<PAGE>
RULE NO. 424(b)(1)
REGISTRATION NO. 333-06609
PROSPECTUS
[LOGO] SPRINT(R)
$750,000,000
SPRINT SPECTRUM L.P.
SPRINT SPECTRUM FINANCE CORPORATION
$250,000,000 11% SENIOR NOTES DUE 2006
$500,000,000 12 1/2% SENIOR DISCOUNT NOTES DUE 2006
----------------
Sprint Spectrum L.P. ("Sprint Spectrum") and Sprint Spectrum Finance
Corporation ("FinCo" and, together with Sprint Spectrum, the "Issuers") are
offering (the "Offering") $250,000,000 aggregate principal amount of their 11%
Senior Notes due 2006 (the "Senior Notes") and $500,000,000 aggregate
principal amount at maturity of their 12 1/2% Senior Discount Notes due 2006
(the "Senior Discount Notes" and, together with the Senior Notes, the
"Notes"). While Sprint Spectrum and FinCo are jointly and severally liable for
the obligations under the Notes, FinCo, a wholly-owned subsidiary of Sprint
Spectrum, has only nominal assets, does not conduct any operations and was
formed solely to act as a co-issuer of the Notes. The Senior Notes and the
Senior Discount Notes are non-recourse to Sprint Spectrum Holding Company,
L.P. ("Holdings"), the partners of Holdings and the parents of such partners.
The Senior Discount Notes will be issued at a discount to their aggregate
principal amount at maturity and will generate gross proceeds to the Issuers
of approximately $273,435,000. The yield to maturity of the Senior Discount
Notes is 12 1/2% (computed on a semi-annual bond equivalent basis), calculated
from August 23, 1996. See "Certain Federal Income Tax Consequences."
(continued on next page)
SEE "RISK FACTORS" BEGINNING ON PAGE 14 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS IN EVALUATING AN INVESTMENT
IN THE NOTES.
----------------
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.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL UNDERWRITING
AMOUNT AT PRICE TO DISCOUNTS AND PROCEEDS TO
MATURITY PUBLIC(1) COMMISSIONS(2)(4) COMPANY(3)(4)
- --------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per Senior Note........ 100% 100% 2.9% 97.1%
- --------------------------------------------------------------------------------------
Total.................. $250,000,000 $250,000,000 $7,250,000 $242,750,000
- --------------------------------------------------------------------------------------
Per Senior Discount
Note.................. 100% 54.687% 2.9% 53.101%
- --------------------------------------------------------------------------------------
Total.................. $500,000,000 $273,435,000 $5,029,615 $268,405,385
</TABLE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
(1) Plus accrued interest, if any, in the case of the Senior Notes, and
accrued original issue discount, if any, in the case of Senior Discount
Notes, in each case from August 23, 1996.
(2) The Issuers, jointly and severally, have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act of 1933, as amended. See "Underwriting."
(3) Before deducting expenses payable by the Issuers estimated at $1,750,000.
(4) $182,859,000 principal amount at maturity of the Senior Discount Notes
will be purchased from the Underwriters by Sprint Corporation, a Parent
(as defined), for its own account for investment. The Underwriters will
not receive a discount or commission with respect to such Senior Discount
Notes and such Senior Discount Notes are excluded for purposes of
calculating the percentages of Underwriting Discounts and Commissions per
Senior Discount Note and Proceeds to Company per Senior Discount Note.
----------------
The Notes are offered by the Underwriters, subject to prior sale, when, as
and if issued to and accepted by the Underwriters, and subject to approval of
certain legal matters by counsel for the Underwriters and certain other
conditions. The Underwriters reserve the right to withdraw, cancel or modify
such offer and to reject any orders in whole or in part. It is expected that
delivery of the Notes offered hereby will be made in New York, New York on or
about August 23, 1996.
----------------
Joint Book-Running Managers
LEHMAN BROTHERS MERRILL LYNCH & CO.
----------------
MERRILL LYNCH & CO.
LEHMAN BROTHERS
CHASE SECURITIES INC.
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
SALOMON BROTHERS INC
----------------
The date of this Prospectus is August 20, 1996.
<PAGE>
(continued from previous page)
Cash interest on the Senior Notes will accrue at a rate of 11% per annum and
will be payable semi-annually in arrears on each February 15 and August 15,
commencing February 15, 1997. Cash interest will not accrue or be payable on
the Senior Discount Notes prior to August 15, 2001. Thereafter, cash interest
on the Senior Discount Notes will accrue at a rate of 12 1/2% per annum and
will be payable semi-annually in arrears on each February 15 and August 15,
commencing February 15, 2002.
On August 15, 2001, the Issuers will be required to redeem an amount equal
to $384.772 per $1,000 principal amount at maturity of each Senior Discount
Note then outstanding ($192,386,000 in aggregate principal amount at maturity
of the Senior Discount Notes, assuming all of the Senior Discount Notes remain
outstanding on such date) on a pro rata basis at a redemption price of 100% of
the principal amount at maturity of the Senior Discount Notes so redeemed.
The Notes will be redeemable at the option of the Issuers, in whole or in
part, at any time on or after August 15, 2001 at the redemption prices set
forth herein, plus accrued and unpaid interest, if any, to the date of
redemption. In addition, prior to August 15, 1999, the Issuers may redeem up
to 35% of the originally issued principal amount of Senior Notes and up to 35%
of the originally issued principal amount at maturity of Senior Discount Notes
at a redemption price equal to 111.0% of the principal amount of the Senior
Notes so redeemed, plus accrued and unpaid interest, if any, thereon to the
redemption date and 112.5% of the Accreted Value (as defined) at the
redemption date of the Senior Discount Notes so redeemed with the net proceeds
of one or more Public Equity Offerings (as defined) of Common Equity
Interests, of Sprint Spectrum, Holdings or a Special Purpose Corporation (as
defined) in any such case, resulting in gross proceeds of at least $100
million; provided that at least 65% of the originally issued principal amount
of Senior Notes and 65% of the originally issued principal amount at maturity
of Senior Discount Notes would remain outstanding immediately after giving
effect to such redemption. Holdings is the general partner of, and owns a
greater than 99% general partnership interest in, Sprint Spectrum.
The Notes will be senior unsecured joint and several obligations of the
Issuers ranking pari passu in right and priority of payment with all existing
and future indebtedness of the Issuers that is not by its terms subordinated
in right and priority to the Notes. A substantial portion of the assets of
Sprint Spectrum on a consolidated basis will be owned by Sprint Spectrum's
subsidiaries and, accordingly, claims of holders of the Notes will be
effectively subordinated to claims of creditors (including trade creditors) of
such subsidiaries. Sprint Spectrum and its subsidiaries are expected to incur
substantial additional indebtedness following the Offering, including up to
$3.1 billion under vendor credit facilities and $2.0 billion under a bank
credit facility.
In the event of a Change of Control (as defined) the Issuers will be
obligated to make an offer to purchase all outstanding Notes at a purchase
price equal to (i) 101% of the principal amount thereof, in the case of the
Senior Notes, plus accrued and unpaid interest, if any, thereon to the date of
purchase and (ii) (a) 101% of the Accreted Value thereof, in the case of the
Senior Discount Notes, if purchased on or before August 15, 2001, and (b) 101%
of the principal amount at maturity of the Senior Discount Notes, plus accrued
and unpaid interest, if any, thereon, if purchased after August 15, 2001. In
addition, the Issuers will, subject to certain conditions, be obligated to
make an offer to purchase Notes with the net cash proceeds of certain sales or
other dispositions of assets. See "Description of the Notes--Certain
Covenants." There can be no assurance that the Issuers will have the financial
resources necessary to purchase the Notes upon a Change of Control.
The Senior Notes and the Senior Discount Notes will each be represented by
one or more global securities (collectively, the "Global Securities") in
registered form, which will be deposited with a custodian for, and registered
in the name of, The Depository Trust Company ("DTC") or its nominee in New
York, New York. Beneficial interests in the Global Securities will be
represented, and transfers thereof will be effected, through book-entry
accounts maintained by DTC and its participants. Except as described herein,
Notes in definitive form will not be issued. See "Description of the Notes--
Book-Entry; Delivery and Form." The Issuers do not intend to list the Notes on
any national securities exchange or include the Notes for quotation through an
inter-dealer quotation system.
----------------
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE SECURITIES
OFFERED HEREBY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
2
<PAGE>
[MAP]
<PAGE>
[MAP]
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and financial statements, including the notes thereto, appearing
elsewhere in this Prospectus. As used in this Prospectus, unless the context
otherwise requires, the term "Holdings" refers to Sprint Spectrum Holding
Company, L.P., and the term "Company" refers to Sprint Spectrum L.P. ("Sprint
Spectrum") and its direct and indirect subsidiaries, including Sprint Spectrum
Finance Corporation ("FinCo"), WirelessCo, L.P. ("WirelessCo"), Sprint Spectrum
Realty Company, L.P. ("RealtyCo") and Sprint Spectrum Equipment Company, L.P.
("EquipmentCo"). Sprint Spectrum and FinCo are collectively referred to as the
"Issuers." See "The Company" and "Business--General." Prior to July 1, 1996,
substantially all wireless operations of the Company and Holdings have been
conducted at Holdings and all assets, with the exception of the interest in
American PCS, L.P. ("APC") and the PCS (as defined under "--The Company")
licenses which are held by WirelessCo, have been held at Holdings. Holdings and
the Company are reorganizing (the "Reorganization") operations so that the
assets used in the Company's PCS business are owned by subsidiaries of Sprint
Spectrum and the investment in APC will be transferred to Holdings. Effective
July 1, 1996, Holdings' assets used in the Company's PCS business were
transferred to subsidiaries of Sprint Spectrum; the transfer of the interest in
APC is expected to occur after the Offering. Unless otherwise indicated, all
information in this Prospectus assumes that all elements of the Reorganization
have occurred; however, references to "Reorganized Sprint Spectrum" assume only
that the July 1, 1996 transactions have occurred. Certain of the statements
contained in this summary and elsewhere in this Prospectus, including
information with respect to the Company's expected PCS operations and buildout,
its strategy for its PCS business and related financings are forward-looking
statements. See "Risk Factors" for a discussion of important factors that could
affect such matters. The term population equivalents ("Pops") means the
Donnelley Marketing Service estimate of the December 31, 1995 population of a
geographic area. A glossary of additional terms appearing herein has been
included in this Prospectus. See "Glossary of Selected Terms."
THE COMPANY
Sprint Spectrum intends to become a leading provider of wireless
communications products and services in the United States. The Company is the
largest broadband wireless personal communications services ("PCS") company in
the United States in terms of total licensed Pops, with licenses (including
those to be contributed to the Company and those owned by licensees that have
affiliated or have agreed to affiliate with the Company) to provide service in
33 major trading areas ("MTAs") covering 190.9 million Pops (73% of the total
United States population), including eight of the nation's ten largest MTAs.
The Company intends to initiate the commercial launch of its service in the
fourth quarter of 1996 with service in all MTAs by the end of the first quarter
of 1997. Pop coverage at the end of the first quarter of 1997 is expected to
reach approximately 60% in the aggregate across all of the Company's markets.
The timing of launch in individual markets will be determined by various
factors, principally zoning and microwave relocation factors, equipment
delivery schedules and local market and competitive considerations. The Company
intends to continue to expand its coverage in its PCS markets to reach
approximately 70% of the Pops in its existing license areas in the aggregate by
the end of 1997. Thereafter, the Company will evaluate further coverage
expansion on a market-by-market basis, eventually targeting coverage of 80% of
the Pops in its existing license areas in the aggregate, thereby substantially
completing its planned network buildout of its existing license areas.
The general partner of Sprint Spectrum is Holdings, a limited partnership
formed by Sprint Enterprises, L.P., which has a 40% partnership interest in
Holdings, TCI Telephony Services, Inc. (as successor in interest to TCI Network
Services), which has a 30% partnership interest in Holdings, and Comcast
Telephony Services and Cox Telephony Partnership, each of which has a 15%
partnership interest in Holdings (collectively, the "Partners"). Each Partner
is both a general partner holding 99% of its interest as a general partner and
a limited partner holding 1% of its interest as a limited partner. Holdings has
a greater than 99% general partnership interest in the Company. The Partners
are subsidiaries of, respectively, Sprint Corporation ("Sprint"), Tele-
Communications, Inc. ("TCI"), Comcast Corporation ("Comcast") and Cox
Communications, Inc. ("Cox" and, together with Sprint, TCI and Comcast, the
"Parents").
3
<PAGE>
The Company is at an early stage of development, has not commenced commercial
PCS operations and has no revenues from operations. The Company will require
significant funds for development, construction, testing and deployment of its
PCS network before commencement of commercial operations. The Partners have
agreed to contribute up to an aggregate of $4.2 billion of equity to Holdings
to the extent required by the annual budgets of Holdings through fiscal 1999 as
approved by the Partners. As of March 31, 1996, approximately $2.4 billion had
been contributed to Holdings, of which $2.2 billion had been contributed to the
Company and the remaining $0.2 billion had been contributed or advanced to APC.
The Company currently intends to obtain up to $1.4 billion of additional equity
following March 31, 1996 (of which up to $1.0 billion as of March 31, 1996 is
committed to be provided to the Company by the Parents to the extent required
by the Company to fund any projected cash shortfall), resulting in $3.6 billion
in aggregate invested equity capital in the Company. See "Description of Vendor
Contracts and Financing--Capital Contribution Agreement." There can be no
assurance that any additional capital will be obtained in the form of equity
from the Partners or otherwise. See "--Network Buildout and Financing Plan."
The Company was the successful bidder for 29 PCS licenses in the Federal
Communications Commission's ("FCC") A Block and B Block PCS auction which
concluded in March 1995. The Company's 29 wholly-owned markets cover 150.3
million Pops and include, among others, the New York, San Francisco, Detroit,
Dallas/Fort Worth and Boston/Providence MTAs. Additionally, Cox has agreed to
contribute to the Company, upon FCC approval which is pending, a PCS license
for the Omaha MTA that it purchased in the broadband PCS auction in March 1995.
In order to increase its Pop coverage, the Company has affiliated and expects
to continue to affiliate with other PCS providers, including those in which
Holdings or affiliates of its Partners have an interest. Pursuant to
affiliation agreements, each affiliated PCS service provider will be included
in the Company's national network and will use the Sprint(R) (a registered
trademark of Sprint Communications Company, L.P.) brand name. Each affiliated
PCS provider will sell and market Sprint wireless products and services in its
respective territory (and earn the revenues from such sales) and is expected to
pay to the Company an affiliation fee (which may take the form of up-front
and/or ongoing fees), agree to adhere to certain network technical standards
and agree to provide certain wireless communication products offered by the
Company. The Company may perform various services for the benefit of the
affiliates, including, but not limited to, advertising, inventory management,
sales and market support and customer service. Holdings owns a 49% limited
partnership interest in APC, which owns a PCS license for, and operates a
broadband PCS system in, the Washington D.C./Baltimore MTA. APC has affiliated
with Sprint Spectrum and is marketing its products and services under the
Sprint brand name. APC launched its PCS service in November 1995 and is the
nation's first commercially operational PCS system. As of May 15, 1996, APC had
approximately 80,000 subscribers. See "Business--General" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
Holdings also expects to acquire a 49% limited partnership interest in Cox
California PCS, L.P. ("Cox-California"), a partnership that will be formed to
hold a PCS license for the Los Angeles-San Diego MTA covering 21.5 million
Pops. Cox, which currently owns this license, has agreed to contribute the
license to Cox-California and will manage and control Cox-California. The
Company expects to sign an affiliation agreement with Cox-California by the end
of the third quarter of 1996. At the same time, the Company also expects to
affiliate with, and provide various services to, PhillieCo, L.P. ("PhillieCo"),
a limited partnership organized by and among subsidiaries of Sprint, TCI and
Cox, that owns a PCS license for the Philadelphia MTA. In addition, as part of
an overall strategy to increase the Company's Pop coverage, either or both of
Holdings and the Company may elect to bid on, or affiliate with or invest in
other entities who are bidding on, PCS licenses to be awarded in the FCC
auction of PCS licenses for the D, E and F Blocks.
4
<PAGE>
The table below presents the owned and affiliated Pops after giving effect to
such affiliation arrangements:
<TABLE>
<CAPTION>
1995 AVERAGE LICENSE
POPULATION PURCHASE PRICE
OWNED/AFFILIATED # OF MTAS IN MTA(S) PER 1990 POP(1)
---------------- --------- ------------- ---------------
(MILLIONS)
<S> <C> <C> <C>
Owned.................................... 29 150.3 $14.54
Omaha (to be contributed by Cox)(2)...... 1 1.7 $ 3.06
Affiliated:
APC (Baltimore/Washington)(3).......... 1 8.3 $13.16
Cox-California (Los Angeles/San Die-
go)(4)................................ 1 21.5 $13.16
PhillieCo (Philadelphia)(5)............ 1 9.1 $ 9.52
--- -----
Total................................ 33 190.9
=== =====
</TABLE>
- --------
(1) Cost to winning bidder in FCC auction(s) or in connection with the award of
Pioneer's Preference license (as defined under "Business--Regulation").
(2) Contribution will be credited towards capital contributions required of Cox
under the Holdings Partnership Agreement (as defined under "The Partnership
Agreements") to the same extent as if Cox had made a cash contribution in
an amount equal to the sum of (i) $995,564, together with interest at the
annual rate of 13.4% computed from November 17, 1994 through the date the
Omaha license is contributed, plus (ii) $4,062,400, together with interest
at the annual rate of 13.4% computed from June 30, 1995 through the date
the Omaha license is contributed.
(3) Holdings owns a 49% limited partnership interest in APC, which has signed
an affiliation agreement with the Company.
(4) Holdings intends to acquire a 49% limited partnership interest in, and the
Company expects to sign an affiliation agreement with, Cox-California.
(5) Owned by subsidiaries of Sprint, TCI and Cox. The Company expects to sign a
services and affiliation agreement with PhillieCo.
5
<PAGE>
STRATEGY
The Company intends to achieve its objective of becoming a leading provider
of wireless communications products and services in the United States by
employing strategies for network construction, service offering, branding and
marketing which utilize the Company's competitive advantages. These competitive
advantages are expected to include:
. State-of-the-art technology. The Company is implementing a state-of-the-
art PCS network using Code Division Multiple Access ("CDMA") digital
technology which, the Company believes, provides benefits relative to
current analog systems. The Company believes that its digital technology
will increase system capacity by approximately 7 to 10 times, offer
better call quality and clarity and provide a wider variety of advanced
features and applications.
. National network. Sprint Spectrum intends to offer wireless service on a
national basis with a single technology (CDMA) operating on a uniform
spectrum (1.9 GHz), thereby providing consistent functionality and high
quality service. The Company currently owns (including the Omaha license
to be contributed to the Company), or expects to have affiliate
relationships with PCS providers who own, PCS licenses covering 190.9
million Pops and intends to pursue additional coverage on a market-by-
market basis through license acquisitions and affiliation or resale
agreements with other CDMA-based PCS providers. Together the Company and
other PCS licensees that have announced their intentions to implement
CDMA technology, have licenses covering territories representing
approximately 89% of the United States population. The Company expects to
gain cost advantages in purchasing power, operations and marketing
because of the national scope and operating scale of its network. The
Company believes it will have the flexibility to utilize pricing and
promotional programs on a national basis to provide incentives for
customer subscription and increased usage.
. National brand. The Company will market and promote its wireless products
and services under the Sprint brand which is one of the most widely
recognized and respected brands in the telecommunications market. The
Company expects that the use of the Sprint brand will build consumer
confidence and accelerate consumer acceptance of the Company's products
and services.
. Strong Parent sponsorship. The Company intends to capitalize on the
communications expertise of the Parents, including local exchange carrier
services, cable television services and long distance telephone services.
In addition, the size and breadth of the customer base of each Parent
provides a key advantage for the Company's distribution and marketing
efforts. Subject to certain exceptions, the Parents and the Company
intend to cross-market the Company's wireless services with the long
distance, local telephone and cable-based entertainment services of the
Parents in order to accelerate subscriber growth and increase retention
rates while improving overall customer satisfaction. Sprint has a
combined customer base of 14 million long distance and local telephone
subscribers and TCI, Comcast and Cox (collectively, the "Cable Parents")
have 20 million cable television customers. See "Business--Relationship
with Partners and Parents."
6
<PAGE>
NETWORK BUILDOUT AND FINANCING PLAN
The Company intends to initiate the commercial launch of its service in the
fourth quarter of 1996 with service in all MTAs by the end of the first quarter
of 1997. Pop coverage at the end of the first quarter of 1997 is expected to
reach approximately 60% in the aggregate across all of the Company's markets.
The timing of launch in individual markets will be determined by various
factors, principally zoning and microwave relocation factors, equipment
delivery schedules and local market and competitive considerations. The Company
intends to continue to expand its coverage in its PCS markets to reach
approximately 70% of the Pops in its existing license areas in the aggregate by
the end of 1997. Thereafter, the Company will evaluate further coverage
expansion on a market-by-market basis, eventually targeting coverage of 80% of
the Pops in its existing license areas in the aggregate, thereby substantially
completing its planned network buildout of its existing license areas.
The Company is developing a network infrastructure, including network
management systems, to support a range of wireless services, including voice,
data, messaging, paging and facsimile. A planning and engineering team,
comprised of approximately 1,500 engineering and operations employees and
thousands of independent contractors, consultants, agents and other third
parties, is designing and constructing the Company's network based on national
and regional marketing product requirements to meet the Company's targets for
consistency, uniformity and reliability.
The Company has selected Lucent Technologies Inc. ("Lucent") and Northern
Telecom Inc. ("Nortel" and, together with Lucent, the "Vendors"), two of the
leading telecommunications equipment manufacturers, to construct the Company's
wireless network. The Vendors were selected because of their extensive
experience in wireless technology and their willingness to deliver against
specifications developed by the Company. The Company has entered into
procurement and services contracts (the "Procurement Contracts") with each of
Lucent and Nortel pursuant to which the Vendors will bear a significant portion
of the responsibility for the construction of the Company's network. To
mitigate against a substantial portion of the risks of completion delay and
performance of the network and to ensure the Company has received competitive
terms and conditions, the Procurement Contracts include, among other things,
deferred payment schedules, liquidated damages provisions, extended warranty
periods and "most favored customer" status.
The buildout of the Company's PCS network and the marketing and distribution
of the Company's PCS products and services will require substantial capital.
The Company currently estimates that its capital requirements (capital
expenditures, the cost of its existing licenses, working capital, debt service
requirements and anticipated operating losses) for the period from inception
through the end of 1998 (assuming substantial completion of the Company's
network buildout to cover 80% of the Pops in its current license areas in the
aggregate by the end of 1998), will total approximately $7.9 billion (of which
approximately $2.2 billion had been expended as of March 31, 1996). The Company
will also require substantial additional capital for new license acquisitions
or investments in entities making license acquisitions (if any) and, after
1998, for coverage expansion, volume-driven network capacity and other capital
expenditures for existing and new license areas (if any), working capital, debt
service requirements and anticipated further operating losses. The Company will
have certain commitments that must be funded in any event, including lease
obligations for cell and switch sites, minimum purchase obligations under the
Procurement Contracts and amortization under the Secured Financing (as defined
in the second succeeding paragraph). Actual amounts of the funds required may
vary materially from these estimates and additional funds would be required in
the event of significant departures from the current business plan, new license
acquisitions, unforeseen delays, cost overruns, unanticipated expenses,
regulatory changes, engineering design changes and other technological risks.
The Company currently has no sources of revenue to meet its capital
requirements. The Partners have agreed to contribute up to an aggregate of $4.2
billion of equity to Holdings, to the extent required by the annual budgets of
Holdings through fiscal 1999 as approved by the Partners. As of March 31, 1996,
approximately $2.4 billion had been contributed to Holdings, of which $2.2
billion had been contributed to the Company and the remaining $0.2 billion had
been contributed or advanced to APC. The Company currently intends to obtain up
to $1.4 billion of additional equity following March 31, 1996, resulting in
$3.6 billion in aggregate invested equity capital in the Company, although
there can be no assurance that any additional capital will be obtained in the
form of equity from the Parents or otherwise. The Parents have committed to
make available to the Company or cause Holdings to make available to the
Company up to $1.0 billion of such additional equity, to the extent required by
the Company to fund any projected cash shortfall, under a Capital Contribution
Agreement among Sprint Spectrum and the Parents that provides for $1.0 billion
in aggregate equity commitments (less, subject to
7
<PAGE>
certain exceptions, amounts of cash equity contributed to Sprint Spectrum after
December 31, 1995). At March 31, 1996, approximately $1.0 billion was available
under the Capital Contribution Agreement. The Company's business plan and the
financial covenants and other terms of the Secured Financing will require such
additional equity financing prior to the end of 1998, absent a new financing
source. The $1.0 billion portion of the $4.2 billion not invested in the
Company that may be available to Holdings from the Partners may be used by
Holdings to fund Holdings' other affiliate commitments, to make other wireless
investments and/or to make new license acquisitions. The Partners are not
obligated to make capital contributions to Holdings in excess of amounts
contributed through December 31, 1995 and amounts covered under the Capital
Contribution Agreement for the benefit of the Company, except to the extent
required by the annual budgets of Holdings. There can be no assurance that
these funds will be made available by the Parents. See "Risk Factors--
Substantial Capital Requirements and Liquidity; Highly Leveraged Capital
Structure." See also "Description of Vendor Contracts and Financing--Capital
Contribution Agreement" and "The Partnership Agreements--Holdings Partnership
Agreement--Capital Contributions" for a discussion of the equity capital
commitments to Holdings and Sprint Spectrum.
Sprint Spectrum has obtained commitment letters for up to an aggregate of
$5.1 billion of senior secured loans from certain third-parties. Sprint
Spectrum has obtained a commitment letter from Nortel in which Nortel has
committed to provide up to $1.3 billion in senior secured loans (the "Nortel
Financing") to finance purchases of Nortel's PCS equipment and related
services. Sprint Spectrum has also obtained a commitment letter from Lucent to
provide up to $1.8 billion in senior secured loans (the "Lucent Financing" and,
together with the Nortel Financing, the "Vendor Financing") to finance
purchases of Lucent's PCS equipment and related services. Under the Procurement
Contracts, the Company is required to purchase minimum amounts of equipment and
services from each Vendor. Sprint Spectrum has also obtained a commitment
letter from Chase Securities Inc. and The Chase Manhattan Bank ("Chase") in
which Chase has committed to provide a $2.0 billion fully underwritten senior
secured credit facility (the "Bank Credit Facility" and, together with the
Vendor Financing, the "Secured Financing") to finance working capital, capital
expenditures, operating losses and other partnership purposes. There can be no
assurance that the conditions to the commitments under the Vendor Financing or
the Bank Credit Facility will be met. See "Description of Vendor Contracts and
Financing."
The following table describes the estimated sources and uses of capital by
the Company since inception and through 1998, assuming the Company covers
approximately 80% of the Pops in its current license areas in the aggregate,
thereby substantially completing the planned buildout of its PCS network. See
"Business--Network Buildout." This table is based on certain assumptions as to
the terms and covenant requirements of the Secured Financing and as to how the
Company will elect to use available amounts under those facilities. See "Use of
Proceeds" and "Description of Vendor Contracts and Financing."
<TABLE>
<CAPTION>
SOURCES:
-------- (IN BILLIONS)
<S> <C>
Equity Contributions Received(1)............................... $2.2
Vendor Financing(2)............................................ 2.6
Bank Credit Facility(3)........................................ 1.2
Net Proceeds to the Company from the Offering.................. 0.5
Unfunded Equity and Future Capital Required(4)................. 1.4
----
Total Sources................................................ $7.9
====
USES:
Existing PCS Licenses.......................................... $2.1
PCS Network Buildout........................................... 3.8
Cash Debt Service Requirements(5).............................. 0.2
Operating Losses and Working Capital........................... 1.8
----
Total Uses................................................... $7.9
====
</TABLE>
- --------
(1) As of March 31, 1996.
(2) Sprint Spectrum has obtained commitments from Nortel for an aggregate $1.3
billion secured credit facility and from Lucent for an aggregate $1.8
billion secured credit facility. Of this aggregate amount of $3.1 billion
of Vendor Financing, the Company expects to have borrowed approximately
$2.6 billion prior to December 31, 1998, based upon availability
thereunder.
(3) Sprint Spectrum has obtained a commitment from Chase to provide a $2.0
billion fully underwritten secured credit facility, of which $1.2 billion
is expected to have been drawn prior to December 31, 1998, based upon
availability thereunder.
(4) Of such amount, approximately $1.0 billion of additional financing is
expected to be obtained in the form of equity from Holdings. The Parents
have committed to provide, or cause Holdings to provide, $1.0 billion of
financing subsequent to December 31, 1995, of which approximately $1.0
billion was available at March 31, 1996. See "Description of Vendor
Contracts--Capital Contribution Agreement." The Partners are not obligated
to fund to Sprint Spectrum amounts in excess of those contemplated by the
Capital Contribution Agreement. The Company's business plan assumes that
additional required capital will be obtained in the form of equity (from
the Partners or other sources), but a portion of it may be obtained through
other means including the following: debt offerings, bank financing and
vendor financing. There can be no assurance that these sources will be
available when needed or on terms acceptable to the Company.
(5) Includes interest expense and assumes certain interest rates.
8
<PAGE>
THE OFFERING
Securities Offered.......... $250,000,000 aggregate principal amount of 11%
Senior Notes due 2006 (the "Senior Notes").
$500,000,000 aggregate principal amount at matu-
rity of 12 1/2% Senior Discount Notes due 2006
(the "Senior Discount Notes" and, together with
Senior Notes, the "Notes"). The Senior Discount
Notes will be issued at a discount to their ag-
gregate principal amount at maturity and will
generate gross proceeds to the Issuers of approx-
imately $273,435,000. The yield to maturity of
the Senior Discount Notes will be 12 1/2% (com-
puted on a semi-annual bond equivalent basis),
calculated from August 23, 1996. See "Certain
Federal Income Tax Consequences."
Issuers..................... The Notes will be joint and several obligations
of the Issuers. Sprint Spectrum will receive all
of the net proceeds from the Offering.
Non-Recourse to Holdings,
the Partners and the
Parents....................
The Senior Notes and the Senior Discount Notes
are non-recourse to Holdings, the Partners and
the Parents. Based on the advice of Simpson
Thacher & Bartlett, management believes that pur-
suant to New York law, which will be the gov-
erning law provided for in each of the indentures
under which the Notes will be issued (the "Inden-
tures"), creditors may contractually agree to
waive any rights granted to them pursuant to
state law. Section 11.9 of each of the Indentures
expressly provides that no Partner will have any
liability for any obligations under the Notes and
that a holder of Notes waives such liability by
purchasing the Notes.
Maturity Date............... August 15, 2006.
Ranking..................... The Notes will rank pari passu in right of
payment and priority with all other existing and
future indebtedness of the Issuers that is not by
its terms subordinated in right of payment and
priority to the Notes and will rank senior in
right of payment to all indebtedness of the
Issuers that is expressly subordinated to the
Notes. A substantial portion of the assets of
Sprint Spectrum on a consolidated basis will be
owned by Sprint Spectrum's subsidiaries, and
accordingly, claims of holders of the Notes will
be effectively subordinated to claims of
creditors (including trade creditors) of such
subsidiaries, the amount of which are expected to
be substantial. The obligations under the Vendor
Financing and the Bank Credit Facility will rank
pari passu in right of payment and priority with
the Notes. Borrowings of up to $5.1 billion in
the aggregate under the Secured Financing will be
unconditionally guaranteed by subsidiaries of
Sprint Spectrum. Accordingly, the claims of
holders of the Notes will be structurally
subordinated to the claims of creditors under the
Secured Financing. See "Risk Factors--Structural
Subordination of the Notes to Subsidiary
Indebtedness; Asset Encumbrances."
Interest Rate and Payment
Dates: The Senior
Notes................. Cash interest on the Senior Notes will accrue at
a rate of 11% per annum and will be payable semi-
annually in arrears on each February 15 and Au-
gust 15, commencing February 15, 1997.
9
<PAGE>
The Senior Discount Cash interest will not accrue or be payable on
Notes... the Senior Discount Notes prior to August 15,
2001. Thereafter, cash interest on the Senior
Discount Notes will accrue at a rate of 12 1/2%
per annum and will be payable semi-annually in
arrears on each February 15 and August 15, com-
mencing February 15, 2002.
Original Issue Discount..... For federal income tax purposes, the Senior Dis-
count Notes will be treated as having been issued
with "original issue discount" equal to the dif-
ference between the issue price of the Senior
Discount Notes and the sum of all cash payments
(whether denominated as principal or interest) to
be made thereon. Each holder of a Senior Discount
Note must include as gross income for federal in-
come tax purposes a portion of such original is-
sue discount for each day during each taxable
year in which a Senior Discount Note is held even
though no cash interest payments will be received
prior to August 15, 2001. See "Certain Federal
Income Tax Consequences."
Mandatory Accreted Interest
Redemption.................
On August 15, 2001, the Issuers will be required
to redeem an amount equal to $384.772 per $1,000
principal amount at maturity of each Senior Dis-
count Note then outstanding ($192,386,000 in ag-
gregate principal amount at maturity of the Se-
nior Discount Notes, assuming all of the Senior
Discount Notes remain outstanding on such date
(the "Accreted Interest Redemption Amount")) on a
pro rata basis at a redemption price of 100% of
the principal amount at maturity of the Senior
Discount Notes so redeemed. The Accreted Interest
Redemption Amount represents (i) the excess of
the aggregate accreted principal amount of all
Senior Discount Notes outstanding on August 15,
2001 over the aggregate issue price thereof less
(ii) an amount equal to one year's simple
uncompounded interest on the aggregate issue
price of such Senior Discount Notes at a rate per
annum equal to the stated interest rate on the
Senior Discount Notes.
Optional Redemption......... The Notes will be redeemable at the option of the
Issuers, in whole or in part, at any time on or
after August 15, 2001 at the redemption prices
set forth under "Description of the Notes--Op-
tional Redemption," plus accrued and unpaid in-
terest, if any, thereon to the date of redemp-
tion. In addition, prior to August 15, 1999, the
Issuers may redeem up to 35% of the originally
issued principal amount of Senior Notes and up to
35% of the originally issued principal amount at
maturity of the Senior Discount Notes at a re-
demption price equal to 111.0% of the Senior
Notes so redeemed, plus accrued and unpaid inter-
est, if any, thereon to the redemption date and
112.5% of the Accreted Value at the redemption
date of the Senior Discount Notes so redeemed, in
each case with the net proceeds of one or more
Public Equity Offerings (as defined under "De-
scription of the Notes--Certain Definitions") of
Common Equity Interests (as defined under "De-
scription of the Notes--Certain Definitions") of
Sprint Spectrum, Holdings or a Special Purpose
Corporation (as defined under "Description of the
Notes--Optional Redemption"), in either case, re-
sulting in gross proceeds of at least $100 mil-
lion; provided that at least 65% of the origi-
nally issued principal amount
10
<PAGE>
of Senior Notes and 65% of the originally issued
principal amount at maturity of Senior Discount
Notes would remain outstanding immediately after
giving effect to such redemption.
Change of Control........... In the event of a Change of Control (as defined
under "Description of the Notes--Certain Defini-
tions"), the Issuers will be obligated to make an
offer to purchase all outstanding Notes at a pur-
chase price equal to (i) 101% of the principal
amount thereof, in the case of the Senior Notes,
plus accrued and unpaid interest, if any, thereon
to the purchase date and (ii)(a) 101% of the Ac-
creted Value thereof on the Change of Control
Payment Date, in the case of the Senior Discount
Notes, if the Change of Control Payment Date is
on or before August 15, 2001, and (b) 101% of the
principal amount at maturity of the Senior Dis-
count Notes, plus accrued and unpaid interest, if
any, thereon to the purchase date, if the Change
of Control Payment Date is after August 15, 2001.
See "Description of the Notes--Certain Cove-
nants--Change of Control" for a discussion of
such covenant and potential consequences atten-
dant to the existence of such covenant.
Asset Sale Offer............ The Issuers will, under certain circumstances, be
obligated to make an offer to purchase Notes with
the proceeds of certain asset sales at a purchase
price equal to (i) 100% of the principal amount
of the Senior Notes, plus accrued and unpaid in-
terest, if any, thereon to the purchase date and
(ii)(a) 100% of the Accreted Value of the Senior
Discount Notes on the purchase date, if such date
is on or before August 15, 2001, and (b) 100% of
the principal amount of the Senior Discount
Notes, plus accrued and unpaid interest, if any,
thereon to the purchase date, if such date is af-
ter August 15, 2001. See "Description of the
Notes--Certain Covenants--Disposition of Proceeds
of Asset Sales."
Certain Covenants........... The Indentures will contain certain restrictive
covenants, including (i) limitations on addi-
tional indebtedness, (ii) limitations on re-
stricted payments, (iii) limitations on liens,
(iv) limitations on dividends and other payment
restrictions affecting Restricted Subsidiaries
(as defined under "Description of the Notes--Cer-
tain Definitions"), (v) limitations on equity in-
terests of Restricted Subsidiaries, (vi) limita-
tions on transactions with equity holders and af-
filiates, (vii) limitations on issuances of cer-
tain guarantees by Restricted Subsidiaries,
(viii) limitations on activities of the Issuers
and the Restricted Subsidiaries, (ix) limitations
on the disposition of proceeds of asset sales and
(x) limitations on designations of Unrestricted
Subsidiaries (as defined under "Description of
the Notes--Certain Definitions"). In addition,
the Indentures will limit the ability of the Is-
suers to consolidate, merge or sell all or sub-
stantially all of their assets. These covenants
are subject to important exceptions and qualifi-
cations. See "Description of the Notes--Certain
Covenants."
11
<PAGE>
Use of Proceeds............. The net proceeds to Sprint Spectrum from the sale
of the Notes offered hereby will be approximately
$509 million, after deducting estimated dis-
counts, commissions and offering expenses. The
Company intends to use the net proceeds from the
Offering to fund capital expenditures, including
the buildout of a nationwide PCS network, to fund
working capital as required, to fund operating
losses and for other partnership purposes. In ad-
dition, a portion of the net proceeds may be used
for new PCS license acquisitions or investments
in entities owning PCS licenses. See "Use of Pro-
ceeds."
RISK FACTORS
Prospective investors should carefully consider, in addition to the other
information in this Prospectus, the information set forth under the heading
"Risk Factors" beginning on page 14 before purchasing the Notes offered hereby.
12
<PAGE>
SUMMARY HISTORICAL AND PRO FORMA CONSOLIDATED FINANCIAL DATA
The following table presents summary consolidated financial data for the
transfer of the operations of Holdings to Sprint Spectrum ("Reorganized Sprint
Spectrum") as of the dates and for the periods indicated. The consolidated
financial data for the period from October 24, 1994 to December 31, 1994 and
for the year ended December 31, 1995 were derived from the audited consolidated
financial statements of Reorganized Sprint Spectrum. The consolidated financial
data for the quarters ended March 31, 1995 and March 31, 1996, respectively,
and for the cumulative period from October 24, 1994 to March 31, 1996 were
derived from the unaudited financial statements of Reorganized Sprint Spectrum.
Due to the development stage nature of Reorganized Sprint Spectrum, period-to-
period comparisons of financial data are not indicative of results for
subsequent periods or the full year and should not be relied upon as an
indication of the future performance of Reorganized Sprint Spectrum. The
following data should be read in conjunction with "Pro Forma Condensed
Financial Statements," "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and Reorganized Sprint Spectrum's
consolidated financial statements and the notes thereto included elsewhere in
this Prospectus.
The Reorganized Sprint Spectrum consolidated financial information reflects
the transfer of the operations of Holdings to Sprint Spectrum that took place
on July 1, 1996. To assist prospective investors, the pro forma and as adjusted
data set forth below reflect the financial information of Reorganized Sprint
Spectrum as adjusted to give effect to (1) the transfer of APC to Holdings on a
pro forma basis as if it had occurred at the beginning of the periods presented
or as of the date presented and (2) the transfer of APC to Holdings and the
Offering as if they had occurred on March 31, 1996.
<TABLE>
<CAPTION>
FOR THE
FOR THE CUMULATIVE
PERIOD FROM PERIOD FROM PRO FORMA
OCTOBER 24, OCTOBER 24, -------------------------
1994 FOR THE THREE 1994 FOR THE
(DATE OF FOR THE MONTHS ENDED (DATE OF FOR THE THREE MONTHS
INCEPTION) TO YEAR ENDED MARCH 31, INCEPTION) TO YEAR ENDED ENDED
DECEMBER 31, DECEMBER 31, ----------------- MARCH 31, DECEMBER 31, MARCH 31,
1994 1995 1995 1996 1996 1995 1996
------------- ------------ ------- -------- ------------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA
(IN THOUSANDS):
Operating expenses:
General and
administrative........ $ 1,371 $ 37,460 $ 1,273 $ 19,862 $ 58,693 $ 37,460 $ 19,862
Professional and legal
fees.................. 1,923 26,849 2,335 10,862 39,634 26,849 10,862
Depreciation........... 38 211 47 254 503 211 254
------- --------- ------- -------- --------- -------- --------
Total operating
expenses.............. 3,332 64,520 3,655 30,978 98,830 64,520 30,978
Other income (expense):
Interest income........ 24 260 275 (358) (74) 260 (358)
Other income........... -- 38 -- 143 181 38 143
Equity in loss of
unconsolidated
partnership........... -- (46,206) (3,409) (36,232) (82,438) -- --
------- --------- ------- -------- --------- -------- --------
Total other income
(expense)............. 24 (45,908) (3,134) (36,447) (82,331) 298 (215)
------- --------- ------- -------- --------- -------- --------
Net loss................ $(3,308) $(110,428) $(6,789) $(67,425) $(181,161) $(64,222) $(31,193)
======= ========= ======= ======== ========= ======== ========
</TABLE>
<TABLE>
<CAPTION>
AT MARCH 31, 1996
--------------------------------
PRO FORMA
AS
ACTUAL PRO FORMA ADJUSTED
---------- ---------- ----------
BALANCE
SHEET DATA
(IN
THOUSANDS):
<S> <C> <C> <C>
Assets:
Current assets............ $ 4,974 $ 4,974 $ 514,379(1)
Investment in PCS
licenses................. 2,124,594 2,124,594 2,124,594
Investment in
unconsolidated
partnership.............. 49,314 -- --
Note receivable--
unconsolidated
partnership.............. 83,655 -- --
Property, plant and
equipment (net).......... 76,129 76,129 76,129
Other assets.............. -- -- 14,030(1)
---------- ---------- ----------
Total assets.............. $2,338,666 $2,205,697 $2,729,132
========== ========== ==========
Liabilities and partners'
capital:
Current liabilities....... $ 96,870 $ 96,870 $ 96,870
Deferred compensation..... 4,247 4,247 4,247
Note payable to
affiliate................ 5,000 5,000 5,000
Long-term debt............ -- -- 523,435(2)
Limited partner interest
in consolidated
subsidiary............... 5,000 5,000 5,000
Partners' capital......... 2,227,549 2,094,580 2,094,580
---------- ---------- ----------
Total liabilities and
partners' capital........ $2,338,666 $2,205,697 $2,729,132
========== ========== ==========
</TABLE>
- -------
(1) Reflects estimated net proceeds of $509 million and debt issuance costs of
$14 million from the Offering.
