1996, between the Company and United States Trust Company
of New York as warrant agent, as amended or supplemented from time to
time in accordance with the terms thereof, pursuant to which the
Warrants are being issued.
Warrant Shares: The shares of Class B Common Stock
deliverable upon exercise of the Warrants.
Warrants: See the introductory paragraphs hereto.
Withdrawal Election: See Section 3 hereof.
2. Registration Rights
(a) At any time from and after the occurrence of an Exercise
Event, Holders owning, individually or in the aggregate, not less than the
Requisite Securities may make a written request for registration under the
Securities Act of their Registrable Securities (a "Demand Registration").
Within 120 days of the receipt of such written request for a Demand
Registration, the Company shall file with the SEC and use its best efforts to
cause to become effective under the Securities Act one Registration Statement
with respect to such Registrable Securities, unless, in the opinion of counsel
to the Company as further described in, and subject to the provisions of,
Section 4(b) below, an exemption from the registration requirements of the
Securities Act is then available for the sale and subsequent resale by any
Person who is not an Affiliate of the Company of the Warrant Shares. Any such
request will specify the number of Registrable Securities proposed to be sold
and will also specify the intended method of disposition thereof. The Company
shall give written notice of such registration request to all other Holders of
Registrable Securities within 15 days after the receipt thereof. Within 20
days after receipt by any Holder of Registrable Securities of such notice from
the Company, such Holder may request in writing that such Holder's Registrable
Securities be included in such Registration Statement and the Company shall
include in such Registration Statement the Registrable Securities
<PAGE> 7
5
of any such Holder requested to be so included (the "Included Securities").
Each such request by such other Holders shall specify the number of Included
Securities proposed to be sold and the intended method of disposition thereof.
Subject to paragraphs (b) and (c) hereof, the Company shall be required to
register Registrable Securities pursuant to this paragraph (a) on only one
occasion.
Subject to paragraph (e) hereof, no other securities of the
Company except securities held by any Holder or any of their respective
Permitted Transferees and any Person entitled to exercise "piggy-back"
registration rights pursuant to contractual commitments of the Company shall be
included in a Demand Registration.
(b) Notwithstanding the foregoing provisions of paragraph
2(a) hereof, the Company shall not be obligated to effect a Demand Registration
if the Company offers to purchase all of the Registrable Securities on a date
(the "Purchase Date") not more than 90 days after the receipt of the written
request for a Demand Registration at a price equal to the Current Market Value
of such Registrable Securities.
If the Company elects to make an offer to purchase under this
paragraph 2(b), it shall mail a notice to all Holders, by first class mail, not
less than 30 nor more than 60 days before the Purchase Date, at their addresses
set forth on the records of the registrar. The notice will contain all
instructions and materials necessary to enable such Holders to tender their
Registrable Securities including:
(i) that the offer is being made pursuant to this
paragraph 2(b);
(ii) the identity of the Independent Financial Expert;
(iii) the Current Market Value of a Registrable Security;
(iv) the Purchase Date (which shall be at least 20
Business Days from the date of mailing such notice or such longer
period as may be required by law);
(v) that Holders electing to have Registrable Securities
purchased will be required to surrender their certificates
representing such Registrable Securities, together with a letter of
transmittal duly completed, to the Company at the address set forth in
the notice, no later than the close of business on the Business Day
prior to the Purchase Date;
(vi) that Holders will be entitled to withdraw their
election if the Company receives, prior to the purchase date, a
telegram, telex or facsimile transmission not later
<PAGE> 8
6
than 5 Business Days prior to the Purchase Date setting forth the name
of the Holder, the number of Registrable Securities delivered for
purchase and a statement that such Holder is withdrawing its election
to have his Registrable Securities purchased; and
(vii) that Holders whose Registrable Securities are
purchased in part will be issued new Registrable Securities in number
equal to the unpurchased portion of the Registrable Securities
surrendered.
On the Purchase Date, the Company will accept all Registrable
Securities surrendered, pay to the Holders thereof the Current Market Value of
such Registrable Securities surrendered by them for purchase and issue and
authenticate certificates for the Registrable Securities not so purchased. The
Company shall comply with Rule 14e-1 under the Exchange Act and any other
securities laws and regulations thereunder to the extent such laws and
regulations are applicable in connection with the purchase set forth in this
paragraph 2(b). Upon payment for all Registrable Securities tendered pursuant
to this paragraph 2(b), the Company shall be deemed to have effected the one
Demand Registration for purposes of Section 2(a).
(c) A Registration Statement will not be deemed to have been
effected as a Demand Registration unless it has been declared effective by the
SEC and the Company has complied in a timely manner and in all material
respects with all of its obligations under this Agreement with respect thereto;
provided, however, that if, after such Registration Statement has become
effective, the offering of Registrable Securities pursuant to such Registration
Statement is or becomes the subject of any stop order, injunction or other
order or requirement of the SEC or any other governmental or administrative
agency or court that prevents, restrains or otherwise limits the sale of
Registrable Securities pursuant to such Registration Statement for any reason
not attributable to any Holder participating in such registration and such
Registration Statement has not become effective within a reasonable time period
thereafter (not to exceed 30 days), such Registration Statement will be deemed
not to have been effected for purposes of Section 2(a). The Company shall use
its best efforts to keep such Demand Registration effective under the
Securities Act until at least the earlier of (A) an aggregate of 150 days after
the effective date thereof or (B) the consummation of the distribution by the
Holders of all of the Registrable Securities covered thereby. For purposes of
calculating the 150-day period referred to in the preceding sentence, any
period of time during which such Registration Statement was not effective shall
be excluded. The Holders of Registrable Securities shall be permitted to
withdraw all or any part of the Registrable Securities from a Demand
Registration at any time prior to the effective date of such Demand
Registration.
<PAGE> 9
7
(d) Each Holder of Registrable Securities whose Registrable
Securities are covered by a Registration Statement filed pursuant to this
Section 2 and are to be sold thereunder agrees, if and to the extent requested
by the managing underwriter or underwriters in an underwritten offering, not to
effect any public sale or distribution of Registrable Securities or of
securities of the Company of the same class as any securities included in such
Registration Statement (except as part of such underwritten offering), during
the 30-day period prior to, and during the 180-day period (or such shorter
period as may be required by such managing underwriter or underwriter(s))
beginning on, the commencement of each underwritten offering made pursuant to
such Registration Statement, to the extent timely notified in writing by the
Company or such managing underwriter or underwriters.
The foregoing provisions of this paragraph (d) shall not apply
to any Holder of Registrable Securities if such Holder is prevented by
applicable statute or regulation from entering into any such agreement;
provided, however, that any such Holder shall undertake, in its request to
participate in any such underwritten offering, not to effect any public sale or
distribution of any Registrable Securities commencing on the date of sale of
such Registrable Securities unless it has provided 45 days' prior written
notice of such sale or distribution to the underwriter or underwriters.
(e) If any of the Registrable Securities covered by a Demand
Registration are to be sold in an underwritten offering, the investment banker
or investment bankers and manager or managers that will manage the offering
will be selected by the Company and will be reasonably acceptable to the
Holders of the Requisite Securities to be sold thereunder.
No Holder of Registrable Securities may participate in any
underwritten registration pursuant to a Registration Statement filed under this
Agreement unless such Holder (i) agrees to (A) sell such Holder's Registrable
Securities on the basis provided in and in compliance with any underwriting
arrangements approved by the Company and the Holders of not less than a
majority of the Registrable Securities to be sold thereunder and (B) comply
with Rules 10b-6 and 10b-7 under the Exchange Act and (ii) completes and
executes all questionnaires, powers of attorney, indemnities, underwriting
agreements and other documents reasonably required under the terms of such
underwriting arrangements.
(f) In a registration pursuant to this Section 2 involving an
underwritten offering, if the managing underwriter or underwriters of such
underwritten offering have informed, in writing, the Company and the Selling
Holders who have requested such Demand Registration or who have sought
inclusion therein that in such underwriter's or underwriters' opinion the total
number of securities which the Selling Holders and any other
<PAGE> 10
8
Person desiring to participate in such registration intend to include in such
offering is such as to adversely affect the success of such offering, including
the price at which such securities can be sold, then the Company will be
required to include in such registration only the number of securities which it
is so advised should be included in such registration. In such event,
securities shall be registered in such registration in the following order of
priority: (i) first, the securities which have been requested to be included in
such registration by the Holders of Registrable Securities pursuant to this
Agreement (pro rata based on the amount of securities sought to be registered
by such Persons) and (ii) second, provided that no securities sought to be
included by the Holders have been excluded from such registration, the
securities of other Persons entitled to exercise "piggy-back" registration
rights pursuant to contractual commitments of the Company (pro rata based on
the amount of securities sought to be registered by such Persons).
3. Piggy-Back Registration
(a) If at any time the Company proposes to file a
Registration Statement under the Securities Act with respect to an offering by
the Company for its own account or for the account of any of its
securityholders of any class of its common equity securities (other than a
Registration Statement on Form S-4 or S-8 (or any substitute form that may be
adopted by the SEC)), then the Company shall give written notice of such
proposed filing to the Holders of Registrable Securities as soon as practicable
(but in no event fewer than 20 days before the anticipated filing date), and
such notice shall offer such Holders the opportunity to register such number of
Registrable Securities as each such Holder may request in writing within 20
days after receipt of such written notice from the Company (which request shall
specify the Registrable Securities intended to be disposed of by such Selling
Holder and the intended method of distribution thereof) (a "Piggy-Back
Registration"), unless, in the opinion of counsel to the Company as further
described in, and subject to the provisions of, Section 4(b) below, an
exemption from the registration requirements of the Securities Act is then
available for the sale and subsequent resale by any Person who is not an
Affiliate of the Company of the Warrant Shares. The Company shall use its best
efforts to keep such Piggy-Back Registration continuously effective under the
Securities Act until at least the earlier of (i) 150 days after the effective
date thereof or (ii) the consummation of the distribution by the Holders of all
of the Registrable Securities covered thereby. The Company shall use its best
efforts to cause the managing underwriter or underwriters, if any, of such
proposed offering to permit the Registrable Securities requested to be included
in a Piggy-Back Registration to be included on the same terms and conditions as
any similar securities of the Company or any other securityholder included
therein and to permit the sale or other disposition of such Registrable
Securities in accordance with the intended method of distribution thereof. Any
Selling Holder shall have
<PAGE> 11
9
the right to withdraw its request for inclusion of its Registrable Securities
in any Registration Statement pursuant to this Section 3 by giving written
notice to the Company of its request to withdraw. The Company may withdraw a
Piggy- Back Registration at any time prior to the time it becomes effective or
the Company may elect to delay the registration; provided, however, that the
Company shall give prompt written notice thereof to participating Selling
Holders.
No registration effected under this Section 3, and no failure
to effect a registration under this Section 3, shall relieve the Company of its
obligation to effect a registration upon the request of Holders of Registrable
Securities pursuant to Section 2 hereof, and no failure to effect a
registration under this Section 3 and to complete the sale of securities
registered thereunder in connection therewith shall relieve the Company of any
other obligation under this Agreement.
(b) In a registration pursuant to this Section 3 involving an
underwritten offering, if the managing underwriter or underwriters of such
underwritten offering have informed, in writing, the Company and the Selling
Holders requesting inclusion in such offering that in such underwriter's or
underwriters' opinion the total number of securities which the Company, the
Selling Holders and any other Persons desiring to participate in such
registration intend to include in such offering is such as to adversely affect
the success of such offering, including the price at which such securities can
be sold, then the Company will be required to include in such registration only
the amount of securities which it is so advised should be included in such
registration. In such event: (i) in cases initially involving the
registration for sale of securities for the Company's own account, securities
shall be registered in such offering in the following order of priority: (A)
first, the securities which the Company proposes to register, and (B) second,
the securities which have been requested to be included in such registration by
the Holders of Registrable Securities pursuant to this Agreement, plus the
securities of other Persons entitled to exercise "piggy-back" registration
rights pursuant to contractual commitments of the Company (pro rata based on
the amount of securities sought to be registered by such Persons) and (ii) in
cases not initially involving the registration for sale of securities for the
Company's own account, securities shall be registered in such offering in the
following order of priority: (A) first, the securities of any Person whose
exercise of a "demand" registration right pursuant to a contractual commitment
of the Company is the basis for the registration (provided that if such Person
is a Holder of Registrable Securities, as among Holders of Registrable
Securities the priority shall be determined under paragraph 2(f) hereof), and
(B) second, the securities which have been requested to be included in such
registration by the Holders of Registrable Securities pursuant to this
Agreement, plus the securities of other Persons entitled to exercise
"piggy-back" registration rights pursuant to contractual commitments of the
<PAGE> 12
10
Company (pro rata based on the amount of securities sought to be registered by
such Persons) and (C) third, the securities which the Company proposes to
register.
If, as a result of the provisions of this paragraph (b), any
Selling Holder shall not be entitled to include all Registrable Securities in a
Piggy-Back Registration that such Selling Holder has requested to be included,
such Selling Holder may elect to withdraw its request to include Registrable
Securities in such registration (a "Withdrawal Election"); provided, however,
that a Withdrawal Election shall be irrevocable.
4. Limitations, Conditions and Qualifications to Obligations Under
Registration Covenants
The obligations of the Company set forth in Sections 2 and 3
hereof are subject to each of the following limitations, conditions and
qualifications:
(a) Subject to the next sentence of this paragraph, the
Company shall be entitled to postpone, for a reasonable period of
time, the filing or effectiveness of, or suspend the rights of any
Holders to make sales pursuant to, any Registration Statement
otherwise required to be prepared, filed and made and kept effective
by it hereunder; provided, however, that the duration of such
postponement or suspension may not exceed the earlier to occur of (i)
15 days after the cessation of the circumstances described in the next
sentence of this paragraph on which such postponement or suspension is
based or (ii) 120 days after the date of the determination of the
board of directors referred to in the next sentence, and the duration
of such postponement or suspension shall be excluded from the
calculation of the 150-day period described in Section 2(b) hereof.
Such postponement or suspension may only be effected if the board of
directors of the Company determines in good faith that the filing or
effectiveness of, or sales pursuant to, such Registration Statement
would materially impede, delay or interfere with any financing, offer
or sale of securities, acquisition, corporate reorganization or other
significant transaction involving the Company or any of its Affiliates
or require disclosure of material non-public information which the
Company has a bona fide business purpose for preserving as
confidential or such postponement or suspension is as a result of the
Selling Holders failure to comply with paragraph (c) hereof. If the
Company shall so postpone the filing of a Registration Statement it
shall, as promptly as possible, notify any Selling Holders of such
determination, and the Selling Holders shall (i) have the right, in
the case of a postponement of the filing or effectiveness of a
Registration Statement, upon the affirmative vote of the Holders of
not less than a majority of the Registrable
<PAGE> 13
11
Securities to be included in such Registration Statement, to withdraw
the request for registration by giving written notice to the Company
within 10 days after receipt of such notice or (ii) in the case of a
suspension of the right to make sales, receive an extension of the
registration period equal to the number of days of the suspension.