(2) Reflects gross proceeds of $523 million from the Offering before
underwriting discounts and commissions and expenses.
13
<PAGE>
RISK FACTORS
Prospective investors should consider carefully, in addition to the other
information contained in this Prospectus, the following factors before
purchasing the Notes offered hereby.
DEVELOPMENT STAGE COMPANY; ABSENCE OF COMMERCIAL OPERATIONS
The Company is at an early stage of development and, as of the date of this
Prospectus, has not commenced commercial PCS operations. The Company will
require expenditures of significant funds for development, construction,
testing and deployment of its PCS network before commencement of commercial
operations, which is expected to occur in the fourth quarter of 1996. Such
development, construction, testing and deployment of the Company's PCS network
are expected to place significant demands on the Company's managerial,
operational and financial resources. The Company's future performance will
depend, in part, on the Company's ability to implement its operational and
financial systems, to expand its employee base and to train and manage its
employees, including engineering, customer support, marketing and sales
personnel. There can be no assurance that the Company will be able to manage
operations successfully. Management's failure to guide and control growth
effectively (including implementing adequate systems, procedures and controls
in a timely manner) could have a material adverse effect on the Company. In
addition, there can be no assurance that the Company will be able to attract
or retain the highly qualified personnel required to operate its network
successfully. The Company is actively searching for a Senior Marketing
Executive. See "Business--General" and "Management."
OPERATING LOSSES AND NEGATIVE CASH FLOW FROM OPERATIONS
As of March 31, 1996, after giving effect to the Reorganization, the Company
had incurred cumulative net losses of approximately $98.7 million since its
inception. The Company expects to continue to incur significant operating
losses and to generate significant negative cash flow from operating
activities during the next several years while it develops and constructs its
PCS network and builds its customer base. If and when the Company has
successfully completed its network buildout and started to provide products
and services to customers, the Company's operating profitability will depend
upon many factors, including, among others, its ability to market its products
and services successfully, achieve its projected market penetration, manage
customer turnover rates effectively and price its products and services
competitively. There can be no assurance that the Company will achieve or
sustain operating profitability or positive cash flow from operating
activities in the future. If the Company does not achieve and maintain
operating profitability and positive cash flow from operating activities on a
timely basis, it may not be able to meet its debt service requirements,
including its obligations with respect to the Notes.
SUBSTANTIAL CAPITAL REQUIREMENTS AND LIQUIDITY; HIGHLY LEVERAGED CAPITAL
STRUCTURE
The buildout of the Company's PCS network and the marketing and distribution
of the Company's PCS products and services will require substantial capital.
The Company currently estimates that its capital requirements (capital
expenditures, the cost of its existing licenses, working capital, debt service
requirements and anticipated operating losses) for the period from inception
through the end of 1998 (assuming substantial completion of the Company's
network buildout to cover 80% of the Pops in its current license areas in the
aggregate by the end of 1998), will total approximately $7.9 billion (of which
approximately $2.2 billion had been expended as of March 31, 1996). The
Company will also require substantial additional capital for new license
acquisitions or investments in entities making new license acquisitions (if
any) and, after 1998, for coverage expansion, volume-driven network capacity
and other capital expenditures for existing and new license areas (if any),
working capital, debt service requirements (including, without limitation, the
mandatory redemption of the Senior Discount Notes) and anticipated further
operating losses. Due to its highly leveraged capital structure, there can be
no assurance that the Company will be able to arrange additional financing to
fund capital requirements until the Company achieves positive operating cash
flow or that such financing will be on terms acceptable to the Company.
Following the receipt of additional financing, there can be no assurance that
the Company will be able to generate sufficient funds to meet fixed charges or
other obligations. The Company will have certain commitments that must be
funded in any event, including lease obligations for cell and switch sites,
minimum purchase obligations under the Procurement Contracts and amortization
under the Secured
14
<PAGE>
Financing. Actual amounts of the funds required may vary materially from these
estimates and additional funds would be required in the event of significant
departures from the current business plan, new license acquisitions,
unforeseen delays, cost overruns, unanticipated expenses, regulatory changes,
engineering design changes and other technological risks. The Company may
participate in the FCC auction of the PCS licenses of the D, E and F Blocks.
See "Use of Proceeds."
The Company currently has no sources of revenue to meet its capital
requirements. Sprint Spectrum has obtained commitments from Nortel for $1.3
billion and from Lucent for $1.8 billion of senior secured loans to finance
purchases of PCS equipment and related services and costs. Under the
Procurement Contracts, the Company is required to purchase minimum amounts of
equipment and services from each Vendor. The Nortel Financing requires, as a
condition to funding, the commitment of additional financing from third-
parties, including the Offering, the Bank Credit Facility or other debt
financing and equity financing. The Vendor Financing will contain certain
conditions which must be satisfied in order for the Company to access funds.
Sprint Spectrum has also received a commitment from Chase to provide a fully
underwritten $2.0 billion Bank Credit Facility to finance working capital,
capital expenditures, operating losses and other partnership purposes. The
Bank Credit Facility will also include certain conditions to borrowing
availability. These commitments are subject to, among other things, the
execution and delivery of definitive documentation. The Offering is not
contingent upon the execution and delivery of such documentation. There can be
no assurance that the conditions to the Vendor Financing or the Bank Credit
Facility will be satisfied. The inability of the Company to access such funds
may have a material adverse effect on the Company, and there can be no
assurance that the Company will be able to obtain replacement funds from
alternative sources. See "Description of Vendor Contracts and Financing--
Vendor Financing" and "--Bank Credit Facility."
The Partners have agreed to contribute up to an aggregate of $4.2 billion of
equity to Holdings to the extent required by the annual budgets of Holdings
through fiscal 1999 as approved by the Partners. As of March 31, 1996,
approximately $2.4 billion had been contributed to Holdings, of which $2.2
billion had been contributed to the Company and the remaining $0.2 billion had
been contributed or advanced to APC. The Company currently intends to obtain
up to $1.4 billion of additional equity following March 31, 1996, resulting in
$3.6 billion in aggregate invested equity capital in the Company, although
there can be no assurance that any additional capital will be obtained in the
form of equity from the Parents or otherwise. The Parents have committed to
make available to the Company or cause Holdings to make available to the
Company up to $1.0 billion of such additional equity, to the extent required
by the Company to fund any projected cash shortfall, under a Capital
Contribution Agreement among Sprint Spectrum and the Parents that provides for
$1.0 billion in aggregate equity commitments (less, subject to certain
exceptions, amounts of cash equity contributed to Sprint Spectrum after
December 31, 1995). At March 31, 1996, approximately $1.0 billion was
available under the Capital Contribution Agreement. The Company's business
plan and the financial covenants and other terms of the Secured Financing will
require such additional equity financing prior to the end of 1998, absent a
new financing source. The $1.0 billion portion of the $4.2 billion not
invested in the Company that may be available to Holdings from the Partners
may be used by Holdings to fund Holdings' other affiliate commitments, to make
other wireless investments and/or to make new license acquisitions. Amounts
budgeted by the Company, as approved by the Partners in future years, will
determine the extent to which the commitments beyond the Capital Contribution
Agreement will actually be utilized. See "--Substantial Capital Requirements
and Liquidity; Highly Leveraged Capital Structure." See "Description of Vendor
Contracts and Financing--Capital Contribution Agreement" and "The Partnership
Agreements--Holdings' Partnership Agreement--Capital Contributions" for a
discussion of the equity capital commitments to Holdings.
Sources of funding for the Company's further financing requirements may
include additional vendor financing, public offerings or private placements of
equity and/or debt securities, commercial bank loans and/or capital
contributions from Holdings or the Partners. There can be no assurance that
the Secured Financing, the funds committed by the Parents or any other
additional financing will be available to the Company or, if available, that
such financing can be obtained on a timely basis and on terms acceptable to
the Company and within limitations contained in the Indentures, the agreements
governing the Vendor Financing, the Bank Credit Facility and any new financing
arrangements. Failure to obtain any such financing could result in the delay
or
15
<PAGE>
abandonment of the Company's development and expansion plans or the failure to
meet regulatory requirements. It also could impair the Company's ability to
meet its debt service requirements (including its obligations with respect to
the Notes) and could have a material adverse effect on its business. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources."
NETWORK BUILDOUT AND SYSTEM IMPLEMENTATION RISKS
In order for the Company to complete its PCS network and provide its
wireless communications products and services to customers on a nationwide
basis it must successfully (i) relocate microwave paths that may affect the
Company's operations, (ii) lease, acquire or otherwise attain rights to a
sufficient number of cell and switch sites, (iii) complete the radio frequency
("RF") design, including cell site design, frequency planning and network
optimization, for each of the Company's markets, (iv) complete the fixed
network design, which encompasses engineering network switching systems, radio
systems, interconnecting facilities and systems and operating support systems,
(v) establish sufficiently broad population and geographic coverage across the
continental United States and (vi) develop and implement sophisticated
information systems. There can be no assurance that these events will occur on
a timely basis or on the cost basis assumed by the Company or at all.
Implementation of the network involves various risks and contingencies, many
of which are not within the control of the Company and all of which could have
a material adverse effect on the implementation of the Company's system should
there be delays or other problems.
Relocation of microwave paths. For a period of up to five years after the
grant of a PCS license (subject to extension), a PCS licensee will be required
to share spectrum with existing microwave licensees that operate certain
microwave paths within its license area, but PCS licensees may not interfere
with existing licensees. See "Business--Network Buildout--Microwave
Relocation." The Company believes it must relocate a total of 1,400 microwave
paths, of which approximately 600 need to be relocated to launch commercial
service. As of July 19, 1996, 405 relocation agreements were under
negotiation, 639 agreements had been reached and 136 paths had been relocated.
The Company expects to have the 600 microwave paths required for launch in all
MTAs relocated during the fourth quarter of 1996 and the first quarter of
1997. The remaining 800 microwave paths will be relocated as business
requirements for service coverage expansion dictate and as FCC negotiation
periods expire. In places where relocation is necessary to permit operation of
the Company's PCS system, any delay in the relocation of such licensees may
affect adversely the Company's ability to commence commercial operations,
which could have a material adverse effect on the Company. The Company's
estimated capital requirements of $7.9 billion for its existing license areas
through 1998 include $0.5 billion allocated to the cost of relocating certain
microwave paths. There can be no assurance that the relocation of incumbent
microwave operators can be achieved for the amounts currently estimated and
actual amounts of funds required may vary materially from these estimates.
The FCC has adopted a transition plan to facilitate the relocation of
existing microwave operators to other spectrum blocks. This transition plan
allows non-public safety entities to operate in the PCS spectrum for a two-
year voluntary negotiation period and an additional one-year mandatory
negotiation period. For public safety entities dedicating a majority of their
system communications for police, fire or emergency medical services
operations, the voluntary negotiation period is three years, with a two-year
mandatory negotiation period. The exact number of microwave paths that are
operated by public safety entities cannot be ascertained, but the Company
estimates that of the 1,400 total microwave paths that need to be relocated
and of the 600 paths required for launch, approximately 420 and 112,
respectively, are operated by public safety entities. Parties unable to reach
agreement within these time periods may refer the matter to the FCC for
resolution, but the existing microwave user is permitted to continue its
operations until final FCC resolution. The voluntary negotiation period began
with the grant of licenses to the Company in March 1995. See "Business--
Regulation--FCC Relocation Requirements." There can be no assurance that the
Company will be successful in reaching timely agreements with the existing
microwave licensees or that any such agreements will be on terms favorable to
the Company. Further, depending on the terms of such agreements, the Company's
ability to operate its PCS systems profitably may be adversely affected.
16
<PAGE>
Site acquisition. The successful implementation of the Company's PCS system
will be dependent, to a significant degree, upon the Company's ability to
lease or acquire cell sites for the location of its base station equipment.
The cell site selection process will require the lease or acquisition of
approximately 5,700 sites in 31 MTAs prior to commencement of commercial
operations of the Company's PCS network, many of which are likely to require
the Company to obtain zoning variances or other local governmental or third-
party approvals or permits. As of July 19, 1996, the Company had signed leases
or options for 3,281 sites of which 913 were pending zoning and 1,308 were
zoned or ready for construction. There are currently 255 sites under
construction. The Company expects to complete the acquisition and construction
of all 5,700 cell sites during the second half of 1996 and the first quarter
of 1997. The inability of the Company to lease, acquire or otherwise attain
rights to the requisite number of cell sites or to obtain the requisite zoning
and other local approvals in a timely and cost-effective manner could have a
material adverse effect on the Company. As the Company expands the geographic
coverage of the system, it expects that the site acquisition process will
continue, subject to site availability and the continued need to receive
zoning and other local approvals.
Radio frequency design implementation. There can be no assurance that the
Company and the Vendors will be able to implement the RF designs as scheduled
to meet the proposed service launch date or that changes to the RF design
resulting from site location, microwave interference or construction
difficulties will not have a negative impact on the ability of the Company to
operate the network successfully. Failure to implement RF designs could delay
such proposed launch and could delay completion of the initial buildout. Any
such significant delay could have a material adverse effect on the Company.
Network design and equipment. The Procurement Contracts require the Vendors
to provide the network infrastructure equipment and to assume much of the
responsibility for the design, engineering and construction of the network.
The Vendors, in turn, have subcontracted certain design, engineering and
construction responsibilities to major engineering and construction companies.
Any failure of the Vendors to manage the construction of the network or to
meet the Company's schedule will have an adverse impact on the ability of the
Company to commence commercial operations or to complete the initial buildout
of the network in a timely fashion. Problems in equipment availability and
performance and construction could delay the Company's launch of commercial
operations and initial network buildout or result in increased costs, which in
turn, could have a material adverse effect on the Company.
Lack of complete nationwide footprint. In order for the Company's
subscribers to use their handsets in areas outside the Company's network,
another CDMA-based PCS provider must operate in such area or the subscriber
must have a dual-mode, dual-band handset which would allow access to analog
cellular or other digital systems and, in either case, the Company must have
arrangements with such other PCS or cellular providers permitting the
Company's subscribers to access their respective services. The Company
currently does not have a license or any affiliation agreement enabling it to
provide coverage for 27% of the Pops in the United States, including those in
the following major cities and surrounding regions: Atlanta, Charlotte,
Chicago, Cincinnati, Cleveland, Columbus, El Paso, Houston, Jacksonville,
Knoxville, Memphis, Richmond and Tampa. Although there can be no assurance
that CDMA-based PCS providers will operate in these areas, the Company may
enter into affiliation agreements or contracts permitting subscribers to
utilize the services of any CDMA-based PCS providers in each of these areas.
The failure to obtain coverage for such areas may significantly impair the
Company's ability to provide nationwide service to its customers, which may
discourage potential customers from subscribing or encourage existing
customers to cancel their subscriptions. The ability of the Company's
subscribers to use other providers' PCS services will be limited by certain
technological constraints as well as the current lack of availability of dual-
mode, dual-band handsets which would permit the Company's subscribers to
utilize the services of non-CDMA-based PCS providers. See "--Technology Risks;
Availability of Handsets."
Information systems. The successful implementation and launch of the
Company's PCS system is dependent on the Company's ability to develop and
implement an integrated customer care, network management and billing system.
The majority of the systems work (including integration of hardware and
software) will be performed by the vendors using their platforms, some of
which are currently in development, some of which
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have not been tested in a commercial environment and most of which have not
been tested together to ensure that they work as an integrated whole.
Integration requires that numerous and diverse hardware and software platforms
work together through interfaces that have not yet been tested together. The
billing system that will be a key component of the system operations is in
testing and is not currently used in commercial production by any wireless
provider. The Company expects to complete an information system sufficient to
enable it to launch commercial service by the fourth quarter of 1996. Any
failure to develop an integrated information systems solution on schedule will
have an adverse effect on the ability of the Company to commence PCS
commercial operations in the fourth quarter of 1996.
Other factors. The Company's success in the implementation and operation of
its system is subject to other factors beyond the Company's control. These
factors include, without limitation, changes in general and local economic
conditions, availability of equipment necessary to operate the PCS system,
changes in communications service rates charged by others, fluctuations in the
supply and demand for PCS and the commercial viability of PCS systems as a
result of competition with wireline and wireless operators in the same
geographic area, demographic changes that might affect negatively the
potential market for PCS, changes in federal and state regulation of PCS
systems (including the enactment of new statutes and the promulgation of
changes in the interpretation or enforcement of existing or new rules and
regulations) and advancements in technology that have the potential of
rendering obsolete the technology and equipment that the Company is using to
construct its PCS system. There can be no assurance that the occurrence of one
or more of these factors will not have a material adverse effect on the
Company's financial condition and results of operations.
TECHNOLOGY RISKS; AVAILABILITY OF HANDSETS
To date, CDMA technology has only recently been deployed in the United
States or internationally. Although the Company has selected CDMA technology
because the Company believes it will offer several advantages over other
technologies, CDMA may not provide the advantages expected by the Company. See
"Business--CDMA Technology."
CDMA is incompatible with other PCS technologies such as TDMA or GSM.
Although the Company believes that CDMA will become the dominant PCS
technology in North America, there can be no assurance that this will be the
case. See "Business--CDMA Technology." In order for the Company's subscribers
to use non-dual-mode handsets in other PCS markets (and vice versa), at least
one PCS licensee in the other market must deploy CDMA (as opposed to the other
competing PCS technologies) and such licensee must agree to allow subscribers
to utilize its network. There can be no assurance that the Company will be
able to reach satisfactory agreements with such licensees. While several major
PCS providers have publicly announced that they intend to deploy CDMA-based
PCS systems, there can be no assurance that such providers will do so.
The Company's network will not be compatible with existing analog cellular
networks. The Company's network operates at a different frequency and uses a
different technology than analog cellular systems. If the Company desires to
make roaming available, it would be required to provide dual-mode, dual-band
handsets, which are not currently available. Additionally, for the Company's
subscribers to access another provider's cellular system, that provider must
agree to allow the Company's subscribers to roam on its network. There can be
no assurance that such dual-mode, dual-band handsets will be available or
that, should the Company determine that it desires roaming agreements with
other providers, such agreements can be obtained on terms acceptable to the
Company.
Currently there are expected to be limited suppliers of CDMA handsets.
Although Sprint Spectrum has entered into an agreement with one such supplier
to purchase quantities of handsets it believes are sufficient to satisfy the
anticipated demand when commercial operations commence, there can be no
assurance that the supplier will be able to manufacture and deliver the number
of handsets ordered or that such supply will in fact be sufficient to meet
initial demand. Sprint Spectrum is currently negotiating with other suppliers
for the delivery of additional CDMA handsets commencing in the second quarter
of 1997. There can be no assurance, however,
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that terms satisfactory to Sprint Spectrum will be reached with these
suppliers or that these suppliers will commence production or, if they do
commence production, that they will be able to deliver quality handsets in
sufficient quantities in a timely manner.
While the Company believes that dual-mode, dual-band handsets that allow a
user to access both PCS systems and cellular networks will be commercially
available in the first half of 1997 (although sufficient quantities may not be
commercially available until the third quarter of 1997), there can be no
assurance that such handsets can be manufactured successfully or that the
Company's subscribers can obtain such handsets at competitive prices. In
addition, such dual-mode, dual-band handsets are expected to be more expensive
than single-mode handsets. Although the Company has been working closely with
its suppliers to develop high-quality dual-mode, dual-band handsets, such
handsets may fail to operate as expected. The lack of interoperability or the
comparatively higher cost of such handsets may impede the Company's ability to
attract current cellular subscribers or potential new wireless communications
subscribers.
AFFILIATE TRANSACTIONS; CONFLICTS OF INTEREST
The Company currently engages and intends to continue to engage in
transactions with Holdings and the Parents, including those transactions
described below. The Company has entered into and expects to enter into
affiliation agreements with other affiliates of Holdings, such as APC, Cox-
California and PhillieCo. Subject to certain conditions, the Company expects
to enter into sales agency agreements with the Parents for co-marketing of the
Company's wireless products and services, Sprint's long distance and local
telephone services and the Cable Parents' cable-based entertainment services.
The Parents and certain of their affiliates will be non-exclusive sales agents
for the Company's wireless services. The Company, in turn, will be a non-
exclusive sales agent for those services Sprint and the Cable Parents make
available to the Company. In addition, Sprint currently serves as the
Company's agent for selling paging services and will market these services
through direct mail, direct sales, employee programs, advertising and
promotions. While the Company will endeavor to negotiate all transactions with
the Parents and their affiliates on an arm's-length basis, there can be no
assurance that all such transactions will be on terms no less favorable to the
Company than could reasonably be obtained in a comparable arm's length
transaction with a non-affiliate or that significant conflicts of interest
between the Company and Holdings or any of the Parents will not develop. See
"The Partnership Agreements--Holdings Partnership Agreement" and "Certain
Relationships and Related Transactions."
DEADLOCK EVENT
The Holdings Partnership Agreement provides that Holdings will be dissolved
upon the failure of the General Partners (as defined under "The Partnership
Agreements--Holdings Partnership Agreement") of Holdings to resolve a
"Deadlock Event," which is deemed to occur if the Partnership Board (as
defined under "The Partnership Agreements--Holdings Partnership Agreement")
(i) fails to approve a proposed annual budget or business plan for two
consecutive fiscal years or (ii) if the position of chief executive officer
remains vacant for sixty days after a candidate has been proposed by at least
two Partners having an aggregate of at least 33% of the voting Percentage
Interest (as defined under "The Partnership Agreements--Holdings Partnership
Agreement"). Upon the occurrence of a Deadlock Event, the General Partners
will first try for a period of 20 days to use their good faith efforts to
resolve the Deadlock Event. If the General Partners are unable to resolve the
matter, such matter will be referred to the chief executive officers of the
Parents. In the event the chief executive officers fail to reach a resolution,
the matter will be referred to a mediation service. If the mediator and the
General Partners fail to resolve the Deadlock Event, Holdings will be
liquidated unless the Partnership Board, by a majority vote of 75%, determines
not to dissolve or the buy-sell arrangements contained in the Holdings
Partnership Agreement are employed. There can be no assurance that a Deadlock
Event will not occur or if such event does occur that resolution procedures
will be successful or that the Deadlock Event will not have a material adverse
effect on the ability of Sprint Spectrum's management to operate the Company's
PCS business in the ordinary course. See "The Partnership Agreements--Holdings
Partnership Agreement."
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ABILITY TO SERVICE DEBT; RESTRICTIVE COVENANTS; REFINANCING RISKS
The Company expects to incur, and the Indentures will permit the Company to
incur, substantial indebtedness in addition to the Notes, including
indebtedness under the $2.0 billion Bank Credit Facility and the $3.1 billion
Vendor Financing. See "--Substantial Capital Requirements and Liquidity;
Highly Leveraged Capital Structure."
The Secured Financing and the respective credit agreements relating thereto
will contain, and any additional financing agreements may contain, certain
restrictive covenants. The restrictions contained in the Indentures and those
expected to be contained in the Secured Financing will affect, and in some
cases will limit or prohibit significantly, among other things, the ability of
the Company to incur additional indebtedness (beyond specified amounts), make
prepayments of certain indebtedness, pay dividends, make investments, engage
in transactions with equityholders and affiliates, issue equity of
subsidiaries, create liens, sell assets and engage in mergers and
consolidations. If the Company fails to comply with the restrictive covenants
in the Indentures, the Company's obligation to repay the Notes may be
accelerated. However, the limitations set forth in the Indentures will be
subject to a number of important qualifications and exceptions. In particular,
while the Indentures will restrict the Company's ability to incur additional
indebtedness by requiring compliance with certain financial ratios, they will
permit the Company and its subsidiaries to incur substantial additional
indebtedness. See "Description of the Notes." In addition to the restrictive
covenants described above, the Secured Financing will require the Company to
maintain certain financial ratios and other operating performance tests. The
failure of the Company to maintain such ratios or comply with such tests would
constitute events of default under the Secured Financing notwithstanding the
ability of the Company to meet its debt service obligations. An event of
default under the Secured Financing would allow the lenders thereunder to
accelerate the maturity of the indebtedness thereunder. In such event, a
significant portion of the Company's other indebtedness (including the Notes)
may be declared immediately due and payable. See "Description of Vendor
Contracts and Financing."
The Company's ability to meet its debt obligations will be dependent upon
the Company's successful completion of its planned PCS network and the
Company's future performance, which is subject to numerous factors, many of
which are beyond the Company's control. See "--Network Buildout and System
Implementation Risks." There can be no assurance that the Company can complete
construction of its wireless network or that, if completed, the Company will
generate sufficient cash flow from operating activities to meet its debt
service, capital expenditure and working capital requirements. Substantially
all of the indebtedness under the Secured Financing is likely to mature prior
to the maturity of the Notes. The Company expects that such indebtedness and
the Notes may need to be refinanced at their maturity (including mandatory
redemption of the Senior Discount Notes). The Company's ability to refinance
such indebtedness will depend on, among other things, its financial condition
at the time, the restrictions in the instruments governing its indebtedness
and other factors, including market conditions, beyond the control of the
Company. In addition, in the event the completion of its wireless network is
delayed or the Company does not generate sufficient cash flow from operating
activities to meet its debt service requirements, the Company may need to seek
additional financing not currently contemplated. There can be no assurance
that any such financing or refinancing could be obtained on terms that are
acceptable to the Company, if at all. In the absence of such financing or
refinancing, the Company could be forced to dispose of assets in order to
cover any shortfall in the payments due on its indebtedness and such
disposition may occur under circumstances that might not be favorable to
realizing the highest price for such assets.
STRUCTURAL SUBORDINATION OF THE NOTES TO SUBSIDIARY INDEBTEDNESS; ASSET
ENCUMBRANCES
The Notes will not be obligations of any of the subsidiaries of Sprint
Spectrum (other than FinCo). A substantial portion of the assets of Sprint
Spectrum will be owned by Sprint Spectrum's subsidiaries which have
unconditionally guaranteed the Secured Financing and, accordingly, claims of
holders of Notes will be structurally subordinated to the claims of such
subsidiaries' creditors, including lenders and trade creditors, of such
subsidiaries. The Indentures will permit Sprint Spectrum and its subsidiaries
to incur substantial indebtedness, including indebtedness expected to be
incurred under the Secured Financing. See "Description of the Notes--Certain
Covenants."
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The Notes will not be secured by any of the Company's assets. The
obligations of the Company and its principal subsidiaries under the Secured
Financing will be secured by substantially all of the assets of Sprint
Spectrum including the partnership interests it holds in WirelessCo, RealtyCo
and EquipmentCo. If the Company becomes insolvent or is liquidated, or if
payment under the Secured Financing is accelerated, the lenders under the
Secured Financing would be entitled to exercise the remedies available to a
secured lender under applicable law and pursuant to the terms of the Secured
Financing. Accordingly, any claims of such lenders with respect to such assets
will be prior to any claim of the holders of the Notes with respect to such
assets. There can be no assurance that the Company's assets could be sold
quickly enough, or for sufficient amounts, to enable the Company to meet its
obligations (including its obligations with respect to the Notes). See
"Description of Vendor Contracts and Financing."
LIMITED PCS OPERATING HISTORY IN THE UNITED STATES; SIGNIFICANT CHANGE IN
WIRELESS INDUSTRY
PCS systems have no significant operating history in the United States and
there can be no assurance that operation of these systems will become
profitable. In addition, the extent of potential demand for PCS in the
Company's markets cannot be estimated with any degree of certainty. The
inability of the Company to establish PCS service or to obtain appropriate
equipment for its PCS system could have a material adverse effect on the
Company's financial condition and results of operations. The wireless
telecommunications industry is experiencing significant technological change,
as evidenced by the increasing pace of digital upgrades in existing analog
wireless systems, evolving industry standards, ongoing improvements in the
capacity and quality of digital technology, shorter development cycles for new
products and enhancements and changes in end-user requirements and
preferences. There is also uncertainty as to the extent of customer demand as
well as the extent to which airtime and monthly access rates may continue to
decline. As a result, the future prospects of the industry and the Company and
the success of PCS and other competitive services remain uncertain.
COMPETITION
There is substantial competition in the wireless telecommunications
industry. In addition, the Company expects competition in the wireless
telecommunications business to intensify as a result of the entrance of new
competitors and the development of new technologies, products and services.
Each of the markets in which the Company competes will be served by other two-
way wireless service providers, including cellular and PCS operators and
resellers. Many of these competitors have been operating for a number of
years, currently serve a substantial subscriber base and have significantly
greater financial and technical resources than those available to the Company.
Certain of the Company's competitors are operating, or planning to operate,
through joint ventures and affiliation arrangements, wireless
telecommunications systems that encompass most of the United States. Principal
PCS competitors in the Company's markets include American Portable Telecom,
Inc., AT&T Wireless Services, Inc., Omnipoint Corporation, Pacific Bell Mobile
Systems, Inc., PCS PrimeCo L.P. and Western Wireless Corporation.
The Company also expects that existing cellular providers, some of which
have an infrastructure in place and have been operational for a number of
years, will upgrade their systems and provide expanded and digital services to
compete with the Company's PCS system. Principal cellular providers in the
Company's markets include AirTouch Communications, Inc., BellSouth Mobility,
Inc., Ameritech Mobile Communications, Inc., Bell Atlantic NYNEX Mobile,
Southwestern Bell Mobile Systems, AT&T Wireless Services, Inc., GTE Mobilnet,
Inc. and 360(degrees) Communications Company.
The Company anticipates that market prices for two-way wireless services
generally will decline in the future based upon increased competition. The
Company intends to compete to attract and retain customers principally on the
basis of services and features and packages thereof, its emphasis on customer
care, the size and location of its service areas and pricing. The Company's
ability to compete successfully will also depend, in part, on its ability to
anticipate and respond to various competitive factors affecting the industry,
including new services that may be introduced, changes in consumer
preferences, demographic trends, economic conditions and discount pricing
strategies by competitors all of which could adversely affect the Company's
operating margins.
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Handsets used for CDMA-based PCS systems will not be compatible with
cellular systems and vice versa. The Company expects dual-mode, dual-band
handsets to be commercially available in the first half of 1997 (although
sufficient quantities may not be commercially available until the third
quarter of 1997). Once such handsets are available, if the Company decides to
offer roaming services and is able to negotiate satisfactory roaming
agreements, subscribers will be able to roam by using the existing cellular
wireless system in other markets. Until then, this lack of interoperability
may impede the Company's ability to attract current cellular subscribers or
potential new wireless communication subscribers that desire the ability to
access different service providers in the same and other markets.
Initially the cost to the Company of PCS handsets may not be competitive
with the cost to cellular operators of analog cellular handsets. While the
Company believes that its PCS handsets will be competitively priced as
compared to digital cellular handsets of comparable size, weight and features,
cellular operators may subsidize the sale of digital handset units at prices
below those with which the Company can compete.
The Company's ability to compete successfully in the wireless communications
market will be dependent upon, among other things, its ability to complete the
buildout of its wireless network and offer its products and services to
customers on a timely basis. There can be no assurance that the Company will
be able to compete successfully in this environment or that new technologies
and products that are more commercially effective than the Company's
technologies and products will not be developed.
COMPETITION WITH THE PARTNERS
Pursuant to the terms of the Holdings Partnership Agreement, each of the
Partners or its respective affiliates may, subject to compliance with FCC and
other applicable regulatory restrictions, engage in activities which compete
directly or indirectly with the activities of Holdings or its affiliates. Each
Partner or its affiliates may (i) continue to engage in certain of the
business activities in which they engaged prior to the formation of Holdings,
(ii) maintain voting equity interests of 5% or less in persons that are not
affiliates of Holdings and are engaged in wireless communications services
utilizing radio spectrum for cellular, PCS, ESMR (as defined in "Business--
Competition"), paging, mobile communications and any other voice or data
wireless services (collectively, the "Wireless Business"), subject to certain
limitations, (iii) provide on a non-exclusive basis certain services
incidental to the Wireless Business to persons that are not affiliates of
Holdings, (iv) pursue new business opportunities related to the Wireless
Business after having informed Holdings of any such opportunity and providing
Holdings or its affiliates an adequate right of first refusal with respect to
pursuit of such opportunity and (v) engage, upon unanimous consent of the
Partnership Board, in activities which may compete with or adversely affect
the business interests or activities of Holdings or its affiliates.
The Holdings Partnership Agreement permits Comcast (and its controlled
affiliates) to continue to own cellular licenses and operate a cellular
telephone system which provides service in and around the Philadelphia area,
parts of New Jersey and parts of Delaware (the "Comcast Service Area").
Comcast is permitted to expand its service into certain cellular license areas
in New Jersey. The Holdings Partnership Agreement also provides that Comcast
(and its controlled affiliates) may acquire an interest in a license for up to
10 MHz of PCS spectrum in any of the Basic Trading Areas ("BTAs") located
within the Philadelphia MTA and the Allentown, Pennsylvania BTA.
The Company's intended affiliate in the Philadelphia area, PhillieCo, is
expected to be in competition with Comcast's cellular service, and with any
PCS service offered under a PCS license acquired by Comcast, in certain
markets in the Comcast Service Area. Due to Comcast's general knowledge of the
Company's strategies, PhillieCo and the Company may be at a disadvantage
compared to Comcast.
CONFLICTS OF INTEREST WITH COMCAST
Pursuant to the Holdings Partnership Agreement, Comcast has retained the
right to continue to offer cellular telephone service in the Comcast Service
Area. The Company expects to affiliate with PhillieCo and, under such an
affiliation agreement, will compete directly with Comcast in this area. The
Company, under the affiliation
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agreement, will provide various services to PhillieCo including management,
operations, engineering, marketing and advertising and back office support.
While representatives of Comcast are excluded from any discussions concerning
PhillieCo at the Company or Holdings, there can be no assurance that Comcast
will not benefit from its general knowledge of the Company's plans and
strategies which could provide Comcast with a competitive advantage over the
Company in the Comcast Service Area. Currently, the Company has not adopted
any other procedures for managing conflicts with Comcast and does not foresee
the need to adopt any additional procedures in the future.
GOVERNMENT REGULATION
The licensing, construction, operation, sale and interconnection
arrangements of wireless telecommunications systems are regulated to varying
degrees by the FCC and, depending on the jurisdiction, state and local
regulatory agencies. In addition, the FCC, in conjunction with the Federal
Aviation Administration (the "FAA"), regulates tower marking and lighting.
There can be no assurance that either the FCC, the FAA or those state agencies
having jurisdiction over the Company's business will not adopt regulations or
take other actions that would adversely affect the business of the Company.
FCC licenses to provide PCS services are subject to renewal and revocation.
The Company's PCS licenses will expire in 2005. There may be competition for
the licenses held by the Company upon their expiration and there can be no
assurance that the Company's licenses will be renewed. FCC rules require all
PCS licensees to meet certain requirements including, without limitation,
coverage of 33% of Pops in each MTA within the first five years and 67% within
the first 10 years of the award of a license. There can be no assurance that
the Company will be able to obtain the requisite coverage in each MTA. Failure
to comply with these requirements could cause revocation or forfeiture of the
Company's PCS licenses or the imposition of fines on the Company by the FCC.
See "Business--Regulation."
RADIO FREQUENCY EMISSION CONCERNS; MEDICAL DEVICE INTERFERENCE
Certain interest groups have requested that the FCC investigate claims that
wireless communications technology poses health concerns and causes
interference with hearing aids and other medical devices. The Center for the
Study of Electromagnetic Compatibility at the University of Oklahoma, which
was founded in 1994 with funds from the wireless industry, is studying this
issue and has released results from the first phase of its study which focused
on worst case (operation at full-power) interaction and which indicated that
the three wireless technologies tested, including CDMA, caused interference in
some instances, but not all, with hearing aids. In addition, the Personal
Communications Industry Association (the "PCIA") announced in July 1995 that
it was undertaking an industry-wide study to gather information on possible
PCS interference with medical devices for all PCS protocols. There can be no
assurance that the findings of such studies will not have an adverse effect on
the Company's financial condition and results of operations or that such
findings will not lead to additional governmental regulations that will have
an adverse effect on the Company's financial condition and results of
operations.
Preliminary results from researchers working under the guidance of the
Wireless Technology Research LLC ("WTR") indicate that digital wireless
telephones cause interference to some users of cardiac pacemakers. The
researchers have recommended that patients dependent on pacemakers avoid using
digital telephones and that nondependent users keep such telephones away from
implanted devices. Permanent recommendations from the WTR are expected in July
or August of 1996. There can be no assurance that such recommendations will
not lead to governmental regulation or that such recommendations will not have
a material adverse effect on the Company.
Media reports have suggested that certain RF emissions from portable
cellular telephones might be linked to cancer. Concerns over RF emissions may
have the effect of discouraging the use of cellular telephones and other
wireless communications services, including PCS, which could have an adverse
effect upon the Company's financial condition and results of operations. The
FCC has a rulemaking proceeding pending to update the guidelines and methods
it uses for evaluating RF emissions from radio equipment, including cellular
telephones.
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Although PCS handsets operate at lower power than cellular handsets and are
therefore likely to comply with the new proposed standards, the same concerns
about RF emissions could be present with PCS handsets.
REPURCHASE OF THE NOTES UPON A CHANGE OF CONTROL
Upon a Change of Control (as defined under "Description of the Notes--
Certain Definitions"), the Company must offer to purchase the (i) Senior Notes
then outstanding at a purchase price equal to 101% of the principal amount
thereof, plus accrued and unpaid interest to the date of purchase and (ii)
Senior Discount Notes then outstanding at a purchase price equal to 101% of
the Accreted Value if the Change of Control Payment Date (as defined under
"Description of the Notes--Certain Definitions") is on or before August 15,
2001 and 101% of the principal amount at maturity of the Senior Discount
Notes, plus accrued and unpaid interest thereon to the Change of Control
Payment Date, if such date is after August 15, 2001. See "Description of the
Notes--Certain Covenants--Change of Control."
The Change of Control purchase feature of the Notes may in certain
circumstances discourage or make more difficult a sale or takeover of the
Company. In addition, a "change of control" or the loss of the Company's right
to use the Sprint trademark under the trademark license agreement will
constitute an event of default under the Bank Credit Facility and the Vendor
Financing, permitting the lenders thereunder to accelerate their secured
claims against Sprint Spectrum and its subsidiaries. There can be no assurance
that Sprint Spectrum will have sufficient funds available at the time of any
Change of Control, or following satisfaction of such prior claims, to effect a
Change of Control Offer (as defined under "Description of the Notes--Certain
Definitions").
ORIGINAL ISSUE DISCOUNT CONSEQUENCES OF SENIOR DISCOUNT NOTES
The Senior Discount Notes will be issued at a substantial discount from
their principal amount at maturity. Although cash interest will not accrue on
the Senior Discount Notes prior to August 15, 2001, and there will be no
periodic payments of cash interest on the Senior Discount Notes prior to
February 15, 2002, original issue discount (the difference between the stated
redemption price at maturity and the issue price of the Senior Discount Notes)
will accrue from the issue date of the Senior Discount Notes. Consequently,
purchasers of Senior Discount 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 to which the income is
attributable. Such amounts in the aggregate will be equal to the difference
between the stated redemption price at maturity (inclusive of stated interest
on the Senior Discount Notes) and the issue price of the Senior Discount
Notes. See "Certain Federal Income Tax Consequences" for a more detailed
discussion of the federal income tax consequences of the purchase, ownership
and disposition of the Senior Discount Notes.
In the event a bankruptcy case is commenced by or against the Company under
the United States Bankruptcy Code after the issuance of the Senior Discount
Notes, the claim of a holder of Senior Discount 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 Senior Discount Notes may
realize taxable gain or loss on payment of such holder's claim in bankruptcy.
ABSENCE OF PUBLIC MARKET
There is no existing trading market for the Notes. The Issuers do not intend
to have the Notes listed for trading on any national securities exchange or
quoted through an inter-dealer quotation system. Although each Underwriter has
advised the Company that it presently intends to make a market in the Notes,
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 Notes. The liquidity of
any market for the Notes will depend upon the number of holders of such Notes,
the interest of securities dealers in making a market in the Notes and other
factors. The absence of an active market for the Notes offered hereby could
adversely affect their market price and liquidity. The liquidity of, and
trading markets for, the Notes may also be negatively affected by general
declines in the market for noninvestment grade debt independent of the
financial performance of, or prospects for, the Company.
24
<PAGE>
THE REORGANIZATION
Prior to July 1, 1996, substantially all wireless operations of the Company
and Holdings were conducted at Holdings and all assets, with the exception of
the interest in APC and the PCS licenses which are held by WirelessCo, were
held at Holdings. As of July 1, 1996, Holdings assigned these assets and
agreements related to the wireless operations to which it was a party to
Sprint Spectrum, and Sprint Spectrum, in turn, assigned such assets and
agreements to its subsidiaries. Specifically, the network infrastructure
equipment and Holdings' rights under the Procurement Contracts were ultimately
assigned to EquipmentCo, and all property leases, including, without
limitation, leases on cell sites, switch sites and administrative office space
were ultimately assigned to RealtyCo. In addition, effective as of July 1,
1996, Sprint Spectrum entered into (i) an equipment lease with EquipmentCo,
pursuant to which Sprint Spectrum leases the infrastructure equipment used in
the PCS network from EquipmentCo, and (ii) a property use agreement, pursuant
to which Sprint Spectrum has the right to use the properties on which RealtyCo
holds leases. No amounts were paid for the transfer of the assets or agreement
rights.
Sprint Spectrum's subsidiary, WirelessCo, owns a 49% interest in APC. Sprint
Spectrum intends to cause WirelessCo to transfer its investment in APC to
Sprint Spectrum, which, in turn, will transfer such interest to Holdings. In
connection with that transfer, WirelessCo's rights and duties with respect to
certain call and put options pertaining to the 51% interest in APC held by
American Personal Communications, Inc. ("APC, Inc."), the managing partner of
APC, and WirelessCo's obligations to make capital contributions will
ultimately also be assigned to Holdings. Such transfer, which is subject to
the consent of APC, Inc. (which is not expected to be unreasonably withheld),
is expected to occur following the Offering. The transfer of the assets and
agreements referred to in the preceding paragraph and the transfer of the
Company's investment in APC to Holdings are collectively referred to as the
"Reorganization." The Offering is not contingent on the completion of the
Reorganization.
THE COMPANY
Sprint Spectrum (formerly known as MajorCoSub, L.P.) was formed on March 28,
1995 as a Delaware limited partnership. Sprint Spectrum was formed as part of
the reorganization of the operations of an existing partnership, WirelessCo,
which was formed on October 24, 1994 in anticipation of the FCC's A Block and
B Block auctions. In March 1995, the partners of WirelessCo transferred their
interests in WirelessCo to Holdings. WirelessCo subsequently was awarded 29
PCS licenses in the FCC auction. Sprint Spectrum currently has three limited
partnership subsidiaries: WirelessCo which owns all of the Company's PCS
licenses; RealtyCo which will own the cell site leases and other real
property; and EquipmentCo which will own the vendor-provided network
infrastructure equipment. See "Prospectus Summary--the Company" and
"Business." FinCo, a Delaware corporation and wholly-owned subsidiary of
Sprint Spectrum, was incorporated in Delaware on May 20, 1996 solely for the
purpose of acting as a co-obligor of the Notes. FinCo has only nominal assets,
does not conduct any operations and will receive none of the proceeds of the
Offering. Accordingly, investors in the Notes should look only to the cash
flow and assets of Sprint Spectrum for payment of the Notes. Holdings
(formerly known as MajorCo, L.P.) is the general partner of, and owns a
greater than 99% general partnership interest in, Sprint Spectrum. Holdings
was organized as a Delaware limited partnership on March 28, 1995 and its
primary business activity consists of its ownership of Sprint Spectrum and
other limited partnership interests in wireless affiliates, including APC and
Cox-California. MinorCo, L.P. ("MinorCo"), a Delaware limited partnership,
owns a less than 1% limited partnership interest in Sprint Spectrum. Sprint
Spectrum and FinCo will be the sole obligors of the Notes.
25
<PAGE>
The following is a chart of the ownership structure of Holdings and the
Company:
["FLOWCHART" CHART SHOWING OWNERSHIP STRUCTURE OF HOLDINGS AND THE COMPANY]
The principal executive offices of each registrant are located at 4717 Grand
Avenue, Fifth Floor, Kansas City, Missouri 64112, and each registrant's
telephone number is (816) 559-1000.
THE PARENTS
Sprint Corporation. Sprint, through its subsidiaries and affiliates,
provides domestic and international long distance and local exchange
telecommunications services as well as the wholesale distribution of
telecommunications products and the publishing and marketing of white and
yellow page telephone directories. Sprint's long distance division is the
nation's third largest long distance telephone company, operating a nationwide
all-digital long distance communications network utilizing state-of-the-art
fiber optic and electronic technology. The long distance division provides
domestic and international long distance voice, video and data communications
services to approximately 8.0 million customers. The local division is
comprised of local exchange carriers ("LECs") that service approximately 6.8
million access lines in 19 states. In addition to providing local exchange
services, the division provides intraLATA toll service and access by other
carriers to Sprint's local exchange facilities. Because FCC regulations
prohibit a single provider from holding both cellular and PCS licenses for the
same territory, in March 1996 Sprint divested its cellular unit (now known as
360(degrees) Communications Company) via a spin-off to shareholders.
Tele-Communications, Inc. TCI is principally engaged in the construction,
acquisition, ownership and operation of cable television systems and the
provision of satellite-delivered video entertainment, information
26
<PAGE>
and home shopping programming services to various video distribution media,
principally cable television systems. TCI also has investments in cable and
telecommunications operations and television programming in certain
international markets as well as investments in companies and joint ventures
involved in developing and providing programming for new television and
telecommunications technologies. TCI is one of the largest cable television
operators in the United States in terms of the number of basic subscribers,
with consolidated systems serving approximately 13.0 million subscribers at
March 31, 1996. Through Liberty Media Corporation, TCI is involved in (i) the
production, acquisition and distribution of branded entertainment, educational
and informational programming and software, (ii) electronic retailing, direct
marketing, advertising sales related programming services, infomercials and
transaction processing and (iii) domestic programming businesses, including,
among others, Turner Broadcasting System, The Discovery Channel, Home Shopping
Network, Inc. and QVC, Inc.
Comcast Corporation. Comcast and its subsidiaries are principally engaged in
the development, management and operation of cable and cellular telephone
communications systems and the production and distribution of cable
programming. Comcast has approximately 3.5 million cable television
subscribers in the United States. In the United Kingdom, Comcast is
constructing a cable telecommunications network that will pass approximately
229,000 homes and holds investments in cable television and telecommunications
companies that have the potential to serve an additional 1.2 million homes.
Comcast also provides cellular telephone communications services in markets
with a population of over 7.9 million, including the area in and around
Philadelphia and parts of Delaware and New Jersey.
Cox Communications, Inc. Cox is a fully integrated, diversified media and
broadband communications company with operations and investments in four
related areas: (i) United States cable televisions systems (3.3 million
wholly-owned and affiliated subscribers); (ii) international cable television
systems; (iii) programming; and (iv) telecommunications and technology. Cox
has invested significantly in cable systems in the United Kingdom and in
Denmark. Cox also holds substantial investments in several cable television
networks, including The Discovery Channel, The Learning Channel, E!
Entertainment, UK Gold and Viewer's Choice. Cox has numerous investments in
the telecommunications and technology industries, including businesses
involved in residential and business telephony, on-screen programming guides,
computer software and interactive services.
27
<PAGE>
USE OF PROCEEDS
The net proceeds to Sprint Spectrum from the sale of the Notes offered
hereby are estimated to be approximately $509 million, after deducting
estimated discounts, commissions and offering expenses. FinCo will not receive
any proceeds from the Offering. The Company intends to use the net proceeds
from the Offering to fund capital expenditures, including the buildout of a
nationwide PCS network, to fund working capital as required, to fund operating
losses and for other partnership purposes. The specific uses of the net
proceeds cannot be determined at this date since the Company will expend the
net proceeds as funds are required. In addition, as part of an overall
strategy to increase the Company's Pop coverage, either or both of Holdings
and the Company may elect to bid on, or affiliate with or invest in other
entities who are bidding on, PCS licenses to be awarded in the FCC auction of
PCS licenses for the D, E and F Blocks. To the extent that the Company
directly acquires new PCS licenses or invests in an entity that acquires new
licenses, the Company may finance such acquisition or investment and any
related capital expenditures, working capital and other funding requirements
with a portion of the net proceeds of the Offering or through additional debt
and/or equity financing. See "Prospectus Summary--Network Buildout and
Financing Plan" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Liquidity and Capital Resources."
CAPITALIZATION
The following tables set forth as of March 31, 1996 the actual
capitalization of Reorganized Sprint Spectrum and the capitalization of
Reorganized Sprint Spectrum on a pro forma basis to reflect the transfer of
APC to Holdings and as adjusted for the Offering. This information should be
read in conjunction with the consolidated financial statements of Reorganized
Sprint Spectrum and notes thereto appearing elsewhere in this Prospectus. It
is expected that Reorganized Sprint Spectrum will incur substantial additional
indebtedness following the Offering, including up to $5.1 billion in aggregate
principal amount under the Secured Financing.
<TABLE>
<CAPTION>
MARCH 31, 1996
---------------------------
PRO FORMA
ACTUAL AND AS ADJUSTED
---------- ---------------
(IN THOUSANDS)
<S> <C> <C>
Cash and cash equivalents........................ $ 3,119 $ 512,524 (1)
========== ==========
Long-term debt:
Note payable to affiliate...................... $ 5,000 $ 5,000
Senior Notes offered hereby.................... -- 250,000
Senior Discount Notes offered hereby........... -- 273,435 (2)
---------- ----------
Total long-term debt......................... 5,000 528,435 (3)
Limited partner interest in consolidated subsidi-
ary............................................. 5,000 5,000
Partners' capital and accumulated deficit:
Partners' capital.............................. 2,408,710 2,193,303
Deficit accumulated during the development
stage......................................... (181,161) (98,723)
---------- ----------
Total partners' capital...................... 2,227,549 2,094,580
---------- ----------
Total capitalization....................... $2,237,549 $2,628,015
========== ==========
</TABLE>
- --------
(1) Reflects estimated net proceeds of $509 million from the Offering.
(2) Reflects gross proceeds from the issuance of the Senior Discount Notes.
(3) Reflects gross proceeds of $523 million from the Offering before
underwriting discounts and commissions and expenses.
28
<PAGE>
SELECTED HISTORICAL AND PRO FORMA FINANCIAL DATA
The following table presents selected consolidated financial data for
Reorganized Sprint Spectrum as of the dates and for the periods indicated. The
consolidated financial data for the period from October 24, 1994 to December
31, 1994 and for the year ended December 31, 1995 were derived from the
audited consolidated financial statements of Reorganized Sprint Spectrum. The
consolidated financial data for the quarters ended March 31, 1995 and March
31, 1996, respectively, and for the cumulative period from October 24, 1994 to
March 31, 1996 were derived from the unaudited financial statements of
Reorganized Sprint Spectrum. Due to the development stage nature of
Reorganized Sprint Spectrum, period-to-period comparisons of financial data
are not indicative of results for subsequent periods or the full year and
should not be relied upon as an indication of the future performance of
Reorganized Sprint Spectrum. The following data should be read in conjunction
with "Pro Forma Condensed Financial Statements," "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and Reorganized
Sprint Spectrum's consolidated financial statements and the notes thereto
included elsewhere in this Prospectus.
The Reorganized Sprint Spectrum consolidated financial information reflects
the transfer of the operations of Holdings to Sprint Spectrum that took place
on July 1, 1996. To assist prospective investors, the pro forma and as
adjusted data set forth below reflect the financial information of Reorganized
Sprint Spectrum as adjusted to give effect to (1) the transfer of APC to
Holdings on a pro forma basis as if it had occurred at the beginning of the
periods presented or as of the date presented and (2) the transfer of APC to
Holdings and the Offering as if they had occurred on March 31, 1996.
<TABLE>
<CAPTION>
FOR THE
FOR THE CUMULATIVE
PERIOD FROM PERIOD FROM
OCTOBER 24, OCTOBER 24, PRO FORMA
1994 FOR THE THREE 1994 --------------------------
(DATE OF FOR THE MONTHS ENDED (DATE OF FOR THE FOR THE THREE
INCEPTION) TO YEAR ENDED MARCH 31, INCEPTION) TO YEAR ENDED MONTHS ENDED
DECEMBER 31, DECEMBER 31, ----------------- MARCH 31, DECEMBER 31, MARCH 31,
1994 1995 1995 1996 1996 1995 1996
------------- ------------ ------- -------- ------------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA
(IN THOUSANDS):
Operating expenses:
General and
administrative........ $ 1,371 $ 37,460 $ 1,273 $ 19,862 $ 58,693 $ 37,460 $ 19,862
Professional and legal
fees.................. 1,923 26,849 2,335 10,862 39,634 26,849 10,862
Depreciation........... 38 211 47 254 503 211 254
------- --------- ------- -------- ---------- ---------- ----------
Total operating
expenses.............. 3,332 64,520 3,655 30,978 98,830 64,520 30,978
Other income (expense):
Interest income........ 24 260 275 (358) (74) 260 (358)
Other income........... -- 38 -- 143 181 38 143
Equity in loss of
unconsolidated
partnership........... -- (46,206) (3,409) (36,232) (82,438) -- --
------- --------- ------- -------- ---------- ---------- ----------
Total other income
(expense)............. 24 (45,908) (3,134) (36,447) (82,331) 298 (215)
------- --------- ------- -------- ---------- ---------- ----------
Net loss................ $(3,308) $(110,428) $(6,789) $(67,425) $(181,161) $(64,222) $(31,193)
======= ========= ======= ======== ========== ========== ==========
RATIO OF EARNINGS TO
FIXED CHARGES(1) -- -- -- -- -- -- --
<CAPTION>
AT MARCH 31, 1996
----------------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
------------- ------------ -------------
BALANCE SHEET DATA (IN THOUSANDS):
<S> <C> <C> <C>
Assets:
Current assets...................................................... $ 4,974 $ 4,974 $ 514,379 (2)
Investment in PCS licenses.......................................... 2,124,594 2,124,594 2,124,594
Investment in unconsolidated partnership............................ 49,314 -- --
Note receivable--unconsolidated partnership......................... 83,655 -- --
Property, plant and equipment (net)................................. 76,129 76,129 76,129
Other assets........................................................ -- -- 14,030 (2)
---------- ---------- ----------
Total assets........................................................ $2,338,666 $2,205,697 $2,729,132
========== ========== ==========
Liabilities and partners' capital:
Current liabilities................................................. $ 96,870 $ 96,870 $ 96,870
Deferred compensation............................................... 4,247 4,247 4,247
Note payable to affiliate........................................... 5,000 5,000 5,000
Long-term debt...................................................... -- -- 523,435 (3)
Limited partner interest in consolidated subsidiary................. 5,000 5,000 5,000
Partners' capital................................................... 2,227,549 2,094,580 2,094,580
---------- ---------- ----------
Total liabilities and partners' capital............................. $2,338,666 $2,205,697 $2,729,132
========== ========== ==========
</TABLE>
- -------
(1) For purposes of determining the ratio of earnings to fixed charges,
earnings (loss) is defined as losses from continuing operations excluding
equity in losses of unconsolidated partnerships. Losses as defined were
$3,308,000, $64,222,000 and $67,530,000 for the period October 24, 1994 to
December 31, 1994, the year ended December 31, 1995 and for the cumulative
period from October 24, 1994 to December 31, 1995, respectively. Fixed
charges consist of interest expense on all indebtedness (including
amortization of deferred debt issuance (costs) and the portion of rental
expense that is representative of the interest factor. The Company had no
fixed charges as defined for any of the periods indicated.
(2) Reflects estimated net proceeds of $509 million and debt issuance costs of
$14 million from the Offering.
(3) Reflects gross proceeds of $523 million from the Offering before
underwriting discounts and commissions and expenses.
29
<PAGE>
PRO FORMA CONDENSED FINANCIAL STATEMENTS
The unaudited pro forma condensed financial statements set forth below are
based upon the financial statements of Reorganized Sprint Spectrum appearing
elsewhere in this Prospectus and have been prepared assuming that the transfer
of APC to Holdings occurred on December 31, 1994, December 31, 1995 and March
31, 1996 for pro forma condensed balance sheet purposes, October 24, 1994
(date of inception) for pro forma condensed statement of operations purposes
for the year ended December 31, 1994, January 1, 1995 for pro forma condensed
statement of operations purposes for the year ended December 31, 1995, and
January 1, 1996 for pro forma condensed statement of operations purposes for
the three months ended March 31, 1996. THE UNAUDITED PRO FORMA BALANCE SHEETS
AT DECEMBER 31, 1994 AND 1995 AND MARCH 31, 1996, PRESENTED BELOW DO NOT
PURPORT TO REPRESENT WHAT THE COMPANY'S FINANCIAL POSITION ACTUALLY WOULD HAVE
BEEN HAD THE REORGANIZATION OCCURRED ON THE DATE INDICATED OR TO PROJECT THE
COMPANY'S FINANCIAL POSITION FOR ANY FUTURE DATE. THE UNAUDITED PRO FORMA
CONDENSED STATEMENTS OF OPERATIONS FOR THE PERIOD FROM OCTOBER 24, 1994 (DATE
OF INCEPTION) TO DECEMBER 31, 1994, THE YEAR ENDED DECEMBER 31, 1995 AND THE
THREE MONTHS ENDED MARCH 31, 1996, SET FORTH BELOW, DO NOT PURPORT TO
REPRESENT WHAT THE COMPANY'S OPERATIONS ACTUALLY WOULD HAVE BEEN HAD THE
REORGANIZATION OCCURRED ON THE DATE INDICATED OR TO PROJECT THE COMPANY'S
OPERATING RESULTS FOR ANY FUTURE PERIOD. The unaudited pro forma adjustments
are based upon available information and certain assumptions that the Company
believes are reasonable. The unaudited pro forma condensed financial
statements should be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the financial
statements of Reorganized Sprint Spectrum and the notes thereto appearing
elsewhere in this Prospectus.
30
<PAGE>
PRO FORMA CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
AT DECEMBER 31, 1994 AT DECEMBER 31, 1995
----------------------------------- ---------------------------------------
REORGANIZED REORGANIZED
SPRINT SPRINT
SPECTRUM L.P. ADJUSTMENTS PRO FORMA SPECTRUM L.P. ADJUSTMENTS PRO FORMA
------------- ----------- --------- ------------- ----------- ----------
(IN THOUSANDS) (IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
ASSETS:
Current assets... $ 5,024 $ -- $ 5,024 $ 1,651 $ -- $ 1,651
Investment in PCS
licenses........ 118,438 -- 118,438 2,124,594 -- 2,124,594
Investment in
unconsolidated
partnership..... -- -- -- 85,546 (85,546)(1) --
Note receivable-
unconsolidated
partnership..... -- -- -- 655 (655)(1) --
Property, plant
and equipment
(net)........... 413 -- 413 31,897 -- 31,897
-------- ----- -------- ---------- -------- ----------
Total assets.... $123,875 $ -- $123,875 $2,244,343 $(86,201) $2,158,142
======== ===== ======== ========== ======== ==========
LIABILITIES AND
PARTNERS'
CAPITAL:
Current $ --
liabilities..... $ 3,745 $ 3,745 $ 49,417 $ -- $ 49,417
Deferred
compensation.... -- -- -- 1,856 -- 1,856
Note payable to -- 5,000
affiliate....... -- -- -- 5,000
Limited partner
interest in
consolidated
subsidiary...... -- -- -- 5,000 -- 5,000
Partners'
capital......... 120,130 -- 120,130 2,183,070 (86,201)(1) 2,096,869
-------- ----- -------- ---------- -------- ----------
Total
liabilities and
partners'
capital........ $123,875 $ -- $123,875 $2,244,343 $(86,201) $2,158,142
======== ===== ======== ========== ======== ==========
<CAPTION>
AT MARCH 31, 1996
----------------------------------------
REORGANIZED
SPRINT
SPECTRUM L.P. ADJUSTMENTS PRO FORMA
------------- -------------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
ASSETS:
Current assets... $ 4,974 $ -- $ 4,974
Investment in PCS
licenses........ 2,124,594 -- 2,124,594
Investment in
unconsolidated
partnership..... 49,314 (49,314)(1) --
Note receivable-
unconsolidated
partnership..... 83,655 (83,655)(1) --
Property, plant
and equipment
(net)........... 76,129 -- 76,129
------------- -------------- -----------
Total assets.... $2,338,666 $(132,969) $2,205,697
============= ============== ===========
LIABILITIES AND
PARTNERS'
CAPITAL:
Current
liabilities..... $ 96,870 $ -- $ 96,870
Deferred --
compensation.... 4,247 4,247
Note payable to
affiliate....... 5,000 -- 5,000
Limited partner
interest in
consolidated
subsidiary...... 5,000 -- 5,000
Partners'
capital......... 2,227,549 (132,969)(1) 2,094,580
------------- -------------- -----------
Total
liabilities and
partners'
capital........ $2,338,666 $(132,969) $2,205,697
============= ============== ===========
PRO FORMA CONDENSED STATEMENTS OF OPERATIONS
<CAPTION>
FOR THE PERIOD FROM OCTOBER 24,
1994
(DATE OF INCEPTION) TO DECEMBER 31, FOR THE YEAR ENDED
1994 DECEMBER 31, 1995
----------------------------------- ---------------------------------------
REORGANIZED REORGANIZED
SPRINT SPRINT
SPECTRUM L.P. ADJUSTMENTS PRO FORMA SPECTRUM L.P. ADJUSTMENTS PRO FORMA
------------- ----------- --------- ------------- ----------- ----------
(IN THOUSANDS) (IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
OPERATING EX-
PENSES:
General and ad-
ministrative.... $ 1,371 $ -- $ 1,371 $ 37,460 $ -- $ 37,460
Professional and
legal fees...... 1,923 -- 1,923 26,849 -- 26,849
Depreciation..... 38 -- 38 211 -- 211
-------- ----- -------- ---------- -------- ----------
Total operating
expenses....... 3,332 -- 3,332 64,520 -- 64,520
OTHER INCOME (EX-
PENSE):
Interest income.. 24 -- 24 260 -- 260
Other income..... -- -- -- 38 -- 38
Equity in loss of
unconsolidated
partnership..... -- -- -- (46,206) 46,206(1) --
-------- ----- -------- ---------- -------- ----------
Total other
income
(expense)...... 24 -- 24 (45,908) 46,206 298
-------- ----- -------- ---------- -------- ----------
Net loss.......... $ (3,308) $ -- $ (3,308) $ (110,428) $ 46,206 $ (64,222)
======== ===== ======== ========== ======== ==========
<CAPTION>
FOR THE THREE MONTHS ENDED
MARCH 31, 1996
----------------------------------------
REORGANIZED
SPRINT
SPECTRUM L.P. ADJUSTMENTS PRO FORMA
------------- -------------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
OPERATING EX-
PENSES:
General and ad-
ministrative.... $ 19,862 $ -- $ 19,862
Professional and
legal fees...... 10,862 -- 10,862
Depreciation..... 254 -- 254
------------- -------------- -----------
Total operating
expenses....... 30,978 -- 30,978
OTHER INCOME (EX-
PENSE):
Interest income.. (358) -- (358)
Other income..... 143 -- 143
Equity in loss of
unconsolidated
partnership..... (36,232) 36,232(1) --
------------- -------------- -----------
Total other
income
(expense)...... (36,447) 36,232 (215)
------------- -------------- -----------
Net loss.......... $ (67,425) $ 36,232 $ (31,193)
============= ============== ===========
</TABLE>
- -------
(1) Reflects the transfer of WirelessCo's investment in APC to Holdings,
resulting from the Reorganization.
31
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with
Reorganized Sprint Spectrum's consolidated financial statements and notes
thereto appearing elsewhere in this Prospectus. The Company's consolidated
financial information has not been separately included for the periods
presented because it would not reflect the financial condition of the Company
following the transfer of all of Holdings' assets used in the Company's PCS
business and the planned distribution of the Company's interest in APC to
Holdings. The Reorganized Sprint Spectrum financial information that is
presented reflects the transfer of the operations of Holdings to the Company
which took place on July 1, 1996. To assist prospective investors, pro forma
and as adjusted information reflecting the Reorganization and the Offering
have been set forth in "Selected Historical and Pro Forma Financial Data" and
"Pro Forma Condensed Financial Statements" and the discussion below is
presented on a pro forma basis as though the Reorganization had occurred.
GENERAL
The Company is a development stage enterprise formed for the purpose of
establishing a nationwide PCS wireless telecommunications network. The Company
acquired 29 PCS licenses in the FCC's A Block and B Block PCS auction which
concluded in March 1995. The Company also has an affiliation agreement with
APC and expects to have affiliation agreements with Cox-California and
PhillieCo. In addition, Cox has agreed to contribute to the Company, upon FCC
approval, which is pending, a PCS license for the Omaha MTA. The Company has
four subsidiaries: WirelessCo, RealtyCo, EquipmentCo and FinCo.
To date, the Company has incurred expenditures in conjunction with PCS
license acquisitions, initial design and construction of the PCS network,
engineering, marketing, administrative and other start up related expenses.
The Company has not yet commenced commercial operations and, as a result, has
not yet generated operating revenue or earnings. The Company intends to
initiate the commercial launch of its service in the fourth quarter of 1996
with service in all MTAs by the end of the first quarter of 1997. Pop coverage
at the end of the first quarter of 1997 is expected to reach approximately 60%
in the aggregate across all of the Company's markets. The timing of launch in
individual markets will be determined by various factors, principally zoning
and microwave relocation factors, equipment delivery schedules and local
market and competitive considerations. The Company intends to continue to
expand its coverage in its PCS markets to reach approximately 70% of the Pops
in its existing license areas in the aggregate by the end of 1997. Thereafter,
the Company will evaluate further coverage expansion on a market-by-market
basis, eventually targeting coverage of 80% of the Pops in its existing
license areas in the aggregate, thereby substantially completing its planned
network buildout of its existing license areas. The extent to which the
Company is able to generate operating revenue and earnings is dependent on a
number of business factors, including securing financing to complete network
construction and fund initial operations and operating losses, successfully
deploying the PCS network and attaining profitable levels of market demand for
the Company's products and services.
LIQUIDITY AND CAPITAL RESOURCES
The buildout of the Company's PCS network and the marketing and distribution
of the Company's PCS products and services will require substantial capital.
The Company currently estimates that its capital requirements (capital
expenditures, the cost of its existing licenses, working capital, debt service
requirements and anticipated operating losses) for the period from inception
through the end of 1998 (assuming substantial completion of the Company's
network buildout to cover 80% of the Pops in its current license areas in the
aggregate by the end of 1998) will total approximately $7.9 billion (of which
approximately $2.2 billion had been expended as of March 31, 1996). The
Company will also require substantial additional capital for new license
acquisitions or investments in entities making license acquisitions (if any)
and, after 1998, for coverage expansion and volume-driven network capacity and
other capital expenditures for existing and new license areas (if any),
working capital, debt service requirements and anticipated further operating
losses. Costs associated with the network buildout include switches, base
stations, towers, antennae, radio frequency engineering, cell site
construction and microwave relocation. Management estimates that capital
expenditures associated with the
32
<PAGE>
buildout will total approximately $3.8 billion from inception through 1998,
including $3.0 billion in 1996. Under the Procurement Contracts, the Company
is required to purchase minimum amounts of equipment and services from each
Vendor. Actual amounts of the funds required may vary materially from these
estimates and additional funds would be required in the event of significant
departures from the current business plan, new license acquisitions,
unforeseen delays, cost overruns, unanticipated expenses, regulatory expenses,
engineering design changes and other technological risks.
The Company currently has no sources of revenue to meet its capital
requirements and has relied upon capital contributions and advances from
Holdings. Holdings also requires capital for its affiliate investments and
other partnership purposes. The Partners have agreed to contribute up to an
aggregate of $4.2 billion of equity to Holdings to the extent required by the
annual budgets of Holdings through fiscal 1999 as approved by the Partners. As
of March 31, 1996, approximately $2.4 billion had been contributed to
Holdings, of which $2.2 billion had been contributed to the Company and the
remaining $0.2 billion had been contributed or advanced to APC. The Company
currently intends to obtain up to $1.4 billion of additional equity following
March 31, 1996, resulting in $3.6 billion in aggregate invested equity capital
in the Company, although there can be no assurance that any additional capital
will be obtained in the form of equity from the Parents or otherwise. The
Parents have committed to make available to the Company or cause Holdings to
make available to the Company up to $1.0 billion of such additional equity, to
the extent required by the Company to fund any projected cash shortfall, under
a Capital Contribution Agreement among Sprint Spectrum and the Parents that
provides for $1.0 billion in aggregate equity commitments (less, subject to
certain exceptions, amounts of cash equity contributed to Sprint Spectrum
after December 31, 1995). The Company's business plan and the financial
covenants and other terms of the Secured Financing will require such
additional equity financing prior to the end of 1998, absent a new financing
source. The $1.0 billion portion of the $4.2 billion not invested in the
Company that may be available to Holdings from the Partners may be used by
Holdings to fund Holdings' other affiliate commitments, to make other wireless
investments and/or to make new license acquisitions. Amounts budgeted by the
Partners in future years will determine the extent to which the commitments
will actually be utilized. See "Risk Factors--Substantial Capital Requirements
and Liquidity; Highly Leveraged Capital Structure." See also "Description of
Vendor Contracts and Financing--Capital Contribution Agreement" and "The
Partnership Agreements--Holdings Partnership Agreement--Capital Contributions"
for a discussion of the equity capital commitments to Holdings and Sprint
Spectrum.
The Company has obtained commitments from Nortel for $1.3 billion and from
Lucent for $1.8 billion of senior secured loans to finance purchases of PCS
equipment and related services and costs. The Nortel Financing requires, as a
condition to funding, the commitment of additional financing from third-
parties, including the Offering, the Bank Credit Facility or other debt
financing and equity financing. The Company will use the proceeds of the
Vendor Financing to fund the purchase of the equipment and software
manufactured by the vendors as well as substantially all of the construction
and ancillary equipment (e.g., towers, antennae, cable) required to construct
the Company's PCS network. These facilities would serve as the primary
financing mechanism for the buildout of the network. See "Risk Factors--
Substantial Capital Requirements and Liquidity; Highly Leveraged Capital
Structure." The Company has received a commitment from Chase to provide a
fully underwritten $2.0 billion Bank Credit Facility to finance working
capital, capital expenditures, operating losses and other partnership
purposes. The Company will have amortization obligations under the Secured
Financing and minimum purchase obligations under the Procurement Contracts.
These commitments are subject to numerous conditions, including the execution
and delivery of definitive documentation for the Secured Financing. See
"Description of Vendor Contracts and Financing--Vendor Financing" and "--Bank
Credit Facility."
Sources of funding for the Company's further financing requirements may
include additional vendor financing, public offerings or private placements of
equity and/or debt securities, commercial bank loans and/or capital
contributions from Holdings or the Partners. There can be no assurance that
the Secured Financing or any additional financing will be available to the
Company or, if available, that such financing can be obtained on a timely
basis and on terms acceptable to the Company and within limitations contained
in the Indentures, the agreements governing the Secured Financing and any new
financing arrangements. Failure to obtain any such
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financing could result in the delay or abandonment of the Company's
development and expansion plans and expenditures or the failure to meet
regulatory requirements. It also could impair the Company's ability to meet
its debt service requirements (including its obligations with respect to the
Notes) and could have a material adverse effect on its business.
The net cash used by Reorganized Sprint Spectrum in 1994 totaled $118.4
million which consisted primarily of deposits placed with the FCC in advance
of the auction for the PCS licenses. For the year ended December 31, 1995,
Reorganized Sprint Spectrum had a net cash usage of $2.2 billion. Cash used in
operations was $17 million which consisted of the operating loss of $110.4
million (which includes the equity in the loss at APC) and is offset, in part,
by increased payables and other accruals. Cash used in investing activities
totaled $2.2 billion, consisting of a $2.0 billion purchase of PCS licenses
from the FCC and a $131.8 million investment in APC. For the quarter ended
March 31, 1996, total cash usage was $109.9 million. Cash used in operations
consisted of operating losses of $67.4 million offset, in part, by equity in
the loss of APC. Cash used in investing activities totaled $127.5 million and
was primarily for an advance to APC and to fund capital expenditures. Since
Reorganized Sprint Spectrum's inception, all of the cash used in operations
and for investing activities has been provided by the Partners in the form of
cash equity contributions which totalled $2.4 billion at March 31, 1996.
As part of an overall strategy to increase the Company's Pop coverage,
either or both of Holdings and the Company may elect to bid on, or affiliate
with or invest in other entities who are bidding on, PCS licenses to be
awarded in the FCC auction of the PCS licenses of the D, E and F Blocks. The
Company derives revenue from its ownership of PCS licenses and its offering of
PCS service. The Company benefits to a lesser extent financially through its
affiliation arrangements with subsidiaries of Holdings or other entities
because direct revenues are booked by the affiliate, while the affiliation fee
compensates the Company for services rendered to the affiliate. Such
arrangements, however, provide excellent business opportunities for the
Company by allowing it to expand its coverage area. To the extent that
Holdings acquires new PCS licenses or invests in an entity that acquires new
PCS licenses, it is expected that an affiliation arrangement with the Company
will be entered into with respect to such Pop coverage. To the extent that the
Company directly acquires new PCS licenses or invests in an entity that
acquires new licenses, the Company may finance such acquisition or investment
and any related capital expenditures, working capital and other funding
requirements with a portion of the net proceeds of the Offering or through
additional debt and/or equity financing. There can be no assurance that the
Company or Holdings will pursue such an expansion strategy.
Prior to the transfer of APC to Holdings, WirelessCo will have certain
obligations in respect of APC. During the initial five year build-out period
ending December 1999, American Personal Communications, Inc. ("APC, Inc."),
the 51% owner of APC, and WirelessCo are obligated as follows: (a) APC, Inc.
is obligated to make capital contributions in an amount equal to the aggregate
principal and interest payments to the FCC for APC's PCS license, provided
APC, Inc. has sufficient cash flow or can obtain financing from a third party;
(b) if APC, Inc. is unable to meet such obligation, WirelessCo is required to
contribute the shortfall; (c) WirelessCo is required to contribute to APC cash
necessary for operations up to an amount of approximately $98 million; and (d)
WirelessCo is obligated to fund the cash requirements of APC in excess of that
described in (a), (b), and (c) above, in the form of either loans or
additional capital up to an aggregate of $275 million. As of December 31,
1995, $98 million of equity had been contributed and $654,982 of partner
advances had been extended to APC. An additional $83 million of partner
advances was extended to APC during the quarter ended March 31, 1996.
Outstanding partner advances are non-recourse to the partners, bear interest
at an agreed-upon rate and will be payable at such time as APC has sufficient
funds to permit repayment. In addition, prior to the transfer of APC to
Holdings, WirelessCo will be subject to a put option pursuant to which,
annually during the initial five-year period and at various times thereafter,
APC, Inc. may require WirelessCo to purchase all or a portion of APC, Inc.'s
interest in APC (equal to 100% of its interest in the aggregate). Under
certain circumstances, APC, Inc. has the right and is obligated to exercise
its put rights to the extent necessary to fund its additional capital
contribution obligations. The Company has been informed by officials of APC
that, although there is limited financial information available subsequent to
March 31, 1996, (a) APC continued to experience net losses, (b) APC incurred
additional debt and advances from related parties and (c) APC's partners'
capital has been reduced by the continued net losses referred to above.
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RESULTS OF OPERATIONS
From the Date of Inception to December 31, 1994.
General and administrative costs associated with salary, benefits and
expenses of administrative personnel were $1.4 million. Professional and legal
fees associated with market research and consulting, contractor and legal cost
incurred in conjunction with participation in the PCS auction totaled $1.9
million. There was nominal depreciation expense in 1994. Reorganized Sprint
Spectrum had a loss for the period from October 24, 1994 (date of inception)
to December 31, 1994 of $3.3 million.
For the Year Ended December 31, 1995.
Reorganized Sprint Spectrum incurred $37.5 million of general and
administrative costs associated with the start-up of operations. At year end,
Holdings had 739 full-time employees, all of whom are working on behalf of the
Company. Professional and legal costs associated with WirelessCo's
participation in the PCS auction totaled $26.8 million. Reorganized Sprint
Spectrum incurred a loss of $46.2 million as its share of APC's losses
associated with commencement of operations. There was nominal depreciation and
no amortization recorded in 1995. The Company will commence amortization of
its PCS license investment upon launch of commercial operations and will
amortize such investment over a period of 40 years. Reorganized Sprint
Spectrum had a loss of $110.4 million for the year ended December 31, 1995.
For the Quarter Ended March 31, 1996.
Reorganized Sprint Spectrum incurred a loss of $36.2 million as its share of
APC's losses associated with customer acquisition and operations. There was no
amortization of licenses during the period as PCS service had not been
launched commercially. Reorganized Sprint Spectrum had a loss of $67.4 million
for the quarter ended March 31, 1996.
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BUSINESS
GENERAL
Sprint Spectrum intends to become a leading provider of wireless
communications products and services in the United States. The Company is the
largest broadband wireless PCS company in the United States in terms of total
licensed Pops, with licenses (including those owned by licensees that have
affiliated or have agreed to affiliate with the Company) to provide service in
33 MTAs covering 190.9 million Pops (73% of the total United States
population), including eight of the nation's ten largest MTAs. The Company
intends to initiate the commercial launch of its service in the fourth quarter
of 1996 with service in all MTAs by the end of the first quarter of 1997. Pop
coverage at the end of the first quarter of 1997 is expected to reach
approximately 60% in the aggregate across all of the Company's markets. The
timing of launch in individual markets will be determined by various factors,
principally zoning and microwave relocation factors, equipment delivery
schedules and local market and competitive considerations. The Company intends
to continue to expand its coverage in its PCS markets to reach approximately
70% of the Pops in its existing license areas in the aggregate by the end of
1997. Thereafter, the Company will evaluate further coverage expansion on a
market-by-market basis, eventually targeting coverage of 80% of the Pops in
its existing license areas in the aggregate, thereby substantially completing
its planned network buildout of its existing license areas.
The general partner of Sprint Spectrum is Holdings, a limited partnership
formed by Sprint Enterprises, L.P., which has a 40% partnership interest in
Holdings, TCI Telephony Services, Inc. which has a 30% partnership interest in
Holdings, and Comcast Telephony Services and Cox Telephony Partnership, each
of which has a 15% partnership interest in Holdings. Each Partner is both a
general partner holding 99% of its interest as a general partner and a limited
partner holding 1% of its interest as a limited partner. Holdings has a
greater than 99% general partnership interest in the Company. The Partners are
subsidiaries of, respectively, Sprint, TCI, Comcast and Cox.
The Company is at an early stage of development, has not commenced
commercial PCS operations and has no revenues from operations. The Company
will require significant funds for development, construction, testing and
deployment of its PCS network before commencement of commercial operations.
The Partners have agreed to contribute up to an aggregate of $4.2 billion of
equity to Holdings to the extent required by the annual budgets of Holdings
through fiscal 1999 as approved by the Partners. As of March 31, 1996,
approximately $2.4 billion had been contributed to Holdings, of which $2.2
billion had been contributed to the Company and the remaining $0.2 billion had
been contributed or advanced to APC. The Company currently intends to obtain
up to $1.4 billion of additional equity following March 31, 1996, resulting in
$3.6 billion in aggregate invested equity capital in the Company, although
there can be no assurance that any additional capital will be obtained in the
form of equity from the Parents or otherwise. The Parents have committed to
make available or cause Holdings to make available to the Company up to $1.0
billion of such additional equity, to the extent required by the Company to
fund any projected cash shortfall, under a Capital Contribution Agreement
among Sprint Spectrum and the Parents that provides for $1.0 billion in
aggregate equity commitments (less, subject to certain exceptions, amounts of
cash equity contributed to Sprint Spectrum after December 31, 1995). At March
31, 1996, approximately $1.0 billion was available under the Capital
Contribution Agreement. The Company's business plan and the financial
covenants and other terms of the Secured Financing will require such
additional equity financing prior to the end of 1998, absent a new financing
source. The $1.0 billion portion of the $4.2 billion not invested in the
Company that may be available to Holdings from the Partners may be used by
Holdings to fund the Company's capital needs and Holdings' other affiliate
commitments or to make other wireless investments. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations--
Liquidity and Capital Resources" and "The Partnership Agreements--Holdings
Partnership Agreement--Capital Contributions."
The Company believes that rapid growth in consumer and business demands for
wireless services, technological advances, increased customer expectations for
quality and convenience of use and deregulation are reshaping the
telecommunications market. In order to compete in this changing environment,
accelerate subscriber growth and increase customer retention, the Company
intends to offer customers integrated telecommunications packages and national
service offerings. The Parents and the Company expect to package
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the Company's wireless services with other of the Parents' communications
products and services, including the local and long distance
telecommunications services and the cable-based entertainment services of
Sprint and the Cable Parents. The Company and the Parents will market PCS
wireless products and services nationally under the Sprint brand name through
diverse distribution channels including those of the Parents.
The Company believes it will be able to differentiate itself in the wireless
marketplace through the implementation of a state-of-the-art digital network,
featuring CDMA technology. The Company selected CDMA technology because the
Company believes it offers increased system capacity, better quality of
transmission and lower infrastructure and ongoing support costs. The Company's
CDMA technology will enable it to offer, when the necessary equipment is
available, high-speed data transmission to and from portable computers,
advanced paging services, facsimile services and Internet access.
Broadband PCS systems differ from traditional analog cellular telephone
service principally in that PCS systems operate at a higher frequency band
(1850-1990 MHz radio spectrum), have more spectrum allotted and have different
license areas. PCS is expected to be the first all-digital wireless service
and will be able to provide enhanced integrated services not currently offered
by traditional analog cellular providers, including integrated voicemail and
short messaging.
The Company believes that these enhanced features and services, in
conjunction with increased competition within the industry, will contribute to
the acceleration of growth in the wireless telecommunications market. The
number of cellular telephone subscribers nationwide has grown from
approximately 680,000 in 1986 to an estimated 34 million as of December 31,
1995. PCIA estimates that the number of cellular and PCS wireless services
subscribers will be over 104 million by the year 2005 and that PCS
subscriptions will account for approximately 40 million of such subscriptions.
The Company was the successful bidder for 29 PCS licenses in the FCC's A
Block and B Block PCS auction which concluded in March 1995. The Company's 29
wholly-owned markets cover 150.3 million Pops and include, among others, the
New York, San Francisco, Detroit, Dallas/Fort Worth and Boston/Providence
MTAs. Additionally, Cox has agreed to contribute to the Company, upon FCC
approval which is pending, a PCS license for the Omaha MTA that it purchased
in the broadband PCS auction in March 1995.