Any Demand Registration as to which the withdrawal election referred
to in the preceding sentence has been effected shall not be counted as
the one Demand Registration the Company is required to effect pursuant
to Section 2(a) hereof.
(b) The Company shall not be required by this Agreement to
register securities in a Registration Statement pursuant to Section 2
or 3 hereof if (i) in the written opinion of counsel to the Company,
addressed to the Holders and delivered to them, the Holders of such
securities seeking registration (other than Holders who are Affiliates
of the Company) would be free to sell, and the transferees of such
Holders would be free to resell all such securities without
registration under the Securities Act (without reliance on Rule 144
under the Securities Act) and (ii) all requirements, under the
Securities Act for effecting such sales and resales are satisfied at
such time; provided that, notwithstanding the above, the Company shall
be required to register such securities in a Registration Statement
pursuant to Section 2 or 3 hereof if (x) the Company has breached its
obligation under Section 7.3 of the Warrant Agreement or (y) a Person
who is an Affiliate of the Company solely by reason of holding Warrant
Shares desires to sell not less than the Requisite Securities, in the
case of a registration pursuant to Section 2, or any number of Warrant
Shares, in the case of a registration pursuant to Section 3.
(c) The Company's obligations shall be subject to the
obligations of the Selling Holders, which the Selling Holders
acknowledge, to furnish all information and materials and to take any
and all actions as may be required under applicable federal and state
securities laws and regulations to permit the Company to comply with
all applicable requirements of the SEC and to obtain any acceleration
of the effective date of such Registration Statement.
(d) The Company shall not be obligated to cause any special
audit to be undertaken in connection with any registration pursuant to
this Agreement unless such audit is requested by the underwriters with
respect to such registration.
5. Registration Procedures
In connection with the filing of any Registration Statement
pursuant to Section 2 or 3 hereof, the Company shall effect such registrations
to permit the sale of the securities
<PAGE> 14
12
covered thereby in accordance with the intended method or methods of
disposition thereof, and pursuant thereto and in connection with any
Registration Statement filed by the Company hereunder the Company shall:
(a) Prepare and file with the SEC as soon as practicable but
in no event after the dates required hereunder, a Registration
Statement or Registration Statements as prescribed by Section 2 or 3
hereof, and use its best efforts to cause each such Registration
Statement to become effective and remain effective as provided herein;
provided, however, that, before filing any Registration Statement or
Prospectus or any amendments or supplements thereto, the Company shall
furnish to and afford the Holders of the Registrable Securities
covered by such Registration Statement, their counsel and the managing
underwriters, if any, a reasonable opportunity to review copies of all
such documents (including copies of any documents to be incorporated
by reference therein and all exhibits thereto) proposed to be filed
(in each case at least five business days prior to such filing). The
Company shall not file any Registration Statement or Prospectus or any
amendments or supplements thereto if the Holders of a majority of the
Registrable Securities covered by such Registration Statement, their
counsel or the managing underwriters, if any, shall reasonably object.
(b) Prepare and file with the SEC such amendments and
post-effective amendments to each Registration Statement as may be
necessary to keep such Registration Statement continuously effective
for the time periods prescribed hereby; cause the related Prospectus
to be supplemented by any prospectus supplement required by applicable
law, and as so supplemented to be filed pursuant to Rule 424 (or any
similar provisions then in force) promulgated under the Securities
Act; and comply with the provisions of the Securities Act and the
Exchange Act applicable to it with respect to the disposition of all
securities covered by such Registration Statement as so amended or in
such Prospectus as so supplemented. The Company shall be deemed not
to have used its best efforts to keep a Registration Statement
effective during the time periods prescribed hereby if it voluntarily
takes any action that would result in selling Holders of the
Registrable Securities covered thereby not being able to sell such
Registrable Securities during such periods unless such action is
required by applicable law or unless the Company complies with this
Agreement, including, without limitation, the provisions of Section
5(k) hereof and the last paragraph of this Section 5.
(c) Notify the Selling Holders, their counsel and the
managing underwriters, if any, promptly (but in any event within two
business days), and confirm such notice in writing, (i) when a
Prospectus or any prospectus supplement
<PAGE> 15
13
or post-effective amendment has been filed, and, with respect to a
Registration Statement or any post-effective amendment, when the same
has become effective under the Securities Act (including in such
notice a written statement that any Holder may, upon request, obtain,
at the sole expense of the Company, one conformed copy of such
Registration Statement or post-effective amendment including financial
statements and schedules, documents incorporated or deemed to be
incorporated by reference and exhibits), (ii) of the issuance by the
SEC of any stop order suspending the effectiveness of a Registration
Statement or of any order preventing or suspending the use of any
preliminary prospectus or the initiation of any proceedings for that
purpose, (iii) if at any time when a prospectus is required by the
Securities Act to be delivered in connection with sales of the
Registrable Securities the representations and warranties of the
Company contained in any agreement (including any underwriting
agreement) contemplated by Section 5(m) hereof cease to be true and
correct, (iv) of the receipt by the Company of any notification with
respect to the suspension of the qualification or exemption from
qualification of a Registration Statement or any of the Registrable
Securities for offer or sale in any jurisdiction, or the initiation or
threatening of any proceeding for such purpose, (v) of the happening
of any event, the existence of any condition or any information
becoming known that makes any statement made in such Registration
Statement or related Prospectus or any document incorporated or deemed
to be incorporated therein by reference untrue in any material respect
or that requires the making of any changes in or amendments or
supplements to such Registration Statement, Prospectus or documents so
that, in the case of the Registration Statement, it will not contain
any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary to make the statements
therein not misleading, and that in the case of the Prospectus, it
will not contain any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances under which
they were made, not misleading, and (vi) of the Company's
determination that a post-effective amendment to a Registration
Statement would be appropriate.
(d) Use its reasonable efforts to prevent the issuance of any
order suspending the effectiveness of a Registration Statement or of
any order preventing or suspending the use of a Prospectus or
suspending the qualification (or exemption from qualification) of any
of the Registrable Securities, for sale in any jurisdiction, and, if
any such order is issued, to use its reasonable efforts to obtain the
withdrawal of any such order at the earliest possible moment.
<PAGE> 16
14
(e) If requested by the managing underwriter or underwriters
(if any), or the Holders of a majority of the Registrable Securities
being sold in connection with an underwritten offering, (i) promptly
incorporate in a prospectus supplement or post-effective amendment
such information as the managing underwriter or underwriters (if any),
such Holders or counsel for any of them determine is reasonably
necessary to be included therein, (ii) make all required filings of
such prospectus supplement or such post-effective amendment as soon as
practicable after the Company has received notification of the matters
to be incorporated in such prospectus supplement or post-effective
amendment, and (iii) supplement or make amendments to such
Registration Statement.
(f) Furnish to each Selling Holder and to counsel and each
managing underwriter, if any, at the sole expense of the Company, one
conformed copy of the Registration Statement or Registration
Statements and each post-effective amendment thereto, including
financial statements and schedules, and, if requested, all documents
incorporated or deemed to be incorporated therein by reference and all
exhibits.
(g) Deliver to each Selling Holder, their respective counsel
and the underwriters, if any, at the sole expense of the Company, as
many copies of the Prospectus or Prospectuses (including each form of
preliminary prospectus) and each amendment or supplement thereto and
any documents incorporated by reference therein as such Persons may
reasonably request; and, subject to the last paragraph of this Section
5, the Company hereby consents to the use of such Prospectus and each
amendment or supplement thereto by each of the Selling Holders and the
underwriters or agents, if any, and dealers (if any) in connection
with the offering and sale of the Registrable Securities covered by
such Prospectus and any amendment or supplement thereto.
(h) Prior to any public offering of Registrable Securities,
use its best efforts to register or qualify and cooperate with the
Selling Holders, the managing underwriter or underwriters, if any, and
their respective counsel in connection with the registration or
qualification (or exemption from such registration or qualification)
of such Registrable Securities for offer and sale under the securities
or Blue Sky laws of such jurisdictions within the United States as any
Selling Holder or the managing underwriter or underwriters reasonably
request; provided, however, that the Company shall not be required to
(i) qualify generally to do business in any jurisdiction where it is
not then so qualified, (ii) take any action that would subject it to
general service of process in any such jurisdiction where it is not
then so subject or (iii) subject itself to taxation in excess of a
nominal dollar
<PAGE> 17
15
amount in any such jurisdiction where it is not then so subject.
(i) Cooperate with the Selling Holders and the managing
underwriter or underwriters, if any, to facilitate the timely
preparation and delivery of certificates representing Registrable
Securities to be sold, which certificates shall not bear any
restrictive legends and shall be in a form eligible for deposit with
The Depository Trust Company; and enable such Registrable Securities
to be in such numbers and registered in such names as the managing
underwriter or underwriters, if any, or Holders may reasonably
request.
(j) Use its reasonable efforts to cause the Registrable
Securities covered by the Registration Statement to be registered with
or approved by such other governmental agencies or authorities as may
be necessary to enable the seller or sellers thereof or the
underwriter or underwriters, if any, to consummate the disposition of
such Registrable Securities, except as may be required solely as a
consequence of the nature of such Selling Holder's business, in which
case the Company will cooperate in all reasonable respects with the
filing of such Registration Statement and the granting of such
approvals.
(k) Upon the occurrence of any event contemplated by
paragraph 5(c)(v) or 5(c)(vi) hereof, as promptly as practicable
prepare and (subject to Section 5(a) hereof) file with the SEC, at the
sole expense of the Company, a supplement or post-effective amendment
to the Registration Statement or a supplement to the related
Prospectus or any document incorporated or deemed to be incorporated
therein by reference, or file any other required document so that, as
thereafter delivered to the purchasers of the Registrable Notes being
sold thereunder, any such Prospectus will not contain an untrue
statement of a material fact or omit to state a material fact required
to be stated therein or necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading.
(l) Prior to the effective date of the Registration
Statement, (i) provide the registrar for the Registrable Securities
with certificates for such securities in a form eligible for deposit
with The Depository Trust Company and (ii) provide a CUSIP number for
such securities.
(m) Enter into an underwriting agreement as is customary in
underwritten offerings of equity securities similar to the Class B
Common Stock and take all such other actions as are reasonably
requested by the managing underwriter or underwriters in order to
expedite or facilitate the registration or the disposition of such
Registrable Securities and, in such connection, (i) make
<PAGE> 18
16
such representations and warranties to, and covenants with, the
underwriters with respect to the business of the Company and its
subsidiaries (including any acquired business, properties or entity,
if applicable) and the Registration Statement, Prospectus and
documents, if any, incorporated or deemed to be incorporated by
reference therein, in each case, as are customarily made by issuers to
underwriters in underwritten offerings of equity securities similar to
the Class B Common Stock, and confirm the same in writing if and when
requested; (ii) obtain the written opinion of counsel to the Company
and written updates thereof in form, scope and substance reasonably
satisfactory to the managing underwriter or underwriters, addressed to
the underwriters covering the matters customarily covered in opinions
requested in underwritten offerings of equity securities similar to
the Class B Common Stock and such other matters as may be reasonably
requested by the managing underwriter or underwriters; (iii) obtain
"cold comfort" letters and updates thereof in form, scope and
substance reasonably satisfactory to the managing underwriter or
underwriters from the independent certified public accountants of the
Company (and, if necessary, any other independent certified public
accountants of any subsidiary of the Company or of any business
acquired by the Company for which financial statements and financial
data are, or are required to be, included or incorporated by reference
in the Registration Statement), addressed to each of the underwriters,
such letters to be in customary form and covering matters of the type
customarily covered in "cold comfort" letters in connection with
underwritten offerings of equity securities similar to the Class B
Common Stock and such other matters as reasonably requested by the
managing underwriter or underwriters; and (iv) if an underwriting
agreement is entered into, the same shall contain indemnification
provisions and procedures no less favorable than those set forth in
Section 7 hereof (or such other provisions and procedures acceptable
to Holders of at least the Requisite Securities covered by such
Registration Statement and the managing underwriter or underwriters or
agents) with respect to all parties to be indemnified pursuant to said
Section. The above shall be done at each closing under such
underwriting agreement, or as and to the extent required thereunder.
(n) Make available for inspection by any Selling Holder, any
underwriter participating in the disposition of Registrable
Securities, if any, and any attorney, accountant or other agent
retained by any such Selling Holder or underwriter (collectively, the
"Inspectors"), at the offices where normally kept, during reasonable
business hours, all financial and other records, pertinent corporate
documents and instruments of the Company and its subsidiaries
(collectively, the "Records") as shall be reasonably necessary to
enable them to exercise any applicable due
<PAGE> 19
17
diligence responsibilities, and cause the officers, directors and
employees of the Company and its subsidiaries to supply all
information reasonably requested by any such Inspector in connection
with such Registration Statement. Records which the Company
determines, in good faith, to be confidential and any Records which it
notifies the Inspectors are confidential shall not be disclosed by the
Inspectors unless (i) the disclosure of such Records is necessary to
avoid or correct a misstatement or omission in such Registration
Statement, (ii) the release of such Records is ordered pursuant to a
subpoena or other order from a court of competent jurisdiction, (iii)
disclosure of such information is, in the opinion of counsel for any
Inspector, necessary or advisable in connection with any action,
claim, suit or proceeding, directly or indirectly, involving or
potentially involving such Inspector and arising out of, based upon,
relating to, or involving this Agreement, or any transactions
contemplated hereby or arising hereunder, (iv) the information is
received by any Inspector outside of his, her or its dealings with the
Company from a party not under an obligation of confidentiality to the
Company, directly or indirectly, or (v) the information in such
Records has been made generally available to the public, unless such
information is made public by any Inspector in breach of this
Agreement or by any other party directly or indirectly under an
obligation of confidentiality to the Company. Each Selling Holder
will be required to agree in writing pursuant to a confidentiality
agreement that information obtained by it as a result of such
inspections shall be deemed confidential and shall not be used by it
as the basis for any market transactions in the securities of the
Company unless and until such information is generally available to
the public. Each Selling Holder will be required to further agree
that it will, upon learning that disclosure of such Records is sought
in a court of competent jurisdiction, give notice to the Company and
allow the Company to undertake appropriate action to prevent
disclosure of the Records deemed confidential at the Company's sole
expense.