In order to increase its Pop coverage, the Company has affiliated and
expects to continue to affiliate with other PCS providers, including those in
which Holdings or affiliates of its Partners have an interest. Pursuant to
affiliation agreements, each affiliated PCS service provider will be included
in the Company's national network and will use the Sprint brand name. In
return for this right, the affiliated PCS provider agrees to offer among its
products at least certain products designated by Sprint Spectrum, agrees to
adhere to certain technical standards for the affiliated PCS provider's
network and agrees to share in certain costs such as advertising that benefit
both the affiliated PCS provider and Sprint Spectrum. The affiliated PCS
provider pays a fee for the services and reimburses Sprint Spectrum for
certain direct costs attributable to the affiliate. The affiliation agreements
between Sprint Spectrum and other PCS providers are not presently subject to
regulation by the FCC. Holdings owns a 49% limited partnership interest in
APC, which owns a PCS license for, and operates a broadband PCS system in, the
Washington D.C./Baltimore MTA. APC has affiliated with Sprint Spectrum and is
marketing its products and services under the Sprint brand name. APC launched
its PCS service in November 1995 and is the nation's first commercially
operational PCS system. As of May 15, 1996, APC had approximately 80,000
subscribers. See "--Early PCS Industry Experience." Holdings also expects to
acquire a 49% limited partnership interest in Cox-California, a partnership
that will be formed to hold a PCS license for the Los Angeles/San Diego MTA
covering 21.5 million Pops. Cox, which currently owns this license, will
contribute the license to Cox-California and will manage and control Cox-
California. The Company expects to sign an affiliation agreement with Cox-
California by the end of the third quarter of 1996. At the same time, the
Company also expects to affiliate with, and provide various services to
PhillieCo, a limited partnership organized by and among subsidiaries of
Sprint, TCI and Cox that owns a PCS license for the Philadelphia MTA.
Including affiliates, the Company has licenses and affiliate relationships
in 33 MTAs covering nearly 191 million Pops (73% of the United States
population.) There are 18 MTAs currently not served by the Company's licenses
and affiliations. The Company continues to explore a number of possibilities
to expand Pop coverage. Opportunities exist for affiliations with or
investments in other PCS providers (including other affiliates of
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Holdings) operating in territories not covered by the Company's licenses. The
Company may participate, directly or through others, in the FCC auction of PCS
licenses for the D, E and F Blocks. See "--Regulation--PCS Licensing."
Likewise, the ability to exchange capacity or enter into resale agreements
with other providers or enter into roaming arrangements with other providers'
systems are options under consideration. Finally, the Company is also
considering entering into the 10 MHz auctions as a viable method of expanding
coverage. There can be no assurance, however, that the Company will be
successful in expanding its Pop coverage beyond that currently covered by
existing licenses and existing and expected affiliation agreements.
The table below presents the owned and affiliated Pops after giving effect
to such affiliation agreements:
<TABLE>
<CAPTION>
1995 AVERAGE LICENSE
POPULATION PURCHASE PRICE
OWNED/AFFILIATED # OF MTAS IN MTA(S) PER 1990 POP(1)
---------------- --------- ---------- ---------------
(MILLION)
<S> <C> <C> <C>
Owned....................................... 29 150.3 $14.54
Omaha (to be contributed by Cox)(2)......... 1 1.7 $ 3.06
Affiliated:
APC (Baltimore/Washington)(3)............. 1 8.3 $13.16
Cox-California (Los Angeles/San
Diego)(4)................................ 1 21.5 $13.16
PhillieCo (Philadelphia)(5)............... 1 9.1 $ 9.52
--- -----
Total................................... 33 190.9
=== =====
</TABLE>
- --------
(1) Cost to winning bidder in FCC auction(s) or in connection with the award
of Pioneer's Preference license.
(2) Contribution will be credited towards capital contributions required of
Cox under the Holdings Partnership Agreement to the same extent as if Cox
had made a cash contribution in an amount equal to the sum of (i)
$995,564, together with interest at the annual rate of 13.4% computed from
November 17, 1994 through the date the Omaha license is contributed, plus
(ii) $4,062,400, together with interest at the annual rate of 13.4%
computed from June 30, 1995 through the date the Omaha license is
contributed.
(3) Holdings owns a 49% limited partnership interest in APC, which has signed
an affiliation agreement with the Company.
(4) Holdings intends to acquire a 49% limited partnership interest in, and the
Company expects to sign an affiliation agreement with, Cox-California.
(5) Owned by subsidiaries of Sprint, TCI and Cox. The Company expects to sign
a services and affiliation agreement with PhillieCo.
STRATEGY
The Company intends to achieve its objective of becoming a leading provider
of wireless communications products and services in the United States by
employing strategies for its network construction, service offering, branding
and marketing which utilize the Company's competitive advantages. These
competitive advantages are expected to include:
. State-of-the-art technology. The Company is implementing a state-of-the-
art PCS network using CDMA digital technology which, the Company
believes, provides benefits relative to current analog systems. The
Company believes that its digital technology will increase capacity in
the system by approximately 7 to 10 times, offer better call quality and
clarity and a wider variety of advanced features and applications.
. National network. Sprint Spectrum intends to offer wireless service on a
national basis with a single technology (CDMA) operating on a uniform
spectrum (1.9 GHz), thereby providing consistent functionality and high
quality service. The Company currently owns (including the Omaha license
to be contributed to the Company), or expects to have affiliation
relationships with PCS providers who own, PCS licenses covering 190.9
million Pops and intends to pursue additional coverage on a market-by-
market basis through license acquisitions and affiliation or resale
agreements with other CDMA-based PCS providers. Together, the Company and
other PCS licensees that have announced their intentions to implement
CDMA technology have licenses covering territories representing
approximately 89% of the United States population. The Company expects to
gain cost advantages in purchasing power, operations and marketing
because of the national scope and operating scale of its network. The
Company believes it
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will have the flexibility to utilize pricing and promotional programs on a
national basis to provide incentives for customer subscription and
increased usage.
. National brand. The Company will market and promote its wireless products
and services under the Sprint brand, which is one of the most widely
recognized and respected brands in the telecommunications market. The
Company expects that the use of the Sprint brand will build consumer
confidence and accelerate consumer acceptance of the Company's products
and services.
. Strong Parent sponsorship. The Company intends to capitalize on the
communications expertise of the Parents, including local exchange carrier
services, cable television services and long distance telephone services.
In addition, the size and breadth of the customer base of each Parent
provide a key advantage for the Company's distribution and marketing
efforts. Subject to certain exceptions, the Parents and the Company
intend to cross-market the Company's wireless services with the long
distance, local telephone and cable-based entertainment services of the
Parents in order to accelerate subscriber growth and increase retention
rates while improving overall customer satisfaction. Sprint has a
combined customer base of 14 million long distance and local telephone
subscribers and collectively the Cable Parents have 20 million cable
television customers. See "--Relationship with Partners and Parents."
MARKETING AND DISTRIBUTION
The Company's current marketing strategy is to differentiate itself through
its state-of-the-art network, use of the established and respected Sprint
brand name, customer-care systems, diverse distribution channels and sales and
packaging arrangements with the Parents. The Company will build on Sprint's
strong national identity, using regional and local marketing to tailor
programs to the demands of individual markets. Additionally, the Company
believes that its all-digital network will provide customers with consistency
of service and features on a national basis, improving customer satisfaction.
The Company has formed segmentation and distribution strategies targeted at
both consumer and business markets.
Consumer Market
Customer segmentation. The Company plans to use both mass-marketing and
specific customer segment marketing to focus its efforts on consumers who have
significant work or personal telecommunication demands. Mass-marketing efforts
are expected to emphasize the quality of Sprint Spectrum's network in
comparison to traditional cellular service and will be supported by the Sprint
brand. For each targeted segment, the Company expects to create a number of
specific marketing programs including a service package, tiered pricing plans,
promotional strategies and distinctive distribution channels. An important
aspect of specific customer segment marketing is the ability, subject to
certain exceptions, to integrate the Company's wireless services with the
Parents' long distance and local telephone services and cable-based
entertainment services.
Distribution. The Company intends to use multiple methods of distribution in
each of its markets; and will continue to review and implement new
distribution channels in the future as it determines the most effective
combination of options. The Company believes that multiple distribution
channels in each of its markets will enable it to provide effective and
extensive marketing of products and services and to minimize its reliance on
any single distribution source. Traditional distribution sources such as
dealers and direct sales representatives may be important factors in achieving
the Company's objectives but alternatives, such as Company retail stores, may
also be an important part of the Company's distribution system.
Direct channels. The Company intends to build its direct distribution
channel over time. The core of this strategy is the introduction, currently
scheduled for the fourth quarter of 1996, of Sprint Spectrum Retail Stores
("Stores"). Based on APC's experience with its flagship stores, the Company
believes that the Stores will increase Sprint Spectrum's market presence
and build awareness for its services. In addition, the Stores should also
satisfy customer preferences to deal directly with the provider. Finally,
the Stores will ensure a venue where the Company can have complete control
of its image and selling message while providing the
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<PAGE>
Company an opportunity to display the full array of its products and
services. The Company expects to complement its Stores with other direct
channels such as its direct sales force and telemarketing.
Indirect and third-party channels. The Company believes its products and
services have significant mass market potential and believes that it will
have key advantages in using traditional retail distribution channels. The
Company believes that the following capabilities and features, which it
will introduce over time, will make it attractive to national and regional
retailers: (i) a national offering, which allows retailers to use one
service provider; (ii) single technology and frequency range, which
simplifies handset options and reduces accounting and inventory management
requirements; (iii) over-the-air activation, which simplifies training,
selling and marketing efforts; (iv) optional pre-paid billing, which
expands the potential customer base; (v) elimination of long-term customer
service contracts, which may increase the number of potential customers and
decrease customer dissatisfaction; (vi) providing for an equipment sales
margin versus selling commissions, which enables retailers to realize
profits at the time of sale; and (vii) the Sprint brand name.
Cross-selling and Parent channels. Subject to certain exceptions, the
Parents and the Company intend to cross-market the Company's wireless
services with the long distance, local telephone and cable-based
entertainment services of the Parents in order to increase customer
acquisition and retention. Sprint has a combined customer base of 14
million long distance and local telephone subscribers and collectively the
Cable Parents have 20 million cable television customers. See "The
Partnership Agreements." By using the Cable Parents' regular contacts with
their customers, including bill inserts and customer service contacts, the
Company intends to build market share of its wireless services efficiently.
The Company also expects to be able to build on Sprint's distribution
capabilities, through Sprint's long distance and local telephone divisions.
Business Market
Customer segmentation. The Company plans to initially target small to
medium-sized business customers with a locally-oriented wireless offering.
This segment includes satellite offices of larger organizations that purchase
wireless services on a decentralized basis. The Company expects to highlight
its all-digital network which it believes offers customers superior quality,
increased security and improved functionality as compared to traditional
analog cellular service. Customers in this segment are likely to have locally-
oriented communications needs and will be suitable targets for the Company's
initial product offering as the wireless network is being constructed and
prior to its nationwide deployment. The Company plans to offer flexible
billing options that address cross-product opportunities such as long distance
services.
The Company also intends to approach large business customers with its
initial product offering. Many large business customers are regional or
national in scope and require consistent pricing, service functionality and
account support on a regional or national basis. In marketing its service to
this segment, the Company intends to emphasize the following competitive
advantages: (i) ability to offer nationwide wireless services contracts, (ii)
consistent quality derived from Sprint Spectrum's all-digital network, (iii)
feature consistency across the Company's national network, (iv) volume
purchase capabilities and (v) packaging of Sprint long distance and other
Parent services.
Distribution. The Company intends to emphasize the Parents' business-to-
business selling resources in order to develop a comprehensive distribution
capability quickly. The Parents may provide access to their salesforces which
are comprised of over 2,000 salespeople nationwide focused on the business
market. The Company expects to augment existing Parent channels with direct
channels to expand its presence. The Company's direct channels likely will
include the Stores to target very small businesses, account executives to
target small, medium and large businesses and national account managers to
target national accounts. As of May 31, 1996, Holdings had a distribution and
marketing staff of approximately 85 employees working on behalf of the
Company.
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PRODUCTS AND SERVICES
With its all-digital national wireless network, the Company plans to
introduce a wide array of services and features that are designed to enhance
utility, provide consumers greater capabilities in call management and
increase usage for both outgoing and incoming calls.
Outgoing Calls
Features that encourage customers to make outgoing calls include: improved
call quality, advanced handsets, national consistency and customer-driven
local calling areas.
Improved call quality. The quality of the digital network continues to
approach that of wireline systems, which is expected to encourage increased
consumer usage.
Advanced handsets. The advanced, menu-driven handsets are designed to be
more user friendly and will be equipped for a variety of enhanced features and
applications.
National consistency. The consistency of product features across the
Company's network is expected to simplify use and ensure that handset
functions are similar in all markets.
Customer-driven local calling areas. The provision of customer-driven local
calling areas is designed for customers who frequently travel between multiple
regions.
Incoming Calls
Features that encourage customers to receive calls include: caller ID,
message management, including voicemail and integrated paging and improved
battery technology.
Caller ID. The Company's system is designed to enable the display of the
telephone number of the incoming caller on the customer's handset, allowing
the customer to decide to answer or decline the call or forward it to
voicemail.
Message management. Features like voicemail with call screening will allow
customers to listen while callers leave messages. The introduction of
integrated paging, expected by the end of 1997, will allow the handset to
signal receipt of an incoming message and provide text messaging via the
handset.
Improved Battery Technology. With advances in battery technology, longer
lasting batteries will enable customers to leave their handsets on while not
in use, which will promote the receipt of incoming calls.
The Company believes that the market for wireless communications will shift
over time from today's traditional voice mobility applications which
supplement customers' wireline service to an environment in which wireless
begins to expand into the wireline market, both as a primary communications
device and as a means of providing advanced functionality. The Company intends
to develop products, services and features which will serve to increase
network utilization above historical cellular usage while simultaneously
containing costs.
EARLY PCS INDUSTRY EXPERIENCE
On November 15, 1995, APC launched the first commercial PCS operation in the
United States with the initiation of service in the Washington/Baltimore MTA.
Holdings owns a 49% limited partnership interest in APC, which currently
provides service coverage to an area containing approximately 5.9 million
Pops, or approximately 71% of the Pops in the MTA. APC currently provides
service to the metropolitan areas of Washington and Baltimore and the
connecting highways and roads to Annapolis and the Eastern Shore. APC plans to
continue to expand the range of its geographic and population coverage.
APC's service is marketed under the Sprint brand name and is positioned in
the market as having excellent call clarity, privacy and feature integration.
In its market, APC is providing unique product offerings which
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include: (i) no requirement for long-term service contracts, which encourages
customers to try the service; (ii) no charge for the first minute of inbound
calls, which encourages customers to give out their PCS number and increases
overall minutes of use; (iii) over-the-air-activation, which, due to its
simplicity, encourages customers to acquire the service; (iv) off-the-shelf
retail distribution; and (v) 24-hour-a-day customer service. Under the current
APC marketing plan, customers are required to pay, on average, more to buy PCS
handsets than for cellular handsets utilized by traditional analog cellular
systems; however, monthly and per minute service charges are lower than those
of incumbent cellular providers. APC is also combining the Sprint trademark
with significant level of consumer advertising and tie-ins with Sprint long
distance telephone services.
While APC's operations are still in a preliminary stage, initial results
have been encouraging. As of May 15, 1996, APC had more than 80,000
subscribers. Customers appear willing to pay more for handsets in exchange for
higher quality service, lower airtime rates and no long-term service
contracts. In addition, customers are using the PCS service for more minutes
each month than traditional cellular services and usage patterns differ from
those of traditional analog cellular users. In particular, customers use their
PCS service throughout the day, rather than primarily at commuting hours.
Sprint Spectrum is also monitoring the incumbent cellular providers' response
which, to date, has been primarily focused on APC's geographic coverage.
Sprint Spectrum recognizes that there are limitations to translating APC's
experience to the Company's nationwide markets. First, APC currently has only
two competitors whereas Sprint Spectrum may compete with four or five wireless
competitors in each MTA. Second, while APC intends to add a CDMA protocol, it
is initially deploying GSM technology which is more mature than CDMA will be
at launch. Third, the quality of existing cellular service in the
Washington/Baltimore MTA is inconsistent. In addition, the limited period of
APC's operations is also not necessarily a reliable indicator of future
demand, revenue or the rate at which customers may return handsets or
deactivate their service ("churn").
CDMA TECHNOLOGY
Wireless digital signal transmission is accomplished through the use of
various frequency management technologies, or "protocols." The FCC has not
mandated a universal digital protocol for PCS systems. Currently, various
vendors have proposed three principal competing, incompatible protocols for
use in PCS systems: CDMA, GSM and TDMA (IS-136).
The GSM protocol is an updated, up-banded version of the TDMA-based protocol
now in use in Europe. TDMA (IS-136) is an up-banded version of the TDMA-based
digital cellular protocol now used by cellular operators in the United States.
CDMA is a first-generation technology that is just beginning to be
commercially deployed in the United States. See "Risk Factors--Technology
Risks; Availability of Handsets." The Company believes that the CDMA protocol
will be the most widely adopted PCS protocol in the United States. See "--The
Wireless Telecommunications Industry."
The Company has selected CDMA technology rather than the other technologies
because it believes it will have increased subscriber capacity, higher quality
of transmission and lower infrastructure and ongoing support costs. The
Company believes that CDMA provides the following benefits:
Performance: Because of its allocation of voice channels, CDMA offers better
voice quality when compared to analog and other digital standards. Recently
completed tests indicate that CDMA systems' voice quality is almost as clear
as the typical home (wireline) telephone. CDMA systems are expected to have
more powerful error correction, less susceptibility to fading, reduced
interference and "soft" hand-offs resulting in fewer dropped calls. In a
"soft" hand-off, the mobile customer's handset establishes a connection with a
new cell before disconnecting with the current cell. As a result, fewer calls
are dropped compared to analog or TDMA/GSM networks that use a "hard" hand-off
(i.e., disconnecting the call from the current cell before connecting it in
the new cell).
Cost effectiveness: Cells using CDMA are expected to achieve a greater
radius of coverage and require fewer cells for a given geographical coverage
than newer TDMA/GSM systems for PCS. Fewer cells should
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result in significant reductions in overall capital requirements, lower
ongoing maintenance and operating costs, fewer cell sites to be acquired and
greater flexibility in network design.
Functionality: CDMA offers Sprint Spectrum the capability to customize its
service offerings, enabling customers to select advanced features such as
simultaneous voice and data transmission and, eventually, high speed data
applications.
Security: CDMA technology is inherently more secure than analog technologies
because CDMA works by "digitizing" each call, which is then coded and
transmitted using spread spectrum across a 1.25 MHz channel. This constantly
changing coding scheme enhances security and privacy by decreasing the
opportunity for nonusers to break into the system.
Capacity: CDMA technology allows a greater number of calls by using the
entire frequency spectrum in each cell. The Company believes that CDMA has the
capability to increase subscriber capacity to as much as 7 to 10 times that of
a typical analog system. Additionally, CDMA technology has the ability to
tolerate greater amounts of interference than other digital protocols, which
will permit the system to temporarily increase call capacity in a particular
cell thereby reducing call blocking. The Company plans to offer advanced
features such as wireless data, paging and voice messaging while maintaining
the marketing flexibility to offer high volume packages without straining
system capacity.
Recent CDMA networks that have been completed or are in late stage
development include:
. Hong Kong: Hutchison Telecommunications Ltd. launched the world's first
commercial CDMA digital wireless network in Hong Kong on October 1, 1995
with 1,000 users. The company began active marketing of its CDMA service
in January 1996. By the beginning of July 1996, the company had more than
40,000 CDMA subscribers.
. South Korea: On January 1, 1996, Korea Mobile Telecommunications Corp.
launched CDMA commercial service in an area west of Seoul with 36 CDMA
cell sites. The company launched CDMA service in Seoul in April 1996.
Shinsegi Telecommunications Inc. launched CDMA commercial service in the
Seoul and Taejon regions of South Korea on April 1, 1996 with 149 cell
sites.
. United States: In the United States, PCS service providers that have
indicated their intention of introducing commercial CDMA service include,
Ameritech Corporation (1997 or later), Centennial Cellular Corp. (second
half of 1996), GTE Mobilnet, Inc. (first quarter of 1997) and PCS PrimeCo
L.P. (fourth quarter of 1996). These companies together with Sprint
Spectrum comprise 225.6 million Pops or 89.3% of the United States
population. In addition, several of the successful bidders in the C Block
auctions have announced their intention to adopt CDMA. Winning bidders in
the D, E and F Block auctions, which have yet to occur, may also select
CDMA. See "--Regulation--PCS Licensing."
In addition to these PCS networks, traditional cellular providers may use
CDMA-based systems as a digital overlay to their existing analog systems in
order to improve and expand the range of services they provide. In mid-May,
AirTouch Communications, Inc. ("AirTouch") became the first cellular provider
to deploy a CDMA-based digital overlay. AirTouch's CDMA-based service is
currently only available to selected high-usage customers in Los Angeles.
EQUIPMENT VENDORS
Sprint Spectrum has selected Lucent and Nortel, two of the leading
telecommunications equipment manufacturers, to construct the wireless network
because of their extensive experience in wireless technology and their
willingness to guarantee delivery against specifications developed by the
Company. In addition, the Company has obtained from Nortel and Lucent
financing to fund the purchase of their respective equipment and the
construction of their assigned portions of the network. To mitigate against a
substantial portion of the risks of completion delay and performance of the
network and to ensure the Company has received competitive terms and
conditions, the Procurement Contracts include, among other things, deferred
payment schedules, liquidated
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damages provisions, extended warranty periods and "most favored customer"
status. See "Description of Vendor Contracts and Financing--Vendor Contracts."
Sprint Spectrum has entered into a three-year purchase and supply agreement
for CDMA handsets with Qualcomm Personal Electronics, which is a partnership
formed by QUALCOMM Incorporated ("Qualcomm") and Sony Electronics Inc. See
"Description of Vendor Contracts and Financing--Vendor Contracts--Handset
Agreement". Pursuant to the agreement, Qualcomm will manufacture CDMA handsets
for the Company. In addition, Qualcomm will provide training for the Company's
sales personnel and will work with the Company to develop new products for the
Company's PCS network. The Company also expects to source handsets from other
vendors in mid-1997 and is currently negotiating purchase and supply
agreements on a preliminary basis with such other vendors.
NETWORK BUILDOUT
The buildout of the Company's network involves systems design, acquisition
of cell sites, equipment procurement, relocation of existing microwave users,
interconnection with other communications providers, construction of cell
sites, installation of switches, and implementation of advanced management
information and billing systems. A planning and engineering team, comprised of
approximately 1,500 engineering and operations employees and thousands of
independent contractors and consultants, is designing and constructing the
Sprint Spectrum network based on the regional marketing and product
requirements to meet the Company's targets for consistency, uniformity and
reliability.
Rollout methodology. The Company's principal objective is to maximize
population coverage levels within targeted demographic segments and geographic
areas. Sprint Spectrum intends to offer commercial service in the fourth
quarter of 1996 and expand market coverage to reach approximately 70% of the
Pops in its existing license areas in the aggregate by the end of 1997.
Thereafter, the Company will evaluate further coverage expansion on a market-
by-market basis, eventually targeting coverage of 80% of the Pops in its
existing license areas in the aggregate, thereby substantially completing its
planned network buildout. In developing its PCS network Sprint Spectrum will
consider, among other things, population and traffic density, FCC coverage
requirements and the ability to cluster groups of markets.
RF design. The Vendors have completed and the Company has approved the RF
design for coverage of 60% of the Pops in the Company's license areas in the
aggregate. This process includes cell site design, frequency planning and
network optimization for each of Sprint Spectrum's markets. RF engineering
also allocates voice channels and assigns frequencies to cell sites taking
into consideration both PCS and microwave interference issues.
Property acquisition. The Company employs 32 MTA directors initially to
manage the buildout process and subsequently to have responsibility for
operating the network. Property acquisition managers are located within each
MTA and are responsible for identifying and obtaining the required property
for buildout of the PCS network.
The Company has hired property acquisition firms for each MTA to assist with
acquisition, zoning, permitting and appropriate surveying. The Company will
attempt to minimize property acquisition activity through utilization of the
Parents' assets and cable infrastructure, where possible. The cell site
selection process will require the lease or acquisition of approximately 5,700
sites in 31 MTAs prior to commencement of commercial operations of the
Company's PCS network, many of which are likely to require the Company to
obtain zoning variances or other local governmental or third-party approvals
or permits. As of July 19, 1996, the Company had signed leases or options for
3,281 sites, of which 913 were pending zoning and 1,308 were zoned or ready
for construction. There are currently 255 sites under construction.
Construction and installation. The equipment Vendors are overseeing the
deployment of the PCS network and are subcontracting the construction to
Bechtel National, Inc., Black & Veatch and MFS Communications
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Company, Inc. These firms will act as general construction contractors and
employ local construction firms to build the cell sites.
Microwave relocation. To become operational, Sprint Spectrum must relocate
existing 2GHz commercial microwave service users within its MTAs in order to
clear its spectrum. The Company has contracted with national vendors to assist
in microwave relocation process. Recently, the FCC adopted a microwave
relocation cost-sharing plan that limits permissible relocation costs and
outlines new procedures for the sharing of relocation costs where the
relocation of private microwave facilities benefits multiple broadband PCS
licensees. However, the FCC did not shorten the period for mandatory
negotiations between broadband PCS licensees and affected private microwave
licensees. See "--Regulation."
Approximately 1,400 co-channel and adjacent-channel microwave paths which
may affect Sprint Spectrum's rollout need to be relocated by the Company, of
which approximately 600 are required for the service launch. As of July 19,
1996, 405 relocation agreements were under negotiation, 639 agreements had
been reached and 136 paths had been relocated. The Company has entered into
various cost-sharing arrangements that provide for sharing among affected PCS
license holders of expenses associated with microwave relocation. See "Risk
Factors--Network Buildout and System Implementation Risks."
Interconnection. Sprint Spectrum's network will connect to the Public
Switched Telephone Network. Such interconnection is required to facilitate
originating and terminating traffic between the Company's facilities and both
the incumbent local exchange and long distance carriers. The Company is
negotiating, or intends to negotiate, interconnection agreements with
telephone companies operating or providing service in the areas where the
Company is deploying its PCS network. The Company intends to use Sprint as its
interexchange carrier and the agreement for such service is covered under the
Holdings Partnership Agreement.
Roaming. Wireless service providers are able to offer service to subscribers
from other systems who are traveling in or through their service area.
Customers typically pay higher rates while "roaming" outside of their home
market. Roaming is made possible in today's analog cellular environment by
virtue of common frequency and signaling technology. PCS and analog cellular
systems operate on different frequencies and with different signaling
technologies.
Within its own network, the Company plans to offer "traveling" plans for
subscribers who use the Company's network outside of their home markets.
Features and services will operate identically across all of the Company's
markets. As a result, travelers will be encouraged to access the network
anytime and anywhere.
In areas where CDMA-based PCS service is not available, the Company may
offer a roaming option on the traditional analog cellular system via dual-
mode, dual-band handsets capable of transmitting over either cellular and PCS
frequencies. Access to cellular coverage is dependent on availability of dual-
mode, dual-band handsets which the Company believes will become available in
the first half of 1997. The Company has not entered into any such agreements
with any cellular providers nor can there be any assurance that the Company
will enter into any agreements. Cellular roaming may not be a service option
the Company chooses to offer.
Based upon public announcements by other PCS licensees and cellular service
providers, the Company estimates that CDMA technology will be employed by both
cellular and PCS service providers whose networks cover approximately 95% of
the United States population. While there can be no assurance that CDMA
technology will be deployed to the extent and within the time frames proposed
by the various service providers, it is the Company's belief that CDMA will be
the most widely used wireless digital protocol in the United States.
Information technology. The Company will require advanced and sophisticated
management information systems to handle customer care, billing, network
management and financial and administrative services. The Company has system
development plans directed at launch programs and long-term integrated system
solutions. The plans are focused on three primary areas: (i) customer care,
including billing systems and customer service and support systems, (ii)
network management, including service activation, traffic and usage
monitoring, trouble
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management and operational support systems and (iii) business systems
including financial, purchasing, human resources and other administrative
systems.
The Company has retained a number of consultants and contractors to evaluate
and implement management information systems to provide billing and customer
care. Trials of the billing and service software are expected to begin in the
second half of 1996 in anticipation of the fourth quarter of 1996 launch of
the Company's PCS services. The long-term vision for the Company's billing
system is to integrate all products and services of the Company and,
potentially, those of the Parents. Although the Company intends to offer
customized billing and may offer a variety of billing services, features and
delivery systems, these advanced features will not be available at launch.
There can be no assurance that the billing services and customer care services
currently planned for launch will be developed on a timely basis. Any delay in
the development of such features could cause the Company to alter its initial
pricing and promotional structures.
The Company, through its equipment vendors, plans to introduce sophisticated
network management and operations support systems which will facilitate
network fault detection, correction and management, performance and usage
monitoring and security. System capabilities are being developed which will
allow over-the-air activation of the handset and provision of services. The
Company has chosen to use Cincinnati Bell Information Systems' Precedent 2000,
which is a third-generation, UNIX based customer care and billing system.
Information systems to support general business applications such as
accounting, payroll, accounts payable, and human resources are being obtained
or developed in time for the Company's initial launch. A number of financial
systems have been installed and are being tested.
RELATIONSHIP WITH PARTNERS AND PARENTS
The Company's relationship with the Partners and the Parents is an important
aspect of its strategy for achieving its objective of becoming a leading
provider of wireless communications products and services in the United
States. In order to capitalize on the rapid growth in business and consumer
demand for a single provider of telecommunications services, the Company
intends to use its own marketing efforts, the marketing services of the
Partners' affiliates, existing distribution channels and customer
relationships. The Company intends to capitalize on the communications
expertise of each Parent including local exchange carrier services, cable
services and long distance services. Subject to certain exceptions, the
Partners and the Parents have agreed to cooperate with the Company to cross-
market the Company's wireless services with the long distance, local telephone
and cable-based entertainment services of the Parents in order to accelerate
subscriber growth and increase retention rates while improving overall
customer satisfaction. The Company will promote its wireless services using
the Sprint brand among Sprint's 14 million long distance and local telephone
customers and the Cable Parents' 20 million cable television customers. See
"--Trademarks."
The Holdings Partnership Agreement governs the basic relationships between
the Partners and the Company and provides a structure for subsequent
agreements with the Partners and their affiliates, including the Parents. See
"The Partnership Agreements--Holdings Partnership Agreement." The Company
recently entered into an agreement with Sprint to sell the Company's paging
services. Sprint will serve as the Company's agent for selling traditional
paging services and will market these services through direct mail, direct
sales, employee programs, advertising and promotions. The foregoing agreement
will not affect the Company's ability to offer paging services as part of its
integrated wireless service package, once it is able to do so. With the
exception of this agreement, an agreement regarding use of the Sprint
trademark (described below) and certain immaterial leases, the Company has not
yet entered into any additional agreements with the Partners or the Parents.
Pursuant to the Holdings Partnership Agreement, each Partner, except Comcast
in certain areas, has agreed to provide certain services to the Company in
connection with the operation of the network, which services include antenna
siting and installation, signal transmission between cell sites and switching
locations and provision of primary power, standby power and maintenance. The
pricing and details relating to the provision of such services will be
negotiated at the local level and are not governed by the Holdings Partnership
Agreement. Comcast is not required to provide such services within the Comcast
Service Area because it owns cellular licenses for such areas. See "The
Partnership Agreements--Holdings Partnership Agreement."
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Subject to certain conditions, the Company expects to enter into sales
agency agreements with the Partners for the co-marketing of wireless services,
local and long distance telephone services and the cable-based entertainment
services by Sprint and the Cable Parents. Sprint and the Cable Parents and
their respective subsidiaries (except for Comcast and its subsidiaries in the
Comcast Service Area) will be non-exclusive sales agents for the Company's
wireless services. The Company, in turn, will be a non-exclusive sales agent
for those services Sprint and the Cable Parents make available to the Company.
The Company has not entered into any such sales agency agreements with the
Parents.
THE WIRELESS TELECOMMUNICATIONS INDUSTRY
Overview. Wireless telecommunications networks use a variety of radio
frequencies to transmit voice and data in place of, or in addition to,
standard landline telephone networks. Wireless telecommunications technologies
include one-way radio applications, such as paging services, and two-way radio
applications, such as cellular telephone and specialized mobile radio ("SMR")
networks. Each application operates in a distinct radio frequency block.
Since its initial introduction in 1983, commercial cellular telephone
service has grown dramatically and now dominates the wireless
telecommunications market. Annual service revenues for the cellular telephone
industry set a record of over $19 billion during 1995 (an increase from
approximately $482 million in 1985). The number of cellular telephone
subscribers nationwide has grown from approximately 680,000 in 1986 to an
estimated 34 million at December 31, 1995. The number of cellular telephone
subscribers has grown at a compounded annual rate of 46.7% over the last three
years. PCIA estimates that the number of cellular and PCS wireless service
subscriptions will be over 104 million by the year 2005 and that PCS
subscriptions will account for approximately 40 million of such subscriptions.
Most cellular services currently transmit voice and data signals over
analog-based systems, which use one continuous electronic signal that varies
in amplitude or frequency over a single radio channel. Digital systems, on the
other hand, convert voice or data signals into a stream of digits that is
compressed before transmission, enabling a single radio channel to carry
multiple simultaneous signal transmissions. This enhanced capacity, along with
enhancements in digital protocols, allows digital-based wireless technologies
to offer new and enhanced services, such as greater call privacy, and more
robust data transmission features, such as "mobile office" applications
(including facsimile, electronic mail and connecting notebook computers with
computer/data networks).
While digital technology generally reduces the effect of transmission
interference relative to analog technology, capacity limitations in the 8 Kb
cellular digital handsets now deployed by most digital wireless operators also
cause a perceptible decline in voice quality. This gap in voice quality has
proven to be a significant barrier to cellular operators seeking to switch
their customers from analog to digital service. Enhanced 13 Kb digital
handsets are now being developed by vendors for both PCS and digital cellular
systems and are expected to be available by mid-1997. These new handsets are
expected to offer digital transmission quality comparable to, if not better
than, current analog cellular handsets.
PCS is expected to be the first all-digital wireless service and will be
able to provide enhanced integrated services not currently offered by
traditional analog cellular providers, a wider range of service options,
including integrated voicemail, enhanced custom-calling and short-messaging.
The Company expects to offer, when the necessary equipment is available, high-
speed data transmissions to and from computers, advanced paging services,
facsimile services and internet access service.
The Company believes that these enhanced features and increased services
will contribute to the acceleration of growth in the wireless
telecommunications market and that PCS providers will be the first direct
wireless competitors to cellular providers and the first to offer mass market
all-digital mobile networks.
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The Company believes that the initial experience of service providers in
international markets where PCS has already been introduced provides support
for the forecasted rapid growth of PCS in the United States. For example, the
launch of PCS networks in the U.K. and Japan has initially increased
competition, stimulated demand and increased penetration rates in the entire
wireless market. In less than two years, the U.K.'s two PCS operators have
gained over 600,000 subscribers, representing approximately 15.5% market share
of the total wireless market and 40% of new wireless subscribers over the same
period. In Japan, the two new PCS licensees activated 87,000 new subscribers
in their first month of operations. The rate of new PCS subscriber activations
is now over one million per year.
PCS licenses differ from existing cellular and SMR licenses in three basic
ways: frequency assignment, amount of spectrum and geographic license areas.
PCS networks will operate in a higher-frequency band (1850-1990 MHz) compared
to the cellular and SMR frequency (800-900 MHz). PCS will also be comprised of
either 10 MHz of spectrum or 30 MHz of spectrum versus 25 MHz of spectrum for
cellular networks. As a result of the improved capacity of the infrastructure
and large allocation of spectrum, PCS will have more capacity for new wireless
services such as data and video transmission. Finally, the geographic areas
for PCS licenses are divided differently than for cellular licenses. PCS is
segmented among 51 MTAs or 493 BTAs as opposed to cellular's 306 metropolitan
statistical areas ("MSAs") and 428 rural service areas ("RSAs"). An MTA
license generally covers a much larger geographic area than a BTA, MSA or RSA
license. SMR service areas are defined by the United States Department of
Commerce Bureau of Economic Analysis Economic Areas ("EAs"). There are 175 EAs
covering the continental United States and its possessions. EAs are smaller
than MTAs, but are larger than BTAs, MSAs and RSAs.
Operation of wireless systems. Two-way wireless service areas are divided
into multiple regions called "cells," each of which contains a base station
consisting of a transmitter, a receiver and signaling equipment. The cells are
typically configured on a grid in a honeycomb-like pattern, although terrain
factors (including natural and man-made obstructions) and signal coverage
patterns may result in irregularly shaped cells and overlaps or gaps in
coverage. Cellular system cells generally have a radius ranging from two miles
to 25 miles. PCS system cells are expected to have a radius ranging from one-
quarter mile to 12 miles, depending on the PCS technology being used and the
terrain. The base station in each cell is connected by microwave, fiber optic
cable or telephone wires to a switching office, which uses computers to
control the operation of the wireless telephone system for its entire service
area. The switching office controls the transfer of calls from cell to cell as
a subscriber's handset travels, manages call delivery to handsets, allocates
calls among the cells within the system and connects calls to the local
landline telephone system or to a long distance telephone carrier. Wireless
service providers have entered into interconnection agreements with various
local exchange carriers and interexchange carriers, thereby integrating the
wireless telephone system with landline telecommunications systems. Once two-
way wireless systems are fully interconnected with landline telephone networks
and long distance networks, subscribers can receive and originate both local
and long distance calls from their wireless telephones.
The signal strength of a transmission between handset and a base station
declines as the handset moves away from the base station, the switching office
and the base stations monitor the signal strength of calls in progress. When
the signal strength of a call declines to a predetermined level, the switching
office may "hand off" the call to another base station that can establish a
stronger signal with the handset. If a handset leaves the service area of the
wireless service provider, the call is disconnected unless an appropriate
technical interface is established to hand off the call to an adjacent system.
Operators of wireless systems frequently agree to provide service to
subscribers from other compatible systems who are temporarily located in or
traveling through the service area. Such subscribers are called "roamers."
Agreements among system operators allocate revenues received from roamers.
With automatic roaming, wireless subscribers are preregistered in certain
systems outside their service area and receive service automatically while
they are roaming, without having to notify the switching office. Other roaming
features permit calls to a subscriber to "follow" the subscriber into
different systems, so that the subscriber will continue to receive calls in a
different system just as if the subscriber were within his or her service
area.
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While PCS and cellular networks utilize similar technologies and hardware,
they operate on different frequencies and use different signaling protocols.
As a result, it generally will not be possible for users of one type of
network to roam on a different type of network outside of their service area,
or to hand off calls from one type of network to another. Digital signal
transmission is accomplished through the use of frequency management
technologies, or protocols. These protocols manage the radio channel either by
dividing it into distinct time slots (TDMA) or by assigning specific coding
instructions to each packet of digitized data that comprises a signal (CDMA).
While the FCC has mandated that licensed cellular networks in the United
States must utilize compatible analog signaling protocols, the FCC has not
mandated a universal digital signaling protocol. Currently, three principal
competing, incompatible signaling protocols have been proposed by various
vendors for use in PCS networks: GSM, CDMA and TDMA. Because these protocols
are incompatible, a subscriber of a network that relies on GSM technology, for
example, will be unable to use his or her handset when traveling in an area
served only by CDMA or TDMA-based wireless operators, unless he carries a
dual-mode, dual-band handset that permits the subscriber to use the cellular
network in that area. Currently, such dual-mode, dual-band handsets are not
commercially available. For this reason, the success of each protocol will
depend both on its ability to offer enhanced wireless service and on the
extent to which its users will be able to use their handsets when roaming
outside their service area.
Wireless subscribers generally are charged separately for monthly access,
air time, long distance calls and custom calling features (although custom
calling features may be included in monthly access charges in certain pricing
plans). Wireless system operators pay fees to local exchange companies for
access to their networks and toll charges based on standard or negotiated
rates. When wireless operators provide service to roamers from other systems,
they generally charge roamer air time usage rates, which usually are higher
than standard air time usage rates for their own subscribers, and additionally
may charge daily access fees. Special, discounted rate roaming arrangements,
often between neighboring operators who wish to stimulate usage in their
respective territories, provide for reduced roaming fees and no daily access
fees.
COMPETITION
General. The wireless telecommunications industry is experiencing
significant technological change, as evidenced by the increasing pace of
improvements in the capacity and quality of digital technology, shorter cycles
for new products and enhancements and changes in consumer preferences and
expectations. Accordingly, the Company expects competition in the wireless
telecommunications business to be dynamic and intense as a result of the
entrance of new competitors and the development of new technologies, products
and services.
Each of the markets in which the Company competes will be served by other
two-way wireless service providers, including cellular and PCS operators and
resellers. Many of these competitors have been operating for a number of
years, currently serve a substantial subscriber base and have significantly
greater financial and technical resources than those available to the Company.
Certain of the Company's competitors are operating, or planning to operate,
through joint ventures and affiliation arrangements, wireless
telecommunications systems that encompass most of the United States.
The Company also will face competition from other current or developing
technologies, such as paging, Enhanced Specialized Mobile Radio ("ESMR") and
satellite networks. In addition, as a result of advances in digital
technology, ESMR operators have begun to design and deploy digital mobile
networks that increase the channel capacity of ESMR systems to a level that
may be competitive with that of cellular systems. A limited number of ESMR
operators have recently begun offering short messaging, data services and
interconnected voice telephony services on a limited basis. Several ESMR
licensees have recently merged into one company and plan to build and operate
digital mobile networks in most major United States markets.
In addition, several entities have received and several others are seeking
FCC authorization to construct and operate global satellite networks to
provide domestic and international mobile communications services from
geostationary and low earth orbit ("LEO") satellites. While geostationary
orbiting satellites are subject to transmission delays inherent in high earth
orbit satellite communications, a mobile satellite system could reduce
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transmission delays with LEO satellites and could augment or replace
communications with segments of land-based wireless systems. Based on current
technologies, however, satellite transmission services are not expected to be
competitively priced relative to the Company's product offering in its
markets. Sprint has an interest in a satellite-based mobile telecommunications
business entity.
Continuing technological advances in telecommunications and FCC policies
that encourage the development of new spectrum-based technologies make it
impossible to predict the extent of future competition. The FCC has adopted
rules that provide preferences, including discounted licenses, to companies
that develop new spectrum-based communications technologies without bidding in
FCC-sanctioned auctions. Such a preference may encourage the development of
new technologies that compete with cellular and PCS service. In addition, the
Omnibus Budget Reconciliation Act of 1993 (the "Budget Act") requires, among
other things, the allocation to commercial use of a portion of 200 MHz of the
spectrum currently reserved for government use. It is possible that some
portion of the spectrum that is reallocated will be used to create new land-
mobile services or to expand existing land-mobile services.
The Company expects to compete with other communications technologies that
now exist, such as conventional mobile telephone service, ESMR systems and
paging services and with cellular and PCS resellers. In the future, cellular
service and PCS will also compete more directly with traditional landline
telephone service providers and with cable operators who expand into the
offering of traditional communications services over their cable systems. In
addition, the Company may face competition from technologies that may be
introduced in the future.
The Company anticipates that market prices for two-way wireless services
generally will decline in the future based upon increased competition. The
Company will compete to attract and retain customers principally on the bases
of services and features, its customer service, the size and location of its
service areas and pricing. The Company's ability to compete successfully will
also depend, in part, on its ability to anticipate and respond to various
competitive factors affecting the industry, including new services that may be
introduced, changes in consumer preferences, demographic trends, economic
conditions and discount pricing strategies by competitors, which could
adversely affect the Company's operating margins.
The Company's PCS business will directly compete with several other PCS
providers in each of its PCS markets, including AT&T Wireless Services, Inc.,
BellSouth Telecommunications, Inc., Omnipoint Corporation, Pacific Bell Mobile
Services, Inc., PCS PrimeCo L.P. and Western Wireless Corporation. The Company
also expects that existing analog wireless service providers in the PCS
markets, some of which have been operational for a number of years and have
significantly greater financial and technical resources than those available
to the Company, will upgrade their systems to provide comparable services in
competition with its PCS system. These cellular competitors include AirTouch,
AT&T Wireless Services, Inc., BellSouth Mobility, Inc., Ameritech Mobile
Communications, Inc., Bell Atlantic NYNEX Mobile, Southwestern Bell Mobile
Systems, GTE Mobilnet, Inc. and U.S. Cellular Corp.
Handsets used for CDMA-based PCS systems will not be automatically
compatible with cellular systems, and vice versa. The Company expects dual-
mode, dual-band telephones to be commercially available in the first half of
1997 (although sufficient quantities may not be commercially available until
the third quarter of 1997). Once such handsets are available, if the Company
decides to offer roaming services, subscribers may be able to roam by using
the existing cellular wireless system in other markets. Until then, this lack
of interoperability may impede the Company's ability to attract current
cellular subscribers or potential new wireless communication subscribers that
desire the ability to access different service providers in the same market.
Initially, the cost to the Company of PCS handsets may not be competitive
with the cost to analog operators of analog cellular handsets. While the
Company believes that its PCS handsets will be competitively priced as
compared to digital cellular handsets of comparable size, weight and features,
cellular operators may subsidize the sale of digital handset units at prices
below those with which the Company can compete through the Company's handset
subsidies.
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REGULATION
The FCC regulates the licensing, construction, operation, acquisition and
interconnection arrangements of wireless telecommunications systems in the
United States under the Communications Act of 1934, as amended by the
Telecommunications Act of 1996 (the "Communications Act"). Pursuant to the
Communications Act, the FCC has promulgated a series of rules, regulations and
policies to (i) grant or deny licenses for PCS frequencies, (ii) grant or deny
PCS license renewals, (iii) rule on assignments and/or transfers of control of
PCS licenses, (iv) govern the interconnection of PCS networks with other
wireless and wireline carriers, (v) impose fines and forfeitures for
violations of any of the FCC's rules and (vi) regulate the technical standards
of PCS networks.
PCS licensing. The FCC established service areas for PCS throughout the
United States and its possessions and territories based upon the Rand McNally
market definition of 51 MTAs and 493 smaller BTAs. At least two BTAs are
contained within each MTA.
The FCC has allocated 120 MHz of radio spectrum in the 1850 to 1990 MHz
band, divided into six separate spectrum blocks, for licensed broadband PCS
services. The A and B Blocks are 30 MHz each and are allocated to the 51 MTAs.
The FCC sponsored auctions for the A and B Blocks that ended in March 1995,
and the FCC granted the A and B Block licenses in June 1995. Aggregate bids in
the A and B Block auction totalled $7.72 billion representing an average price
of $15.29 per Pop. WirelessCo was granted licenses in 29 of 51 MTAs.
PhillieCo, which will become affiliated with Sprint Spectrum, was granted a
license for one MTA. The remaining blocks, C (30 MHz), D (10 MHz), E (10 MHz),
and F (10 MHz), are allocated to the 493 BTAs. The C Block auctions ended on
May 6, 1996. The Company did not participate in the C Block auctions as these
licenses were available only to small businesses and other designated
entities. As part of an overall strategy to increase the Company's Pop
coverage, either or both of Holdings and the Company may elect to bid on, or
affiliate with or invest in other entities who are bidding on, PCS licenses to
be awarded in the FCC auction of the licenses for the D, E and F Blocks. To
the extent that Holdings acquires new PCS licenses or invests in an entity
that acquires new licenses, it is expected that an affiliation arrangement
with the Company will be entered into with respect to such Pop coverage. These
auctions are scheduled to begin in late August 1996. There can be no assurance
that the Company or Holdings will pursue such an expansion strategy.
Eventually, a PCS license will be awarded for each block in every MTA or BTA
for a total of more than 2,000 licenses. The licenses in each block
collectively cover the United States and its territories. Therefore, any one
location may have up to six PCS service providers who own a license to serve
that location, in addition to the two incumbent cellular license holders. It
is expected that some or all of the PCS license holders who offer services
will be in competition with the Company.
The FCC recently revised its rules regarding spectrum aggregation limits
that may affect PCS licensees. The FCC now prohibits a single entity from
having a combined attributable interest (20% or greater interest in any
license) in broadband PCS, cellular and SMR licenses totalling more than 45
MHz in any geographic area.
In compliance with FCC restrictions on common ownership of cellular and
broadband PCS interests in overlapping market areas, Sprint, with prior FCC
approval, in March 1996 undertook a tax-free spin-off of its cellular
interests to Sprint's shareholders. Sprint's former cellular interests are now
held by 360(degrees) Communications Company. Subsequent to the spin-off,
360(degrees) Communications Company operates as an independent entity.
Pioneer's preference program. Holdings has a non-controlling equity interest
in APC, one of three recipients of an FCC broadband PCS Pioneer's Preference
license ("Pioneer's Preference") which effectively reduces the cost of a
license by awarding it outside of the auction process. Holdings also expects
to have a non-controlling interest in Cox-California, which will hold a
broadband PCS Pioneer's Preference license awarded to Cox. Following several
parties' unsuccessful legal challenges in the United States Court of Appeals
for the District of Columbia Circuit to the FCC's awards of Pioneer's
Preferences, the FCC in March 1996 ruled that the Pioneer's Preference
licensees must begin making installment payments on their licenses. The FCC
has
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determined that Cox and APC, who were not required to participate in the PCS
auctions, nonetheless must pay, respectively, approximately $252 million, plus
interest, for the Los Angeles-San Diego MTA and approximately $102 million,
plus interest, for the Washington-Baltimore MTA over a five-year period. The
Company is not obligated to make any payments to the FCC with respect to the
Pioneer's Preference licenses held by APC or Cox-California.
Transfers and assignments of PCS licenses. Pursuant to the Communications
Act, the FCC must give prior approval to the assignment or transfer of control
of a PCS license. In addition, the FCC has established transfer disclosure
requirements that require licensees that assign or transfer control of a PCS
license within the first three years to file associated contracts for sale,
option agreements, management agreements or other documents disclosing the
total consideration that the applicant would receive in return for the
transfer or assignment of the license. Non-controlling interests in an entity
that holds a PCS license or PCS networks generally may be bought or sold
without prior FCC approval.
Foreign ownership restrictions. The Communications Act restricts foreign
investment in and ownership of certain FCC radio licensees, including PCS
licensees. Non-United States citizens or their representatives, foreign
governments or their representatives, or corporations organized under the laws
of a foreign country 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. If it would serve the public interest, the FCC has the authority to
permit the parent of the licensee to exceed the 25% limit. However, the FCC
lacks the authority to permit a licensee itself to exceed the 20% limit on
foreign ownership.
If an entity fails to comply with the foreign ownership requirements, the
FCC may order the entity to divest alien ownership to bring the entity into
compliance with the Communications Act. Other potential sanctions include
fines, a denial of renewal or revocation of the license. The Company has no
knowledge of any present foreign ownership in violation of the Communications
Act.
The Telecommunications Act of 1996 ("1996 Act") eliminates the existing
restrictions on the number of alien officers and directors of FCC licensee
companies and companies controlling FCC licensees.
Conditions on PCS licenses. All PCS licenses are granted for 10-year terms
conditioned upon timely compliance with the FCC's buildout requirements.
Pursuant to the FCC's buildout requirements, all 30 MHz broadband PCS
licensees must construct facilities that offer coverage to one-third of the
population of their service area(s) within five years of their initial license
grant(s) and to two-thirds of the population within 10 years. Licensees that
fail to meet the buildout requirements may be subject to license forfeiture.
The FCC intends to conduct random audits to ensure that licensees are in
compliance with the FCC's holding period and attribution rules. Rule
violations could result in license revocations, forfeitures or fines.
PCS license renewal. PCS licensees can renew their licenses for an
additional 10 years. PCS renewal applications are not subject to auctions.
However, under the FCC's rules, third parties may oppose renewal applications
and/or file competing applications. If one or more competing applications are
filed, a renewal application will be subject to a comparative renewal hearing.
The FCC's rules afford PCS renewal applicants involved in comparative renewal
hearings with a "renewal expectancy." The renewal expectancy is the most
important comparative factor in a comparative renewal hearing and is
applicable if the PCS renewal applicant has: (i) provided "substantial"
service during its license term; and (ii) substantially complied with all
applicable FCC rules and policies as well as the Communications Act. The FCC's
rules define "substantial" service as service that is sound, favorable and
substantially above the level of mediocre service that might minimally warrant
renewal.
FCC relocation requirements. The spectrum allocated by the FCC for PCS
services is now occupied by existing microwave facilities. PCS licensees must
relocate such incumbent microwave facilities operating on the same frequencies
to avoid interference problems. The FCC's rules require the PCS licensee to
provide the
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microwave licensee with comparable facilities at the PCS licensee's own
expense and to ensure the facilities are "equal to or superior to existing
facilities." In order to encourage parties to negotiate relocation agreements,
the FCC's rules require, for existing licensees other than public safety
agencies, a two-year voluntary negotiation period followed by a one-year
mandatory negotiation period if voluntary negotiations fail. Separate
negotiation periods are applicable to public safety agencies, which are
entities dedicating a majority of their communications systems for police,
fire or emergency medical services operations involving safety of life and
property. The FCC's rules require public safety agencies to undertake a three-
year voluntary negotiation period followed by a two-year mandatory negotiation
period, if necessary. If an agreement is not reached, the incumbent microwave
licensee may be involuntarily relocated provided that the PCS licensee pays
for comparable facilities. The FCC recently revised its microwave relocation
rules to clarify permissible relocation costs that must be assumed by PCS
licensees during the mandatory period and to implement new procedures for the
sharing of relocation costs where the relocation of private microwave
facilities benefits multiple broadband PCS licensees.
Under the 1996 Act both the FCC and state public utility commissions
("PUCs") regulate the terms of interconnection between broadband PCS networks
and the networks of local exchange carriers. The FCC recently issued new
interconnection rules that generally require symmetrical reciprocal rates for
the transport and termination of local telecommunications traffic between a
PCS network and a local exchange carrier's network, i.e. the PCS provider and
local exchange carrier pay each other the same rate for transporting and
terminating local traffic that originates on the other's network. Under the
new rules, interconnection agreements negotiated between PCS providers and
local exchange carriers will be subject to state PUC approval. Local exchange
carrier rates for transport and termination of local traffic can be set on the
basis of (1) forward looking economic costs; (2) interim default proxies until
cost studies can be completed, e.g. no less than 0.2 ($0.002) not more than
0.4 ($0.004) cents a minute for termination of local telecommunications calls;
or (3) bill-and-keep arrangements that allow the two carriers to terminate
each other's calls without charge. Bill-and-keep arrangements require that
local traffic is roughly balanced between the two networks and that the PCS
carrier has not shown that its costs exceed those of the local exchange
carrier's rates for transport and termination of local calls. Interconnection
agreements negotiated between PCS providers and local exchange carriers are
subject to state PUC approval.
The 1996 Act contains specific provisions regarding the interconnection
obligations of telecommunications carriers. The FCC has initiated a rulemaking
to determine, among other things, the extent to which certain provisions of
the 1996 Act apply to PCS/LEC interconnection agreements. If these provisions
are applied to PCS, state public utility commissions will be required to
approve interconnection agreements between PCS providers and LECs.
Other FCC requirements. In June 1996, the FCC adopted rules that prohibit
broadband PCS providers from unreasonably restricting or disallowing resale of
their services or unreasonably discriminating against resellers. Resale
obligations will automatically expire five years after the FCC has concluded
its initial round of licensing of currently allocated broadband PCS spectrum.
The FCC is expected to conclude its initial licensing round by early 1997. The
FCC is considering whether wireless providers should be required to offer
unbundled communications capacity to resellers who intend to operate their own
switching facilities.
The FCC recently extended an existing rule to require broadband PCS and
other Commercial Mobile Radio Service ("CMRS") providers to provide "manual"
roaming service that allows customers of one wireless provider to obtain
service while roaming in another wireless provider's service area. Such
customers must first establish a service relationship with the host system,
by, for example, supplying a valid credit card number to the host system. In
addition, the FCC is considering whether broadband PCS and other CMRS
providers should be required also to offer "automatic" roaming agreements on a
nondiscriminatory basis that would allow customers to roam by simply turning
on their handsets in a host market.
The FCC recently adopted rules permitting broadband PCS networks and other
CMRS providers to provide wireless local loop and other fixed services that
would directly compete with the wireline services of LECs. In June 1996, the
FCC adopted rules requiring broadband PCS and other CMRS providers to
implement enhanced emergency 911 capabilities within 18 months after the
effective date of the FCC's rules.
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The Company may use common carrier point-to-point microwave and traditional
landline facilities to connect cell sites and to link them to their respective
main switching offices. The FCC will license separately these microwave
facilities and regulates the technical parameters and service requirements of
these facilities.
Other federal regulations. Wireless systems must comply with certain FCC and
FAA regulations regarding the siting, lighting and construction of transmitter
towers and antennaes. In addition, certain FCC environmental regulations may
cause wireless networks to become subject to regulation under the National
Environmental Policy Act.
Recent events: The Telecommunications Act of 1996. On February 8, 1996,
Congress enacted the 1996 Act. The 1996 Act is supposed to create a
procompetitive, deregulatory national policy to accelerate competitive
development of telecommunications offerings, expand the availability of
telecommunications services to all segments of the public and streamline
regulation of the telecommunications industry by removing regulatory burdens.
The FCC, state public utilities commissions and a federal-state joint board
are charged with implementing the 1996 Act. On February 12, 1996, the FCC
released its tentative schedule for implementation of the 1996 Act's mandates,
many of which will be implemented within six to 18 months. Some specific
provisions of the 1996 Act are expected to affect PCS service providers.
Expanded interconnection obligations. Under the 1996 Act, all
telecommunications carriers, likely including broadband PCS providers, must
interconnect with other carriers. The 1996 Act also imposes a detailed list of
"interconnect" obligations upon LECs including resale, number portability,
dialing parity, access to rights-of-way and reciprocal compensation.
Review of universal service requirements. Although the 1996 Act contemplates
that wireless providers will "make an equitable and non-discriminatory
contribution" to support the cost of providing universal service, the FCC is
authorized to exempt carriers if their contribution would be de minimis.
Public utility "telecommunications" services. The 1996 Act modifies the
Public Utilities Holding Company Act of 1935 to permit public utilities
subject to that act to engage in the provision of telecommunications and
information services.
BOC entry into in-region interLATA services. Before engaging in in-region
interLATA services, the 1996 Act requires Bell Operating Companies ("BOCs") to
provide access and interconnection to one or more unaffiliated competing
providers of telephone exchange service. BOCs must offer the following
interconnection services on a non-discriminatory basis: interconnection and
unbundled access; access to poles, ducts, conduits and rights-of-way owned or
controlled by BOCs; unbundled local loops; unbundled local transport;
unbundled local switching; access to emergency 911, directory assistance,
operator call completion and white pages; access to telephone numbers,
databases and signaling for call routing and completion; number portability;
local dialing parity; reciprocal compensation; and resale.
The 1996 Act permits BOCs immediately to provide "incidental" interLATA
services including the provision of CMRS. The FCC intends to open a proceeding
to assess under what conditions BOCs that provide CMRS, including PCS, can
provide long distance services over their CMRS networks.
BOC commercial mobile joint marketing. Under the 1996 Act, BOCs and any
other company may jointly market and sell commercial mobile services,
including cellular and PCS, together with telephone exchange service, exchange
access, intraLATA telecommunications service, interLATA telecommunications
service and information services. A BOC, however, may not jointly market
telephone exchange service and any long distance service until certain
conditions have been met.
Wireless facilities siting. Under the 1996 Act, states and localities cannot
regulate the placement of wireless facilities so as to "prohibit" the
provision of wireless services or to "discriminate" among providers of such
services. In addition, so long as a wireless system complies with the FCC's
rules, the 1996 Act prohibits states and localities from using environmental
effects as a basis to regulate the placement, construction or operation of
wireless facilities.
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Equal access. Under the 1996 Act, wireless providers are not required to
provide equal access to common carriers for toll services. However, the FCC is
authorized to require unblocked access to toll carriers subject to certain
conditions.
Deregulation. The 1996 Act requires the FCC to forebear from applying any
statutory or regulatory provision if it is not necessary to keep
telecommunications rates and terms reasonable or to protect customers.
Correspondingly, a state may not apply a statutory or regulatory provision
that the FCC decides not to apply. In addition, the FCC must review its
telecommunications regulations every two years to determine if any can be
eliminated or modified as no longer in the public interest as a result of
increased competition.
Elimination of alien officer/director restrictions. The 1996 Act eliminates
the existing restrictions on the number of alien officers and directors of FCC
licensee companies and companies controlling FCC licensees.
FACILITIES AND EMPLOYEES
As of March 31, 1996, the Company occupied approximately 47,000 square feet
of leased headquarters space in Kansas City, Missouri. The Company is planning
to relocate its headquarters to new leased space of approximately 156,000
square feet in Kansas City this summer. The Company believes that this new
facility should serve its needs adequately for the foreseeable future. The
Company currently has leased 33 MTA offices (approximately 486,000 square feet
in aggregate) and expects that 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 is also leasing space for base station towers
and switch sites as it constructs its nationwide network. As of July 19, 1996,
the Company had leased or purchased 39 switch sites and had entered into
leases or options for a total of 3,281 cell sites. The Company anticipates
leasing, acquiring or otherwise obtaining up to a total of approximately 5,700
such sites in preparation for initial commercial launch.
At July 19, 1996, the Company employed approximately 1,850 personnel, all of
whom are working on behalf of the Company. None of the Company's employees is
represented by a labor union. Management believes that the Company's employee
relations are good. The Company and Holdings are engaging independent
contractors to perform a variety of functions, including construction and
maintenance of the Company's network, research, advertising, accounting and
data processing.
TRADEMARKS
The Company does not currently own any trademarks or patents, though it
expects to apply for and develop trademarks, service marks and patents in the
ordinary course of business. Sprint is a registered trademark of Sprint
Communications Company, L.P. ("Sprint Communications") and is licensed to
Holdings on a royalty-free basis pursuant to a trademark license agreement
between Sprint Communications and Holdings. Sprint Communications may
terminate this agreement (i) upon the dissolution and winding up of the
Company, (ii) upon the bankruptcy of the Company, (iii) upon the failure of
the Company to perform in accordance with the material terms of the agreement
or for a breach of its representations and warranties or (iv) if the Company
challenges Sprint's rights to the Sprint trademark and the associated logo.
The Company may terminate the agreement (i) if Sprint Communications abandons
or fails to support its trademark and associated logo, (ii) upon the
bankruptcy of Sprint Communications, (iii) if Sprint conflicts with the
Company's rights to use the trademark and associated logo or (iv) if Sprint
Communications breaches its covenant to license the trademark and associated
logo to additional licensees in accordance with the terms of the agreement.
Subject to certain conditions, each of the Company and Sprint Communications
may terminate the agreement if a controlled affiliate of Sprint ceases to own
any equity interest in Holdings. Within thirty days of termination, or, in
certain circumstances on a specified termination date, the Company's rights to
use the trademark and associated logo will cease.
Pursuant to certain of its third party supplier contracts, Sprint Spectrum
has certain rights to use third party supplier trademarks in connection with
the buildout, marketing and operation of its network.
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LEGAL PROCEEDINGS
On March 14, 1996, the Company filed a lawsuit against the City of Medina,
Washington in the United States District Court for the Western District of
Washington. The Medina City Council passed a resolution on February 13, 1996
creating a six-month moratorium (which may be extended) on approval of permits
for wireless communication facilities in the City of Medina. The Company is
seeking injunctive and declaratory relief against this resolution under the
1996 Act. The Court denied the Company's motion for preliminary injunctive
relief in May 1996. Although the ultimate outcome of this litigation is
uncertain, the Company is confident that adjudication of this matter will not
delay the introduction of service in the Seattle, Washington MTA. While the
Company does not believe that the outcome of this litigation will,
individually, have a material adverse effect on the Company, there can be no
assurance that similar actions taken by other government authorities in other
locations will not, in the aggregate, have a material adverse effect on the
Company. See "--Regulation."
The Company is involved in various legal proceedings incidental to the
conduct of its business. While it is not possible to determine the ultimate
disposition of each of these proceedings, the Company believes that the
outcome of such proceedings, individually and in the aggregate, will not have
a material adverse effect on the Company's financial condition or results of
operations.
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MANAGEMENT
EXECUTIVE OFFICERS OF THE ISSUERS AND HOLDINGS PARTNERSHIP BOARD
REPRESENTATIVES
The executive officers of the Issuers and their respective positions with
Sprint Spectrum and FinCo are set forth below. In addition, the
representatives of the Partnership Board of Holdings are set forth below.
Sprint Spectrum does not have a partnership board but is managed by Holdings
in its capacity as general partner. The Board of Directors of FinCo is
comprised of Ronald T. LeMay, Robert M. Neumeister, Jr. and Joseph M.
Gensheimer. The ages of the individuals set forth below are as of June 1,
1996.
<TABLE>
<CAPTION>
NAME AGE POSITIONS
---- --- ---------
<S> <C> <C>
Ronald T. LeMay................ 50 Chief Executive Officer and President of
Sprint Spectrum; President of FinCo;
Chairman of the Partnership Board of
Holdings (/1/)
Andrew Sukawaty................ 41 Chief Executive Officer and President of
Sprint Spectrum; President of FinCo (/2/)
Arthur A. Kurtze............... 51 Chief Technology Officer of Sprint Spectrum
Bernard A. Bianchino........... 47 Chief Business Development Officer of
Sprint Spectrum
Robert M. Neumeister, Jr....... 46 Chief Financial Officer of Sprint Spectrum;
Vice President and Treasurer of FinCo
F. Edward Mattix............... 43 Chief Public Relations Officer of Sprint
Spectrum
Joseph M. Gensheimer........... 44 General Counsel and Secretary of Sprint
Spectrum; Secretary of FinCo
William T. Esrey............... 56 Holdings Partnership Board Representative
Gary D. Forsee................. 46 Holdings Partnership Board Representative
Gerald W. Gaines............... 40 Holdings Partnership Board Representative
Arthur B. Krause............... 54 Holdings Partnership Board Representative
James O. Robbins............... 53 Holdings Partnership Board Representative
Lawrence S. Smith.............. 48 Holdings Partnership Board Representative
</TABLE>
- --------
(1) Mr. LeMay has returned to Sprint as President and Chief Operating Officer,
although he is continuing to serve as Chief Executive Officer and
President of the Company and President of FinCo until September 2, 1996,
at which time he will be succeeded by Mr. Sukawaty.
(2) Mr. Sukawaty will begin serving as Chief Executive Officer and President
of the Company and President of FinCo effective September 2, 1996.
RONALD T. LEMAY, CHIEF EXECUTIVE OFFICER AND PRESIDENT
Ronald T. LeMay is President and Chief Operating Officer of Sprint and will
continue to serve as President and Chief Executive Officer of Sprint Spectrum
until September 2, 1996. Mr. LeMay began his telephony career with
Southwestern Bell Telephone Company in 1972. In 1983, Mr. LeMay was appointed
Regional Vice President of External Affairs for AT&T Communications in Kansas
City and in February 1985, he was named Vice President and Comptroller for
AT&T Communications where he served until July 1985 when he joined United
Telephone System, Inc. (a Sprint company) as Vice President and General
Counsel. In 1986, Mr. LeMay became Senior Vice President of Operations for the
United Telephone System. He became Executive Vice President of Corporate
Affairs for Sprint in 1987 and Executive Vice President of Staff for the Long
Distance Division in November 1988. In October of 1989, Mr. LeMay was
appointed President and Chief Operating Officer for the Long Distance
Division, a position he held until assuming responsibility for the Company in
March 1995. Mr. LeMay is the Vice Chairman of the Board of Directors of Sprint
and a director of the Mercantile Bank of Kansas City and Yellow Corporation.
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ANDREW SUKAWATY, CHIEF EXECUTIVE OFFICER-ELECT AND PRESIDENT-ELECT
Andrew Sukawaty was appointed Chief Executive Officer and President of
Sprint Spectrum effective September 2, 1996. Prior to joining the Company, Mr.
Sukawaty was Chief Executive Officer of NTL, the British diversified broadcast
transmission and communications company, since 1994. From 1989 to 1994, he was
Chief Operating Officer of Mercury One-2-One, the British company which
started the world's first PCS service in the U.K. in 1993. Prior to joining
Mercury One-2-One, Mr. Sukawaty held numerous positions for US WEST, Inc.,
including: Chief Operating Officer of US WEST Paging, President of Coastel, a
cellular communications company, and Vice President and branch manager for US
WEST Cellular. He also held marketing positions with AT&T and Northwestern
Bell Telephone Company.
ARTHUR A. KURTZE, CHIEF TECHNOLOGY OFFICER
Arthur A. Kurtze was appointed Chief Technology Officer of the Company in
June 1995. Prior to joining the Company, Mr. Kurtze was Senior Vice
President--Operations for Sprint's Local Telecommunications Division. Prior to
joining Sprint in March 1993, Mr. Kurtze was Executive Vice President in
charge of strategic planning and corporate development for Centel Corp.
Mr. Kurtze joined Centel in 1972 and served in various positions there,
including Vice President of Centel Communications Co., Vice President--Staff
of Centel Business Systems, Vice President--Market Planning for Centel Corp.,
Group Vice President of Centel Cable Television Co. and Senior Vice
President--Planning and Technology.
BERNARD A. BIANCHINO, CHIEF BUSINESS DEVELOPMENT OFFICER
Bernard A. Bianchino was appointed Chief Business Development Officer of the
Company in September 1995. Most recently, Mr. Bianchino was Executive Vice
President, General Counsel and External Affairs for Qwest Communications
Corporation. He served as Vice President--Law, General Business for Sprint
from 1992 to 1994 and as General Attorney; Vice President and Associate
General Counsel for US Sprint Communications Company from 1986 to 1992. From
1978 to 1986, Mr. Bianchino was counsel to a number of affiliates of Exxon
Corporation in its Enterprises Group, including Reliance Comm/Tec (now RELTEC)
and Exxon Office Systems. Prior to joining Exxon, he was an attorney with the
United States Department of Energy.
ROBERT M. NEUMEISTER, JR., CHIEF FINANCIAL OFFICER
Robert M. Neumeister, Jr. was named Chief Financial Officer of the Company
in September 1995. Prior to joining the Company, Mr. Neumeister served in
various capacities at Northern Telecom Ltd., which he joined in 1978. In June
1991, Mr. Neumeister was named Vice President of Finance and Information
Services for Northern Telecom--Canada. He continued with Northern Telecom as
Senior Vice President and Chief Financial Officer of Motorola Nortel
Communications Co., Vice President of Finance--Americas, Vice President--
Broadband Networks, Customer Network Solutions and Vice President of Finance.
F. EDWARD MATTIX, CHIEF PUBLIC RELATIONS OFFICER
F. Edward Mattix was named Chief Public Relations Officer of the Company in
April 1996. Prior to joining the Company, he was Vice President--Public
Relations for U S WEST Communications, Inc. Mr. Mattix served in various
management level positions relating to public relations or governmental
affairs since joining U S WEST, Inc. in 1976.
JOSEPH M. GENSHEIMER, GENERAL COUNSEL AND SECRETARY
Joseph M. Gensheimer was named General Counsel of the Company in October
1995. Mr. Gensheimer is responsible for all legal and regulatory functions.
Prior to joining the Company, he was Senior Counsel for IBM's mainframe and
supercomputer divisions. Prior to joining IBM in 1988, he was General Counsel
and Secretary of RealCom Communications Corporation, a telecommunications
services provider. From 1982 to 1984, Mr. Gensheimer was Senior Attorney and
Assistant Secretary for GTE Corporation. Prior to joining GTE, he was an
associate at Morgan, Lewis & Bockius and an attorney for the United States
Department of Justice.
58
<PAGE>
WILLIAM T. ESREY, REPRESENTATIVE
William T. Esrey was appointed as a representative of the Partnership Board
in March 1995. He has been the Chairman of Sprint since 1990 and its Chief
Executive Officer since 1985. Mr. Esrey is also a director of Sprint,
Equitable Life Assurance Society of America, General Mills, Inc., PanEnergy
Corporation and Everen Capital Corporation. Mr. Esrey currently serves on the
compensation committee of each of PanEnergy Corporation and Everen Capital
Corporation.
GARY D. FORSEE, REPRESENTATIVE
Gary D. Forsee was appointed as a representative of the Partnership Board in
March 1995. He has been the President--Long Distance Division of Sprint since
March 1995. Prior to such appointment, Mr. Forsee served for more than five
years in other capacities at Sprint, including President--Government Systems
Division, President--Business Services Group and Chief of Staff--Long Distance
Division.
GERALD W. GAINES, REPRESENTATIVE
Gerald W. Gaines was appointed as a representative of the Partnership Board
in March 1995. He has been the President of TCI Telephony Services, Inc. and
Senior Vice President of TCI Communications, Inc. since 1994. Prior to joining
TCI Communications, Mr. Gaines founded GCG, Inc. a management services firm
advising the telecommunications industry. From 1986 to 1991, Mr. Gaines served
as a senior-level executive of U S WEST, Inc. as President and Chief Executive
Officer for U S WEST Service Link. Mr. Gaines is a director of Teleport
Communications Group Inc.
ARTHUR B. KRAUSE, REPRESENTATIVE
Arthur B. Krause was appointed as a representative of the Partnership Board
in March 1995. He is the Executive Vice President and Chief Financial Officer
of Sprint, positions which he has held since 1988. Prior to such appointment,
Mr. Krause served in other management capacities at Sprint, including
President of United Telephone-Eastern Group.
JAMES O. ROBBINS, REPRESENTATIVE
James O. Robbins was appointed as a representative of the Partnership Board
in March 1995. He has served as President of Cox since September 1985, and as
Chief Executive Officer since May 1994. Mr. Robbins joined Cox in September
1983 and has served as Vice President, Cox Cable New York City and as Senior
Vice President, Operations of Cox. Prior to joining Cox, Mr. Robbins held
management and executive positions with Viacom Communications, Inc. and
Continental Cablevision. Mr. Robbins is a director of Telewest Plc, Teleport
Communications Group Inc. and Cox.
LAWRENCE S. SMITH, REPRESENTATIVE
Lawrence S. Smith was appointed as a representative of the Partnership Board
in March 1995. He has been Executive Vice President of Comcast since December
1995. Prior to that time, Mr. Smith served as Senior Vice President of Comcast
for more than five years. Mr. Smith is the Principal Accounting Officer of
Comcast. Mr. Smith is a Director of Comcast UK Cable Partners Limited.
COMMITTEES OF THE PARTNERSHIP BOARD; COMPENSATION; COMMITTEE INTERLOCKS
There are no standing committees of the Partnership Board. Representatives
receive no compensation for serving on the Partnership Board. There are no
compensation committee interlocks between Holdings and any affiliated entity.
59
<PAGE>
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 four most highly compensated executive officers
other than the Chief Executive Officer whose total salary and bonus exceeded
$100,000 during the year ended December 31, 1995 (the "Named Executives"). In
each case, Sprint paid each Named Executive and Holdings reimbursed Sprint for
such costs. The amounts set forth below are for only that portion of 1995 that
the Named Executives were employed by Holdings. See "--Executive Officers of
the Issuers and Holdings Partnership Board Representatives" for the month
during which each Named Executive commenced employment with Holdings.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG TERM COMPENSATION
-------------------------- --------------------------------
SECURITIES
UNDERLYING LTIP
NAME AND PRINCIPAL POSITION SALARY BONUS OTHER OPTIONS/SARS(#)(1) PAYOUTS($)(1)
--------------------------- -------- -------- -------- ------------------ -------------
<S> <C> <C> <C> <C> <C>
Ronald T. LeMay......... $408,333 $313,250 $ -- 132,017 $398,676
Chief Executive Officer
Arthur A. Kurtze........ 171,320 107,500 -- 11,000 69,890
Chief Technology
Officer
Bernard Bianchino....... 58,741 68,300 17,718(2) -- --
Chief Business
Development Officer
Robert M. Neumeister,
Jr. ................... 79,023 35,950 34,822(3) -- --
Chief Financial Officer
Joseph M. Gensheimer.... 78,161 31,150 233,381(4) -- --
General Counsel
</TABLE>
- --------
(1) Messrs. LeMay and Kurtze were employed by Sprint Corporation immediately
prior to their employment by Holdings, and as former employees, they
participated in certain long-term incentive plans at Sprint Corporation not
available to the other executives listed in this table. The Company
reimbursed Sprint Corporation for a portion of the amounts shown.
(2) Of the $17,718 shown as other compensation, $16,684 represents relocation
expenses paid on behalf of Mr. Bianchino.
(3) Of the $34,822 shown as other compensation, $31,818 represents relocation
expenses paid on behalf of Mr. Neumeister.
(4) Of the $233,381 shown as other compensation, $83,287 represents relocation
expenses paid on behalf of Mr. Gensheimer and $150,000 represents foregone
incentive compensation from his former employer.
OPTION GRANTS
The following table summarizes options granted during 1995 to Messrs. LeMay
and Kurtze, both of whom were employed by Sprint Corporation immediately prior
to their employment by the Company, under Sprint Corporation's stock option
plans. The amounts shown as potential realizable values on these options are
based on arbitrarily assumed annualized rates of appreciation in the price of
Sprint Corporation common stock of five percent and ten percent over the term
of the options, as set forth in the Commission's rules.
60
<PAGE>
OPTIONS GRANTED IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE VALUE AT
NUMBER OF % OF TOTAL ASSUMED ANNUAL RATES OF STOCK
SECURITIES OPTIONS PRICE APPRECIATION FOR OPTION
UNDERLYING GRANTED TO EXERCISE TERM(1)
OPTIONS EMPLOYEES OR BASE PRICE EXPIRATION -------------------------------
NAME GRANTED (#) IN FISCAL YEAR ($/SH) DATE 0% 5% 10%
---- ----------- -------------- ------------- ---------- ------------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Ronald T. LeMay......... 75,000(2) 2.4% $29.6250 2/17/05 0 $ 1,397,325 $ 3,541,097
50,000(3) 1.6% 28.6875 3/15/05 0 902,071 2,286,024
7,017(4) 0.2% 37.4375 3/9/03 0 113,575 267,318
Arthur A. Kurtze........ 11,000(2) 0.3% 29.6250 2/17/05 0 204,941 519,361
</TABLE>
- --------
(1) The dollar amounts in these columns are the result of calculations at the
five percent and ten percent rates set by the Commission and are not
intended to forecast future appreciation of Sprint Corporation common stock.
(2) Twenty-five percent of this option became exercisable on February 17,
1996, and an additional 25% will become exercisable on February 17 of each
of the three successive years. Each option has a reload feature.
(3) Options granted under the Sprint Corporation Management Incentive Stock
Option Plan (MISOP).
(4) Reload options. A reload option is an option granted when an optionee
exercises a stock option and makes payment of the purchase price using
shares of previously owned Sprint Corporation common stock. A reload option
grant is for the number of shares utilized in payment of the purchase price
and tax withholding, if any. The option price for a reload option is equal
to the market price of Sprint Corporation common stock on the date the
reload option is granted. A reload option becomes exercisable one year from
the date the original option was exercised.
LONG-TERM COMPENSATION PLAN
The Company intends to adopt a long-term compensation plan for the benefit
of specified employees.
SHORT-TERM INCENTIVE PLAN SUMMARY
The Partnership Board has adopted a Short-Term Incentive Compensation Plan
(the "Plan"). The Plan is administered by the Partnership Board, which is
authorized to interpret Plan provisions, determine membership, approve
incentive targets and payouts and otherwise manage the Plan. The Plan has no
specified termination date and may be amended or terminated without
constraint.
The Partnership Board selects eligible employees to participate in the Plan.
Eligibility is limited to employees within exempt salary bands. Participation
in the Plan precludes participation in any other short-term compensation
plans.
Payouts are granted based on pre-set targeted opportunities. Performance
periods are one year long and incentive targets ("Incentive Targets") are
approved by the Partnership Board for each performance period. An Incentive
Target is established for each position based on the Company's overall
compensation strategy. Incentive Targets contain unit objective, Company
objective, and personal components, which are approved by the Chief Executive
Officer, the Partnership Board and the Chief Officer of the relevant operating
unit, respectively. Maximum earnings for the Company objective and unit
objective components are determined by the Board for each performance period.
Participants may earn a maximum of 120% of the incentive opportunity allocated
to the personal objective component. However, a minimum level of performance
may be required to generate a payout for the personal objective component.
Payouts for employees selected to participate in the Plan after the start of
a performance period are prorated as are certain payouts for Plan participants
whose employment with the Company terminates prior to the end of a performance
period. Payouts for Plan participants who change positions during a
performance period will be prorated according to the opportunities applicable
to the positions which were held. Notwithstanding the above, employees may not
begin participation in the Plan within two calendar months prior to the
completion of a performance period.
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<PAGE>
The 1996 Incentive Targets are based on, among other things, the following
factors (i) markets launched by November 1, 1996, (ii) markets that are
launched or are positioned to launch during the period from November 1, 1996
through February 15, 1997, (iii) population covered by the markets launched
and (iv) expense control.
Participation in the Plan is terminated upon the transfer to a
nonparticipating position in the Company, employment by a Partner, death,
disability or separation from the Company for lack of work. Terminated
participants are eligible for a prorated payment based upon the time served
under the Plan. If a participant is terminated for any but the aforementioned
reasons, that participant's Plan payment is deemed forfeited. Participants who
complete a performance period will be eligible to receive a Plan payment
regardless of the reason for termination.
SAVINGS AND RETIREMENT PLAN
The Company maintains a savings and retirement program (the "Savings Plan")
for certain of its employees, which is qualified under Section 401(k) of the
Internal Revenue Code of 1986, as amended (the "Code"). Most permanent full-
time, and certain part-time, employees are eligible to become participants in
the plan. Participants make contributions to a basic before tax account and a
supplemental before tax account. The maximum contribution for any participant
for any year is 16% of such participant's compensation--up to six percent of
which may be contributed to the basic tax account--subject to maximum amounts
set by federal taxation law and certain additional limitations for Highly
Compensated Individuals (as defined in the Savings Plan). For each eligible
employee who elects to participate in the Savings Plan and makes a
contribution to the basic before tax account, the Company makes a matching
contribution equal to 50% of the amount of the basic before tax contribution
of each participant up to 6% of such employee's contribution. In addition, the
Company makes contributions to the Plan for each participant based on
compensation, attained age and number of completed years of the vesting
period, as well as certain additional qualified contributions for the accounts
of participants who are not Highly Compensated Employees. Contributions to the
Savings Plan are paid into a trust fund that is held in trust by the trustee
under the trust established pursuant to the Saving Plan. Contributions to the
Savings Plan are invested, at the participant's direction, in several
designated investment funds. Distributions from the Savings Plan generally
will be made only upon retirement or other termination of employment, unless
deferred by the participant.
PROFIT SHARING PLAN (RETIREMENT COMPONENT)
Employees become eligible to participate in the Profit Sharing Plan after
completing 12 consecutive months of service. The Company's profit sharing
contribution will be based on eligible compensation (as defined by the plan).
A combination of age and years of service will determine the amount
contributed, which will range from two to ten percent of eligible
compensation. It will be deposited into individual accounts of the Company
sponsored 401(k) plan. Such accounts will be established for employees who do
not participate in the 401(k) plan. For employees that do participate in the
401(k) plan, the contribution will be subject to the applicable 401(k)
investment percentage criteria. The contribution vests after completion of
five years of service; once vested the plan is considered portable.
EMPLOYMENT AGREEMENTS
Holdings has entered into an employment agreement with Andrew Sukawaty
effective September 2, 1996. The agreement provides for an annual base salary
of $425,000.