(o) Comply with all applicable rules and regulations of the
SEC and make generally available to its securityholders earnings
statements satisfying the provisions of Section 11(a) of the
Securities Act and Rule 158 thereunder (or any similar rule
promulgated under the Securities Act) no later than 45 days after the
end of any 12-month period (or 90 days after the end of any 12-month
period if such period is a fiscal year) (i) commencing at the end of
any fiscal quarter in which Registrable Securities are sold to
underwriters in a firm commitment or best efforts underwritten
offering and (ii) if not sold to underwriters in such an offering,
commencing on the first day of the first fiscal quarter of the Company
after the
<PAGE> 20
18
effective date of a Registration Statement, which statements shall
cover said 12-month periods.
(p) Use its best efforts to cause all Registrable Securities
relating to such Registration Statement to be listed on each
securities exchange, if any, on which the Class A or Class B Common
Stock of the Company is then listed.
(q) Cooperate with the Selling Holders to facilitate the
timely preparation and delivery of certificates representing
Registrable Securities to be sold and not bearing any restrictive
legends and registered in such names as the Selling Holders may
reasonably request at least two business days prior to the closing of
any sale of Registrable Securities.
The Company may require each seller of Registrable Securities
as to which any registration is being effected to furnish to the Company such
information regarding such seller and the distribution of such Registrable
Securities as the Company may, from time to time, reasonably request. The
Company may exclude from such registration the Registrable Securities of any
seller who unreasonably fails to furnish such information within a reasonable
time after receiving such request. Each seller who is required to furnish
information hereunder agrees to furnish promptly to the Company all information
required to be disclosed in order to make the information previously furnished
to the Company by such seller not materially misleading.
Each Holder of Registrable Securities agrees by acquisition of
such Registrable Securities that, upon actual receipt of any notice from the
Company of the happening of any event of the kind described in Section
5(c)(ii), 5(c)(iv), 5(c)(v) or 5(c)(vi) hereof, such Holder will forthwith
discontinue disposition of such Registrable Securities covered by such
Registration Statement or Prospectus until such Holder's receipt of the copies
of the supplemented or amended Prospectus contemplated by Section 5(k) hereof,
or until it is advised in writing (the "Advice") by the Company that the use of
the applicable Prospectus may be resumed, and has received copies of any
amendments or supplements thereto. In the event the Company shall give any
such notice, the period of time for which a Registration Statement is required
hereunder to be effective shall be extended by the number of days during such
periods from and including the date of the giving of such notice to and
including the date when each seller of Registrable Securities covered by such
Registration Statement shall have received (x) the copies of the supplemented
or amended Prospectus contemplated by Section 5(k) hereof or (y) the Advice.
<PAGE> 21
19
6. Registration Expenses
(a) All fees and expenses incident to the performance of or
compliance with this Agreement by the Company shall be borne by the Company
whether or not a Registration Statement is filed or becomes effective,
including, without limitation, (i) all registration and filing fees (including,
without limitation, (A) fees with respect to filings required to be made with
the NASD in connection with an underwritten offering, (B) fees and expenses of
compliance with state securities or Blue Sky laws (including, without
limitation, reasonable fees and disbursements of counsel in connection with
Blue Sky qualifications of the Registrable Securities and determination of the
eligibility of the Registrable Securities for investment under the laws of such
jurisdictions where the holders of Registrable Securities are located or as
provided in Section 5(h) hereof)) and (C) all fees and expenses of a qualified
independent underwriter, if any, (ii) printing expenses, including, without
limitation, expenses of printing certificates for Registrable Securities in a
form eligible for deposit with The Depository Trust Company and of printing
prospectuses if the printing of prospectuses is requested by the managing
underwriter or underwriters, if any, by the Holders of a majority of the
Registrable Securities included in any Registration Statement, (iii) messenger,
telephone and delivery expenses, (iv) fees and disbursements of counsel for the
Company, (v) fees and disbursements of all independent certified public
accountants referred to in Section 5(m)(iii) hereof (including, without
limitation, the expenses of any special audit and "cold comfort" letters
required by or incident to such performance), (vi) Securities Act liability
insurance, if the Company desires such insurance, (vii) fees and expenses of
all other Persons retained by the Company, (viii) internal expenses of the
Company (including, without limitation, all salaries and expenses of officers
and employees of the Company performing legal or accounting duties), (ix) the
expense of any annual audit, (x) the fees and expenses incurred in connection
with the listing of the securities to be registered on any securities exchange,
if applicable, and (xi) the expenses relating to printing, word processing and
distributing all Registration Statements, underwriting agreements, securities
sales agreements, indentures and any other documents necessary in order to
comply with this Agreement.
(b) Each Holder of Registrable Securities shall pay all
underwriting discounts and commissions and transfer taxes, if any, relating to
the sale or disposition of such Holder's Registrable Securities pursuant to a
Registration Statement requested pursuant to Section 2 or 3 hereof. Each
Holder of Registrable Securities shall be responsible for paying all of its
out-of-pocket expenses.
7. Indemnification
<PAGE> 22
20
(a) The Company agrees to indemnify and hold harmless each
Holder of Registrable Securities, the officers and directors of each such
Holder, and each Person, if any, who controls any such Holder within the
meaning of either Section 15 of the Securities Act or Section 20 of the
Exchange Act (each, a "Participant"), from and against any and all losses,
claims, damages and liabilities (including, without limitation, the reasonable
legal fees and other expenses actually incurred in connection with any suit,
action or proceeding or any claim asserted) caused by, arising out of or based
upon any untrue statement or alleged untrue statement of a material fact
contained in any Registration Statement (or any amendment thereto) or
Prospectus (as amended or supplemented if the Company shall have furnished any
amendments or supplements thereto) or any preliminary prospectus, or caused by,
arising out of or based upon any omission or alleged omission to state therein
a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading, except insofar as such losses, claims, damages or liabilities
are caused by any untrue statement or omission or alleged untrue statement or
omission made in reliance upon and in conformity with information relating to
any Participant furnished to the Company in writing by such Participant
expressly for use therein; provided, however, that the Company will not be
liable if such untrue statement or omission or alleged untrue statement or
omission was contained or made in any preliminary prospectus and corrected in
the Prospectus or any amendment or supplement thereto and the Prospectus does
not contain any other untrue statement or omission or alleged untrue statement
or omission of a material fact that was the subject matter of the related
proceeding and any such loss, liability, claim, damage or expense suffered or
incurred by the Participants resulted from any action, claim or suit by any
Person who purchased Registrable Securities which are the subject thereof from
such Participant and it is established in the related proceeding that such
Participant failed to deliver or provide a copy of the Prospectus (as amended
or supplemented) to such Person with or prior to the confirmation of the sale
of such Registrable Securities sold to such Person if required by applicable
law, unless such failure to deliver or provide a copy of the Prospectus (as
amended or supplemented) was a result of noncompliance by the Company with
Section 5 of this Agreement.
(b) Each Participant agrees, severally and not jointly, to
indemnify and hold harmless the Company, its directors and officers who sign
the Registration Statement and each Person who controls the Company within the
meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act
to the same extent as the foregoing indemnity from the Company to each
Participant, but only (i) with reference to information relating to such
Participant furnished to the Company in writing by such Participant expressly
for use in any Registration Statement or Prospectus, any amendment or
supplement thereto, or any preliminary prospectus or (ii) with respect to
<PAGE> 23
21
any untrue statement or representation made by such Participant in writing to
the Company. The liability of any Participant under this paragraph shall in no
event exceed the proceeds received by such Participant from sales of
Registrable Securities giving rise to such obligations.
(c) If any suit, action, proceeding (including any
governmental or regulatory investigation), claim or demand shall be brought or
asserted against any Person in respect of which indemnity may be sought
pursuant to either of the two preceding paragraphs, such Person (the
"Indemnified Person") shall promptly notify the Person against whom such
indemnity may be sought (the "Indemnifying Person") in writing, and the
Indemnifying Person, upon request of the Indemnified Person, shall retain
counsel reasonably satisfactory to the Indemnified Person to represent the
Indemnified Person and any others the Indemnifying Person may reasonably
designate in such proceeding and shall pay the reasonable fees and expenses
actually incurred by such counsel related to such proceeding; provided,
however, that the failure to so notify the Indemnifying Person shall not
relieve it of any obligation or liability which it may have hereunder or
otherwise (unless and only to the extent that such failure directly results in
the loss or compromise of any material rights or defenses by the Company and
the Company was not otherwise aware of such action or claim). In any such
proceeding, any Indemnified Person shall have the right to retain its own
counsel, but the fees and expenses of such counsel shall be at the expense of
such Indemnified Person unless (i) the Indemnifying Person and the Indemnified
Person shall have mutually agreed in writing to the contrary, (ii) the
Indemnifying Person shall have failed within a reasonable period of time to
retain counsel reasonably satisfactory to the Indemnified Person or (iii) the
named parties in any such proceeding (including any impleaded parties) include
both the Indemnifying Person and the Indemnified Person and representation of
both parties by the same counsel would be inappropriate due to actual or
potential differing interests between them. It is understood that, unless
there exists a conflict among Indemnified Persons, the Indemnifying Person
shall not, in connection with any one such proceeding or separate but
substantially similar related proceeding in the same jurisdiction arising out
of the same general allegations, be liable for the fees and expenses of more
than one separate firm (in addition to any local counsel) for all Indemnified
Persons, and that all such fees and expenses shall be reimbursed promptly as
they are incurred. Any such separate firm for the Participants and such
control Persons of Participants shall be designated in writing by Participants
who sold a majority in interest of Registrable Securities sold by all such
Participants and any such separate firm for the Company, its directors, its
officers and such control Persons of the Company shall be designated in writing
by the Company. The Indemnifying Person shall not be liable for any settlement
of any proceeding effected without its prior written consent, but if settled
with such consent or if there be a final non-appealable judgment for the
plaintiff for which the
<PAGE> 24
22
Indemnified Person is entitled to indemnification pursuant to this Agreement,
the Indemnifying Person agrees to indemnify and hold harmless each Indemnified
Person from and against any loss or liability by reason of such settlement or
judgment. Notwithstanding the foregoing sentence, if at any time an
Indemnified Person shall have requested an Indemnifying Person to reimburse the
Indemnified Person for reasonable fees and expenses actually incurred by
counsel as contemplated by the third sentence of this paragraph, the
Indemnifying Person agrees that it shall be liable for any settlement of any
proceeding effected without its consent if (i) such settlement is entered into
more than 30 days after receipt by such Indemnifying Person of the aforesaid
request and (ii) such Indemnifying Person shall not have reimbursed the
Indemnified Person in accordance with such request prior to the date of such
settlement; provided, however, that the Indemnifying Person shall not be liable
for any settlement effected without its consent pursuant to this sentence if
the Indemnifying Person is contesting, in good faith, the request for
reimbursement. No Indemnifying Person shall, without the prior written consent
of the Indemnified Person effect any settlement or compromise of any pending or
threatened proceeding in respect of which any Indemnified Person is or could
have been a party, or indemnity could have been sought hereunder by such
Indemnified Person, unless such settlement (A) includes an unconditional
written release of such Indemnified Person, in form and substance reasonably
satisfactory to such Indemnified Person, from all liability on claims that are
the subject matter of such proceeding and (B) does not include any statement as
to an admission of fault, culpability or failure to act by or on behalf of any
Indemnified Person.
(d) If the indemnification provided for in the first and
second paragraphs of this Section 7 is for any reason unavailable to, or
insufficient to hold harmless, an Indemnified Person in respect of any losses,
claims, damages or liabilities referred to therein, then each Indemnifying
Person under such paragraphs, in lieu of indemnifying such Indemnified Person
thereunder and in order to provide for just and equitable contribution, shall
contribute to the amount paid or payable by such Indemnified Person as a result
of such losses, claims, damages or liabilities in such proportion as is
appropriate to reflect (i) the relative benefits received by the Indemnifying
Person or Persons on the one hand and the Indemnified Person or Persons on the
other from the offering of the Registrable Securities or (ii) if the allocation
provided by the foregoing clause (i) is not permitted by applicable law, not
only such relative benefits but also the relative fault of the Indemnifying
Person or Persons on the one hand and the Indemnified Person or Persons on the
other in connection with the statements or omissions or alleged statements or
omissions that resulted in such losses, claims, damages or liabilities (or
actions in respect thereof) as well as any other relevant equitable
considerations. The relative fault of the parties shall be determined by
reference to, among other things, whether the
<PAGE> 25
23
untrue or alleged untrue statement of a material fact or the omission or
alleged omission to state a material fact relates to information supplied by
the Company on the one hand or such Participant or such other Indemnified
Person, as the case may be, on the other, the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
statement or omission, and any other equitable considerations appropriate in
the circumstances.
(e) The parties agree that it would not be just and equitable
if contribution pursuant to this Section 7 were determined by pro rata
allocation (even if the Participants were treated as one entity for such
purpose) or by any other method of allocation that does not take account of the
equitable considerations referred to in the immediately preceding paragraph.
The amount paid or payable by an Indemnified Person as a result of the losses,
claims, damages and liabilities referred to in the immediately preceding
paragraph shall be deemed to include, subject to the limitations set forth
above, any reasonable legal or other expenses actually incurred by such
Indemnified Person in connection with investigating or defending any such
action or claim. Notwithstanding the provisions of this Section 7, in no event
shall a Participant be required to contribute any amount in excess of the
amount by which proceeds received by such Participant from sales of Registrable
Securities exceeds the amount of any damages that such Participant has
otherwise been required to pay or has paid by reason of such untrue or alleged
untrue statement or omission or alleged omission. No Person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the
Securities Act) shall be entitled to contribution from any Person who was not
guilty of such fraudulent misrepresentation.
(f) The indemnity and contribution agreements contained in
this Section 7 will be in addition to any liability which the Indemnifying
Persons may otherwise have to the Indemnified Persons referred to above.
8. Restrictions on Sale by the Company and Others
(a) The Company covenants and agrees that (i) it shall not,
and that it shall not cause or permit any of its subsidiaries to, effect any
public sale or distribution of any securities of the same class as any of the
Registrable Securities or any securities convertible into or exchangeable or
exercisable for such securities (or any option or other right for such
securities) during the 30-day period prior to, and during the 180-day period
(or such shorter period as may be required by such managing underwriter or
underwriter(s)) beginning on, the commencement of any underwritten offering of
Registrable Securities pursuant to a Demand Registration which has been
requested pursuant to this Agreement, or a Piggy-Back Registration which has
been scheduled, prior to the Company's or any of its subsidiaries' publicly
announcing its intention to
<PAGE> 26
24
effect any such public sale or distribution; (ii) any agreement entered into
after the date of this Agreement pursuant to which the Company (or, if
applicable, any subsidiary of the Company) grants registration rights with
respect to any securities of the Company shall contain (x) a provision under
which the holders of such securities agree, in the event of an underwritten
offering of Registrable Securities, not to effect any public sale or
distribution of any securities of the same class as any of the Registrable
Securities (or any securities convertible into or exchangeable or exercisable
for any such securities), or any option or other right for such securities,
during the periods described in clause (i) of this Section 8(a), in each case
including a sale pursuant to Rule 144 (or any similar provisions then in
effect), and (y) a provision that effects, upon notice given pursuant to
Section 2 hereof to the Company that a Demand Registration of Registrable
Securities is to be undertaken, the lapse of any demand registration rights
with respect to any equity securities of the Company until the expiration of 60
days after the date of the completion of any such underwritten offering; (iii)
the Company will not, and the Company will not cause or permit any subsidiary
of the Company to, after the date hereof, enter into any agreement or contract
that conflicts with or limits or prohibits the full and timely exercise by the
Holders of Registrable Securities of the rights herein to request a Demand
Registration or to join in any Piggy-Back Registration; and (iv) it shall use
its reasonable efforts to secure the written agreement of each of its officers,
directors and stockholders to not effect any public sale or distribution of any
securities of the same class as the Registrable Securities (or any securities
convertible into or exchangeable or exercisable for any such securities) or any
option or right for such securities during the period described in clause (i)
of this Section 8(a).
(b) Each Holder of Registrable Securities whose Registrable
Securities are covered by a Registration Statement filed pursuant to Section 2
hereof and are to be sold thereunder agrees, to the extent permitted by
applicable law or regulation, that, if and to the extent requested by the
managing underwriter or underwriters in an underwritten offering, it shall not
effect any public sale or distribution of Registrable Securities or of
securities of the Company of the same class as any securities included in such
Registration Statement (except as part of such underwritten offering), during
the 30-day period prior to, and during the 180-day period (or such shorter
period as may be required by such managing underwriter or underwriter(s))
beginning on, the commencement of each underwritten offering made pursuant to
such Registration Statement, to the extent timely notified in writing by the
Company or such managing underwriter or underwriters.
<PAGE> 27
25
9. Miscellaneous
(a) No Inconsistent Agreements. The Company has not entered
and will not enter into any agreement with respect to any of its securities
which (i) will grant to any Person piggy-back registration rights with respect
to a Registration Statement that are inconsistent with Section 2 or 3 hereof or
(ii) is inconsistent with the rights granted to the Holders of Registrable
Securities in the Agreement or otherwise conflicts with the provisions hereof.
(b) Adjustments Affecting Registrable Securities. The
Company shall not, directly or indirectly, take any action with respect to the
Registrable Securities as a class that would adversely affect the ability of
the Holders of Registrable Securities to include such Registrable Securities in
a registration undertaken pursuant to this Agreement.
(c) Amendments and Waivers. The provisions of this Agreement
may not be amended, modified or supplemented, and waivers or consents to
departures from the provisions hereof may not be given, otherwise than with the
prior written consent of the Holders of not less than a majority of the then
outstanding Registrable Securities; provided, however, that Section 7 and this
Section 9(c) may not be amended, modified or supplemented without the prior
written consent of each Holder (including any person who was a Holder of
Registrable Securities disposed of pursuant to any Registration Statement).
Notwithstanding the foregoing, a waiver or consent to depart from the
provisions hereof with respect to a matter that relates exclusively to the
rights of Holders of Registrable Securities whose securities are being sold
pursuant to a Registration Statement and that does not directly or indirectly
affect, impair, limit or compromise the rights of other Holders of Registrable
Securities may be given by Holders of at least a majority of the Registrable
Securities being sold by such Holders pursuant to such Registration Statement;
provided, however, that the provisions of this sentence may not be amended,
modified or supplemented except in accordance with the provisions of the
immediately preceding sentence.
(d) Notices. All notices and other communications provided
for or permitted hereunder shall be made in writing by hand-delivery,
registered first-class mail, next-day air courier or facsimile:
1. if to a Holder of Registrable Securities, at the most
current address of such Holder set forth on the records of the
registrar, with a copy in like manner to the Underwriters as follows:
<PAGE> 28
26
c/o Lehman Brothers Inc.
3 World Financial Center
New York, New York 10285
Facsimile No: (212) 526-3738
Attention: Capital Markets Department
with a copy to:
Simpson Thacher & Bartlett
425 Lexington Avenue
New York, New York 10017
Facsimile No: (212) 455-2502
Attention: Vincent Pagano, Jr., Esq.
2. if to the Underwriters, at the addresses specified in
Section 10(d)(1);
3. if to the Company, at the addresses as follows:
PCS Development Corporation
15 South Main Street
Suite 810
Greenville, South Carolina 29601
Facsimile No: (864) 235-0841
Attention: Cecil L. Duffie, Jr.
with copies to:
Nelson Mullins Riley & Scarborough, L.L.P.
NationsBank Corporate Center
33rd Floor, Suite 3350
100 North Tryon Street
Charlotte, North Carolina 28202
Facsimile No: (704) 377-4814
Attention: H. Bryan Ives III, Esq.
All such notices and communications shall be deemed to have
been duly given: when delivered by hand, if personally delivered; five
business days after being deposited in the mail, postage prepaid, if mailed;
one business day after being timely delivered to a next-day air courier; and
when receipt is acknowledged by the addressee, if sent by facsimile.
Copies of all such notices, demands or other communications
shall be concurrently delivered by the Person giving the same to the Trustee at
the address and in the manner specified in such Indenture.
(e) Successors and Assigns. This Agreement shall inure to
the benefit of and be binding upon the successors and assigns of each of the
parties hereto and the Holders; provided, however, that this Agreement shall
not inure to the benefit of or be binding upon a successor or assign of a
Holder unless and to the extent such successor or assign holds Registrable
Securities.
<PAGE> 29
27
(f) Counterparts. This Agreement may be executed in any
number of counterparts and by the parties hereto in separate counterparts, each
of which when so executed shall be deemed to be an original and all of which
taken together shall constitute one and the same agreement.
(g) Headings. The headings in this Agreement are for
convenience of reference only and shall not limit or otherwise affect the
meaning hereof.
(h) GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD
TO PRINCIPLES OF CONFLICTS OF LAW. EACH OF THE PARTIES HERETO AGREES TO SUBMIT
TO THE JURISDICTION OF THE COURTS OF THE STATE OF NEW YORK IN ANY ACTION OR
PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT.
(i) Severability. If any term, provision, covenant or
restriction of this Agreement is held by a court of competent jurisdiction to
be invalid, illegal, void or unenforceable, the remainder of the terms,
provisions, covenants and restrictions set forth herein shall remain in full
force and effect and shall in no way be affected, impaired or invalidated, and
the parties hereto shall use their best efforts to find and employ an
alternative means to achieve the same or substantially the same result as that
contemplated by such term, provision, covenant or restriction. It is hereby
stipulated and declared to be the intention of the parties that they would have
executed the remaining terms, provisions, covenants and restrictions without
including any of such that may be hereafter declared invalid, illegal, void or
unenforceable.
(j) Securities Held by the Company or its Affiliates.
Whenever the consent or approval of Holders of a specified percentage of
Registrable Securities is required hereunder, Registrable Securities held by
the Company or its Affiliates shall not be counted in determining whether such
consent or approval was given by the Holders of such required percentage.
(k) Third Party Beneficiaries. Holders of Registrable
Securities are intended third party beneficiaries of this Agreement and this
Agreement may be enforced by such Persons.
(l) Entire Agreement. This Agreement, together with the
Underwriting Agreement and the Warrant Agreement, is intended by the parties as
a final and exclusive statement of the agreement and understanding of the
parties hereto in respect of the subject matter contained herein and therein
and any and all prior oral or written agreements, representations, or
warranties, contracts, understandings, correspondence, conversations and
memoranda between the Underwriters on the one hand and the Company on the
other, or between or among any agents, representatives, parents, subsidiaries,
affiliates, predecessors
<PAGE> 30
28
in interest or successors in interest with respect to the subject matter hereof
and thereof are merged herein and replaced hereby.
<PAGE> 31
29
IN WITNESS WHEREOF, the parties have executed this Agreement
as of the date first written above.
PCS DEVELOPMENT CORPORATION
By:
-----------------------------------
Name:
Title:
LEHMAN BROTHERS INC.
on behalf of itself and
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
CHASE SECURITIES, INC.
TORONTO DOMINION SECURITIES
(USA) INC.
By LEHMAN BROTHERS INC.
By:
------------------------------
Authorized Representative
<PAGE> 1
EXHIBIT 5.2
[LETTERHEAD OF LUKAS, MCGOWAN, NACE & GUTIERREZ, CHARTERED]
November 10, 1995
To the Purchasers party to
the Convertible Preferred
Stock Purchase Agreement
referred to below
Re: PCS DEVELOPMENT CORPORATION
Ladies and Gentlemen:
This opinion is furnished to you pursuant to Section 3.5 of the
Convertible Preferred Stock Purchase Agreement dated as of November 10, 1995
(the "Agreement") by and among PCS Development Corporation, a Delaware
corporation (the "Company") and each of the Purchasers listed on Schedule I
thereto (the "Purchasers"). Unless otherwise indicated, capitalized terms used
in this opinion have the meanings ascribed to them in the Agreement.
This firm has acted as communications counsel for the Company. In
connection with the delivery of this opinion, we have examined a copy of the
Agreement and other Related Documents. We have also examined those records
maintained by the Federal Communications Commission ("FCC") that are available
for public inspection, and such other documents and matters of law as we have
deemed necessary or appropriate for purposes of this opinion. We have also
interviewed appropriate representatives of the Company as we have deemed
reasonably necessary to render this opinion. Further, we obtained a ruling
from the FCC's Commercial Wireless Division staff as to whether the FCC would
apply the unjust enrichment provision of Section 24.309(f) should the total
equity interest held by the Control Group in the Company be reduced to less
than twenty-five percent (25%) and describe the nature of that ruling on
Exhibit B (the "Ruling") (collectively, "Our Inquiry"). Based upon this
Ruling, and in reliance on our opinion in this letter, we have been informed
that the Company does not intend to accept the Conditional Subscription
Agreements of Sloan Communications, Inc., Dobson Family Corp. and Sullivan
Revocable Trust to purchase Convertible Preferred Stock or Class B Common Stock
of the Company at or prior
<PAGE> 2
to the sale of the Convertible Preferred Stock under the Agreement.
In making Our Inquiry, we have assumed, without independent
verification, the genuineness of all signatures (whether original or
photostatic) and the authenticity of all documents submitted to us as originals
and the conformity to authentic original documents of all documents submitted
to us as certified or photostatic copies. We have also assumed the accuracy
and completeness of the FCC's files. We have also assumed the due
authorization, execution and delivery of the Agreement by the parties thereto
as well as the legal rights and powers of the parties, under all applicable
laws and regulations, to enter into, execute, deliver and perform their
obligations pursuant to the Agreement. As to all questions of fact material to
this opinion, we have relied solely upon the representations and warranties of
the Company contained in the Agreement and made by its representatives as part
of Our Inquiry. We have assumed, without independent verification, the
accuracy of the relevant facts stated therein.
When used in this opinion, the term "our knowledge" refers to the
actual knowledge of the attorneys currently in this firm who have been actively
involved in the Company's representation. Whenever our opinion with respect to
the existence or nonexistence of facts is qualified by the phrase "to the best
of our knowledge," or some similar phrase, it is intended to indicate that no
information has come to the attention of those attorneys in the course of our
representation that would give them actual knowledge that our opinion with
respect to the existence or nonexistence of such facts is inaccurate. We have
not undertaken any independent investigation of the Company or their facilities
to determine the existence or nonexistence of such facts, other than Our
Inquiry identified above. Our opinion, therefore, does not encompass any
matter which would be apparent, inter alia, only as a result of such an
investigation. Whenever our opinion is qualified by the phrase "after Our
Inquiry" or some similar phrase, it is intended to indicate that we undertook
Our Inquiry as described herein, but did not undertake any independent
investigation or evaluation to confirm the accuracy or completeness of the
responses to Our Inquiry. No inference as to our knowledge of the existence or
nonexistence of facts, other than facts of which we have obtained actual
knowledge as a result of our representation, should be drawn from the fact of
our representation of the Company.
This opinion is governed by, and shall be interpreted in accordance
with, the Legal Opinion Accord of the ABA Section of Business Law (1991). As a
consequence, it is subject to a number of qualifications, exceptions,
definitions, limitations on coverage and other limitations, all as more
particularly described in the Accord, and this opinion should be read in
conjunction therewith.
For the purpose of giving this opinion, we are not admitted in and do
not practice in any jurisdiction other than the District of
2
<PAGE> 3
Columbia. This opinion should not be construed to render any opinion on any
matter of state law with respect to the Company. Moreover, this opinion is
limited solely to matters arising under the Communications Act of 1934, as
amended ("Act"), the FCC's rules, regulations, and published policies
("Rules"), and this firm's representation of the Company before the FCC.
Based upon and subject to the foregoing, and subject to the
limitations, qualifications and exceptions set forth herein, we are of the
opinion, to our knowledge, after the Inquiry, that:
1. Exhibit A to this letter is a list of the operating licenses
issued by the FCC to the Company ("FCC Licenses"). The FCC Licenses are in
full force and effect and have not been reversed, stayed, set aside, annulled
or suspended. The FCC Licenses are valid until the expiration date shown on
the face of the FCC Licenses, subject to the construction requirements of 47
C.F.R. Section 24.103(b). The FCC Licenses are the only licenses, permits,
authorizations, consents or approvals required under the Act and the Rules for
the construction and operation of the national narrowband PCS system discussed
in the Private Placement Memorandum.
2. No exemption, consent, approval, order or authorization of, or
registration, declaration or filing with, the FCC is required by the Company in
connection with the issuance and sale of the Convertible Preferred Stock.
3. The issuance and sale of the Convertible Preferred Stock by
the Company will not result in the application to the Company of the FCC's
unjust enrichment sanctions with respect to the Company's classification as a
small business or a business owned by members of minority groups and/or women.
4. There is not now pending or threatened any litigation,
proceeding, inquiry or investigation before the FCC that might result in a
termination, revocation or other material impairment of the FCC Licenses. To
the best of our knowledge, after Our Inquiry, the Company is not now subject to
any effective or proposed Notice of Apparent Liability.