Sprint Spectrum may terminate Mr. Sukawaty's employment for any reason at
any time, provided, however, that if termination is other than for cause,
total disability or the voluntary resignation of Mr. Sukawaty, Sprint Spectrum
will be required to pay special compensation which includes, among other
things, (i) bi-weekly compensation for a period of 18 months (the "Severance
Period"), (ii) subject to certain conditions, a bonus under any short-term
incentive plan maintained during the Severance Period, (iii) a prorated award
under any long-term incentive plan in which Mr. Sukawaty participates, (iv)
life, medical and retirement benefits throughout the Severance Period and (v)
outplacement counseling.
62
<PAGE>
Pursuant to the terms of his employment agreement, Mr. Sukawaty has agreed
that for 18 months following termination of employment for any reason he will
not accept any position where, within any 90-day period, he dedicates his time
and efforts principally to the Wireless Business anywhere in the United
States.
Holdings has also entered into an employment agreement with Joseph M.
Gensheimer. In connection with the Reorganization, Holdings assigned such
employment agreement to Sprint Spectrum. The agreement provides for an annual
base salary of $300,000, as well as a short-term incentive opportunity of
$125,000 per annum. In addition, under the long-term incentive plan, which the
Company intends to adopt, Mr. Gensheimer will be entitled to an annualized
long-term target opportunity of $200,000. Mr. Gensheimer received a payment of
$150,000 in 1995 and, subject to continued employment with the Company, will
receive an additional $150,000 from Sprint Spectrum on the first anniversary
of employment with Sprint Spectrum for foregone stock options and 1995
incentive compensation related to his previous employer.
Sprint Spectrum may terminate Mr. Gensheimer's employment for any reason at
any time, provided, however, that if termination is other than for cause,
total disability or the voluntary resignation of Mr. Gensheimer, Sprint
Spectrum will be required to pay special compensation which includes, among
other things, (i) bi-weekly compensation for a period of 18 months (the
"Severance Period"), (ii) subject to certain conditions, a bonus under any
short-term incentive plan maintained during the Severance Period, (iii) a
prorated award under any long-term incentive plan in which Mr. Gensheimer
participates, (iv) life, medical and retirement benefits throughout the
Severance Period and (v) outplacement counseling.
Pursuant to the terms of his employment agreement, Mr. Gensheimer has agreed
that for 18 months following termination of employment for any reason he will
not accept any position where, within any 90-day period, he dedicates his time
and efforts principally to the Wireless Business anywhere in the United
States.
Sprint Spectrum expects to enter into employment agreements, on terms
substantially similar to those contained in Mr. Gensheimer's agreement, with
Messrs. Kurtze, Bianchino and Neumeister.
63
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The general partner of Sprint Spectrum is Holdings, which has a greater than
99% general partnership interest in Sprint Spectrum. There are four general
partners of Holdings, Sprint Enterprises, L.P., which has a 40% partnership
interest, TCI Telephony Services, Inc. which has a 30% partnership interest,
and Comcast Telephony Services and Cox Telephony Partnership, each of which
has a 15% partnership interest. Each of the Partners is a subsidiary of
Sprint, TCI, Cox or Comcast, as the case may be. See "Principal Security
Holders." Sprint is a leading provider of domestic and international long
distance and local exchange telecommunications services. In March 1996, Sprint
divested its cellular unit in a spin-off to its shareholders due to
overlapping cellular and PCS territories which is prohibited by the FCC. TCI
is one of the largest cable television operators in the United States in terms
of numbers of basic subscribers served, with consolidated systems serving
approximately 13.0 million basic subscribers as of March 31, 1996. Comcast is
engaged in the development, management and operation of cable and cellular
telephone communications systems and the production and distribution of cable
programming and has approximately 3.5 million subscribers in the United
States. Comcast also provides cellular telephone communications services in
markets with an aggregate population of over 7.9 million, including the
Comcast Service Area. Cox is a fully integrated, diversified media and
broadband communications company with operations and investments in U.S. cable
televisions systems (3.3 million wholly-owned and affiliated subscribers),
international cable television systems, programming and telecommunications and
technology.
The Company and Holdings expect to have extensive relationships with the
Partners and their affiliates, including the Parents, but the nature and terms
of such relationships have not yet been determined. The Holdings Partnership
Agreement sets forth guidelines for business dealings between the Company
and/or Holdings and the Partners and their affiliates, including the Parents.
The Holdings Partnership Agreement permits Holdings and its subsidiaries,
including the Company, to enter into transactions with the Partners and their
affiliates in the normal course of their respective businesses; provided,
however, that (i) any contract, agreement, relationship or transaction between
Holdings or any of its subsidiaries and any person in which any of the
Partners or their affiliates has a direct or indirect material interest must
be approved (after full disclosure by the interested Partner(s) of all
material facts relating to such matter) by the Partnership Board, with the
Partnership Board representatives of the interested Partner(s) abstaining from
deliberations and voting and (ii) the Partnership Board has determined that
the price and terms of such transaction are fair to Holdings and its
subsidiaries, including the Company, and that the price and terms of such
transaction are no less favorable than comparable transactions involving non-
affiliates. Subject to certain conditions, including, without limitation,
unanimous approval of appropriate procedures, the Partnership Board may elect
from time to time to provide rights of first opportunity to various Partners
or their affiliates. In addition, the Holdings Partnership Agreement contains
other provisions relating to transactions between Holdings and its
subsidiaries, including the Company, on the one hand, and the Partners and
their affiliates, on the other hand. No procedures have been adopted by the
Company to determine the fairness of related party transactions and no
determination has been made by the Company as to whether such procedures will
be adopted. The Company believes that it will be able to determine the
fairness of related party transactions on a case-by-case basis through
consultation with its independent advisors, market surveys and other third
party means of verification.
Holdings reimburses Sprint for certain accounting, data processing, and
other related services, and for certain cash payments made by Sprint on behalf
of Holdings and the Company. The costs of such services are allocated based on
direct usage. The aggregate amount of such expenses was approximately
$2,646,000 for 1995. No reimbursement was made through December 31, 1994.
PhillieCo and a Cox affiliate were formed by certain Partners, individually
and collectively, for the purposes of providing PCS wireless services in
Philadelphia and Los Angeles-San Diego, respectively. Holdings, having made
certain cash payments on behalf of PhillieCo and Cox's affiliate, will receive
reimbursements for direct costs incurred plus an amount for management
services provided to PhillieCo and Cox's affiliate. The aggregate amount of
such services provided as of December 31, 1995 was $183,225 and $156,528, due
from PhillieCo and Cox's affiliate, respectively.
64
<PAGE>
On June 21, 1996, the Company entered into an agreement with Cox-California
pursuant to which the Company is obligated to sell to Cox-California a fixed
percentage of the CDMA PCS subscriber equipment purchased by the Company from
QUALCOMM Personal Electronics. Although Cox-California is not a party to the
Purchase and Supply Agreement among the Company, QUALCOMM Personal Electronics
and the various other parties thereto, the Company has agreed to sell the CDMA
PCS subscriber equipment to Cox-California at cost.
Subject to certain exceptions, the Holdings Partnership Agreement restricts
any Partner and its controlled affiliates from bidding on, acquiring or,
directly or indirectly, owning, managing, operating, joining, controlling or
financing, or participating in the management, operation, control or financing
of, or being connected as a principal, agent, representative, consultant,
beneficial owner of an interest in any person or entity, or otherwise with, or
use or permit its name to be used in connection with, any business that
engages in the bidding for or acquisition of any Wireless Business license or
engages in any Wireless Business or provides, offers, promotes or brands
services that are within Holdings' core business. Unless approved by a
unanimous vote of the Partners and subject to certain provisions, (i) as a
result of Comcast's ownership of a PCS license for the Philadelphia MTA,
Holdings and its subsidiaries (including the Company) are prohibited from
engaging in any of the activities listed in the preceding sentence, including
bidding for or acquiring any PCS license, in Philadelphia and (ii) no Partner
or controlling affiliate may bid in a PCS auction for any Wireless Business
license, and at no time may any Partner bid for or acquire a Wireless Business
if such bid or acquisition would violate or cause the Partnership or other
Partners to violate any rules of the FCC.
The Holdings Partnership Agreement provides that the marketing channels of
the Company will include each of the Partners and certain of their affiliates.
Each of the Partners will be non-exclusive sales agents for the Company's
services, and the Company will be a non-exclusive sales agent for those
services Sprint and the Cable Parents make available to the Company. No agency
agreements formalizing the specific terms of these arrangements between the
Company and the Partners have been signed. Any commissions payable as a result
of the sales agency relationships between and among the Company and the
Partners are required to be no less favorable to the agent than those for
comparable agency arrangements with third parties irrespective of volume.
Subject to certain exceptions, the Company's services will be offered,
promoted and packaged solely under the Sprint trademark and the logo used in
connection therewith. Nothing in the Holdings Partnership Agreement, however,
precludes or prohibits the Partners and their affiliates from marketing,
selling or distributing their own products and services.
The Holdings Partnership Agreement provides that each Partner and its
controlled affiliates and Holdings, as a whole will cause their respective
agents to keep secret and maintain in confidence all confidential and
proprietary information and data of Holdings, the Partners and such
affiliates. Subject to such confidentiality restrictions, Holdings, and its
subsidiaries will grant each Partner and its controlled affiliates access to
technical information of Holdings and its subsidiaries.
Pursuant to the Holdings Partnership Agreement, each Partner has agreed to
provide certain services to the Company in connection with the operation of
the network, including antenna sites and/or strand mounting of RF and
transmission equipment, transmission facilities between cell sites and
designated switching locations and provision of primary power, standby power
and maintenance. The provisions of any such services by Comcast within the
Comcast Service Area is not required. See "The Partnership Agreements" and
"Business--Relationship with Partners and Parents."
65
<PAGE>
PRINCIPAL SECURITY HOLDERS
The following table sets forth, as of the date of this prospectus, the
ownership of the Issuers, Holdings and MinorCo, L.P. For a more detailed
discussion of certain ownership interests, see "Business" and "Certain
Relationships and Related Transactions."
<TABLE>
<CAPTION>
NAME AND ADDRESS PERCENTAGE
OF BENEFICIAL OWNER TYPE OF INTEREST INTEREST
------------------- ---------------- ----------
<S> <C> <C>
Sprint Spectrum Holding Company, L.P.
Sprint Enterprises, L.P.(1)................ Partnership(2) 40%
2330 Shawnee Mission Parkway
Westwood, Kansas 66205
TCI Telephony Services, Inc.(3)............ Partnership(2) 30%
5619 DTC Parkway
Englewood, Colorado 80111
Comcast Telephony Services(4).............. Partnership(2) 15%
1500 Market Street
Philadelphia, Pennsylvania 19102-2148
Cox Telephony Partnership(5)............... Partnership(2) 15%
1400 Lake Hearn Drive
Atlanta, Georgia 30319-1464
Sprint Spectrum L.P.
Sprint Spectrum Holding Company, L.P.(6)... General Partnership 99%
4717 Grand Avenue--Fifth Floor
Kansas City, Missouri 64112
MinorCo, L.P.(6)........................... Limited Partnership 1%
4717 Grand Avenue--Fifth Floor
Kansas City, Missouri 64112
MinorCo, L.P.
Sprint Enterprises, L.P.(1)................ Partnership(2) 40%
2330 Shawnee Mission Parkway
Westwood, Kansas 66205
TCI Telephony Services, Inc.(3)............ Partnership(2) 30%
5619 DTC Parkway
Englewood, Colorado 80111
Comcast Telephony Services(4).............. Partnership(2) 15%
1500 Market Street
Philadelphia, Pennsylvania 19102-2148
Cox Telephony Partnership(5)............... Partnership(2) 15%
1400 Lake Hearn Drive
Atlanta, Georgia 30319-1464
Sprint Spectrum Finance Corporation
Sprint Spectrum L.P........................ Common Stock 100%
4717 Grand Avenue--Fifth Floor
Kansas City, Missouri 64112
</TABLE>
- --------
(1) An indirect wholly-owned subsidiary of Sprint Corporation. The general
partner of Sprint Enterprises, L.P. is US Telecom, Inc., a subsidiary of
Sprint Corporation. The limited partner of Sprint Enterprises, L.P. is
UCOM, Inc., a subsidiary of Sprint Corporation.
(2) Each Partner is both a general partner and a limited partner and holds 99%
of its partnership interest as a general partner and 1% as a limited
partner.
(3) A subsidiary of Tele-Communications, Inc. Interest was originally held by
TCI Network Services and subsequently transferred to TCI Telephony
Services, Inc.
(4) Comcast Telephony Services is a general partnership. The general partners
are COM Telephony Services, Inc. and Comcast Telephony Services, Inc.
(5) Cox Telephony Partnership is a general partnership. The general partners
are Cox Communications Wireless, Inc. and Cox Telephony Partners, Inc.
(6) As of June 30, 1996, Holdings, the sole general partner of Sprint
Spectrum, owned a greater than 99.75% partnership interest in Sprint
Spectrum, and MinorCo, the sole limited partner, owned a partnership
interest equal to less than 0.25%. The interests held by each of Holdings
and MinorCo fluctuate based on the amount of equity contributed by
Holdings to Sprint Spectrum because MinorCo's limited partnership interest
is equal to the ratio of $5.0 million (its investment in Sprint Spectrum)
to the total contributed equity in Sprint Spectrum.
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<PAGE>
THE PARTNERSHIP AGREEMENTS
The following sets forth a summary of certain provisions of the Amended and
Restated Agreement of Limited Partnership of Holdings (the "Holdings
Partnership Agreement") and the Agreement of Limited Partnership of Sprint
Spectrum (the "Sprint Spectrum Partnership Agreement" and together with the
Holdings Partnership Agreement, the "Partnership Agreements"). The Partnership
Agreements are included as exhibits to the Registration Statement of which
this Prospectus constitutes a part. The following discussion is qualified in
its entirety by reference to the Partnership Agreements.
SPRINT SPECTRUM PARTNERSHIP AGREEMENT
Sprint Spectrum was formed as a limited partnership pursuant to the
provisions of the Delaware Revised Uniform Limited Partnership Act, as amended
(the "Partnership Act"). A certificate of limited partnership of Sprint
Spectrum was filed with the Secretary of State of the State of Delaware on
March 28, 1995. Sprint Spectrum will continue until its dissolution and
winding up in accordance with the terms of the Sprint Spectrum Partnership
Agreement. See "--Dissolution and Winding Up." The general partner (the
"General Partner") of Sprint Spectrum is Holdings, which holds a greater than
99% general partnership interest. The remaining limited partnership interest
is owned by MinorCo (the "Limited Partner"). See "Business--General".
The purposes of Sprint Spectrum are (i) to engage, through one or more
subsidiaries, in the Wireless Business and to provide certain services related
thereto; (ii) to act as the general partner for WirelessCo; (iii) to make
capital contributions to, and receive distributions from, WirelessCo; and (iv)
to perform such activities in furtherance of the foregoing as may be
determined to be necessary from time to time by the General Partner. The
General Partner appoints the senior management of Sprint Spectrum.
The General Partner will conduct the business and affairs of Sprint
Spectrum, and all powers of Sprint Spectrum, except those specifically
reserved to the Limited Partner by the Partnership Act, have been granted to
and vested in the General Partner.
Limitation on Liability and Indemnification. The Sprint Spectrum Partnership
Agreement provides that any partner or former partner, or any affiliate
thereof, any partner, shareholder, director, officer, employee or agent of any
of the foregoing, or any officer or employee of Sprint Spectrum will not be
liable in damages for any act or failure to act in such person's capacity as a
partner or otherwise on behalf of Sprint Spectrum or any of its subsidiaries
unless such act or omission constituted bad faith, gross negligence, fraud or
willful misconduct of such person or a violation of the Sprint Spectrum
Partnership Agreement or any agreement between such person and Sprint Spectrum
or any of its subsidiaries. In addition, each partner or former partner, or
each affiliate thereof, each partner, shareholder, director, officer, employee
or agent or any of any of the foregoing, and each officer and employee of
Sprint Spectrum will be indemnified and held harmless by Sprint Spectrum from
and against any liability for damages and expenses, including reasonable
attorney's fees and disbursements and amounts paid in settlement, resulting
from any threatened, pending or completed action, suit or proceeding relating
to or arising out of such person's acts or omissions in such person's capacity
as a partner or otherwise involving such person's activities on behalf of
Sprint Spectrum or any of its subsidiaries, except to the extent that such
damages or expenses result from bad faith, gross negligence, fraud or willful
misconduct of such person or a violation of the Sprint Spectrum Partnership
Agreement or any agreement between such person and Sprint Spectrum or any of
its subsidiaries.
Dissolution and Winding Up. Sprint Spectrum will dissolve and commence
winding up and liquidation upon the first to occur of (i) the sale of all or
substantially all of its property; (ii) the sale of WirelessCo or all or
substantially all of its property and the distribution of the net proceeds
therefrom to Sprint Spectrum; (iii) the written consent of all of the partners
to dissolve, wind up and liquidate Sprint Spectrum; or (iv) subject to certain
conditions, the withdrawal of a general partner, the assignment by a general
partner of its entire partnership interest or any other event that causes a
general partner to cease to be a general partner under the Partnership
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Act. Upon the occurrence of any such event, the General Partner shall be
responsible for overseeing the dissolution and winding up of Sprint Spectrum.
HOLDINGS PARTNERSHIP AGREEMENT
Holdings was formed as a limited partnership by Sprint Enterprises, L.P.,
TCI Telephony Services, Inc., Comcast Telephony Services and Cox Telephony
Partnership (TCI Telephony Services, Inc., Comcast Telephony Services and Cox
Telephony Partnership are herein collectively referred to as the "Cable
Partners") pursuant to the provisions of the Partnership Act. Each Partner is
both a general partner (in such capacity a "General Partner") holding 99% of
its interest as a general partner and a limited partner (in such capacity, a
"Limited Partner") holding 1% of its interest as a limited partner.
A certificate of limited partnership of Holdings was filed with the
Secretary of State of the State of Delaware on March 28, 1995. Holdings will
continue until its winding up and liquidation in accordance with the terms of
the Holdings Partnership Agreement. See "--Dissolution and Winding Up."
The purposes of Holdings, as set forth in the Holdings Partnership
Agreement, are (i) to engage in the Wireless Business and to provide certain
services related thereto, either directly or through one or more subsidiaries,
and (ii) to perform any activities in the furtherance of such Wireless
Business and the provision of such related services as may be approved from
time to time by the Partnership Board.
Capital Contributions. Each of the Partners has made an initial capital
contribution ("Initial Capital Contribution") of both cash and property that
total $ 2.4 billion in the aggregate for all four Partners. The initial
percentage interest (the "Percentage Interest") of each of Sprint Enterprises,
L.P., TCI Telephony Services, Inc., Comcast Telephony Services and Cox
Telephony Partnership is 40%, 30%, 15% and 15%, respectively. Each Partner is
required, subject to the limitations described below, to make additional
capital contributions ("Additional Capital Contributions") in cash and, in the
case of Cox, the Omaha MTA PCS license and an undivided fractional interest in
the PCS license for the Los Angeles-San Diego MTA that ultimately will be held
by Cox-California (the "Licenses"), in an amount up to its initial Percentage
Interest times an amount equal to $4.2 billion (including the amount of the
Initial Capital Contributions) plus the agreed upon value of the Licenses
(together, the "Total Mandatory Contributions").
The Partnership Board and, under certain circumstances, the Chief Executive
Officer, may request that the Partners make Additional Capital Contributions
of cash to fund the needs of Holdings for the ensuing six months or for such
shorter period as may be determined by the Partnership Board and as such needs
are reflected in the applicable annual budget. Such contributions, in the
aggregate, may not exceed the cumulative amount of Additional Capital
Contributions contemplated in the annual budget for the fiscal year, unless
otherwise approved by the Partnership Board. In addition, if such fiscal year
falls within the initial two-year period (January 1, 1996 to December 31,
1997), such Additional Capital Contribution shall not exceed (i) with respect
to the first fiscal year in the initial two-year period, the product of 150%
times the planned capital amount for such fiscal year as set forth in the
annual budget ($1,131 million for fiscal 1996), and (ii) with respect to the
second fiscal year in the initial two-year period, the product of 150% times
the planned capital amount for such fiscal year ($767 million for fiscal 1997)
(less any portion of such planned capital amount for which Additional Capital
Contributions were requested in the first fiscal year in the initial two-year
period) plus any portion of the planned capital amount for the first fiscal
year in the initial two-year period for which Additional Capital Contributions
were not requested, in each case unless otherwise approved by a unanimous vote
of the Partnership Board. The amount so requested from each Partner by the
Partnership Board or the Chief Executive Officer, as the case may be, shall be
equal to such Partner's pro rata share of such Additional Capital Contribution
based upon its initial Percentage Interest.
No Partner may decline a request to make an Additional Capital Contribution
at any time prior to December 31, 1999, except to the extent such Additional
Capital Contribution, when added to the aggregate amount of such Partner's
capital contributions prior to the time of such Additional Capital
Contribution, exceeds such Partner's share of the Total Mandatory
Contribution. After the earlier of (i) December 31, 1999 or (ii) such time as
the
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aggregate amount of Initial Capital Contributions and Additional Capital
Contributions made or requested to be made by the Partners first equals or
exceeds the Total Mandatory Contributions (the "Cut-Off Time"), such Partner
may decline a request for an Additional Capital Contribution during any fiscal
year provided that none of such Partner's Representatives (as defined below)
voted in favor of the fiscal year's budget calling for the Additional Capital
Contributions and none of such Representatives voted in favor of requesting
such Additional Capital Contributions. In the event of a shortfall due to a
partner declining (a "Declining Partner") to make such an Additional Capital
Contribution, however, the Chief Executive Officer will request that each
Partner that made its respective Additional Capital Contribution in full make
Additional Capital Contributions in an aggregate amount equal to the amount
not contributed by the Declining Partner. Each Partner that is willing to fund
the shortfall may do so up to 100% of such shortfall and if the amount
committed by all Partners agreeing to fund the shortfall exceeds 100%, except
as otherwise provided in the following sentence, each such Partner will be
entitled to contribute that amount equal to the percentage of the shortfall
equal to the ratio that such Partner's Percentage Interest bears to the
aggregate Percentage Interests of all Partners. If the Declining Partner is a
Cable Partner, and no Cable Partner's Percentage Interest is equal to or
greater than Sprint's Percentage Interest, the shortfall first shall be
allocated among the Cable Partners that committed to fund the shortfall as if
Sprint had not so committed, until such time as at least one Cable Partner's
Percentage Interest is equal to Sprint's Percentage Interest, after which such
shortfall shall be allocated pro rata among all Partners that committed to
fund such shortfall in accordance with their respective Percentage Interests.
If any Partner declines a request for an Additional Capital Contribution
relating to the first $800 million of Additional Capital Contributions
requested after the Cut-Off Time (a "Second Tranche Call") and the Partnership
Board determines that the Partners' aggregate adjusted net equity in Holdings
is less than the aggregate amount of capital contributions previously made by
the Partners, the Partnership Board may elect to convert such Second Tranche
Call to a "Premium Call," pursuant to which the Partners, including the
Declining Partner, will be given another opportunity to make the Additional
Capital Contributions requested pursuant to such Second Tranche Call. If any
Partner then declines to make its Additional Capital Contribution, all amounts
contributed by the other Partners pursuant to such Second Tranche Call shall
be treated as "Premium Dollars," meaning that, for purposes of adjusting the
contributing Partners' Percentage Interests, each such dollar will be valued
on the basis of adjusted net equity divided by the sum of all previously made
Initial Capital Contributions and Additional Capital Contributions, thereby
increasing the dilutive impact on the Declining Partner's Percentage Interest.
In the event that any Partner fails to make all or any portion of an
Additional Capital Contribution (other than an Additional Capital Contribution
that such Partner is entitled to decline to make under the circumstances
described above), a penalty will accrue with respect to such unpaid amount at
the applicable floating rate from and including the date of the requested
Additional Capital Contribution until such unpaid amount and the penalty
imposed thereon are paid or until the period during which such Partner may
cure its failure to make such unpaid amount, and the penalty imposed thereon,
has expired. In the event such Partner fails to make the requested Additional
Capital Contribution and to pay the related penalty within ten days after the
date such Additional Capital Contribution was due, the Chief Executive Officer
will request that each Partner that made its respective Additional Capital
Contribution in full make loans to Holdings in an aggregate amount equal to
the amount of the Additional Capital Contribution that such delinquent Partner
failed to make. The amount of the loan that each such Partner shall be
entitled to make will be determined in the same manner as described above with
respect to the Additional Capital Contributions that the Partners are entitled
to make with respect to a shortfall caused by a Declining Partner. Any such
delinquent Partner may cure its default within 90 days from the date of the
above-referenced loans by transferring to an account of Holdings the amount of
the unpaid amount and the unpaid penalty. The failure of such delinquent
Partner to cure such default would result in such Partner becoming a
"Defaulting Partner" and would constitute an Adverse Act (as defined under--
"Management"), which would permit the Partnership Board to elect (i) to
commence procedures to allow the other Partners to purchase such Defaulting
Partner's interest in Holdings at a discount or (ii) to cause Holdings to seek
to obtain specific performance of such Defaulting Partner's obligations or to
sue for money damages.
Each Partner also may contribute from time to time such additional cash or
property as the Partnership Board approves.
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The Percentage Interests of the Partners will be adjusted from time to time
to reflect the failure of any Partner to make an Additional Capital
Contribution. Percentage Interests will be adjusted as follows: (i) with
respect to Additional Capital Contributions requested prior to the time that
the aggregate amount of Initial Capital Contributions and Additional Capital
Contributions made or requested to be made exceeds the Total Mandatory
Contributions, Percentage Interests will be adjusted on a pro rata basis to
give effect to the aggregate Initial Capital Contribution and Additional
Capital Contributions made by each Partner, (ii) with respect to an Additional
Capital Contribution that is converted to a Premium Call, Percentage Interests
shall be adjusted based upon the Premium Dollars procedures described above,
and (iii) with respect to an Additional Capital Contribution requested after
the time that the aggregate amount of Initial Capital Contributions and
Additional Capital Contributions made or requested to be made exceeds $5
billion, Percentage Interests will be adjusted on a pro rata basis to give
effect to each Partner's adjusted net equity in its interest in Holdings
(taking into account the Additional Capital Contribution made by such Partner
with respect to the requested Additional Capital Contribution to which such
adjustment of Percentage Interests relates).
Management. The General Partners of Holdings conduct the business and
affairs of Holdings and have all the powers of Holdings except for those
specifically reserved to all of the general and limited partners by the
Partnership Act or the Holdings Partnership Agreement. The General Partners
conduct such business and exercise such powers through their representatives
on the Partnership Board (the "Representatives"). The Partnership Board
currently has six voting Representatives, three of whom are designated by
Sprint and one of whom is designated by each of the Cable Partners. The Chief
Executive Officer is a non-voting member of the Partnership Board. In the
event that the Percentage Interests change, the Holdings Partnership Agreement
provides for different allocations of Representatives among the Partners and,
in certain situations, a change in the size of the Partnership Board,
provided, however, that Sprint will be entitled to designate two
Representatives as long as its Percentage Interest is at least 20%.
If any Partner becomes an "Adverse Partner" through, among other things,
becoming a Defaulting Partner, disposition of its Partnership Interest other
than in accordance with the Holdings Partnership Agreement, default or a
material breach of a material covenant (each, an "Adverse Act"), such Partner
shall forfeit the right to designate a member of the Partnership Board, and
any existing Representatives of such Partner shall cease to be members of the
Partnership Board.
The Representative or Representatives designated by each General Partner
have voting power equal to the voting Percentage Interest of the Partner
appointing him or them. If a General Partner designates more than one
Representative such Representatives are required to vote the entire voting
power held by such General Partner as a single unit. Except for Partners that
are controlled affiliates of the same parent, none of the Partners may enter
into any agreements with any other Partner (or its controlled affiliates)
regarding the voting of their respective Representatives on the Partnership
Board.
Each Representative holds his or her office at the pleasure of the General
Partner that designated such Representative. Any General Partner may at any
time, and from time to time, remove any or all of its Representatives and
appoint substitute Representatives. Representatives are not entitled to
compensation from Holdings for serving in such capacity and the costs incurred
by each Representative are borne by the Partner designating such
Representative.
Except as set forth below, all actions required or permitted to be taken by
the Partnership Board must be approved by the affirmative vote of
Representatives having voting power of 75% or more of the Percentage Interests
entitled to vote on such action (other than those required to abstain pursuant
to the terms of the Holdings Partnership Agreement). The decision to convert a
Second Tranche Call to a Premium Call and certain related matters requires a
simple majority vote of more than 50% of the voting Percentage Interest of all
Partners whose Representatives are not required to abstain. The unanimous vote
of the Partnership Board is required for specified matters including, but not
limited to, admission of new Partners or equity holders, actions that would
result in voluntary bankruptcy or the dissolution of Holdings or any
subsidiary, approval of transactions which would subject Holdings to certain
restrictions relating to FCC regulatory oversight, actions relating to the
incurrence of
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indebtedness that is recourse to the Partners, certain acquisitions and
dispositions of assets and the approval of a request for withdrawal by a
General Partner.
The unanimous consent of all of the Partners (other than those required to
abstain pursuant to the terms of the Holdings Partnership Agreement) is
required for any amendment to, or material deviation from, the Initial
Business Plan (as defined in the Holdings Partnership Agreement) during the
fiscal year ending December 31, 1996, engagement by Holdings in businesses
outside those specified in the Holdings Partnership Agreement or the
conducting of business by Holdings or its subsidiaries in the Philadelphia
MTA, the loan or advancement by Holdings or any subsidiary of funds to, or the
guarantee of any obligations of, a Partner or any affiliate thereof, the
making of any non-pro rata cash or in-kind distributions to a Partner other
than in accordance with the terms of the Holdings Partnership Agreement, the
approval of, amendment, modification or supplement to, procedures relating to
the winding up of the affairs of Holdings and, subject to certain exceptions,
the incurrence of any debt for loans made by a Partner or affiliate thereof
and any amendment, modification or supplement to the Holdings Partnership
Agreement. If any such action is not so approved solely due to the failure of
one or more Partners who is not entitled to representation on the Partnership
Board to consent, the Holdings Partnership Agreement provides means by which
the consenting Partners may purchase all of such non-consenting Partner's
interest.
The Partnership Board is responsible for appointing the senior management of
Holdings and its subsidiaries and for establishing policies and guidelines for
the hiring of employees by Holdings and its subsidiaries. The Partnership
Board may delegate authority to officers, employees, agents and
representatives as it deems appropriate and each Representative may authorize
by proxy another person to vote for such Representative at a Partnership Board
meeting. The Partnership Board has delegated to the Chief Executive Officer
the responsibility for appointing the senior management of Holdings and its
subsidiaries.
The Chief Executive Officer shall submit annually to the Partnership Board,
within 90 days of the start of a fiscal year, both a proposed budget for the
upcoming fiscal year and a proposed business plan covering such fiscal year
and the succeeding four fiscal years. The day-to-day business and operations
of the Partnership and its subsidiaries shall be conducted in accordance with
the approved business plan and annual budget then in effect and the policies,
strategies and standards established by the Partnership Board.
Liability of Partners, Representatives and Partnership Employees. The
Holdings Partnership Agreement provides that no Partner or former Partner,
Representative or former Representative, no Affiliate (as defined in the
Holdings Partnership Agreement) of any thereof, no partner, shareholder,
director, officer, employee or agent of any of the foregoing, nor any officer
or employee of Holdings, will be liable in damages for any act or failure to
act in such person's capacity as a Partner or Representative or otherwise on
behalf of Holdings or any of its subsidiaries unless such act or omission
constituted bad faith, gross negligence, fraud or willful misconduct of such
person or a violation by such person of the Holdings Partnership Agreement or
an agreement between such person and Holdings or a subsidiary thereof. Subject
to certain conditions, each Partner, former Partner, Representative and former
Representative, each Affiliate of any thereof, each partner, shareholder,
director, officer, employee and agent of any of the foregoing, and each
officer and employee of Holdings, will be indemnified and held harmless by
Holdings, from and against any liability for damages and expenses, including
reasonable attorneys' fees and disbursements and amounts paid in settlement,
resulting from any threatened, pending or completed action, suit or proceeding
relating to or arising out of such person's acts or omissions in such person's
capacity as a Partner or Representative or otherwise involving such person's
activities on behalf of the partnership or any of its subsidiaries, except to
the extent that such damages or expenses result from the bad faith, gross
negligence, fraud or willful misconduct of such person or a violation by such
person of the Holdings Partnership Agreement or an agreement between such
person and Holdings or any of its subsidiaries. Any indemnity by Holdings will
be provided out of, and to the extent of partnership property only.
Conversion to Corporate Form. The Holdings Partnership Agreement provides
that in the event the Partnership Board determines that it is desirable for
the business of Holdings to be conducted in a corporate
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form, the Partnership Board shall incorporate Holdings in the state of
Delaware. In the event of such a conversion, Holdings and MinorCo shall be
consolidated, and the Partners will receive, in exchange for their respective
Holdings and MinorCo interests, shares of capital stock of such corporation in
the same relative economic interests--defined in terms of net equity--as such
Partners hold in Holdings. Upon conversion to corporate form, the corporate
successor shall grant to each of the Partners certain rights to require such
successor to register under the Securities Act the shares of capital stock
received by the Partners in exchange for their interests in Holdings. After
August 1, 2003, the Partners have certain rights either to cause Holdings to
convert to corporate form or to have their Partnership Interests purchased by
the other Partners.
Competition with Partners. Subject to certain exceptions, the Holdings
Partnership Agreement restricts any Partner and its controlled affiliates from
bidding on, acquiring or, directly or indirectly, owning, managing, operating,
joining, controlling or financing, or participating in the management,
operation, control or financing of, or being connected as a principal, agent,
representative, consultant, beneficial owner of an interest in any person or
entity, or otherwise with, or use or permit its name to be used in connection
with, any business that engages in the bidding for or acquisition of any
Wireless Business license or engages in any Wireless Business or provides,
offers, promotes or brands services that are within Holdings' core business.
Unless approved by a unanimous vote of the Partners and subject to certain
provisions, (i) within the Philadelphia MTA Holdings is prohibited from
engaging in any of the activities listed in the preceding sentence, including
bidding for or acquiring any PCS licenses and (ii) no Partner or its
controlled affiliate shall bid in a PCS auction for any Wireless Business
license, and at no time may any Partner bid for or acquire a Wireless Business
if such bid or acquisition would violate or cause the Partnership or other
Partners to violate any rules of the FCC.
The Holdings Partnership Agreement permits Holdings and its subsidiaries to
enter into transactions with the Partners and their affiliates in the normal
course of their respective businesses provided, however, that the Partnership
Board has determined that the price and terms of such transaction are fair to
Holdings and its subsidiaries and that the price and terms of such transaction
are no less favorable than comparable transactions involving non-affiliates.
Subject to certain conditions, including without limitation, unanimous
approval of appropriate procedures, the Partnership Board may elect from time
to time to provide rights of first opportunity to various Partners or their
affiliates. In addition, any transaction between Holdings and its subsidiaries
on the one hand and the Partners and their affiliates (including the Parents)
on the other hand shall be approved by the Partnership Board by the requisite
affirmative vote of the Representatives of the disinterested Partners.
Business Relationship with Partners. The Holdings Partnership Agreement
provides that the marketing channels of the Company will include each of the
Partners and certain of their affiliates. Each of the Partners will be non-
exclusive sales agents for the Company's services and the Company will be a
non-exclusive sales agent for those services Sprint and the Cable Parents make
available to the Company. As of the date of this Prospectus, no agency
agreements formalizing the specific terms of these arrangements between the
Company and the Partners have been signed. Any commissions payable as a result
of the sales agency relationships between and among the Company and the
Partners are required to be no less favorable to the agent than those for
comparable agency arrangements with third parties. The Company's services will
be offered, promoted and packaged solely under the Sprint trademark and the
logo used in connection therewith. Nothing in the Holdings Partnership
Agreement, however, precludes or prohibits the Partners and their affiliates
from marketing, selling or distributing their own products and services.
The Holdings Partnership Agreement provides that each Partner and its
controlled affiliates and Holdings, as a whole shall cause their respective
agents to keep secret and maintain in confidence all confidential and
proprietary information and data of Holdings, the Partners and such
affiliates. Subject to such confidentiality restrictions, Holdings and its
subsidiaries shall grant each Partner and its controlled affiliates access to
technical information of Holdings and its subsidiaries.
Pursuant to the Holdings Partnership Agreement, each Partner has agreed to
provide certain services to the Company in connection with the operation of
the network, including antenna sites and/or strand mounting of RF
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and transmission equipment, transmission facilities between cell sites and
designated switching locations and provision of primary power, standby power
and maintenance. The provisions of any such services by Comcast within the
Comcast Service Area is not required.
The Partnership Agreement also provides that the Partners and the Company
will coordinate, to the extent permitted by law and as is commercially
reasonably, their respective buying efforts from third party vendors.
Dispositions of Interests. Subject to certain restrictions, a Partner may at
any time transfer all or a portion of its interest (i) to any controlled
affiliate of such Partner, (ii) in connection with certain permitted
transactions involving such Partner, (iii) to the administrator or trustee of
such Partner to whom such interest is transferred in an involuntary
bankruptcy, (iv) pursuant to and in compliance with certain sections of the
Holdings Partnership Agreement, including sections relating to Adverse Acts,
rights of first refusal, tag-along rights, offer and registration rights and
rights of first offer and buy-sell arrangements and (v) with the prior written
consent of the other Partners.
After March 1, 2000, a Partner may transfer all or any portion of its
partnership interest to a person that is not a controlled affiliate of such
Partner (a "Purchaser") provided that such Partner first offers to sell such
partnership interest or portion thereof to the other Partners and provided
that such transfer would not result in the occurrence of an Adverse Act. If
such Purchaser after such transfer would own more than 55% of the Percentage
Interests, then the transfer will not be permitted unless such Purchaser
offers to purchase the entire interest of any other Partner wishing to sell
its interest.
Termination of Status as General Partner. A General Partner will cease to be
a General Partner upon (i) the permitted transfer of such Partner's entire
interest as a Partner, (ii) the unanimous vote of the Partnership Board
approving a request by such General Partner to withdraw, (iii) any Adverse Act
with respect to such Partner, (iv) such Partner's failure to satisfy an 8%
minimum ownership requirement or (v) in the case of Comcast only, the
occurrence of specified events that cause Comcast to become solely a limited
partner.
Dissolution and Winding Up. Holdings will be dissolved upon the earliest to
occur of (i) the sale of all or substantially all of the property of Holdings,
(ii) a unanimous vote of the Partnership Board to dissolve, wind up, and
liquidate Holdings in accordance with the terms of the Holdings Partnership
Agreement, (iii) the failure of the General Partners to resolve a "Deadlock
Event," which is deemed to occur if the Partnership Board fails to approve a
proposed annual budget or business plan for two consecutive fiscal years or if
the position of Chief Executive Officer remains vacant for 60 days after a
candidate has been proposed by at least two Partners with an aggregate of at
least 33% of the voting Percentage Interests and (iv) the withdrawal of a
General Partner, the assignment by a General Partner of its entire interest or
any other event that causes a General Partner to cease to be a general partner
under the Partnership Act; provided, that upon the occurrence of the events
set forth in clause (iv) above, Holdings will not be dissolved or required to
be wound up if (x) at the time of such event there is at least one remaining
General Partner, or (y) if there is not at least one remaining General
Partner, within 90 days after such event all remaining Partners agree in
writing to continue the business of Holdings and to the appointment, effective
as of the date of such event, of one or more additional General Partners.
Upon the occurrence of the events described in clauses (ii), (iii) and (iv)
above, and subject to the satisfaction of certain conditions, the Holdings
Partnership Agreement provides for buy/sell arrangements pursuant to which a
General Partner or a group of General Partners may purchase all of the
partnership interests thereby preventing the winding up and liquidation. In
the event such procedures fail to cause the sale of such partnership interests
in accordance with the buy/sell provisions, the Partnership Board shall be
responsible for overseeing the dissolution and winding up of Holdings, shall
cause the Holdings's property to be liquidated and shall apply and distribute
the proceeds therefrom in accordance with the terms of the Holdings
Partnership Agreement.
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DESCRIPTION OF VENDOR CONTRACTS AND FINANCING
VENDOR CONTRACTS
In connection with the construction of its PCS network and the preparation
for launch of commercial service, the Company has entered into numerous
contracts with various of its vendors. Copies of the Procurement Contracts
have been filed as exhibits to the Registration Statement of which this
Prospectus is a part. The following summary of certain provisions of the
Procurement Contracts does not purport to be complete and is subject to, and
qualified in its entirety by reference to, all of the provisions of the
Procurement Contracts.
Procurement Contracts
In connection with the network buildout, Holdings has entered into
Procurement Contracts with each of Nortel and Lucent, pursuant to which each
of Nortel and Lucent will provide certain of the fundamental infrastructure
products and services required for the establishment of the Company's PCS
network. The Procurement Contracts are non-recourse to the Parents and the
Partners or any intermediary partnership and have been assigned to the Company
in connection with the Reorganization. The Vendors may select and retain
subcontractors for performance of their obligations provided that such
subcontractors meet the standards and requirements as set forth in the
Procurement Contracts.
The initial term of each of the Procurement Contracts is 10 years subject to
extension by annual renewals. The Procurement Contracts generally require
payment for construction on a current basis and, for equipment and software on
every PCS system, 15-25% on delivery, 58-65% upon substantial completion and
18-20% on final acceptance, in each case with payment due within 30-45 days
from invoice. The amount of such contract price will be reduced by all amounts
saved as a result of certain engineering changes suggested by the Company that
are incorporated into the specifications by the Vendors; provided that the
Vendors reasonably believe that such changes would not make it impossible or
impracticable for the Vendors to comply with their obligations under the
Procurement Contracts. If at any time a Vendor is in material breach of the
Procurement Contract with respect to any PCS system, the Company shall have no
obligation to make any payment for work done in addition to those amounts
previously paid until and unless such breach is cured or waived by the
Company.
The minimum purchase commitments for the initial term are $0.8 billion and
$1.0 billion for Lucent and Nortel, respectively, which include, but are not
limited to, all CDMA equipment required for the establishment and installation
of the Network.