5. Neither the issuance and sale of the Convertible Preferred
Stock of the Company, nor the execution of the Agreement or any other Related
Document, nor compliance with the terms and provisions thereof, nor the
Company's non-acceptance of the Conditional Subscription Agreements of Sloan
Communications, Inc., Dobson Family Corp. and Sullivan Revocable Trust, nor the
consummation of any of the transactions contemplated therein, will contravene
any provision of the Act or the Rules with respect to the FCC Licenses.
3
<PAGE> 4
This opinion is being provided to you only for your use. This opinion
may not be quoted to, copied, delivered to, or relied upon by anyone other than
you in connection with the transaction and for no other purpose without our
prior written consent. This opinion is effective only as of the date hereof
and we undertake no professional responsibility to advise you as to any
subsequent event either in the nature of a change of fact or law, as to which
we may become aware. This opinion should not be assumed to state general
principles of law applicable to transactions of this kind. Where opinions are
expressed concerning the financial effect or possible effect of any event upon
the Company or its business, you should be advised that we have no particular
expertise in such matters, and you rely on such opinion at your risk.
Very truly yours,
LUKAS, MCGOWAN, NACE & GUTIERREZ, CHARTERED
By:
-------------------------------------------
Gerald S. McGowan
4
<PAGE> 5
EXHIBIT A
PCS DEVELOPMENT CORPORATION
Personal Communications Service - Narrowband
<TABLE>
<CAPTION>
Call Sign Market Channel Block File No.
- --------- ------ ------------- --------
<S> <C> <C> <C>
KNKV213 R-01, Region 1 13 00013-CN-L-95
KNKV219 R-02, Region 2 13 00019-CN-L-95
KNKV225 R-03, Region 3 13 00025-CN-L-95
KNKV231 R-04, Region 4 13 00031-CN-L-95
KNKV237 R-05, Region 5 13 00037-CN-L-95
</TABLE>
5
<PAGE> 6
EXHIBIT B
FCC COMPLIANCE ISSUES
The Company is considered a Designated Entity under the Rules
governing the licensing of narrowband PCS as both a small business and a
minority/woman-owned business. As such, the Control Group of the Company must
hold 50.1% of the Company's voting interest and at least 25% of the Company's
total equity on a fully diluted basis.
Upon consummation of the transactions contemplated by the Agreement,
the Control Group will continue to hold 50.1% of the Company's voting interest,
but less than 25% of the Company's total equity on a fully diluted basis.
On October 3, 1995, the Company disclosed to the FCC the details of
the transactions contemplated by the Agreement and its effect on the Control
Group (a copy attached hereto). On October 10, 1995, the law firm of Lukas,
McGowan, Nace & Gutierrez, Chartered ("LMN&G") requested a ruling from the
FCC's Commercial Wireless Division Staff ("FCC Staff") that dilution of a
control group's interest premised on the facts of the transactions contemplated
by the Agreement would not result in the FCC's application of the Unjust
Enrichment Provisions (a copy attached hereto). On October 25, 1995, LMN&G
received a response to its request in which the FCC Staff stated that the
Unjust Enrichment Provisions would not be applied so long as the Control Group
continued to hold at least 50.1% of the voting interest of the narrowband PCS
licensee (a copy attached hereto).
[ATTACHMENTS FILED AS EXHIBIT 99.1]
6
<PAGE> 1
EXHIBIT 5.3
[LETTERHEAD OF LUKAS, MCGOWAN, NACE & GUTIERREZ, CHARTERED]
June 13, 1996
(202) 828-9475
Lehman Brothers Inc.
Donaldson, Lufkin & Jenrette
Securities Corporation
Chase Securities, Inc.
Toronto Dominion Securities (USA) Inc.
c/o Lehman Brothers Inc.
3 World Financial Center
New York, New York 10285
Re: PCS Development Corporation
Ladies and Gentlemen:
This letter will discuss the impact of the Adarand decision on the
FCC's "Designated Entities" program and update the letter from this firm to
Patrick Daugherty on this subject dated June 21, 1995.
The FCC is resigned to the fact that no race-based auction preferences
can withstand "strict scrutiny" under Adarand unless the agency is able to
establish a record of discrimination against minority groups. Since the
Adarand decision, the FCC has eliminated from its competitive bidding rules any
preferences, or proposed preferences, for minorities or women owned businesses.
Recently, however, pursuant to a requirement under the Telecommunications Act
of 1996, the FCC has commenced a proceeding in which it seeks data to identify
whether small businesses owned by minorities or women have experienced barriers
to entry into the telecommunications industry. The pleading cycle for this
proceeding terminates on August 23, 1996.
<PAGE> 2
June 13, 1996
Page 2
Neither Adarand nor the FCC's action since the Adarand decision has
altered our view that PCSD's licenses are not subject to a direct or collateral
constitutional attack. Our view is based on the following considerations:
1. The FCC's action granting PCSD's applications is now final and
immune from administrative reconsideration or judicial review. Consequently,
the grants are insulated from any direct attack based on the
unconstitutionality of the preferences accorded to PCSD. (The licenses,
however, are subject to revocation under 47 U.S.C. Section 312(a) for reasons
unrelated to the constitutionality of the FCC's auction process.)
2. I can foresee no scenario under which the PCSD licenses could
be subjected to a sustainable Adarand- based collateral attack. PCSD would be
vulnerable to such an attack only if there is ongoing litigation that could
result in a judgment requiring the FCC to vacate the grant of PCSD's
applications. See Alianza Federal de Mercedes v. FCC, 539 F.2d 732, 735-36
(D.C. Cir. 1976). There is no such case pending, and no party can now bring a
constitutional challenge to the FCC's rules that could retroactively endanger
PCSD's licenses.
3. The FCC's designated entities program could be declared
unconstitutional only in the unlikely event that the agency decides to go
forward with its existing rules. In that event, those rules could be struck
down on due process/equal protection grounds either in (a) a direct appeal from
a final order issued by the FCC in the rulemaking proceeding itself; (b) an
appeal of an adjudicatory order by which the FCC applied its rules in a future
narrowband PCS auction, see Functional Music, Inc. v. FCC, 274 F.2d 543, 546-47
(D.C. Cir. 1959); or (c) in a federal court action for a declaratory judgment.
However, any decision invalidating the FCC's rules for designated entities
would be applied retroactively to all pending cases. See Harper v. Virginia
Dept. of Taxation, 113 S.Ct. 2510, 2516-18 (1993). But again, the grant of
PCSD's licenses cannot be at issue in any future case. Those licenses are
clearly beyond the reach of any retroactive application of a constitutional
ruling under Adarand.
4. Certainly, no ruling striking down the FCC's auction rules --
even one issued by the FCC -- could provide grounds to revoke PCSD's licenses.
Revocation on such grounds would be warranted only if the constitutional ruling
could be considered a "condition[] coming to the attention" of the FCC which
would have warranted the denial of PCSD's original application. See 47 U.S.C.
Section 312(a)(2). However, the FCC was aware that its auction rules were
suspect under the Fifth Amendment when it granted PCSD's applications.
Consequently, the FCC cannot later assert the unconstitutionality of its rules
as grounds to revoke those licenses.
<PAGE> 3
June 13, 1996
Page 3
Finally, with respect to the offering documents, the language
suggested in our previous letter with respect to Designated Entity matters
remains accurate. It reads as follows:
In particular, FCC counsel has advised the Partnership that
PCSD's licenses cannot be adversely affected by the Supreme
Court's recent decision subjecting all federal race-based
classifications, such as the FCC's "designated entity"
classification, to "strict scrutiny" by the courts.
If we can be of further assistance with regard to this matter, please
let us know.
Sincerely,
David A. LaFuria
cc: William deKay (via facsimile)
<PAGE> 1
EXHIBIT 5.4
FORM OF OPINION OF
LUKAS, MCGOWAN, NACE & GUTIERREZ, CHARTERED
June ___, 1996
(202) 828-9475
Lehman Brothers Inc.
Donaldson, Lufkin & Jenrette
Securities Corporation
Chase Securities, Inc.
Toronto Dominion Securities (USA) Inc.
c/o Lehman Brothers Inc.
3 World Financial Center
New York, New York 10285
Re: PCS Development Corporation ("PCSD" or the "Company") --
Issuance of $150,000,000 (Initial Accreted Value) of ______%
Senior Discount Notes (the "Notes") with Warrants (the
"Warrants") to purchase ____ shares of Class B Common Stock
(the Notes and Warrants collectively are referred to herein as
the "Units")
Ladies and Gentlemen:
This opinion is furnished to you in connection with the issuance of
the Units ("Offering") pursuant to the Form S-1 Registration Statement of PCSD,
Registration No. 333-2162, as amended, (the "Form S-1"), as representative of
the several Underwriters named in Schedule 1 to the Underwriting Agreement
entered into with respect to the Units. Unless otherwise indicated,
capitalized terms used in this opinion have the meanings ascribed to them in
the Form S-1.
This firm has acted as communications counsel for the Company. In
connection with the delivery of this opinion, we have examined a copy of the
Form S-1, including all amendments and exhibits filed through the date of this
letter. We have also examined those
<PAGE> 2
June 13, 1996
Page 2
records maintained by the Federal Communications Commission ("FCC") that are
available for public inspection, and such other documents and matters of law as
we have deemed necessary or appropriate for purposes of this opinion. We have
also interviewed appropriate representatives of the Company as we have deemed
reasonably necessary to render this opinion (collectively, "Our Inquiry").
In making Our Inquiry, we have assumed, without independent
verification, the genuineness of all signatures (whether original or
photostatic) and the authenticity of all documents submitted to us as originals
and the conformity to authentic original documents of all documents submitted
to us as certified or photostatic copies. We have also assumed the accuracy
and completeness of the FCC's files. As to all questions of fact material to
this opinion, we have relied solely upon the representations and warranties of
the Company contained in the Underwriting Agreement and made by its
representatives as part of Our Inquiry. We have assumed, without independent
verification, the accuracy of the relevant facts stated therein.
When used in this opinion, the term "our knowledge" refers to the
actual knowledge of the attorneys currently in this firm who have been actively
involved in the Company's representation. Whenever our opinion with respect to
the existence or nonexistence of facts is qualified by the phrase "to our
knowledge," or some similar phrase, it is intended to indicate that no
information has come to the attention of those attorneys in the course of our
representation that would give them actual knowledge that our opinion with
respect to the existence or nonexistence of such facts is inaccurate. We have
not undertaken any independent investigation of the Company or its facilities
to determine the existence or nonexistence of such facts, other than Our
Inquiry identified above. Our opinion, therefore, does not encompass any
matter which would be apparent, inter alia, only as a result of such an
investigation. Whenever our opinion is qualified by the phrase "after Our
Inquiry" or some similar phrase, it is intended to indicate that we undertook
Our Inquiry as described herein, but did not undertake any independent
investigation or evaluation to confirm the accuracy or completeness of the
responses to Our Inquiry. No inference as to our knowledge of the existence or
nonexistence of facts, other than facts of which we have obtained actual
knowledge as a result of our representation, should be drawn from the fact of
our representation of the Company.
This opinion is governed by, and shall be interpreted in accordance
with, the Legal Opinion Accord of the ABA Section of Business Law (1991). As a
consequence, it is subject to a number of qualifications, exceptions,
definitions, limitations on coverage and other limitations, all as more
particularly described in the Accord, and this opinion should be read in
conjunction therewith.
<PAGE> 3
June 13, 1996
Page 3
For the purpose of giving this opinion, we are not admitted in and/or
do not practice in any jurisdiction other than the District of Columbia. This
opinion should not be construed to render an opinion on any matter of state law
with respect to the Company. This opinion is limited solely to matters arising
under the Communications Act of 1934, as amended ("Act"), the FCC's rules,
regulations, and published policies ("Rules"), and we express no opinion
concerning any other law, federal, state or local or of the regulation of any
other federal, state or local agency or administrative body.
Based upon and subject to the foregoing, and subject to the
limitations, qualifications and exceptions set forth herein, we are of the
opinion, to our knowledge, after our Inquiry, that:
1. Exhibit A to this letter is a list of the operating licenses
issued by the FCC to the Company or to the indicated Restricted Subsidiary of
the Company ("FCC Licenses"). The FCC Licenses are in full force and effect
and have not been reversed, stayed, set aside, annulled or suspended. The FCC
Licenses are valid until the expiration date shown on the face of the FCC
Licenses, subject to the construction requirements of 47 C.F.R. Section
24.103(b). The FCC Licenses are the only licenses, permits, authorizations,
consents or approvals required under the Act and the Rules for the construction
and operation of the national narrowband PCS system discussed in the Form S-1
licensed to the Company.
2. No exemption, consent, approval, order or authorization of, or
registration, declaration or filing with, the FCC is required by the Company in
connection with the issuance and sale of the Units, the detaching or exercise
of the Warrants or the Issuance of the Warrant Shares upon the exercise of the
Warrants.
3. Neither the issuance and sale of the Units by the Company, the
detaching or exercise of the Warrants nor the issuance of the Warrant Shares
upon the exercise of the Warrants will result in the application to the Company
of the FCC's unjust enrichment sanctions with respect to the Company's
classification as a small business or a business owned by members of minority
groups and/or women in the FCC's narrowband PCS regional auction, or the
Company's classification as a small business in the FCC's 900 MHz SMR auction,
and after the issuance of the Units the Company will continue to be eligible
for the benefits that accrued to it in those auctions. In arriving at this
opinion, we have relied upon a ruling we obtained from the FCC's Commercial
Wireless Division staff as to whether the FCC would apply the unjust enrichment
provision of Section 24.309(f) should the total equity interest held by the
Control Group in the Company be reduced to less than twenty-five percent (25%)
in connection with the issuance by the Company of its Series A Preferred Stock
(the "Ruling"). We note that private letter rulings concerning the
interpretation of the
<PAGE> 4
June 13, 1996
Page 4
FCC rules made by the FCC's staff are not binding upon the FCC. We
nevertheless have relied on such interpretations as the best available source.
4. There is not now pending or threatened any litigation,
proceeding, inquiry or investigation before the FCC that might result in a
termination, revocation or other material impairment of the FCC Licenses. The
FCC has not issued, or threatened to issue, Notice of Apparent Liability
against the Company.
5. Neither the issuance and sale of the Units, the detaching or
exercise of the Warrants, or the issuance of the Warrant Shares upon the
exercise of the Warrants, nor the consummation of any of the transactions
contemplated by the Form S-1, will contravene any provision of the Act or the
Rules with respect to the FCC Licenses.