The Procurement Contracts provide for warranties of generally one to three
years from the final acceptance of equipment, services and PCS systems
provided by the applicable Vendor and warranty damages for the breach thereof.
Each Vendor has agreed to provide substantial training at no extra cost and
"most favored customer" status is generally applicable to all terms including
pricing, availability and payment terms. Payment for a majority of the
infrastructure costs is delayed until the Vendors achieve substantial
completion and deliver a functional system within their allocated MTAs. These
substantially turnkey arrangements as well as the liquidated damages discussed
below place the impetus for timely, high-quality network completion on the
Vendors and reduce the Company's exposure to buildout delays and technology
concerns.
The Procurement Contracts provide for significant liquidated damages for
interim project milestone delays and PCS system completion delays. Liquidated
damages are triggered by non-performance, inadequate performance or late
performance of the Vendor's obligations. Damages are calculated as a specified
percentage of the contract value and are subject to certain caps. Damages may
be offset against amounts owed by the Company to such Vendor and the Vendors
have defined cure periods to reach the appropriate milestone or system
completion date to avoid damages being assessed.
The Procurement Contracts contain various termination provisions. Once the
Company has purchased the minimum amount of Vendor products and services that
it had committed to purchase, it may terminate the contracts at its sole
option at any time, without cause. the Company may terminate the Procurement
Contracts for cause, without penalty, if the Vendor defaults. Vendor defaults
include, but are not limited to, (i) events of bankruptcy or otherwise seeking
relief from creditors, (ii) violations of applicable laws or permits, (iii)
failure to
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keep PCS systems free of liens and encumbrances, (iv) failure to meet
construction and/or payment requirements, (v) material breaches of the
contract, (vi) failure to comply with the contract's change of control
provision or (vii) persistent material failure to correct defects and
deficiencies in a timely manner. The Vendor may cure any event of default
except bankruptcy within a defined cure period.
Upon the Company's termination of the Procurement Contract, the Vendor is
due only undisputed amounts due and payable. If the termination results from a
Vendor event of default, the Vendor must pay to the Company the costs of
completing the project above the contract price, notwithstanding any
liquidated damages owed by Vendor to the Company.
The Vendors may terminate the Procurement Contracts upon the Company's
default. The events of default applicable to the Company are (i) events of
bankruptcy or otherwise seeking relief from creditors, (ii) the Company's
failure to make undisputed payments that are more than 60 days overdue to the
Vendor after an appropriate period of notice, (iii) failure of the Company's
to meet its initial commitments within five years of January 31, 1996, where
such failure is not due to site acquisition difficulties, microwave
relocations, force majeure events or the Vendor's acts or omissions or (iv)
the Company's materially breaches the contract and the breach does not involve
site acquisition, microwave relocation and/or network interconnection.
The Procurement Contracts also include special termination provisions
implicated by a failure of buildout financing or changes in law. The Company
may terminate the Procurement Contracts if acceptable financing with the
Vendors for the initial phase of the national buildout has not been finalized
within 180 days of January 31, 1996. Nortel may terminate the agreement at any
time within the same 180 day period if Nortel reasonably believes that
financing for the national buildout will not be finalized within that 180 day
period. The Company may also terminate the contract, in whole or in part, if
there is a change in applicable law or the interpretation thereof, or there is
a decision by a judicial or administrative body, such that the Company
reasonably believes that operating a PCS system would be illegal or onerous.
Before terminating a Procurement Contract subject to this provision, the
Company must use its best efforts to ameliorate the effects of such a change.
Handset Agreement
Sprint Spectrum has entered into a three-year purchase and supply agreement
for CDMA handsets with Qualcomm Personal Electronics, which is a partnership
formed by Qualcomm and Sony Electronics Inc. (the "Handset Agreement"). A copy
of the Handset Agreement has been filed as an exhibit to the Registration
Statement of which this Prospectus is a part. The following summary of certain
provisions of the Handset Agreement does not purport to be complete and is
subject to, and qualified in its entirety by reference to, all of the
provisions of the Handset Agreement. Under the Handset Agreement, Sprint
Spectrum is entitled to resell the handsets through its own retail outlets as
well as other retail and direct sales distribution channels. In addition,
under the Handset Agreement, Sprint Spectrum receives most favored customer
status. Sprint Spectrum is obligated to make certain purchases during each
year of the contract, provided that Sprint Spectrum may buy-down its
commitments if it should choose to do so. Subject to certain conditions, the
vendor will warrant the handsets for two years from delivery to the Company
and for one or two years (at Sprint Spectrum's option) after the purchase of
the handset by a consumer. In addition, the vendor will provide sales training
for the marketing and sales personnel of the Company. The Agreement obligates
Qualcomm to meet specified product delivery intervals or be subject to certain
penalties.
VENDOR FINANCING
The Company has obtained financing commitments from Nortel for $1.3 billion
and from Lucent for $1.8 billion of multiple drawdown term loan facilities.
Such commitments are subject to certain conditions, as described below. Copies
of the commitment letters for such Vendor Financing have been filed as
exhibits to the Registration Statement of which this Prospectus is a part. The
following summary of certain provisions of the commitment letters does not
purport to be complete and is subject to, and qualified in its entirety by
reference to, all of the provisions of the commitment letters. The proceeds of
such facilities will be used to finance the purchase price of goods and
services provided by the Vendors under the Procurement Contracts. The Vendor
Financing will be non-recourse to the Parents and the Partners.
Borrowings under the Vendor Financing will be secured by a perfected first
priority lien (the "Shared Lien") on (i) all of the partnership interests in
WirelessCo, RealtyCo and EquipmentCo, (ii) intangible property assets on which
a lien can be perfected by certain Uniform Commercial Code and/or federal
filings and (iii) any
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real property having a value greater than $15.0 million. The
Shared Lien will secure equally and ratably the Bank Credit Facility, the
Vendor Financing, other indebtedness of Sprint Spectrum for borrowed money and
interest rate swaps, indebtedness of Sprint Spectrum not to exceed a
designated basket at any time outstanding and any refinancing of the foregoing
(collectively, the "Secured Debt"). See "--Bank Credit Facility." The Secured
Debt will be unconditionally guaranteed by WirelessCo, RealtyCo and
EquipmentCo on a joint and several, pari passu basis.
Loans made under the Vendor Financing will amortize quarterly over a five-
year period commencing on the date which is 39 months after the end of the
one-year period during which such loans were made. Under the Vendor Financing,
subject to certain conditions, the Company will be required to make mandatory
prepayments of 100% of the net cash proceeds of any sale or disposition of
subsidiaries or any sale of material assets that are not reinvested in the
Company's wireless telecommunications business.
The Company will be able to elect that all or a portion of the borrowings
under the Vendor Financing bear interest at a rate per annum equal to either
(i) the ABR plus an applicable margin or (ii) the Eurodollar rate (LIBOR) plus
an applicable margin. The ABR is the higher of (x) the rate of interest
publicly announced by a commercial bank to be determined as its prime rate in
effect at its principal office in New York City and (y) the federal funds
effective rate plus 0.5%.
The Nortel Financing will require, as a condition to funding, the commitment
of additional financing from third-parties, including the Offering, the Bank
Credit Facility or other debt financing, and equity financing. The first phase
of the Nortel Financing ($800 million) will become available when aggregate
financing commitments of $4.075 billion (including the first phase) have been
obtained. Subject to definitive documentation and closing of the Bank Credit
Facility and the Vendor Financing and completion of the Offering, the Company
will have satisfied the aforementioned financing commitments. The second phase
of the Nortel Financing ($500 million) will become available when all
commitments required under the first phase have been substantially drawn, an
additional $2.3 billion (including the second phase) in financing commitments
(in addition to the $4.075 billion required for the first phase) will have
been obtained and the Company's network covers 80 million aggregate Pops.
There can be no assurance that the conditions to the first or second phases
will be satisfied.
Pursuant to the Lucent Financing, the Company's access to $0.8 billion of
additional funds during the second phase of the facility is conditioned upon
(i) Sprint Spectrum maintaining at least a B rating on the Notes from Standard
& Poor's Corporation through the end of 1996 and (ii) the Issuers issuing at
least $500 million aggregate gross proceeds of Notes. The maximum availability
under such financing is $1.0 billion in 1996, $1.5 billion in 1997 and $1.8
billion in 1998. There can be no assurance that the conditions to the
commitments will be satisfied.
The Vendor Financing will contain a number of significant covenants that,
among other things, limit the ability of the Company to incur additional
indebtedness (beyond specified amounts), create liens and other encumbrances,
make guarantee obligations, make certain payments and investments, sell or
otherwise dispose of assets, make capital expenditures, make distributions to
partners and repurchases of equity, make acquisitions, investments, loans and
advances, merge or consolidate with another entity or engage in any business
other than the telecommunications business and related businesses as well as
restrictions on the ability of WirelessCo, RealtyCo and EquipmentCo to incur
liabilities or engage in non-designated activities. In addition, the Vendor
Financing is expected to require the maintenance of certain specified
financial and operating covenants, including, without limitation, ratios of
total debt to total capitalization, total debt to EBITDA, EBITDA to interest
expense and capital expenditure limitations.
The Vendor Financing will contain representations, warranties, covenants,
conditions and events of default customary for such senior credit facilities
of similar size and nature. In addition, the Vendor Financing will contain
change of control provisions regarding Sprint's ownership of a direct or
indirect interest in the Company. The loss of the Company's right to use the
Sprint trademark under the trademark license agreement will constitute an
event of default under the Vendor Financing. Other than the events of default
expected to be included under the Vendor Financing relating to termination of
the Company's right to use the Sprint trademark and the termination,
revocation or non-renewal by the FCC of any license, the Company does not
expect that the events of default under the Vendor Financing will differ
materially from the events of default under the Indentures. In addition,
although the particular provisions of the Vendor Financing are being
negotiated, it is expected that a change of control will include Sprint
ceasing to beneficially own at least 25% of the Company.
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BANK CREDIT FACILITY
Sprint Spectrum has received a commitment from Chase to provide a fully
underwritten senior credit facility in the amount of $2.0 billion. The
commitment is subject to numerous conditions, including the execution and
delivery of definitive documentation. A copy of the commitment letter for the
Bank Credit Facility has been filed as an exhibit to the Registration
Statement of which this Prospectus is a part. The following summary of certain
provisions of the commitment letter does not purport to be complete and is
subject to, and qualified in its entirety by reference to, all of the
provisions of the commitment letter. The proceeds of the loans under the Bank
Credit Facility will be used to finance capital expenditures, operating
losses, the working capital needs of the Company and for partnership purposes.
Borrowings under the Bank Credit Facility will be unconditionally guaranteed
by WirelessCo, RealtyCo and EquipmentCo. In addition, borrowings under the
Bank Credit Facility will be secured by the Shared Lien. See "--Vendor
Financing." The Bank Credit Facility will be non-recourse to, and will not be
guaranteed by, the Parents or the Partners.
Outstanding amounts under the Bank Credit Facility will reduce quarterly
commencing five years and three months following the closing date and ending
nine years after the closing date. Under the Bank Credit Facility, subject to
certain conditions, the Company will be required to make mandatory prepayments
of 100% of the net cash proceeds of any sale or disposition of subsidiaries or
any material assets that are not reinvested in the Wireless Business. In
addition, beginning in the fiscal year ended 2000, Sprint Spectrum will be
required to apply a portion of excess cash flow to ratably reduce commitments
and loans under the Bank Credit Facility and prepay loans under the Vendor
Financing.
The Company will be able to elect that all or a portion of the borrowings
under the Bank Credit Facility bear interest at a rate per annum equal to (i)
the ABR plus an applicable margin or (ii) the Eurodollar Rate (LIBOR) plus an
applicable margin. The ABR is the higher of (x) the rate of interest publicly
announced by the administrative agent as its prime rate in effect at its
principal office in New York City and (y) the federal funds effective rate
from time to time plus 0.5%.
In connection with the Bank Credit Facility, Sprint Spectrum will pay a
commitment fee on the average daily unused and available amounts under the
Bank Credit Facility which fee will be determined based on specified tests and
payable quarterly in arrears.
The Bank Credit Facility will contain a number of significant covenants
that, among other things, limit the ability of Sprint Spectrum to incur
additional indebtedness, create liens and other encumbrances, make guarantee
obligations, make certain payments and investments, sell or otherwise dispose
of assets, make capital expenditures, make distributions to partners and
repurchases of equity, make acquisitions, investments, loans and advances,
merge or consolidate with another entity or engage in any business other than
the telecommunications business and related businesses as well as restrictions
on the ability of WirelessCo, RealtyCo and EquipmentCo to incur liabilities or
engage in non-designated activities. In addition, the Bank Credit Facility is
expected to require the maintenance of certain specified financial and
operating covenants, including, without limitation, capital expenditure
limitations and ratios of total debt to total capitalization, total debt to
EBITDA and EBITDA to interest expense.
The Bank Credit Facility will contain representations, warranties,
covenants, conditions and events of default customary for senior credit
facilities of similar size and nature, including, without limitation, the
delivery and execution of definitive documentation relating thereto. The loss
of the Company's right to use the Sprint trademark under the trademark license
agreement will constitute an event of default under the Bank Credit Facility.
Other than the events of default expected to be included under the Bank Credit
Facility relating to termination of the Company's right to use the Sprint
trademark, breach of a representation or warranty and the termination,
revocation or non-renewal by the FCC of any license, the Company does not
expect that the events of default under the Bank Credit Facility will differ
materially from the events of default under the Indentures. In addition,
although the particular provisions of the Bank Credit Facility are being
negotiated, it is expected that a change of control will include the Parents
ceasing to beneficially own 50% of the Company.
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CAPITAL CONTRIBUTION AGREEMENT
Pursuant to the terms of the commitment letters for the Bank Credit Facility
and the Vendor Financing, the Parents must enter into a capital contribution
agreement with Sprint Spectrum, the terms of which are satisfactory to and
have been approved by each of the lenders and the Vendors (the "Required
Capital Contribution Agreement"). The Company has entered into a capital
contribution agreement with the Parents, but, as such agreement had not been
approved by either the lenders or the Vendors, there can be no assurance that
such capital contribution agreement will qualify as the Required Capital
Contribution Agreement.
The Capital Contribution Agreement, as amended, provides that, upon proper
notification from the Company regarding the extent to which the expected cash
expenditures of the Company and its subsidiaries during the three months
following the date of such notification exceed the funds available, or
expected to become available, during such three month period to the Company
and its subsidiaries (the "Cash Shortfall"), each of the Parents shall
contribute to the Company that percentage of the Cash Shortfall which is equal
to such Parent's percentage ownership interest in the Company (the "Percentage
Interest"). The calculation of the Cash Shortfall is required to be made at
least on a quarterly basis. In no event shall any Parent's contribution exceed
such Parent's Percentage Interest of (i) the sum of (A) $1.0 billion, (B) the
value of an undivided fractional interest in the Cox-California license and
(C) the value of the Omaha license less (ii) the sum of (A) the amount of any
cash equity contributions not otherwise required to be made that are made
under the Capital Contribution Agreement by such Parent, directly or
indirectly through its affiliates, to the Company subsequent to December 31,
1995 (other than cash equity contributions which are the proceeds of any
indebtedness incurred by an affiliate of the Company in respect of which the
Company is entitled to fund through the making of permitted distributions
("Specified Affiliate Debt") or which are used to fund the acquisition of any
entity which does not become a Restricted Subsidiary (as defined in the
Capital Contribution Agreement) upon such acquisition or which are used to
fund cash equity investments by the Company or its Subsidiaries (as defined in
the Capital Contribution Agreement) in any Unrestricted Subsidiary (as defined
in the Capital Contribution Agreement)), (B) such Parent's Percentage Interest
of the amount of aggregate cash proceeds of equity capital (other than equity
capital which is the proceeds of Specified Affiliate Debt) obtained by the
Company from sources other than the Parents or any of the respective
subsidiaries subsequent to December 31, 1995 and (C) in the case of Cox, the
sum of the value of both an undivided fractional interest in the Cox-
California license and the Omaha license.
Based upon the foregoing calculation, at March 31, 1996, approximately $1.0
billion of the commitments under the Capital Contribution Agreement was
available to fund any future Cash Shortfalls.
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DESCRIPTION OF THE NOTES
The Senior Notes will be issued under an Indenture (the "Senior Notes
Indenture") to be dated as of August 15, 1996 among Sprint Spectrum L.P.
("Sprint Spectrum") and Sprint Spectrum Finance Corporation ("FinCo" and,
together with Sprint Spectrum, the "Issuers"), as joint and several obligors,
and The Bank of New York, as trustee (the "Senior Notes Trustee"). The Senior
Discount Notes will be issued under an Indenture (the "Senior Discount Notes
Indenture" and, together with the Senior Notes Indenture, the "Indentures") to
be dated as of August 15, 1996 among the Issuers, as joint and several
obligors, and The Bank of New York, as trustee (the "Senior Discount Notes
Trustee" and, together with the Senior Notes Trustee, the "Trustees"). The
Senior Notes and the Senior Discount Notes are referred to together herein as
the "Notes." A copy of the form of each Indenture has been filed as an exhibit
to the Registration Statement of which this Prospectus is a part. The
following summary of certain provisions of the Indentures does not purport to
be complete and is subject to, and is qualified in its entirety by reference
to, the Trust Indenture Act of 1939, as amended (the "Trust Indenture Act"),
and to all of the provisions of the Indentures, including the definitions of
certain terms therein and those terms made a part of the Indentures by
reference to the Trust Indenture Act, as in effect on the date of the
Indentures. The definitions of certain capitalized terms used in the following
summary are set forth below under "--Certain Definitions."
GENERAL
The Notes will be issued only in registered form, without coupons, in
denominations of $1,000 and integral multiples of $1,000. The Issuers will
appoint The Bank of New York to serve as registrar and paying agent under the
Indentures at its offices at 101 Barclay Street, New York, New York 10281. No
service charge will be made for any registration of transfer or exchange of
the Notes, except for any tax or other governmental charge that may be imposed
in connection therewith.
MATURITY, INTEREST AND PRINCIPAL OF THE SENIOR NOTES
The Senior Notes will be senior obligations of the Issuers, limited to
$250,000,000 aggregate principal amount, and will mature on August 15, 2006.
Cash interest on the Senior Notes will accrue at a rate of 11% per annum and
will be payable semi-annually in arrears on each February 15 and August 15,
commencing February 15, 1997, to the holders of record of Senior Notes at the
close of business on February 1 and August 1, respectively, immediately
preceding such interest payment date. Cash interest will accrue from the most
recent interest payment date to which interest has been paid or, if no
interest has been paid, from August 23, 1996. Interest will be computed on the
basis of a 360-day year of twelve 30-day months. Interest on overdue principal
and on overdue installments of interest will accrue at the rate of interest
borne by the Senior Notes.
MATURITY, INTEREST AND PRINCIPAL OF THE SENIOR DISCOUNT NOTES
The Senior Discount Notes will be senior obligations of the Issuers, limited
to $500,000,000 aggregate principal amount at maturity, and will mature on
August 15, 2006. The Senior Discount Notes will be issued at a discount to
their aggregate principal amount at maturity and will generate gross proceeds
to the Issuers of approximately $273,435,000. Based on the issue price
thereof, the yield to maturity of the Senior Discount Notes is 12 1/2%
(computed on a semi-annual bond equivalent basis), calculated from August 23,
1996. See "Certain Federal Income Tax Consequences."
Cash interest will not accrue or be payable on the Senior Discount Notes
prior to August 15, 2001. Thereafter, cash interest on the Senior Discount
Notes will accrue at a rate of 12 1/2% per annum and will be payable semi-
annually in arrears on each February 15 and August 15, commencing on February
15, 2002, to the holders of record of the Senior Discount Notes at the close
of business on the February 1 and August 1, respectively, immediately
preceding such interest payment date. Cash interest will accrue from the most
recent interest payment date to which interest has been paid or, if no
interest has been paid, from August 15, 2001. Interest will be computed on the
basis of a 360-day year of twelve 30-day months. Interest on overdue principal
and on overdue installments of interest will accrue at the rate of interest
borne by the Senior Discount Notes.
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MANDATORY ACCRETED INTEREST REDEMPTION
On August 15, 2001, the Issuers will be required to redeem an amount equal
to $384.772 per $1,000 principal amount at maturity of each Senior Discount
Note then outstanding ($192,386,000 in aggregate principal amount at maturity
of the Senior Discount Notes, assuming all of the Senior Discount Notes remain
outstanding on such date (the "Accreted Interest Redemption Amount")) on a pro
rata basis at a redemption price of 100% of the principal amount at maturity
of the Senior Discount Notes so redeemed. The Accreted Interest Redemption
Amount represents (i) the excess of the aggregate accreted principal amount of
all Senior Discount Notes outstanding on August 15, 2001 over the aggregate
issue price thereof less (ii) an amount equal to one year's simple
uncompounded interest on the aggregate issue price of such Senior Discount
Notes at a rate per annum equal to the stated interest rate on the Senior
Discount Notes.
OPTIONAL REDEMPTION
Optional Redemption of Senior Notes. The Senior Notes will be redeemable at
the option of the Issuers, in whole or in part, at any time on or after August
15, 2001, at the redemption prices (expressed as a percentage of principal
amount) set forth below, plus accrued and unpaid interest, if any, to the
redemption date, if redeemed during the 12 month period beginning on August 15
of the years indicated below:
<TABLE>
<CAPTION>
REDEMPTION
YEAR PRICE
---- ----------
<S> <C>
2001.............................. 105.500%
2002.............................. 103.667%
2003.............................. 101.833%
2004 and thereafter............... 100.000%
</TABLE>
In addition, prior to August 15, 1999, the Issuers may redeem up to 35% of
the originally issued principal amount of Senior Notes at a redemption price
equal to 111.0% of the principal amount of the Senior Notes so redeemed, plus
accrued and unpaid interest, if any, to the redemption date with the net
proceeds of one or more Public Equity Offerings of Common Equity Interests of
(i) Sprint Spectrum, (ii) Holdings or (iii) a special purpose corporation (a
"Special Purpose Corporation") formed to own Common Equity Interests of Sprint
Spectrum or Holdings, in any such case, resulting in gross proceeds of at
least $100 million in the aggregate; provided that at least 65% of the
originally issued principal amount of Senior Notes would remain outstanding
immediately after giving effect to such redemption.
Optional Redemption of Senior Discount Notes. The Senior Discount Notes will
be redeemable at the option of the Issuers, in whole or in part, at any time
on or after August 15, 2001, at the redemption prices (expressed as a
percentage of principal amount) set forth below, plus accrued and unpaid
interest, if any, to the redemption date, if redeemed during the 12 month
period beginning on August 15 of the years indicated below:
<TABLE>
<CAPTION>
REDEMPTION
YEAR PRICE
---- ----------
<S> <C>
2001.............................. 110.000%
2002.............................. 106.500%
2003.............................. 103.250%
2004 and thereafter............... 100.000%
</TABLE>
In addition, prior to August 15, 1999, the Issuers may redeem up to 35% of
the originally issued principal amount at maturity of Senior Discount Notes at
a redemption price equal to 112.5% of the Accreted Value at the redemption
date of the Senior Discount Notes so redeemed with the net proceeds of one or
more Public Equity Offerings (as defined) of Common Equity Interests of (i)
Sprint Spectrum, (ii) Holdings or (iii) a Special Purpose Corporation, in any
such case, resulting in gross proceeds of at least $100 million in the
aggregate; provided that at least 65% of the originally issued principal
amount at maturity of Senior Discount Notes would remain outstanding
immediately after giving effect to such redemption.
SELECTION AND NOTICE OF REDEMPTION
If the redemption of Senior Discount Notes pursuant to the mandatory
redemption provisions described above under "--Mandatory Accreted Interest
Redemption" would result in an outstanding Senior Discount Note
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in a denomination (i) of less than $1,000 principal amount at maturity or (ii)
other than an integral multiple of $1,000 principal amount at maturity, such
Senior Discount Note will be redeemed (a) in whole, in the case of clause (i),
or (b) by an additional amount so that such Senior Discount Note will be in a
denomination of an integral multiple of $1,000 principal amount at maturity,
in the case of clause (ii).
In the event that less than all of the Senior Notes or the Senior Discount
Notes are to be redeemed at any time pursuant to an optional redemption,
selection of such Notes for redemption will be made by the applicable Trustee
in compliance with the requirements of the principal national securities
exchange, if any, on which such Notes are listed or, if such Notes are not
then listed on a national securities exchange, on a pro rata basis, by lot or
by such method as the applicable Trustee shall deem fair and appropriate;
provided that no Notes of a principal amount or principal amount at maturity,
as the case may be, of $1,000 or less shall be redeemed in part; provided,
further, that if a partial redemption is made with the proceeds of an Initial
Public Offering, selection of the Notes or portions thereof for redemption
shall be made by the applicable Trustee only on a pro rata basis or on as
nearly a pro rata basis as is practicable (subject to the procedures of The
Depository Trust Company), unless such method is otherwise prohibited. Notice
of redemption shall be mailed by first-class mail at least 30 but not more
than 60 days before the redemption date to each holder of Senior Notes or
Senior Discount Notes, as the case may be, to be redeemed at its registered
address. If any Note is to be redeemed in part only, the notice of redemption
that relates to such Note shall state the portion of the principal amount or
principal amount at maturity, as the case may be, thereof to be redeemed. A
new Senior Note or Senior Discount Note, as the case may be, in a principal
amount or principal amount at maturity, as the case may be, equal to the
unredeemed portion thereof will be issued in the name of the holder thereof
upon cancellation of the original Note. On and after the redemption date,
interest will cease to accrue on Notes or portions thereof called for
redemption as long as the Issuers have deposited with the applicable paying
agent for the Notes funds in satisfaction of the applicable redemption price
pursuant to the applicable Indenture.
CERTAIN COVENANTS
Set forth below are certain covenants that will be contained in the
Indentures.
Limitation on Additional Indebtedness. The Indentures will provide that
Sprint Spectrum will not, and will not permit any Restricted Subsidiary to,
create, incur, assume, issue, guarantee or in any other manner become directly
or indirectly liable, contingently or otherwise, for or with respect to (in
any such case, to "incur") any Indebtedness (including any Acquired
Indebtedness); provided that the Issuers and the Restricted Subsidiaries may
incur Indebtedness (including Acquired Indebtedness) if after giving pro forma
effect to such incurrence (including the application or use of the net
proceeds therefrom to repay Indebtedness or make any Restricted Payment),
either (a) the ratio of (x) Total Consolidated Indebtedness to (y) Annualized
Pro Forma Consolidated Operating Cash Flow would be less than (A) 7.0 to 1.0,
if the Indebtedness is to be incurred prior to July 1, 2002, or (B) 6.0 to
1.0, if the Indebtedness is to be incurred on or after July 1, 2002, or (b) in
the case of any incurrence of Indebtedness prior to July 1, 2002 only, Total
Consolidated Indebtedness would be equal to or less than 70% of Total Invested
Capital.
Notwithstanding the foregoing, the Issuers and, to the extent specified, the
Restricted Subsidiaries will be permitted to incur each and all of the
following (each of which shall be given independent effect):
(a) Indebtedness under the Notes, any Subsidiary Guarantee and the
Indentures;
(b) Indebtedness of the Issuers and the Restricted Subsidiaries
outstanding from time to time pursuant to any of the Vendor Credit
Facilities;
(c) Indebtedness of the Issuers and the Restricted Subsidiaries
outstanding from time to time pursuant to the Bank Credit Facility in an
aggregate principal amount at any one time outstanding not to exceed $2.0
billion;
(d) Indebtedness of an Issuer or a Restricted Subsidiary owed to and held
by an Issuer or another Restricted Subsidiary so long as any such
Indebtedness owing by an Issuer is unsecured and subordinated
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in right of payment to the Notes, except that (x) any direct or indirect
transfer of such Indebtedness by an Issuer or a Restricted Subsidiary
(other than to an Issuer or a Restricted Subsidiary), as the case may be,
or (y) any direct or indirect sale, transfer or other disposition by an
Issuer or a Restricted Subsidiary of Equity Interests of a Restricted
Subsidiary that is owed Indebtedness of an Issuer or a Restricted
Subsidiary such that it ceases to be a Restricted Subsidiary shall, in each
such event, be an incurrence of Indebtedness by the Issuer or such
Restricted Subsidiary, as the case may be, subject to the other provisions
of this covenant;
(e) Interest Rate Protection Obligations of an Issuer or a Restricted
Subsidiary relating to Indebtedness of an Issuer or a Restricted Subsidiary
otherwise permitted under the Indentures that are entered into for the
purpose of protecting against fluctuations in interest rates in respect of
such Indebtedness and not for speculative purposes;
(f) Indebtedness of an Issuer or a Restricted Subsidiary under Currency
Agreements; provided that (x) such Currency Agreements relate to
Indebtedness otherwise permitted under the Indentures or the purchase price
of goods purchased or sold by an Issuer or a Restricted Subsidiary in the
ordinary course of its business and (y) such Currency Agreements do not
increase the Indebtedness or other obligations of an Issuer or a Restricted
Subsidiary outstanding other than as a result of fluctuations in foreign
currency exchange rates or by reason of fees, indemnities and compensation
payable thereunder;
(g) Indebtedness of an Issuer or a Restricted Subsidiary represented by
letters of credit for the account of an Issuer or a Restricted Subsidiary
in order to provide security for workers' compensation claims, payment
obligations in connection with self-insurance or similar requirements in
the ordinary course of business;
(h) other Indebtedness of the Issuers and the Restricted Subsidiaries in
an aggregate principal amount not to exceed $100 million at any one time
outstanding; and
(i) Refinancing Indebtedness.
Indebtedness of a person existing at the time such person becomes a
Restricted Subsidiary or which is secured by a Lien on an asset acquired by
Sprint Spectrum or a Restricted Subsidiary (whether or not such Indebtedness
is assumed by the acquiring person) shall be deemed incurred at the time the
person becomes a Restricted Subsidiary or at the time of the asset
acquisition, as the case may be.
Limitation on Restricted Payments. The Indentures will provide that Sprint
Spectrum will not, and will not permit any of the Restricted Subsidiaries to,
make, directly or indirectly, any Restricted Payment on or prior to December
31, 1999; and, thereafter, will not, and will not permit any of the Restricted
Subsidiaries to, make, directly or indirectly, any Restricted Payment unless:
(i) no Default shall have occurred and be continuing at the time of or
after giving effect to such Restricted Payment;
(ii) immediately after giving effect to such Restricted Payment, Sprint
Spectrum would be able to incur $1.00 of additional Indebtedness under
clause (a) of the proviso to the first paragraph of the covenant described
under "--Limitation on Additional Indebtedness"; and
(iii) immediately after giving effect to such Restricted Payment, the
aggregate amount of all Restricted Payments declared or made on or after
the Issue Date (including any Designation Amount) would not exceed an
amount equal to the sum of, without duplication, (1) the amount of (x) the
Available Operating Cash Flow of Sprint Spectrum after December 31, 1999
through the end of the latest full fiscal quarter for which consolidated
financial statements of Sprint Spectrum are available preceding the date of
such Restricted Payment (treated as a single accounting period) less (y)
150% of the cumulative Consolidated Interest Expense of Sprint Spectrum
after December 31, 1999 through the end of the latest full fiscal quarter
for which consolidated financial statements of Sprint Spectrum are
available preceding the date of such Restricted Payment (treated as a
single accounting period), plus (2) the aggregate net cash proceeds (other
than Excluded Cash Proceeds) received by Sprint Spectrum as a capital
contribution in respect of existing Equity Interests (other than
Disqualified Equity Interests) of Sprint Spectrum made after the Issue Date
or from the issue or sale (other than to a Restricted Subsidiary) by Sprint
Spectrum of its Equity Interests (other
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than Disqualified Equity Interests) made after the Issue Date, plus (3) the
aggregate net cash proceeds received by Sprint Spectrum or any Restricted
Subsidiary from the sale, disposition or repayment (other than to Sprint
Spectrum or a Restricted Subsidiary) of any Investment (other than an
Investment made pursuant to clause (vi) of the following paragraph) made
after the Issue Date and constituting a Restricted Payment in an amount
equal to the lesser of (x) the return of capital with respect to such
Investment and (y) the initial amount of such Investment, in either case,
less the cost of disposition of such Investment, plus (4) an amount equal
to the consolidated net Investment on the date of Revocation made by Sprint
Spectrum and/or any of the Restricted Subsidiaries in any Subsidiary that
has been designated as an Unrestricted Subsidiary after the Issue Date upon
its redesignation as a Restricted Subsidiary in accordance with the
covenant described under "--Limitation on Designations of Unrestricted
Subsidiaries." For purposes of the preceding clause (2), the value of the
aggregate net cash proceeds received by Sprint Spectrum upon the issuance
of Equity Interests either upon the conversion of convertible Indebtedness
or in exchange for outstanding Indebtedness or upon the exercise of
options, warrants or rights will be the net cash proceeds received upon the
issuance of such Indebtedness, options, warrants or rights plus the
incremental amount received by Sprint Spectrum upon the conversion,
exchange or exercise thereof.
For purposes of determining the amount expended for Restricted Payments,
cash distributed shall be valued at the face amount thereof and property other
than cash shall be valued at its Fair Market Value.
The provisions of this covenant shall not prohibit (i) the payment of any
dividend or distribution within 60 days after the date of declaration thereof,
if at such date of declaration such payment would comply with the provisions
of the applicable Indenture; (ii) so long as no Default shall have occurred
and be continuing, the purchase, redemption, retirement or other acquisition
of any Equity Interests of Sprint Spectrum out of the net cash proceeds of the
substantially concurrent capital contribution in respect of existing Equity
Interests (other than Disqualified Equity Interests) of Sprint Spectrum or
from the issue or sale (other than to a Restricted Subsidiary) of Equity
Interests (other than Disqualified Equity Interests) of Sprint Spectrum;
provided that any such net cash proceeds are excluded from clause (iii)(2) of
the second preceding paragraph; (iii) so long as no Default shall have
occurred and be continuing, the purchase, redemption, retirement, defeasance
or other acquisition of Subordinated Indebtedness of an Issuer made by
exchange for or conversion into, or out of the net cash proceeds of, a
concurrent issue and sale (other than to a Restricted Subsidiary) of (a)
Equity Interests (other than Disqualified Equity Interests) of Sprint Spectrum
(provided that any such net cash proceeds are excluded from clause (iii)(2) of
the second preceding paragraph) or (b) other Subordinated Indebtedness of an
Issuer that has an Average Life to Stated Maturity equal to or greater than
the Average Life to Stated Maturity of the Subordinated Indebtedness being
purchased, redeemed, retired, defeased or otherwise acquired; (iv) so long as
no Default shall have occurred and be continuing, the making of a direct or
indirect Investment constituting a Restricted Payment out of the proceeds of a
concurrent capital contribution in respect of existing Equity Interests (other
than Disqualified Equity Interests) of Sprint Spectrum or from the issue or
sale (other than to a Restricted Subsidiary) of Equity Interests (other than
Disqualified Equity Interests) of Sprint Spectrum; provided that any such net
cash proceeds are excluded from clause (iii)(2) of the second preceding
paragraph; (v) so long as no Default shall have occurred or be continuing and
provided Sprint Spectrum is then a partnership for federal income tax
purposes, distributions in respect of, and repurchases of, Equity Interests of
Sprint Spectrum owned by the Partners, to the extent necessary to pay current
tax liabilities payable in respect of income of Sprint Spectrum in an amount
not to exceed in any calendar year the product of (a) the ordinary income from
trade or business activities and giving effect to other items of income, loss
and deduction reported by Sprint Spectrum for the most recently ended tax year
for federal income tax purposes multiplied by (b) a percentage equal to the
sum of (x) the highest applicable federal corporate income tax rate for such
tax year (expressed as a percentage) plus (y) 5% multiplied by the excess of
100% over the highest applicable federal corporate income tax rate for such
tax year (expressed as a percentage); provided that nothing in this clause (v)
shall be deemed to permit any such distribution or repurchase to pay any tax
liabilities of Sprint Spectrum's partners resulting from the conversion of
Sprint Spectrum from partnership to corporate form; (vi) so long as no Default
shall have occurred and be continuing, any direct or indirect Investment
constituting a Restricted Payment by Sprint Spectrum or any Restricted
Subsidiary in any person (including any Unrestricted Subsidiary) whose
operations consist
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principally of, or has been formed principally to operate, a Permitted
Business in an amount not to exceed $100 million in the aggregate at any time
outstanding or (vii) any transfer of any Investment in APC held by Sprint
Spectrum or any Restricted Subsidiary to Holdings or any Wholly-Owned
Subsidiary of Holdings; provided APC has not been made a Restricted Subsidiary
under the covenant described under "--Limitation on Designations of
Unrestricted Subsidiaries."
Restricted Payments made pursuant to clause (i) of the immediately preceding
paragraph shall be included in making the determination of available amounts
under clause (iii) of the third preceding paragraph and Restricted Payments
made pursuant to clauses (ii), (iii), (iv), (v) and (vii) of the immediately
preceding paragraph shall not be included in making the determination of
available amounts under clause (iii) of the third preceding paragraph.
Limitation on Issuances of Certain Guarantees by, and Debt Securities of,
Restricted Subsidiaries. The Indentures will provide that Sprint Spectrum will
not permit (i) any Restricted Subsidiary to, directly or indirectly, guarantee
any Debt Securities of any of the Issuers or (ii) any Restricted Subsidiary to
issue any Debt Securities, unless, in either such case, such Restricted
Subsidiary simultaneously executes and delivers a guarantee (a "Subsidiary
Guarantee") of the Senior Notes and the Senior Discount Notes. Any such
Subsidiary Guarantee shall not be subordinate in right of payment to any
Indebtedness of the Restricted Subsidiary providing the Subsidiary Guarantee.
Limitation on Liens Securing Certain Indebtedness. The Indentures will
provide that Sprint Spectrum will not, and will not permit any Restricted
Subsidiary to, create, incur, assume or suffer to exist any Liens upon any
property or assets of Sprint Spectrum or any Restricted Subsidiary securing
either (i) Subordinated Debt Securities unless the Notes and the Subsidiary
Guarantees, as applicable, are secured by a Lien on such property or assets
that is senior in priority to the Liens securing such Subordinated Debt
Securities or (ii) Pari Passu Debt Securities unless the Notes and the
Subsidiary Guarantees, as applicable, are equally and ratably secured with the
Liens securing such Pari Passu Debt Securities.
Limitation on Dividends and Other Payment Restrictions Affecting Restricted
Subsidiaries. The Indentures will provide that Sprint Spectrum will not, and
will not permit any Restricted Subsidiary to, directly or indirectly, create
or otherwise enter into or cause to become effective any consensual
encumbrance or restriction of any kind on the ability of any Restricted
Subsidiary to (i) pay dividends, in cash or otherwise, or make any
distributions on its Equity Interests or any other interest or participation
in, or measured by, its profits owned by Sprint Spectrum or any Restricted
Subsidiary, (ii) pay any Indebtedness owed to Sprint Spectrum or a Restricted
Subsidiary, (iii) make any Investment in Sprint Spectrum or any Restricted
Subsidiary or (iv) transfer any of its property or assets to Sprint Spectrum
or any Restricted Subsidiary, except for (a) any such customary encumbrance or
restriction contained in a security document creating a Lien permitted under
the Indentures to the extent relating to the property or asset subject to such
Lien (including, without limitation, customary restrictions relating to assets
securing any indebtedness under any of the Vendor Credit Facilities or the
Bank Credit Facility under the applicable security documents), (b) any such
encumbrance or restriction with respect to a Restricted Subsidiary that is not
a Restricted Subsidiary on the Issue Date which encumbrance or restriction is
in existence at the time such person becomes a Restricted Subsidiary but not
created in contemplation thereof and which encumbrance or restriction pertains
only to that Restricted Subsidiary and (c) any such encumbrance or restriction
imposed pursuant to an agreement that has been entered into for the sale or
disposition of all or substantially all of the Equity Interests or assets of
such Restricted Subsidiary.
Limitation on Ownership of Equity Interests of Restricted Subsidiaries. The
Indentures will provide that, notwithstanding any other provision of the
Indentures to the contrary, (i) each of WirelessCo, RealtyCo, EquipmentCo and
FinCo shall at all times remain a direct Wholly-Owned Restricted Subsidiary of
Sprint Spectrum (except that FinCo may be merged with and into Sprint Spectrum
or a Wholly-Owned Restricted Subsidiary if Sprint Spectrum or such Wholly-
Owned Restricted Subsidiary is then a corporation) and (ii) none of
WirelessCo, RealtyCo or EquipmentCo will, directly or indirectly, sell,
convey, transfer, lease or otherwise dispose of any assets or property used or
useful in the operation of the business of the Company and the
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Restricted Subsidiaries in the geographic areas for which Sprint Spectrum or a
Restricted Subsidiary owns or holds a Federal Communications Commission
license for the transmission of wireless telecommunications services on the
Issue Date other than, in the case of this clause (ii), to a person not an
Affiliate of Sprint Spectrum or any of the Restricted Subsidiaries or to a
Wholly-Owned Subsidiary if all of the outstanding Equity Interests of such
Wholly-Owned Subsidiary are concurrently sold to a person that is not an
Affiliate of Sprint Spectrum or any of the Restricted Subsidiaries, in each
case in compliance with the covenant described under "--Disposition of
Proceeds of Asset Sales." Notwithstanding the foregoing, WirelessCo, RealtyCo,
EquipmentCo and FinCo may issue Disqualified Equity Interests that do not
entitle the holders thereof to participate in the earnings, profits or cash
flow of such Restricted Subsidiary pursuant to and in compliance with the
covenant described under "--Limitation on Additional Indebtedness."