6. The statements contained in the Form S-1 under the captions
"Risk Factors - Potential Loss of FCC Financing and Bidding Credits,"
"Business-Spectrum," "Business-Regulation," and "Description of FCC Auction
Benefits" constitute a fair and accurate summary thereof, and we have no reason
to believe that such statements contain any untrue statement of material fact
or omit to state a material fact necessary to make such statement therein not
misleading.
This opinion is being provided to you solely for your use. This
opinion may not be quoted to, copied, delivered to, or relied upon by anyone
other than you in connection with the transaction and for no other purpose
without our prior written consent. It may not be relied upon by any purchaser
of the Units, Warrants or Warrant Shares in the Offering, or any subsequent
purchaser. This opinion is effective only as of the date hereof and we
undertake no professional responsibility to advise you as to any subsequent
event either in the nature of a change of fact or law, as to which we may
become aware. This opinion should not be assumed to state general principles
of law applicable to transactions of this kind. Where opinions may be
expressed or implied concerning the financial effect or possible effect of any
event upon the Company or its business, you should be advised that we have no
particular expertise in such matters, and you rely on such opinion at your
risk.
Very truly yours,
LUKAS, MCGOWAN, NACE & GUTIERREZ,
CHARTERED
By:
-----------------------------------------
David A. LaFuria
<PAGE> 1
EXHIBIT 8.1
FORM OF OPINION OF
NELSON MULLINS RILEY & SCARBOROUGH, L.L.P.
June _____, 1996
To the Board of Directors
PCS Development Corporation
15 South Main Street
Suite 810
Greenville, South Carolina 29601
Ladies and Gentlemen:
We are acting as counsel to PCS Development Corporation, a Delaware
corporation, (the "Company") in connection with its registration statement on
Form S-1, as amended (the "Registration Statement") filed with the Securities
and Exchange Commission relating to the proposed public offering of Units,
consisting of Senior Discount Notes due 2006 (the "Notes") and Warrants to
purchase shares of Class B Common Stock of the Company, all of which Units are
to be sold by the Underwriters (the "Warrants"). This opinion letter is
furnished to you at your request to enable you to fulfill the requirements of
Item 601(b)(8) of Regulation S-K, 17 C.F.R. Section 229.601(b)(8), in
connection with the Registration Statement.
For purposes of this opinion letter, we have examined an executed copy of the
Registration Statement. In such examination, we have assumed the genuineness
of all signatures, the legal capacity of natural persons, the authenticity,
accuracy and completeness of all documents submitted to us, and the conformity
with the original documents of all documents submitted to us as certified,
telecopied, photostatic, or reproduced copies. This opinion letter is given,
and all statements herein are made, in the context of the foregoing.
This opinion letter is based as to matters of law solely on the Internal
Revenue Code of 1986, as amended, its legislative history, judicial authority,
current administrative rulings and practice, and existing and proposed Treasury
Regulations, including regulations concerning the treatment of debt instruments
issued with original issue discount, all as in effect and existing on the date
hereof (collectively, "federal tax laws"). We express no opinion herein as to
any other laws, statutes, regulations, or ordinances.
<PAGE> 2
To the Board of Directors
PCS Development Corporation
June _____, 1996
Page Two
Based upon, subject to and limited by the foregoing, we are of the opinion that
the information in the prospectus constituting a part of the Registration
Statement under the caption "Certain Federal Income Tax Considerations", to the
extent that such information constitutes matters of law or legal conclusions or
purports to describe certain provisions of the federal tax laws, has been
reviewed by us and is a correct summary in all material respects of the matters
discussed therein.
We assume no obligation to advise you of any changes in the foregoing
subsequent to the delivery of this opinion letter. This opinion letter has
been prepared solely for your use in connection with the filing of the
Registration Statement on the date of this opinion letter and should not be
quoted in whole or in part or otherwise be referred to, nor filed with or
furnished to any governmental agency or other person or entity, without the
prior written consent of this firm.
We hereby consent to the filing of this opinion letter as Exhibit 8.1 to the
Registration Statement. In giving this consent, we do not thereby admit that
we are an "expert" within the meaning of the Securities Act of 1933, as amended.
NELSON MULLINS RILEY & SCARBOROUGH, L.L.P.
By:____________________________________
<PAGE> 1
EXHIBIT 10.37
THE CHASE MANHATTAN BANK N.A.
One Chase Manhattan Plaza
New York, New York 10005
CHASE SECURITIES, INC.
One Chase Manhattan Plaza
New York, New York 10005
GLENAYRE ELECTRONICS INC.
5935 Carnegie Boulevard
Charlotte, North Carolina 28209
June 25, 1996
PCSD Financial Corp.
$225 Million Equipment Financing Credit Facilities
Commitment Letter
PCSD Financial Corp.
15 South Main Street
Suite 810
Greenville, South Carolina 29601
Attention: Mr. Mark Moore
Chief Financial Officer
Ladies and Gentlemen:
You have advised The Chase Manhattan Bank N.A. ("Chase"),
Chase Securities, Inc. ("CSI") and Glenayre Electronics Inc. ("Glenayre") that
PCSD Financial Corp. (the "Borrower") and its subsidiaries intend to construct
and operate a nationwide paging system (the "Project") and that, in connection
therewith, you have need for $225,000,000 of senior credit facilities (the
"Facilities") to provide a portion of the financing necessary in connection
therewith.
CSI is pleased to advise you that it is willing to act as
exclusive advisor and arranger for the Facilities, Chase is pleased to advise
you that it is willing to provide the entire $150,000,000 of the "Tranche A
Facility" and the "Tranche B Facility" referred to in the Term Sheet and to act
as administrative agent in respect of the Facilities, and Glenayre is pleased
to advise you that it is willing to provide the entire $75,000,000 of the
"Glenayre
<PAGE> 2
2
Facility" referred to in the Term Sheet. Attached hereto as Exhibit A is a
Summary of Terms and Conditions (the "Term Sheet") setting forth the principal
terms and conditions on and subject to which Chase and Glenayre are willing to
make available their respective portions of the Facilities. It is a condition
to Chase's commitments hereunder that the portion of the Facilities being
provided by Glenayre shall be provided and it is a condition to Glenayre's
commitments hereunder that the portion of the Facilities not being provided by
Gleanayre shall be provided by Chase or the Syndicated Lenders referred to
below.
You agree that no other agents, co-agents or arrangers will be
appointed, no other titles will be awarded and no compensation (other than that
expressly contemplated by the Term Sheet and the Fee Letter referred to below)
will be paid in connection with the Facilities unless you and we shall so
agree.
Chase intends to syndicate the Tranche A Facility and the
Tranche B Facility (including, in our discretion, all or part of Chase's
commitment hereunder) to a group of financial institutions (the "Syndicated
Lenders" and together with Chase and Glenayre, the "Lenders") identified by
Chase and CSI in consultation with you. CSI intends to commence syndication
efforts promptly upon the execution of this Commitment Letter, and you agree
actively to assist CSI in completing a syndication satisfactory to it. Such
assistance shall include (a) your direct contact between senior management and
advisors of the Borrower and the proposed Lenders, (b) assistance in the
preparation of a Confidential Information Memorandum and other marketing
materials to be used in connection with the syndication and (c) the hosting,
with CSI, of one or more meetings of prospective Lenders.
CSI will manage all aspects of the syndication, including
decisions as to the selection of institutions to be approached and when they
will be approached, when their commitments will be accepted, which institutions
will participate, the allocations of the commitments among the Syndicated
Lenders and the amount and distribution of fees among the Syndicated Lenders.
To assist CSI in its syndication efforts, you agree promptly to prepare and
provide to CSI, Chase and Glenayre all information with respect to the
Borrower, the Project and the other transactions contemplated hereby, including
all financial information and projections (the "Projections"), as we may
reasonably request in connection with the arrangement and syndication of the
Facilities. You hereby represent and covenant that (a) all information other
than the Projections (the "Information") that has been or will be made
available to Chase, Glenayre or CSI by you or any of your representatives is or
will be, when furnished, complete and correct in all material respects and does
not or will not, when furnished, contain any untrue statement of a material
fact or omit to state a material fact necessary in order to make the statements
contained therein not materially misleading in light of the circumstances under
which such statements are made and (b) the Projections that have been or will
be made available to Chase, Glenayre or CSI by you or any of your
representatives have been or will be prepared in good faith based upon
reasonable assumptions. In arranging and syndicating the Facilities, we will
use and rely on the Information and Projections without independent
verification thereof.
<PAGE> 3
3
As consideration for Chase's commitment hereunder and CSI's
agreement to perform the services described herein, you agree to pay to Chase
the nonrefundable fees set forth in the Fee Letter dated the date hereof and
delivered herewith (the "Fee Letter").
Chase's and Glenayre's commitments hereunder and CSI's
agreement to perform the services described herein are subject to (a) there not
occurring or becoming known to us any material adverse condition or material
adverse change in or affecting the business, operations, property, condition
(financial or otherwise) or prospects of the Borrower and its subsidiaries,
taken as a whole, (b) our completion of and satisfaction in all respects with a
due diligence investigation of the Borrower and the Project, (c) our not
becoming aware after the date hereof of any information or other matter which
is inconsistent in a material and adverse manner with any information or other
matter disclosed to us prior to the date hereof, (d) there not having occurred
a material disruption of or material adverse change in financial, banking or
capital market conditions that, in our judgment, could materially impair the
syndication of the Facilities, (e) our satisfaction that prior to and during
the syndication of the Facilities there shall have been no competing offering,
placement or arrangement of any debt securities or bank financing by or on
behalf of the Borrower or any affiliate thereof (other than the Senior Notes
referred to in the Term Sheet), (f) the negotiation, execution and delivery on
or before August 31, 1996 of definitive documentation with respect to the
Facilities satisfactory to Chase and Glenayre and their respective counsel and
(g) the other conditions set forth in the Term Sheet. The terms and conditions
of Chase's and Glenayre's commitments hereunder and of the Facilities are not
limited to those set forth herein and in the Term Sheet. Those matters that
are not covered by the provisions hereof and of the Term Sheet are subject to
the approval and agreement of Chase, CSI, Glenayre and the Borrower.
You agree (a) to indemnify and hold harmless Chase, CSI,
Glenayre and their respective officers, directors, employees, affiliates,
advisors, agents and controlling persons (each, an "indemnified person") from
and against any and all losses, claims damages and liabilities to which any
such indemnified person may become subject arising out of or in connection with
this Commitment Letter, the Facilities, the use of the proceeds thereof, the
Project or any related transaction or any claim, litigation, investigation or
proceeding relating to any of the foregoing, regardless of whether any
indemnified person is a party thereto, and to reimburse each indemnified person
upon demand for any legal or other expenses incurred in connection with
investigating or defending any of the foregoing, provided that the foregoing
indemnity will not, as to any indemnified person, apply to losses, claims,
damages, liabilities or related expenses to the extent they arise from the
willful misconduct or gross negligence of such indemnified person, and (b) to
reimburse Chase, CSI, Glenayre and their affiliates on demand for all
reasonable out-of-pocket expenses (including due diligence expenses,
syndication expenses, travel expenses, and reasonable fees, charges and
disbursements of counsel) incurred in connection with the Facilities and any
related documentation (including this Commitment Letter, the Term Sheet, the
Fee Letter and the definitive financing documentation). No indemnified person
shall be liable for any indirect or consequential damages in connection with
its activities related to the Facilities.
<PAGE> 4
4
This Commitment Letter shall not be assignable by you without
the prior written consent of Chase, CSI and Glenayre (and any purported
assignment without such consent shall be null and void), is intended to be
solely for the benefit of the parties hereto and is not intended to confer any
benefits upon, or create any rights in favor of, any person other than the
parties hereto. This Commitment Letter may not be amended or waived except by
an instrument in writing signed by you, Chase, CSI and Glenayre. This
Commitment Letter may be executed in any number of counterparts, each of which
shall be an original, and all of which, when taken together, shall constitute
one agreement. Delivery of an executed signature page of this Commitment
Letter by facsimile transmission shall be effective as delivery of a manually
executed counterpart hereof. This Commitment Letter and the Fee Letter are the
only agreements which have been entered into among us with respect to the
Facilities and set forth the entire understanding of the parties with respect
thereto. This Commitment Letter shall be governed by, and construed in
accordance with, the laws of the State of New York.
This Commitment Letter is delivered to you on the
understanding that neither this Commitment Letter, the Term Sheet or the Fee
Letter nor any of their terms or substance shall be disclosed, directly or
indirectly, to any other person except (a) to your officers, agents and
advisors who are directly involved in the consideration of this matter or (b)
as may be compelled in a judicial or administrative proceeding or as otherwise
required by law (in which case you agree to inform us promptly thereof).
The compensation, reimbursement, indemnification and
confidentiality provisions contained herein and in the Fee Letter shall remain
in full force and effect regardless of whether definitive financing
documentation shall be executed and delivered and notwithstanding the
termination of this Commitment Letter or Chase's and Glenayre's commitments
hereunder.
If the foregoing correctly sets forth our agreement, please
indicate your acceptance of the terms hereof and of the Term Sheet and the Fee
Letter by returning to us executed counterparts hereof and of the Fee Letter
not later than 5:00 p.m., New York City time, on July 1, 1996. Chase's and
Glenayre's commitments and CSI's agreements herein will expire at such time in
the event Chase and Glenayre have not received such executed counterparts of
this letter and, if the case of Chase only, the Fee Letter, in accordance with
the immediately preceding sentence.
<PAGE> 5
5
Chase, CSI and Glenayre are pleased to have been given the
opportunity to assist you in connection with this important financing.
Very truly yours,
THE CHASE MANHATTAN BANK, N.A.
By:____________________________
Title:
CHASE SECURITIES, INC.
By:____________________________
Title:
GLENAYRE ELECTRONICS INC.
By:____________________________
Title:
Accepted and agreed to
as of the date first
written above by:
PCSD FINANCIAL CORP.
By:____________________________
Title:
<PAGE> 6
$225 MILLION EQUIPMENT FINANCING CREDIT FACILITIES
Summary of Terms and Conditions
June 25, 1996
I. Parties
Borrower: PCSD Financial Corp. (the "Borrower").
Guarantors: Each of the Borrower's direct and indirect
subsidiaries (the "Guarantors"; the Borrower
and the Guarantors, collectively, the "Credit
Parties").
Lenders: In the case of the Tranche A and Tranche B
Loans, the banks, financial institutions and
other entities, including The Chase Manhattan
Bank N.A. ("Chase"), selected in the
syndication effort and, in the case of the
Glenayre Credit Extensions, Glenayre
Electronics Inc. ("Glenayre") (all of the
foregoing, collectively, the "Lenders").
Advisor and Arranger: Chase and/or Chase Securities, Inc. (in such
capacity, the "Arranger").
Administrative Agent: Chase (in such capacity, the "Administrative
Agent").
II. Types and Amounts of Credit Facilities
1. Glenayre Facility
Type and Amount of
Facility: 4-year multiple drawdown term loan facility
in the amount of $75,000,000 (the extensions
of credit thereunder, the "Glenayre Credit
Extensions").
Availability: The Glenayre Facility shall be available for
extensions of credit against the Borrower's
purchases of Glenayre equipment, related
software and technical services during the
period commencing on the Closing Date and
ending on the date which is three and one
half
<PAGE> 7
2
years thereafter (the "Glenayre Conversion
Date"), after which the Glenayre Credit
Extensions will amortize as described below.
Amortization: The Glenayre Credit Extensions outstanding on
the Glenayre Conversion Date shall be
repayable in two consecutive quarterly
installments, commencing on March 31, 2000,
and ending on June 30, 2000, in an equal
amount for each quarter based on the amount
of the Glenayre Credit Extensions outstanding
on the Glenayre Conversion Date.
Purpose: The Glenayre Credit Extensions shall be
available to finance the acquisition by the
Borrower from Glenayre of Glenayre equipment,
related software and technical services
associated with the installation and
servicing of Glenayre equipment.
2. Tranche A Facility
Type and Amount of
Facility: 4-year revolving credit facility (the
"Tranche A Facility" in the amount of
$35,000,000 (the loans thereunder, the
"Tranche A Loans").
Availability: The Tranche A Facility shall be available on
a revolving basis during the period
commencing on the Closing Date (as defined
below) and ending on the date which is three
and one half years thereafter (the "Tranche A
Conversion Date"), after which the Tranche A
Loans will amortize as described below.
Amortization: The Tranche A Loans outstanding on the
Tranche A Conversion Date shall be repayable
in two consecutive quarterly installments,
commencing on March 31, 2000, and ending on
June 30, 2000, in an equal amount for each
quarter based on the amount of the Tranche A
Loans outstanding on the Tranche A Conversion
Date.
Purpose: The proceeds of the Tranche A Loans shall be
used to finance the working capital and
capital expenditure
<PAGE> 8
3
needs of the Borrower and its subsidiaries in
the ordinary course of business.
3. Tranche B Facility
Type and Amount of
Facility: 8-year reducing revolving credit facility
(the "Tranche B Facility; together with the
Glenayre Facility and Tranche A Facility, the
"Credit Facilities") in the amount of
$115,000,000 (the loans thereunder, the
"Tranche B Loans").
Availability: The Tranche B Facility shall be available on
a revolving basis during the period
commencing on the Closing Date and ending on
June 30, 2004 (the "Tranche B Termination
Date"), provided that the Tranche B Facility
shall automatically terminate on June 30,
2000 unless the initial borrowing thereunder
is made on or before such date.
Stepdowns: The Tranche B Facility shall be reduced in
fourteen consecutive quarterly installments,
commencing on March 31, 2001 and ending on
June 30, 2004, in an aggregate amount for
each calendar year set forth below equal to
the percentage set forth opposite such year
multiplied by the amount of the Tranche B
Facility (with the installments during each
such year being equal in amount):
<TABLE>
<CAPTION>
Year Percentage
---- ----------
<S> <C>
2001 10.0%
2002 22.5
2003 37.5
2004 30.0
</TABLE>
Maturity: The Tranche B Termination Date.
Purpose: The proceeds of the Tranche B Loans shall be
used to finance the working capital and
capital expenditure needs of the Borrower and
its subsidiaries in the ordinary course of
business and to repay maturing Glenayre
Credit Extensions and Tranche A Loans.
<PAGE> 9
4
III. General Payment Provisions
Fees and Interest Rates: As set forth on Annex I.
Optional Prepayments and Loans may be prepaid and commitments may be
Commitment Reductions: reduced by the Borrower in minimum amounts to
be agreed upon, provided that Eurodollar
Loans (as defined in Annex I) may only be
prepaid on the last day of an interest period
applicable thereto. Optional prepayments of
the Loans and reductions of the commitments
to lend under the Credit Facilities shall be
applied ratably among the Credit Facilities
and, with respect to each Credit Facility, to
the installments and mandatory stepdowns
thereof ratably in accordance with the then
outstanding amounts thereof. In the case of
any such reduction of a revolving credit
commitment to lend under the Tranche B
Facility, the Loans thereunder shall be
prepaid to the extent they exceed the Tranche
B Facility as so reduced.
Mandatory Prepayments and The following amounts shall be applied to
Commitment Reductions: prepay the Loans and reduce the Credit
Facilities:
(a) subject to certain exceptions to be
agreed upon, 50% of the net proceeds of any
sale or issuance of equity or incurrence of
indebtedness after the Closing Date by the
corporation which is the owner of all of the
capital stock of the Borrower (the "Parent")
or by the Borrower or any of its
subsidiaries;
(b) 100% of the net proceeds of any sale or
other disposition by the Borrower or any of
its subsidiaries of any material assets
(except for the sale of inventory or obsolete
or worn-out property in the ordinary course
of business and certain other sales to be
agreed on);
(c) 100% of the net proceeds of any
insurance or condemnation recoveries not
reasonably promptly applied toward repair
or replacement of the affected property; and
<PAGE> 10
5
(d) a percentage of Excess Cash Flow for
each fiscal year of the Borrower based on the
Borrower's Leverage Ratio as set forth on
Annex II (commencing with the fiscal year
ending December 31, 1998).
All such prepayments of the Loans and
reductions of the commitments to lend under
the Credit Facilities shall be applied
ratably between the Credit Facilities (except
that any such prepayment made with the
proceeds of the sale of any equipment,
related software and technical services
supplied by Glenayre shall be applied, so
long as any Glenayre Credit Extensions are
outstanding, first to the Glenayre Credit
Extensions) and, with respect to each Credit
Facility, to the installments and mandatory
stepdowns thereof ratably in accordance with
the then outstanding amounts thereof. In the
case of any such reduction of a revolving
credit commitment to lend under the Tranche B
Facility, the Loans thereunder shall be
prepaid to the extent they exceed the Tranche
B Facility as so reduced.
IV. Guarantees and Collateral (See Annex III)
Guarantees: All obligations of the Borrower under the
Credit Documentation shall be unconditionally
guaranteed by the Guarantors.
Collateral: All the assets used in the business of the
Borrower will be lodged in one of three
separate subsidiaries of the Borrower into
which will be placed, respectively: (a) all
FCC and other governmental licenses and
permits ("the License Subsidiary"), (b) all
real estates leasehold interests (the
"Leasehold Subsidiary"), and (c) all other
assets (the "Operating Subsidiary"). The
obligations of the Borrower under the Credit
Facilities will be secured by a pledge of all
the capital stock of such Subsidiaries. In
addition, the Operating Subsidiary will
create perfected liens on receivables,
general intangibles and all equipment owned
by it that shall be supplied by Glenayre and
other vendors.
<PAGE> 11
6
All collateral will be held by Chase as
collateral agent for the Lenders and will be
shared by them equally and ratably, except
that the Glenayre Credit Extensions will have
a first priority security interest in the
equipment and related software supplied by
Glenayre.
V. Certain Conditions
Initial Conditions: The availability of the Credit Facilities
shall be conditioned upon satisfaction of,
among other things, the following conditions
precedent (the date upon which all such
conditions precedent shall be satisfied, the
"Closing Date") on or before June 30, 1996:
(a) Each Credit Party shall have executed and
delivered satisfactory definitive financing
documentation with respect to the Credit
Facilities (the "Credit Documentation").
(b) The Parent shall have received at least
$145,000,000 in cash in gross proceeds from
the issuance of its Senior Discount Notes due
2006 (the "Senior Notes") on satisfactory
terms and conditions, and the Borrower shall
have received at least $200,000,000 from the
issuance of its common stock to the Parent
(constituting the proceeds of the Senior
Notes and the preferred stock referred to in
paragraph (c) below). All the proceeds from
the Senior Discount Notes offering and
preferred stock offering must be invested in
the Borrower. The capital structure of each
Credit Party after the completion of the
foregoing shall be satisfactory in all
respects.
(c) The Administrative Agent and Glenayre
shall be satisfied with all the terms and
conditions of the Parent's currently
outstanding preferred stock.
(d) The Borrower shall have entered into
equipment supply contracts with all vendors
containing satisfactory terms and conditions
to allow the Borrower to fulfill its business
plan and such contracts shall be satisfactory
to the Administrative Agent.
<PAGE> 12
7
(e) The Lenders, the Administrative Agent and
the Arranger shall have received all fees and
expenses required to be paid on or before the
Closing Date.
(f) All governmental and third party
approvals (including landlords' and other
consents) necessary or advisable in
connection with the financing contemplated
hereby and the continuing operations of the
Borrower and its subsidiaries shall have been
obtained and be in full force and effect.
(g) The Lenders shall have received (i)
satisfactory audited consolidated financial
statements of the Borrower for the two most
recent fiscal years ended prior to the
Closing Date as to which such financial
statements are available and (ii)
satisfactory unaudited interim consolidated
financial statements of the Borrower for each
quarterly period ended subsequent to the date
of the latest financial statements delivered
pursuant to clause (i) of this paragraph as
to which such financial statements are
available.
(h) The Lenders shall have received a
satisfactory pro forma consolidated balance
sheet of the Borrower as at the date of the
most recent consolidated balance sheet
delivered pursuant to paragraph (g) above,
adjusted to give effect to the consummation
on the Closing Date of the issuance by the
Parent of the Senior Notes and the financings
contemplated hereby.
(i) The Lenders shall have received a
satisfactory business plan for fiscal years
1996 through 2000 and a satisfactory written
analysis of the business and prospects of the
Borrower and its subsidiaries for the period
from the Closing Date through the final
maturity of the Loans (the "Business Plan").
(j) The Lenders shall have received the
results of a recent lien search in each of
the jurisdictions and offices where assets of
the Borrower and its subsidiaries are located
or recorded, and such search shall reveal no
liens on any of the assets of the
<PAGE> 13
8
Borrower or its subsidiaries except for liens
approved by the Administrative Agent.
(k) The Administrative Agent and Glenayre
shall have received satisfactory evidence
that the Borrower constitutes a "Designated
Entity" within the meaning of the FCC rules
and regulations entitled to all the benefits
of such status, and the Administrative Agent
shall be satisfied with all of the terms and
conditions of the payment obligations of the
Borrower with respect to all licenses
acquired by the Borrower from the FCC.
Conditions to The making of each Glenayre Loan shall be
Glenayre Credit Extensions: subject to the satisfaction of certain
conditions to be agreed upon among Chase,
Glenayre and the Borrower, including, but not
limited to, the condition that the borrower
shall be operating in accordance with the
Business Plan.
Conditions to The making of each Tranche A Loan shall be
Tranche A Loans: subject to (a) the Borrower having expended
$185,000,000 of the $200,000,000 referred to
in paragraph (b) under "Initial Conditions"
above, (b) the Borrower having drawn down the
full amount of the Glenayre Facility and (c)
the Borrower having (both before and after
giving effect to such Loan) (i) a minimum
number of "Qualified Pagers in Service" (to
be defined as paging units in service for a
minimum of 60 days) and (ii) a minimum level
of Average Monthly Revenue Per Unit ("ARPU"),
all as set forth on Annex IV.
Conditions to The making of each Tranche B Loan shall be
Tranche B Loans: subject to (a) the Borrower having expended
$185,000,000 of the $200,000,000 referred to
in paragraph (b) under "Initial Conditions"
above and (b) the Borrower having (both
before and after giving effect to such Loan)
(i) a maximum ratio of Total Debt to
"Qualified Pagers in Service" (to be defined
as paging units in service for a minimum of
60 days) and (ii) a maximum ratio of Total
Debt to Operating Cash Flow, all as set forth
on Annex V.
<PAGE> 14
9
On-Going Conditions: The making of each extension of credit shall
be conditioned upon (a) all representations
and warranties in the Credit Documentation
(including, without limitation, the material
adverse change and litigation
representations) being true and correct in
all material respects and (b) there being no
default or event of default in existence at
the time of, or after giving effect to the
making of, such extension of credit. As used
herein and in the Credit Documentation a
"material adverse change" shall mean any
event, development or circumstance that has
had or could reasonably be expected to have a
material adverse effect on (a) the business,
assets, property, condition (financial or
otherwise) or prospects of the Borrower and
its subsidiaries taken as a whole, or (b) the
validity or enforceability of any of the
Credit Documentation or the rights and
remedies of the Administrative Agent and the
Lenders thereunder.
VI. Representations, Warranties,
Covenants and Events of Default
The Credit Documentation shall contain
representations, warranties, covenants and
events of default customary for financings of
this type and other terms deemed appropriate
by the Lenders, including, without
limitation:
Representations and Accuracy of financial statements (including
Warranties: pro forma financial statements); absence of
undisclosed liabilities; no material adverse
change; corporate existence; compliance with
law; corporate power and authority;
enforceability of Credit Documentation; no
conflict with law or contractual obligations;
no material litigation; no default; ownership
of property; liens; intellectual property; no
burdensome restrictions; taxes; Federal
Reserve regulations; FCC compliance; ERISA;
Investment Company Act; subsidiaries;
environmental matters; solvency; accuracy of
disclosure; and creation and perfection of
security interests.
<PAGE> 15
10
Affirmative Covenants: Delivery of annual audited (within 90 days of
year-end) and unaudited quarterly (within 45
days of quarter-end) and monthly financial
statements, reports, accountants' letters,
budgets, officers' compliance certificates,
reasonably detailed reports (on a regular
basis) of the Borrower's Beta testing in
Atlanta and Boston and other information
requested by the Lenders; payment of other
obligations; continuation of business and
maintenance of existence and material rights
and privileges (including FCC licenses);
compliance with the Communications Act and
other laws and material contractual
obligations; maintenance of property and
insurance; maintenance of books and records;
right of the Lenders to inspect property and
books and records; notices of defaults,
litigation and other material events; and
compliance with environmental laws; agreement
to grant security interests in after-acquired
property.
Financial Covenants: Financial covenants (including, without
limitation, a maximum Total Debt to Operating
Cash Flow Ratio, minimum Interest and Fixed
Charge Coverage Ratios and a maximum ratio of
Total Debt to Qualified Pagers in Service,
all as set forth on Annex VI).
Negative Covenants: Limitations on: indebtedness (including
preferred stock); liens; guarantee
obligations; mergers, consolidations,
liquidations and dissolutions; sales of
assets; leases; dividends and other payments
in respect of capital stock (except as
described under "Permitted Restricted
Payments" below); capital expenditures;
investments, loans and advances; optional
payments and modifications of subordinated
and other debt instruments; amendments to
charter and by-laws; transactions with
affiliates; sale and leasebacks; changes in
fiscal year; negative pledge clauses; changes
in lines of business; and changes in passive
holding company status of the Parent.
Permitted Restricted Distributions may be made on the capital
Payments: stock of the Borrower commencing in 2001 to
the extent necessary to pay cash interest on
the Senior Notes provided that (before and
after giving effect thereto) no Default or
<PAGE> 16
11
Event of Default shall have occurred and be
continuing.
Events of Default: Nonpayment of principal when due; nonpayment
of interest, fees or other amounts after a
grace period to be agreed upon; material
inaccuracy of representations and warranties;
violation of covenants (subject, in the case
of certain affirmative covenants, to a grace
period to be agreed upon); cross-default;
bankruptcy; certain ERISA events; material
judgments; actual or asserted invalidity of
any guarantee or security document or
security interest or of any credit support
document; loss of material FCC licenses; and
a change of control. Certain of the
foregoing events of default shall be
applicable to the provider of credit support
as well as to the Borrower and its
subsidiaries and to the Parent.
VII. Certain Other Terms
Voting: Amendments and waivers with respect to the
Credit Documentation shall require the
approval of Lenders holding Loans and
commitments representing a majority of the
aggregate amount of the Loans and commitments
under the Credit Facilities with certain
issues also requiring a vote of a majority of
each class of Lender, except that (a) the
consent of each Lender directly affected
thereby shall be required with respect to (i)
reductions in the amount or extensions of the
scheduled date of maturity of any Loan, (ii)
reductions in the rate of interest or any fee
or extensions of any due date thereof, (iii)
increases in the amount or extensions of the
expiry date of any Lender's commitment or any
scheduled stepdown thereof and (b) the
consent of 100% of the Lenders shall be
required with respect to (i) modifications to
any of the voting percentages, and (ii)
releases of all or substantially all of the
collateral. Class voting provisions shall be
included with respect to changes in the
application of prepayments and certain other
matters.
<PAGE> 17
12
Assignments and The Lenders shall be permitted to assign and
Participations: sell participations in their Loans and
commitments, subject, in the case of
assignments (other than to another Lender or
to an affiliate of the assigning Lender), to
the consent of the Administrative Agent and
the Borrower (which consent in each case
shall not be unreasonably withheld). Non-pro
rata assignments shall be permitted. In the
case of partial assignments, the minimum
assignment amount shall be $5,000,000.
Participants shall have the same benefits as
the Lenders with respect to yield protection
and increased cost provisions. Voting rights
of participants shall be limited to those
matters with respect to which the affirmative
vote of the Lender from which it purchased
its participation would be required as
described under "Voting" above. Pledges of
Loans in accordance with applicable law shall
be permitted without restriction. Promissory
notes shall be issued under the Credit
Facilities only upon request.
Yield Protection: The Credit Documentation shall contain
customary provisions (a) protecting the
Lenders against loss of yield resulting from
changes in reserve, tax, capital adequacy and
other requirements of law and from the
imposition of withholding or other taxes and
(b) indemnifying the Lenders for "breakage
costs" incurred in connection with, among
other things, prepayment of a Eurodollar Loan
(as defined in Annex I) on a day other than
the last day of an interest period with
respect thereto.
Expenses and The Borrower shall pay (a) all reasonable
Indemnification: out-of-pocket expenses of the Administrative
Agent and the Arranger associated with the
syndication of the Credit Facilities and the
preparation, execution, delivery and
administration of the Credit Documentation
and any amendment or waiver with respect
thereto (including the reasonable fees and
disbursements and other charges of counsel)
and (b) all out-of-pocket expenses of the
Administrative Agent and the Lenders in
connection with the enforcement of the Credit
<PAGE> 18
13
Documentation (including the fees and
disbursements and other charges of counsel).
The Borrower shall indemnify, pay and hold
harmless the Administrative Agent, the
Arranger and the Lenders (and their
respective directors, officers, employees and
agents) against any loss, liability, cost or
expense incurred in respect of the financing
contemplated hereby or the use or the
proposed use of proceeds thereof (except to
the extent resulting from the gross
negligence or willful misconduct of the
indemnified party).
Governing Law and Forum: State of New York.
Counsel to the Simpson Thacher & Bartlett
Administrative
Agent and the Arranger:
Commitment Termination The Credit Documentation must have been
Date: entered into on or before June 30, 1996.
VIII. Certain Defined Terms
Capital Expenditures: Shall mean, for any period, expenditures
(including, without limitation, the aggregate
amount of capital lease obligations incurred
during such period) made by the Borrower or
any of its Subsidiaries to acquire or
construct fixed or other capital assets
(including renewals, improvements and
replacements, but excluding repairs) during
such period computed in accordance with GAAP.
Debt Service: Shall mean, for any period, the sum of
Interest Expense for such period and
scheduled principal payments and required
commitment reductions under the Credit
Facilities during such period, as well as any
capital lease payments due during such
period.
Designated Corporate [to be determined].
Overhead:
Excess Cash Flow: Shall mean, for any fiscal year, the amount
(if any)
<PAGE> 19
14
by which (a) Net Operating Cash Flow for such
fiscal year exceeds (b) the sum of (i) Debt
Service for such fiscal year plus (ii) the
aggregate amount of Capital Expenditures made
by the Borrower and its subsidiaries during
such fiscal year plus (iii) the aggregate
amount of income taxes paid during such
fiscal year plus (iv) $3,000,000.
Fixed Charge Coverage Shall mean, as at any date of determination
Ratio: thereof, the ratio of (a) Net Operating Cash
Flow of the Borrower for the then most
recently ended fiscal quarter for which
financial statements shall have been
delivered to the Lenders, plus cash then on
hand (for the periods from The Closing Date
to 12/31/2000), plus (after the Tranche B
Incurrence Date (as defined on Annex V) but
before December 31, 2000) the then unused
amount of the Tranche B Facility to (b) Fixed
Charges for such period.
Fixed Charges: Shall mean, for any period, for the Borrower
and its subsidiaries (determined on a
consolidated basis without duplication in
accordance with GAAP): the sum of (i) Debt
Service for such period plus (ii) taxes paid
during such period; plus (iii) the aggregate
amount of Capital Expenditures made during
such period.
Interest Coverage Ratio: Shall mean, as at any date of determination
thereof, the ratio of (a) Net Operating Cash
Flow for the two then most recently ended
consecutive fiscal quarters for which
financial statements shall have been
delivered to the Lenders, plus cash then on
hand (for the periods from the Closing Date
to 12/31/2000) to (b) Interest Expense for
such fiscal quarters.
Interest Expense: Shall mean, for any period, the sum, for the
Borrower and its subsidiaries (determined on
a consolidated basis without duplication in
accordance with GAAP), of all interest in
respect of Indebtedness (including, without
limitation, the interest component of any
payments in respect of capital lease
obligations and net amounts received or paid
under interest rate swaps).
<PAGE> 20
15
Leverage Ratio: Shall mean, as at any date of determination
thereof, the ratio of (a) Total Debt at such
time to (b) Operating Cash Flow for the two
then most recently ended consecutive fiscal
quarters for which financial statements shall
have been delivered to the Lenders multiplied
by two.
Net Operating Cash Flow: Shall mean, for any period, Operating Cash
Flow for such period less Designated
Corporate Overhead for such period.
Operating Cash Flow: Shall mean, for any period, the sum
(determined on a consolidated basis in
accordance with GAAP and without duplication)
of (a) gross operating revenue (whether
recurring or non-recurring) of the Borrower
and its subsidiaries derived in the ordinary
course of business during such period
(including, without limitation, all service
charges and all revenues realized from the
sale or lease of mobile radio or paging
equipment but excluding interest income and
unusual, non-recurring or extraordinary
items) minus (b) gross operating expenses
(whether recurring or non-recurring) of the
Borrower and its subsidiaries during such
period (including, without limitation, all
site rental charges, maintenance expenses,
general administration expenses and general
corporate overhead expenditures but excluding
Interest Expense and excluding also
depreciation, amortization of intangibles,
certain Designated Corporate Overhead, other
non-cash charges and any unusual,
non-recurring or extraordinary items).
Total Debt: Shall mean all indebtedness of the Borrower
(including, without limitation, capital lease
obligations).
<PAGE> 21
Annex I
Interest and Certain Fees
Interest Rate Options: The Borrower may elect that all or a portion
of the Loans bear interest at a rate per
annum equal to:
(a) the Base Rate plus the Applicable Margin;
or
(b) the Eurodollar Rate plus the Applicable
Margin.
As used herein:
"Base Rate" means the higher of (i) the rate
of interest publicly announced by Chase as
its prime rate in effect at its principal
office in New York City (the "Prime Rate")
and (ii) the federal funds effective rate
from time to time plus 0.5%.
"Applicable Margin" means:
(a) in the case of Glenayre Credit
Extensions, (i) which are Base Rate Loans (as
defined below), 3% or (ii) which are
Eurodollar Loans (as defined below), 4%, or
(b) in the case of Tranche A, (i) which are
Base Rate Loans (as defined below), 3% or
(ii) which are Eurodollar Loans (as defined
below), 4% or
(c) in the case of Tranche B Loans, (i) which
are Base Rate Loans (x) 2% (when the Debt to
Operating Cash Flow Ratio is equal to or
greater than 5 to 1) or (y) 1 1/2% (when such
Ratio is less than 5 to 1) or (ii) which are
Eurodollar Loans (x) 3% (when such Ratio is
equal to or greater than 5 to 1) or (y) 2
1/2% (when such Ratio is less than 5 to 1).
"Eurodollar Rate" means the rate (grossed-up
for maximum statutory reserve requirements
for eurocurrency liabilities) at which
eurodollar deposits for one, two, three or
six months (as selected by the Borrower) are
offered to Chase in the interbank eurodollar
market in the approximate amount of Chase's
share of the relevant Loan.
<PAGE> 22
2
Interest Payment Dates: In the case of Loans bearing interest based
upon the Base Rate ("Base Rate Loans"),
quarterly in arrears.
In the case of Loans bearing interest based
upon the Eurodollar Rate ("Eurodollar
Loans"), on the last day of each relevant
interest period and, in the case of any
interest period longer than three months, on
each successive date three months after the
first day of such interest period.
Commitment Fees: The Borrower shall pay to the Lenders
(including Glenayre) a commitment fee
calculated at the rate of 1/2 of 1% per annum
on the average daily unused portion of the
Credit Facilities, payable quarterly in
arrears.
Default Rate: At any time when the Borrower is in default
in the payment of any amount due under the
Credit Facilities, the principal of all Loans
shall bear interest at 3% above the rate
otherwise applicable thereto. Overdue
interest, fees and other amounts shall bear
interest at 3% above the rate applicable to
Base Rate Loans.
Rate and Fee Basis: All per annum rates shall be calculated on
the basis of a year of 360 days (or 365/366
days, in the case of Base Rate Loans the
interest rate payable on which is then based
on the Prime Rate) for actual days elapsed.
<PAGE> 23
Annex II
Excess Cash Flow
Mandatory Prepayments
<TABLE>
<CAPTION>
Leverage Ratio Percentage of Excess Cashflow
applied to prepay Loans
- -------------- ------------------------------
<S> <C>
greater than 3 to 1 75%
less than 3 to 1 50%
but more than 2 to 1
less than 2 to 1 0%
</TABLE>
<PAGE> 24
Annex IV
Incurrence Tests For Tranche A
<TABLE>
<S> <C>
Pagers in Service 750,000
Minimum Average Revenue $ 8.25
per Unit
Debt/Qualified Pagers in $250 to 1
Service
</TABLE>
The "Tranche A Incurrence Date" is defined as the first day upon which the
Borrower meets the incurrence tests above and Tranche A is available to be
borrowed by the Borrower.
<PAGE> 25
Annex V
Incurrence Tests For Tranche B
<TABLE>
<S> <C>
Debt/Qualified Pagers in $250 to 1
Service
Leverage Ratio 7 to 1
</TABLE>
The "Tranche B Incurrence Date" is defined as the first day upon which the
Borrower meets the incurrence tests above and Tranche B is available to be
borrowed by the Borrower.
<PAGE> 26
Annex VI
Quarterly Maintenance Tests For Glenayre Facility, Tranche A and B
<TABLE>
<CAPTION>
Tranche B 12/31/99 6/30/2000 12/31/2000 12/30/2001
Incurrence Date to to to to and
12/30/99 6/29/2000 12/30/2000 12/30/2001 Thereafter
-------- --------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Total Debt/ $200 to 1 $200 to 1 $200 to 1 $150 to 1 $150 to 1
Qualified Pagers in
Service
Leverage Ratio 8.0 to 1 8.0 to 1 4.5 to 1 3.25 to 1 3.00 to 1
Interest Coverage 1.5 to 1 1.50 to 1 2 to 1 2 to 1 2 to 1
Ratio
Fixed Charge N/A N/A N/A 1.10 to 1 1.35 to 1
Coverage Ratio
</TABLE>
<PAGE> 1
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Amendment No. 3 to the Registration Statement
No. 333-2162 of PCS Development Corporation on Form S-1 of our report dated
February 16, 1996 (except with respect to Note 12, as to which the date is April
25, 1996), appearing in the Prospectus, which is part of this Registration
Statement.
We also consent to the reference to us under the heading "Experts" in such
Prospectus.
Deloitte & Touche LLP
/s/ Deloitte & Touche LLP
Greenville, South Carolina
July 16, 1996
<PAGE> 1
EXHIBIT 23.3
LUKAS MCGOWAN NACE & GUTIERREZ, CHARTERED CONSENT
We consent to the use in this Amendment No. 3 to the Registration Statement
of PCS Development Corporation on Form S-1 of our legal opinions filed as
Exhibits 5.2, 5.3 and 5.4 as part of this Registration Statement.
In giving this consent, we do not admit that we are in the category of
persons whose consent is required under Section 7 of the Securities Act of 1933,
as amended, or the rules or regulations of the Securities and Exchange
Commission promulgated thereunder.
Lukas McGowan Nace & Gutierrez, Chartered
/s/ Lukas McGowan Nace & Gutierrez, Chartered
Washington, D.C.
July 16, 1996