Limitation on Transactions with Equityholders and Affiliates. The Indentures
will provide that Sprint Spectrum will not, and will not permit, cause, or
suffer any Restricted Subsidiary to, conduct any business or 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 or for the benefit of any of
their respective Affiliates or any beneficial holder of 5% or more of any
class of Equity Interests of Sprint Spectrum (each an "Affiliate
Transaction"), except on terms that are no less favorable to Sprint Spectrum
or such Restricted Subsidiary than those that could reasonably be obtained in
a comparable arm's-length transaction with a person that is not such a holder
or Affiliate. Each Affiliate Transaction involving aggregate payments or other
Fair Market Value in excess of $15.0 million shall be approved by (i) if
Sprint Spectrum is a Wholly-Owned Subsidiary of Holdings, either (a) if the
current provisions of Section 8.6 ("Interested Party Transactions") of the
Holdings Partnership Agreement are in effect, members of the Holdings'
Partnership Board exercising votes representing at least a majority (or such
other percentage vote as required by the Holdings Partnership Agreement) of
votes entitled to be exercised by members of such Board selected by the
Partners not having any financial interest in any such Affiliate Transaction,
or (b) if the current provisions of Section 8.6 ("Interested Party
Transactions") of the Holdings Partnership Agreement are not in effect, a
majority of the Disinterested Directors of Holdings, in each case, as
evidenced by a Resolution of the Board of Holdings and (ii) if Sprint Spectrum
is not a Wholly-Owned Subsidiary of Holdings, a majority of the Disinterested
Directors of Sprint Spectrum as evidenced by a Resolution of Sprint Spectrum.
In the event Sprint Spectrum obtains a written opinion from an Independent
Financial Advisor stating that the terms of an Affiliate Transaction are fair
to Sprint Spectrum or a Restricted Subsidiary, as the case may be, from a
financial point of view, it will conclusively meet the requirements of the
first sentence of this paragraph and there shall be no need to comply with the
second sentence of this paragraph.
Notwithstanding the foregoing, the restrictions set forth in this covenant
shall not apply to (i) transactions between or among Sprint Spectrum and/or
any of the Restricted Subsidiaries, (ii) any dividend or distribution
permitted by the covenant described under "--Limitation on Restricted
Payments," (iii) directors' fees, indemnification and similar arrangements,
officers' indemnification, employee stock option or employee benefit plans and
employee salaries and bonuses paid or created in the ordinary course of
business, (iv) any Affiliate Transaction pursuant to the Services Agreements
or any other agreement in effect on the Issue Date, as the same shall be
amended from time to time; provided that any material amendment shall be
required to comply with the provisions of the preceding paragraph of this
covenant, (v) transactions involving the marketing of products and services of
Sprint Spectrum or any Restricted Subsidiary jointly with products and
services of an Affiliate of Sprint Spectrum or a beneficial holder of 5% or
more of any class of Equity Interests of Sprint Spectrum (such holder or
Affiliate being a "Related Party"); provided all payments made by Sprint
Spectrum or any Restricted Subsidiary to the Related Party are made to
reimburse the Related Party for its share of any expenses incurred by the
Related Party on behalf of Sprint Spectrum or any Restricted Subsidiary, (vi)
transactions involving the leasing or sharing or other use by Sprint Spectrum
or any Restricted Subsidiary of communications network facilities (including,
without limitation, cable or fiber lines, equipment or transmission capacity)
of a Related Party on terms that are no less favorable (when taken as a whole)
to Sprint Spectrum or such Restricted Subsidiary, as applicable, than those
available from such Related Party to unaffiliated third parties, (vii)
transactions involving the provision of telecommunication services by a
Related Party in the ordinary course of
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its business to Sprint Spectrum or any Restricted Subsidiary, or by Sprint
Spectrum or any Restricted Subsidiary to a Related Party, on terms that are no
less favorable (when taken as a whole) to Sprint Spectrum or such Restricted
Subsidiary, as applicable, than those available from such Related Party to
unaffiliated third parties, and (viii) any sales agency agreements pursuant to
which a Partner or any of its Affiliates has the right to market any or all of
the products or services of Sprint Spectrum or any of the Restricted
Subsidiaries on a "most favored nation" basis (without regard to volume), as
contemplated by the Holdings Partnership Agreement as in effect on the Issue
Date.
Limitation on Activities of the Issuers and the Restricted Subsidiaries. The
Indentures will provide that (i) Sprint Spectrum will not, and will not permit
any Restricted Subsidiary to, engage in any business other than a Permitted
Business and (ii) FinCo will not own any operating assets or other properties
or conduct any business other than to serve as an Issuer and obligor on the
Notes and other Indebtedness permitted under the Indentures.
Change of Control. The Indentures will provide that following the occurrence
of a Change of Control (the date of such occurrence being the "Change of
Control Date"), the Issuers shall notify the holders of the Notes, in the
manner prescribed by the Indentures, of such occurrence and shall make an
offer to purchase (a "Change of Control Offer"), on a business day (the
"Change of Control Payment Date") not later than 60 days following the Change
of Control Date, all Notes then outstanding at a purchase price equal to (i)
101% of the principal amount thereof, in the case of the Senior Notes, plus
accrued and unpaid interest, if any, thereon to any Change of Control Payment
Date and (ii) (a) 101% of the Accreted Value on the Change of Control Payment
Date, in the case of the Senior Discount Notes, if the Change of Control
Payment Date is on or before August 15, 2001, and (b) 101% of the principal
amount at maturity of the Senior Discount Notes, plus accrued and unpaid
interest, if any, thereon to the Change of Control Payment Date, if such date
is after August 15, 2001. Notice of a Change of Control Offer shall be given
to holders of Notes not less than 30 days nor more than 60 days before the
Change of Control Payment Date. The Change of Control Offer is required to
remain open for at least 20 business days or such longer period as may be
required by law and until the close of business on the Change of Control
Payment Date. The Issuers' obligations may be satisfied if a third party makes
the Change of Control Offer in the manner, at the times and otherwise in
compliance with the requirements applicable to a Change of Control Offer made
by the Issuers and purchases all Notes validly tendered and not withdrawn
under such Change of Control Offer.
If a Change of Control occurs which also constitutes a default under the
Secured Financing, the lenders under the Secured Financing would be entitled
to exercise the remedies available to a secured lender under applicable law
and pursuant to the terms of the Secured Financing. Accordingly, any claims of
such lenders with respect to the assets of Sprint Spectrum will be prior to
any claim of the holders of the Notes with respect to such assets.
If a Change of Control Offer is made, there can be no assurance that the
Issuers will have available funds sufficient to pay for all of the Notes that
might be delivered by holders of Notes seeking to accept the Change of Control
Offer.
If the Issuers make a Change of Control Offer, the Issuers will comply with
all applicable tender offer laws and regulations, including, to the extent
applicable, Section 14(e) and Rule 14e-1 under the Exchange Act, and any other
applicable Federal or state securities laws and regulations and any applicable
requirements of any securities exchange on which the Notes are listed.
Disposition of Proceeds of Asset Sales. The Indentures will provide that
Sprint Spectrum will not, and will not permit any Restricted Subsidiary to,
make any Asset Sale unless (i) Sprint Spectrum or such Restricted Subsidiary,
as the case may be, receives consideration at the time of such Asset Sale at
least equal to the Fair Market Value of the assets sold or otherwise disposed
of and (ii) at least 80% of such consideration consists of cash or Cash
Equivalents; provided that the amount of any liabilities of the Company or
such Restricted Subsidiary that are assumed (and from which Sprint Spectrum or
such Restricted Subsidiary is unconditionally released) in connection with
such Asset Sale by the transferee or purchaser of such assets or on behalf of
such
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transferee or purchaser by a third party shall be deemed to be cash for
purposes of this clause (ii); provided, further, that up to $25.0 million of
consideration in the aggregate that is not in the form of cash or Cash
Equivalents may be received in excess of the amount permitted by the foregoing
provisions during the term of the Notes. Sprint Spectrum or the applicable
Restricted Subsidiary, as the case may be, may (i) apply such Net Cash
Proceeds within 365 days of receipt thereof to repay an amount of Indebtedness
(other than Subordinated Indebtedness) of an Issuer or any Subsidiary
Guarantor of Sprint Spectrum or any Subsidiary Guarantor in an amount not
exceeding the Other Senior Debt Pro Rata Share and elect to permanently reduce
the amount of the commitments thereunder by the amount of the Indebtedness so
repaid, (ii) apply such Net Cash Proceeds within 365 days of the receipt
thereof to repay Indebtedness (other than Subordinated Indebtedness) of any
Restricted Subsidiary (other than a Subsidiary Guarantor) and elect to
permanently reduce the amount of the commitments thereunder by the amount of
the Indebtedness so repaid or (iii) apply such Net Cash Proceeds within 365
days of receipt thereof to an investment in properties and assets that will be
used in a Permitted Business (or in Equity Interests of any person that will
become a Restricted Subsidiary as a result of such investment to the extent
such person's operations consist of Permitted Businesses) of Sprint Spectrum
or any Restricted Subsidiary ("Replacement Assets"). Net Cash Proceeds from
any Asset Sale that are neither used as set forth in clause (ii) of the
preceding sentence nor invested in Replacement Assets within such 365-day
period shall constitute "Excess Proceeds." Any Excess Proceeds not used as set
forth in clause (i) of the second preceding sentence within such 365-day
period shall constitute "Offer Excess Proceeds" subject to disposition as set
forth below.
When the aggregate amount of Offer Excess Proceeds equals or exceeds $20.0
million, the Issuers shall make an offer to purchase Notes (an "Asset Sale
Offer"), on a business day that is not more than 60 days after the day that
the Offer Excess Proceeds equals or exceeds $20.0 million, from all holders of
Notes, at a price in cash equal to (i) 100% of the principal amount of Senior
Notes, plus accrued and unpaid interest, if any, to the purchase date and (ii)
(a) 100% of the Accreted Value on the purchase date in the case of the Senior
Discount Notes, if such purchase date is on or before August 15, 2001, and (b)
100% of the principal amount at maturity of the Senior Discount Notes, plus
accrued and unpaid interest, if any, thereon to the purchase date, if such
date is after August 15, 2001. Each Asset Sale Offer shall remain open for a
period of 20 business days or such longer period as may be required by law. To
the extent that the aggregate purchase price for the Notes tendered pursuant
to an Asset Sale Offer is less than the Offer Excess Proceeds available for
such offer, Sprint Spectrum and the Restricted Subsidiaries may use such
deficiency for general partnership or corporate purposes, as the case may be,
including to repay other Indebtedness. It is agreed that, notwithstanding
anything herein to the contrary, if holders of other Debt Securities (other
than Subordinated Indebtedness) of the Issuers or any Subsidiary Guarantor are
entitled to have a similar offer to purchase their Debt Securities made to
them, such other offer shall be conducted and consummated simultaneously with
the Asset Sale Offer for the applicable Notes. If the aggregate Accreted Value
and/or principal amount of the Notes and other Debt Securities (other than
Subordinated Indebtedness) validly tendered pursuant to an Asset Sale Offer or
contractually required offer to purchase under the Indentures or any
instrument or agreement governing Debt Securities (other than Subordinated
Indebtedness) exceeds the Offer Excess Proceeds, the Senior Notes, Senior
Discount Notes and such Debt Securities to be purchased will be selected on a
pro rata basis among the holders of Notes and such Debt Securities (based upon
the principal amount of Senior Notes, Accreted Value of Senior Discount Notes
and the principal amount and/or accreted value of such other Debt Securities
tendered by each holder). Upon completion of such Asset Sale Offer, the amount
of Excess Proceeds shall be reset to zero.
Notwithstanding the two immediately preceding paragraphs, Sprint Spectrum
and the Restricted Subsidiaries will be permitted to consummate an Asset Sale
without complying with such paragraphs to the extent (i) at least 80% of the
consideration for such Asset Sale consists of cash, Cash Equivalents and/or
Permitted Assets and (ii) such consideration at the time of such Asset Sale is
at least equal to the Fair Market Value of the assets sold or otherwise
disposed of; provided that (x) any Net Cash Proceeds received by Sprint
Spectrum or any of the Restricted Subsidiaries in connection with any such
Asset Sale shall be subject to the provisions of the two immediately preceding
paragraphs and (y) if any of the assets disposed of are assets otherwise
required to be held by WirelessCo, RealtyCo or EquipmentCo under the covenant
described under
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"--Limitation on Ownership of Equity Interests of Restricted Subsidiaries,"
the Permitted Assets received shall be held by, or promptly transferred to,
WirelessCo, RealtyCo or EquipmentCo.
If the Issuers are required to make an Asset Sale Offer, the Issuers will
comply with all applicable tender offer laws and regulations, including, to
the extent applicable, Section 14(e) and Rule 14e-1 under the Exchange Act,
and any other applicable Federal or state securities laws and regulations and
any applicable requirements of any securities exchange on which the Notes are
listed.
Amendments to Capital Contribution Agreement. The Indentures will provide
that Sprint Spectrum will not amend, modify or waive, or refrain from
enforcing, any provision of the Capital Contribution Agreement dated as of
July 15, 1996 among Sprint Corporation, Tele-Communications, Inc., Comcast
Corporation, Cox Communications, Inc. and Sprint Spectrum in any manner
adverse to Sprint Spectrum or the holders of the Notes in any material
respect.
Reports. So long as any of the Notes are outstanding, Sprint Spectrum will
file with the Commission the annual reports, quarterly reports and other
documents that Sprint Spectrum would have been required to file with the
Commission pursuant to Sections 13(a) and 15(d) of the Exchange Act whether or
not Sprint Spectrum is then obligated to file reports pursuant to such
Sections, and Sprint Spectrum will promptly provide to all registered holders
of the Notes and file, within 30 days of filing with the Commission, with each
Trustee copies of such reports and documents.
Limitation on Designations of Unrestricted Subsidiaries. The Indentures will
provide that Sprint Spectrum may designate any Subsidiary of Sprint Spectrum
(other than FinCo, WirelessCo, RealtyCo and EquipmentCo) as an "Unrestricted
Subsidiary" under the Indentures (a "Designation") only if:
(i) no Default shall have occurred and be continuing at the time of or
after giving effect to such Designation; and
(ii) Sprint Spectrum would be permitted under the Indentures to make an
Investment at the time of Designation (assuming the effectiveness of such
Designation) in an amount (the "Designation Amount") equal to the Fair
Market Value of the aggregate amount of its Investments in such Subsidiary
on such date; and
(iii) except in the case of a Subsidiary in which an Investment is being
made pursuant to and as permitted by the third paragraph of the covenant
"Limitation on Restricted Payments," Sprint Spectrum would be permitted to
incur $1.00 of additional Indebtedness pursuant to clause (a) of the
proviso to the first paragraph of the covenant described under "--
Limitation on Additional Indebtedness" at the time of Designation (assuming
the effectiveness of such Designation).
In the event of any such Designation, Sprint Spectrum shall be deemed to
have made an Investment constituting a Restricted Payment pursuant to the
covenant described under "--Limitation on Restricted Payments" for all
purposes of the Indentures in the Designation Amount. The Indentures will
further provide that Sprint Spectrum shall not, and shall not permit any
Restricted Subsidiary to, at any time (x) provide direct or indirect credit
support for or a guarantee of any Indebtedness of any Unrestricted Subsidiary
(including of any undertaking, agreement or instrument evidencing such
Indebtedness), (y) be directly or indirectly liable for any Indebtedness of
any Unrestricted Subsidiary or (z) be directly or indirectly liable for any
Indebtedness which provides that the holder thereof may (upon notice, lapse of
time or both) declare a default thereon or cause the payment thereof to be
accelerated or payable prior to its final scheduled maturity upon the
occurrence of a default with respect to any Indebtedness of any Unrestricted
Subsidiary (including any right to take enforcement action against such
Unrestricted Subsidiary), except, in the case of clause (x) or (y), to the
extent permitted under the covenant described under "--Limitation on
Restricted Payments."
Notwithstanding anything herein to the contrary, APC shall not, at any time,
be considered a Restricted Subsidiary absent a Revocation in compliance with
the following paragraph.
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The Indentures will further provide that Sprint Spectrum may revoke any
Designation of a Subsidiary as an Unrestricted Subsidiary (a "Revocation"),
whereupon such Subsidiary shall then constitute a Restricted Subsidiary, if:
(a) no Default shall have occurred and be continuing at the time of and
after giving effect to such Revocation; and
(b) all Liens and Indebtedness of such Unrestricted Subsidiary
outstanding immediately following such Revocation would, if incurred at
such time, have been permitted to be incurred for all purposes of the
Indentures.
All Designations and Revocations must be evidenced by Resolutions of Sprint
Spectrum delivered to the Trustees certifying compliance with the foregoing
provisions.
CONSOLIDATION, MERGER, SALE OF ASSETS, ETC.
The Indentures will provide that Sprint Spectrum will not, in any
transaction or series of transactions, merge or consolidate with or into, or
sell, assign, convey, transfer, lease or otherwise dispose of all or
substantially all of its properties and assets as an entirety to, any person
or persons, and Sprint Spectrum will not permit any of the Restricted
Subsidiaries to enter into any such transaction or series of transactions if
such transaction or series of transactions, in the aggregate, would result in
a sale, assignment, conveyance, transfer, lease or other disposition of all or
substantially all of the properties and assets of Sprint Spectrum and the
Restricted Subsidiaries, taken as a whole, to any other person or persons,
unless at the time of and after giving effect thereto (i) either (a) if the
transaction or series of transactions is a merger or consolidation, Sprint
Spectrum shall be the surviving person of such merger or consolidation, or (b)
the person formed by any such consolidation or into which Sprint Spectrum or
such Restricted Subsidiary is merged or to which the properties and assets of
Sprint Spectrum and/or any Restricted Subsidiary, as the case may be, are
transferred (any such surviving person or transferee person being a "Surviving
Entity") shall be a partnership or corporation organized and existing under
the laws of the United States of America, any state thereof or the District of
Columbia and shall expressly assume by a supplemental indenture executed and
delivered to each of the Trustees, in form reasonably satisfactory to the
Trustees, all the obligations of Sprint Spectrum under the Notes and the
Indentures, and, in each case, the Indentures shall remain in full force and
effect; (ii) immediately before and immediately after giving effect to such
transaction or series of transactions on a pro forma basis (including, without
limitation, any Indebtedness incurred or anticipated to be incurred in
connection with or in respect of such transaction or series of transactions),
no Default shall have occurred and be continuing; and (iii) immediately after
giving effect to such transaction or series of transactions on a pro forma
basis (including, without limitation, any Indebtedness incurred or anticipated
to be incurred in connection with or in respect of such transaction or series
of transactions), Sprint Spectrum or the Surviving Entity, as the case may be,
could incur $1.00 of additional Indebtedness pursuant to the proviso to the
first paragraph of the covenant described under "--Certain Covenants--
Limitation on Additional Indebtedness"; provided that in the event of a
conversion of Sprint Spectrum from partnership to corporate form in a
transaction the primary purpose of which is to effect such conversion and in
which no additional Indebtedness is incurred or anticipated to be incurred by
Sprint Spectrum, the Surviving Entity or any Restricted Subsidiary, the
Surviving Entity shall not be required to be able to incur such $1.00 of
additional Indebtedness.
In connection with any consolidation, merger, transfer, lease, assignment or
other disposition contemplated hereby, Sprint Spectrum shall deliver, or cause
to be delivered, to the Trustees, in form and substance reasonably
satisfactory to the Trustees, an officers' certificate and an opinion of
counsel, each stating that such consolidation, merger, transfer, lease,
assignment or other disposition and the supplemental indentures in respect
thereof comply with the requirements under the Indentures.
The Indentures will provide that for all purposes of the Indentures and the
Notes (including the provisions of this covenant and the covenants described
under "--Certain Covenants--Limitation on Additional Indebtedness," "--Certain
Covenants--Limitation on Restricted Payments" and "--Certain Covenants--
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Limitation on Liens Securing Certain Indebtedness"), Subsidiaries of any
Surviving Entity will, upon such transaction or series of transactions, become
Restricted Subsidiaries or Unrestricted Subsidiaries as provided pursuant to
the covenant described under "--Certain Covenants--Limitation on Designations
of Unrestricted Subsidiaries" and all Indebtedness, and all Liens on property
or assets, of Sprint Spectrum and the Restricted Subsidiaries immediately
prior to such transaction or series of transactions will be deemed to have
been incurred upon such transaction or series of transactions; provided that
in the event of a conversion of Sprint Spectrum from partnership to corporate
form in a transaction the purpose of which is to effect such conversion and in
which no additional Indebtedness is incurred or anticipated to be incurred by
Sprint Spectrum, the Surviving Entity or any Restricted Subsidiary, no
Indebtedness of Sprint Spectrum and the Restricted Subsidiaries shall be
deemed to have been incurred upon such transaction or series of transactions.
The Indentures will provide that upon any consolidation, combination or
merger or any transfer of all or substantially all of the assets of a person
subject to, and in accordance with, the foregoing, the Surviving Entity shall
succeed to, and be substituted for, and may exercise every right and power of
Sprint Spectrum under the Indentures with the same effect as if such Surviving
Entity had been named as such; provided that, solely for purposes of computing
Available Operating Cash Flow for purposes of clause (iii) of the first
paragraph of the covenant described under "--Certain Covenants--Limitation on
Restricted Payments," the Available Operating Cash Flow of any persons other
than Sprint Spectrum and the Restricted Subsidiaries shall only be included
for periods subsequent to the effective time of such consolidation,
combination, merger or transfer of assets.
EVENTS OF DEFAULT
The following are "Events of Default" under each of the Indentures:
(i) default in the payment of the principal of, or premium, if any, on
the applicable Notes when due, at maturity, upon redemption or otherwise
(including pursuant to a Change of Control Offer or an Asset Sale Offer);
or
(ii) default in the payment of interest on the applicable Notes when it
becomes due and payable and continuance of such default for a period of 30
days; or
(iii) default in the performance, or breach, of any covenant described
under "--Consolidation, Merger, Sale of Assets, Etc."; or
(iv) default in the performance of or compliance with, or breach of, any
term, covenant, condition or provision of the applicable Notes or the
applicable Indenture (other than those specified in clause (i) or (ii)
above) and such default continues for a period of 30 days after written
notice to Sprint Spectrum thereof by the applicable Trustee or holders of
at least 25% of the aggregate principal amount of the Senior Notes or
holders of 25% of the aggregate principal amount at maturity of the Senior
Discount Notes, as the case may be, then outstanding; or
(v) either (a) one or more default or defaults in the payment of any
principal under one or more agreements, instruments, mortgages, bonds,
debentures or other evidences of Indebtedness (each, a "Debt Instrument")
under which Sprint Spectrum or one or more Restricted Subsidiaries or
Sprint Spectrum and one or more Restricted Subsidiaries then have
outstanding Indebtedness in excess of $50.0 million, individually or in the
aggregate, or (b) any other default or defaults under one or more Debt
Instruments under which Sprint Spectrum or one or more Restricted
Subsidiaries or Sprint Spectrum and one or more Restricted Subsidiaries
then have outstanding Indebtedness in excess of $50.0 million, individually
or in the aggregate, and, in the case of this clause (b), either (x) such
Indebtedness is already due and payable in full by its terms or (y) such
default or defaults have resulted in the acceleration of the maturity of
such Indebtedness; or
(vi) one or more judgments, orders or decrees of any court or regulatory
or administrative agency of competent jurisdiction for the payment of money
in excess of $50.0 million, either individually or in the aggregate, shall
be entered against Sprint Spectrum or any Restricted Subsidiary or any of
their respective properties and shall not be discharged or fully bonded and
there shall have been a period of 60 days after
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the date on which any period for appeal has expired and during which a stay
of enforcement of such judgment, order or decree shall not be in effect; or
(vii) any holder of at least $50.0 million in aggregate principal amount
of Indebtedness of Sprint Spectrum or any of the Restricted Subsidiaries,
or its trustee, agent or representative, shall commence (or have commenced
on its behalf) judicial proceedings to foreclose upon assets of Sprint
Spectrum or any of the Restricted Subsidiaries having an aggregate Fair
Market Value, individually or in the aggregate, in excess of $50.0 million
or shall have exercised any right under applicable law or applicable
security documents to take ownership of any such assets in lieu of
foreclosure; or
(viii) any Subsidiary Guarantee ceases to be in full force and effect or
is declared null and void or a Subsidiary Guarantor denies that it has any
further liability under its Subsidiary Guarantee or gives notice to such
effect; or
(ix) certain events of bankruptcy, dissolution, insolvency,
reorganization, administration, sequestration or similar proceedings
involving an Issuer or a Material Restricted Subsidiary.
If an Event of Default (other than an Event of Default specified in clause
(ix) with respect to an Issuer) occurs and is continuing, the applicable
Trustee or the holders of at least 25% in aggregate principal amount of the
outstanding Senior Notes or holders of at least 25% in aggregate principal
amount at maturity of the outstanding Senior Discount Notes, as the case may
be, may declare the principal of all the outstanding Senior Notes or the
Accreted Value of all the outstanding Senior Discount Notes, as the case may
be, to be due and payable immediately, together with all accrued and unpaid
interest and premium, if any, thereon. Upon any such declaration, such amount
shall become due and payable immediately. If an Event of Default specified in
clause (ix) with respect to an Issuer occurs, then such amount will ipso facto
become and be immediately due and payable without any declaration or other act
on the part of the applicable Trustee or any holder of Notes.
After a declaration of acceleration, the holders of a majority in aggregate
principal amount of outstanding Senior Notes or the holders of a majority in
aggregate principal amount at maturity of outstanding Senior Discount Notes,
as the case may be, may, by notice to the applicable Trustee, rescind such
declaration of acceleration if all existing Events of Default under the
applicable Indenture, other than nonpayment of the principal of or Accreted
Value of, and accrued and unpaid interest, if any, on, the applicable Notes
that has become due solely as a result of such acceleration, have been cured
or waived and if the rescission of acceleration would not conflict with any
judgment or decree. The holders of a majority in principal amount of the
outstanding Senior Notes or the holders of a majority in aggregate principal
amount at maturity of the outstanding Senior Discount Notes, as the case may
be, also have the right to waive past defaults under the applicable Indenture,
except a default in the payment of the principal of or Accreted Value of, or
any interest on, any outstanding applicable Note, or in respect of a covenant
or a provision that cannot be modified or amended without the consent of all
holders of the applicable Notes.
No holder of any of the Notes has any right to institute any proceeding with
respect to the applicable Indenture or any remedy thereunder, unless the
holders of at least 25% in principal amount of the outstanding Senior Notes or
the holders of at least 25% in principal amount at maturity of the outstanding
Senior Discount Notes, as the case may be, have made written request, and
offered reasonable indemnity, to the applicable Trustee to institute such
proceeding, and the applicable Trustee has failed to institute such proceeding
within 30 days after receipt of such notice and such Trustee has not within
such 30-day period received directions inconsistent with such written request
by holders of a majority in principal amount of the outstanding Senior Notes
or the holders of a majority in aggregate principal amount at maturity of the
outstanding Senior Discount Notes, as the case may be. Such limitations do not
apply, however, to a suit instituted by a holder of a Note for the enforcement
of the payment of the principal or Accreted Value of, or any accrued and
unpaid interest on, such Note on or after the respective due dates expressed
in such Note.
During the existence of an Event of Default under the applicable Indenture,
the applicable Trustee is required to exercise such rights and powers vested
in it under such Indenture and use the same degree of care and skill in its
exercise thereof as a prudent person would exercise under the circumstances in
the conduct of
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such person's own affairs. Subject to the provisions of the Indentures
relating to the duties of the Trustees, if an Event of Default under the
applicable Indenture shall occur and be continuing, the applicable Trustee is
not under any obligation to exercise any of its rights or powers under the
applicable Indenture at the request or direction of any of the holders of the
applicable Notes unless such holders shall have offered to such Trustee
reasonable security or indemnity. Subject to certain provisions concerning the
rights of the Trustees, the holders of a majority in principal amount of the
outstanding Senior Notes or the holders of a majority in principal amount at
maturity of the outstanding Senior Discount Notes, as the case may be, have
the right to direct the time, method and place of conducting any proceeding
for any remedy available to the applicable Trustee, or exercising any trust or
power conferred on such Trustee.
Each of the Indentures provides that the applicable Trustee will, within 30
days after the occurrence of any Default under the applicable Indenture, give
to the holders of the applicable Notes notice of such Default known to it,
unless such Default shall have been cured or waived; provided that, except in
the case of a Default in payment of principal of or interest on any Note, the
applicable Trustee shall be protected in withholding such notice if it
determines in good faith that the withholding of such notice is in the
interest of such holders.
Sprint Spectrum is required to furnish to the Trustees annually a statement
as to compliance with all conditions and covenants under the Indentures.
DEFEASANCE OR COVENANT DEFEASANCE OF INDENTURES
The Issuers may, at their option and at any time, terminate the obligations
of the Issuers and any Subsidiary Guarantor with respect to the applicable
outstanding Notes and Subsidiary Guarantees ("defeasance"). Such defeasance
means that the Issuers shall be deemed to have paid and discharged the entire
Indebtedness represented by the applicable outstanding Notes, except for (a)
the rights of holders of such outstanding Notes to receive payment in respect
of the principal of, premium, if any, and interest on such Notes when such
payments are due, (b) the Issuers' obligations to issue temporary Notes,
register the transfer or exchange of any Notes, replace mutilated, destroyed,
lost or stolen Notes and maintain an office or agency for payments in respect
of the Notes, (c) the rights, powers, trusts, duties and immunities of the
applicable Trustee, and (d) the defeasance provisions of the applicable
Indenture. In addition, the Issuers may, at their option and at any time,
elect to terminate the obligations of the Issuers and any Subsidiary
Guarantors with respect to certain covenants that are set forth in the
applicable Indenture ("covenant defeasance"), some of which are described
under "--Certain Covenants" above and any subsequent failure to comply with
such obligations shall not constitute a Default or an Event of Default with
respect to the applicable Notes.
In order to exercise either defeasance or covenant defeasance, (a) the
Issuers must irrevocably deposit with the applicable Trustee, in trust, for
the benefit of the holders of the applicable Notes, cash in United States
dollars, United States government obligations, or a combination thereof, in
such amounts as will be sufficient to pay the principal of, premium, if any,
and interest on the applicable outstanding Notes to redemption or maturity
(except lost, stolen or destroyed Notes which have been replaced or paid); (b)
the Issuers shall have delivered to the applicable Trustee an opinion of
counsel to the effect that the holders of the applicable outstanding Notes
will not recognize income, gain or loss for Federal income tax purposes as a
result of such defeasance or covenant defeasance and will be subject to
Federal income tax on the same amounts, in the same manner and at the same
times as would have been the case if such defeasance or covenant defeasance
had not occurred (in the case of defeasance, such opinion must refer to and be
based upon a ruling of the Internal Revenue Service or a change in applicable
Federal income tax laws); (c) no Default under the applicable Indenture shall
have occurred and be continuing on the date of such deposit; (d) such
defeasance or covenant defeasance shall not cause the applicable Trustee to
have a conflicting interest with respect to any securities of the Issuers; (e)
such defeasance or covenant defeasance shall not result in a breach or
violation of, or constitute a default under, any agreement or instrument to
which the Issuers or any of their Subsidiaries is a party or by which it is
bound; (f) the Issuers shall have delivered to the applicable Trustee an
opinion of counsel to the effect that after the 91st day following their
deposit, the trust funds will not be subject to the effect of any applicable
bankruptcy, insolvency, reorganization or similar laws affecting creditors'
rights generally or to the rights of any creditor of the Issuers
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or any Subsidiary Guarantor other than those continuing rights of the
applicable holders of Notes; and (g) the Issuers shall have delivered to the
applicable Trustee an officers' certificate and an opinion of counsel, each
stating that all conditions precedent under the applicable Indenture to either
defeasance or covenant defeasance, as the case may be, have been complied
with.
SATISFACTION AND DISCHARGE
The Senior Notes Indenture or the Senior Discount Notes Indenture, as the
case may be, will be discharged and will cease to be of further effect (except
as to surviving rights of registration of transfer or exchange of the
applicable Notes) as to all outstanding Senior Notes or Senior Discount Notes,
as the case may be, when either (i) all such Notes theretofore authenticated
and delivered (except lost, stolen or destroyed Notes that have been replaced
or paid and Notes for whose payment money has theretofore been deposited in
trust with the applicable Trustee and thereafter repaid to the Issuers or
discharged from such trust) have been delivered to the applicable Trustee for
cancellation; or (ii)(a) all such Notes not theretofore delivered to the
applicable Trustee for cancellation have become due and payable by their terms
and the Issuers have irrevocably deposited or caused to be deposited with the
applicable Trustee as trust funds an amount of money in U.S. dollars
sufficient to pay and discharge the entire Indebtedness on such Notes not
theretofore delivered to the applicable Trustee for cancellation, for the
principal amount, premium, if any, and accrued and unpaid interest to the date
of such deposit; (b) the Issuers have paid all other sums payable by them
under the applicable Indenture; and (c) the Issuers have delivered irrevocable
instructions to the applicable Trustee to apply the deposited money toward the
payment of such Notes at maturity or redemption, as the case may be. In
addition, the Issuers must deliver to the applicable Trustee an officers'
certificate and an opinion of counsel stating that all conditions precedent to
satisfaction and discharge have been complied with.
AMENDMENT AND WAIVERS
From time to time the Issuers and any Subsidiary Guarantor, when authorized
by Resolutions of their respective Boards, and the applicable Trustee, without
the consent of the holders of the Notes, may amend, waive or supplement the
Indentures, the Notes and any Subsidiary Guarantee for certain specified
purposes, including, among other things, curing ambiguities, defects or
inconsistencies, maintaining the qualification of an Indenture under the Trust
Indenture Act or making any change that does not adversely affect the rights
of any holder of Notes. Other amendments and modifications of the Indentures,
the Notes and any Subsidiary Guarantee may be made by the Issuers, any
Subsidiary Guarantor and the applicable Trustee with the consent of the
holders of not less than a majority of the aggregate principal amount of the
outstanding Senior Notes or holders of not less than a majority of the
aggregate principal amount at maturity of the outstanding Senior Discount
Notes, as the case may be; provided that no such modification or amendment
may, without the consent of the holder of each outstanding Note affected
thereby, (i) reduce the principal amount of or Accreted Value of, extend the
fixed maturity of, or alter the redemption provisions of, the Notes, (ii)
change the currency in which any Notes or any premium or the accrued interest
thereon is payable, (iii) reduce the percentage in principal amount of
outstanding Notes which must consent to an amendment, supplement or waiver or
consent to take any action under the Indentures, the Notes or any Subsidiary
Guarantees, (iv) impair the right to institute suit for the enforcement of any
payment on or with respect to the Notes or any Subsidiary Guarantee, as the
case may be, (v) waive a default in payment with respect to the Notes, (vi)
reduce the rate or extend the time for payment of interest on the Notes or
amend the rate of accretion on the Senior Discount Notes or amend the
definition of Accreted Value, (vii) alter the obligation to purchase the Notes
in accordance with the Indentures following the occurrence of an Asset Sale or
a Change of Control or waive any default in the performance thereof, or (viii)
adversely affect the ranking of the Notes or any Subsidiary Guarantee or (ix)
release any Subsidiary Guarantee other than in accordance with the Indentures.
REGARDING THE TRUSTEES
The Bank of New York will serve as the Senior Notes Trustee and the Senior
Discount Notes Trustee. The Indentures provide that, except during the
continuance of an Event of Default under the applicable Indenture, the
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Trustee thereunder will perform only such duties as are specifically set forth
in such Indenture. If an Event of Default has occurred and is continuing, the
Trustee will exercise such rights and powers vested in it under the applicable
Indenture and 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 Indentures and provisions of the Trust Indenture Act incorporated by
reference therein contain limitations on the rights of the Trustee thereunder,
should it become a creditor of an Issuer 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. Each Trustee is permitted to engage
in other transactions; provided that if a Trustee acquires any conflicting
interest (as defined) it must eliminate such conflict or resign.
NON-RECOURSE TO HOLDINGS, PARTNERS OR THE PARENTS
The Senior Notes and the Senior Discount Notes are non-recourse to Holdings,
the Partners or the Parents.
CERTAIN DEFINITIONS
Set forth below are certain defined terms to be used in the Indentures.
"Accreted Value" as of any date (the "Specified Date") means, with respect
to each $1,000 principal amount at maturity of Senior Discount Notes:
(i) if the Specified Date is one of the following dates (each a "Semi-Annual
Accrual Date"), the amount set forth opposite such date below:
<TABLE>
<CAPTION>
SEMI-ANNUAL ACCRETED
ACCRUAL DATE VALUE
------------ ----------
<S> <C>
Issue Date........................ $ 546.87
February 15, 1997................. 579.48
August 15, 1997................... 615.70
February 15, 1998................. 654.18
August 15, 1998................... 695.07
February 15, 1999................. 738.51
August 15, 1999................... 784.66
February 15, 2000................. 833.71
August 15, 2000................... 885.81
February 15, 2001................. 941.18
August 15, 2001................... $1,000.00;
</TABLE>
(ii) if the Specified Date occurs between two Semi-Annual Accrual Dates,
the sum of (a) the Accreted Value for the Semi-Annual Accrual Date
immediately preceding the Specified Date and (b) an amount equal to the
product of (x) the Accreted Value for the immediately following Semi-Annual
Accrual Date less the Accreted Value for the immediately preceding Semi-
Annual Accrual Date and (y) a fraction, the numerator of which is the
number of days actually elapsed from the immediately preceding Semi-Annual
Accrual Date to the Specified Date and the denominator of which is 180; and
(iii) if the Specified Date is after August 15, 2001, $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 such person and not incurred in connection with, or in
anticipation of, such person becoming a Restricted Subsidiary or such Asset
Acquisition.
"Affiliate" of any specified person means any other person which, directly
or indirectly, controls, is controlled by or is under direct or indirect
common control with, such specified person. For the purposes of this
definition, (i) "control" when used with respect to any person means the power
to direct the management and
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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 to the foregoing and (ii) each of
the Partners shall be deemed an Affiliate of Sprint Spectrum.
"Affiliate Transaction" has the meaning set forth under "--Certain
Covenants--Limitation on Transactions with Equityholders and Affiliates."
"Annualized Pro Forma Consolidated Operating Cash Flow" means Consolidated
Operating Cash Flow for the latest two full fiscal quarters for which
consolidated financial statements of Sprint Spectrum are available multiplied
by two. For purposes of calculating "Consolidated Operating Cash Flow" for any
period for purposes of this definition only, (i) any Subsidiary of Sprint
Spectrum that is a Restricted Subsidiary on the date of the transaction giving
rise to the need to calculate "Annualized Pro Forma Consolidated Operating
Cash Flow" (the "Transaction Date") shall be deemed to have been a Restricted
Subsidiary at all times during such period and (ii) any Subsidiary of Sprint
Spectrum that is not a Restricted Subsidiary on the Transaction Date shall be
deemed not to have been a Restricted Subsidiary at any time during such
period. In addition to and without limitation of the foregoing, for purposes
of this definition only, "Consolidated Operating Cash Flow" shall be
calculated after giving effect on a pro forma basis for the applicable period
to, without duplication, any Asset Sales or Asset Acquisitions (including,
without limitation, any Asset Acquisition giving rise to the need to make such
calculation as a result of Sprint Spectrum or one of the Restricted
Subsidiaries (including any person who becomes a Restricted Subsidiary as a
result of the Asset Acquisition) incurring, assuming or otherwise being liable
for Acquired Indebtedness) occurring during the period commencing on the first
day of such two fiscal quarter period to and including the Transaction Date
(the "Reference Period"), as if such Asset Sale or Asset Acquisition occurred
on the first day of the Reference Period.
"Asset Acquisition" means (i) any purchase or other acquisition (by means of
transfer of cash or other property to others or payment for property or
services for the account or use of others, or otherwise) of Equity Interests
of any person by Sprint Spectrum or any Restricted Subsidiary, in either case,
pursuant to which such person shall become a Restricted Subsidiary or shall be
merged with or into Sprint Spectrum or any Restricted Subsidiary or (ii) any
acquisition by Sprint Spectrum or any Restricted Subsidiary of the assets of
any person which constitute substantially all of an operating unit or line of
business of such person.
"Asset Sale" means any direct or indirect sale, conveyance, transfer, lease
or other disposition to any person other than Sprint Spectrum or a Wholly-
Owned Restricted Subsidiary, in one transaction or a series of related
transactions, of (i) any Equity Interests of any Restricted Subsidiary, (ii)
any FCC license for the provision of wireless telecommunications services held
by Sprint Spectrum or any Restricted Subsidiary (whether by sale of Equity
Interests or otherwise) or (iii) any other property or asset of Sprint
Spectrum or any Restricted Subsidiary outside of the ordinary course of
business. For the purposes of this definition, the term "Asset Sale" shall not
include any disposition of properties or assets of Sprint Spectrum or one or
more of the Restricted Subsidiaries in a transaction that either (x) involves
aggregate consideration of $5.0 million or less or (y) is governed by and
complies with the covenant described under "--Consolidation, Merger, Sale of
Assets, Etc."
"Asset Sale Offer" has the meaning set forth under "--Certain Covenants--
Disposition of Proceeds of Asset Sales."
"Available Operating Cash Flow" means, for any period, the positive
cumulative Consolidated Operating Cash Flow realized during such period or, if
such cumulative Consolidated Operating Cash Flow for such period is negative,
the negative amount by which cumulative Consolidated Operating Cash Flow is
less than zero.
"Average Life to Stated Maturity" means, with respect to any Indebtedness,
as at any date of determination, the quotient obtained by dividing (i) the sum
of the products of (a) the number of years (or any fraction thereof) from such
date to the date or dates of each successive scheduled principal payment
(including, without limitation, any sinking fund requirements) of such
Indebtedness multiplied by (b) the amount of each such principal payment by
(ii) the sum of all such principal payments.
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"Bank Credit Facility" means the credit facilities contemplated by the
Commitment Letter dated June 7, 1996 among Sprint Spectrum and Chase
Securities Inc. and Chemical Bank, as the same may be amended, modified,
renewed, refunded, replaced or refinanced from time to time.
"Board" of any person means the board of directors, management committee or
other governing body of such person. For purposes of this definition, while
Sprint Spectrum is a partnership, "Board" shall mean, with respect to Sprint
Spectrum, the Partnership Board established under the Holdings Partnership
Agreement and any person to whom appropriate authority has been delegated by
such Partnership Board.
"Capitalized Lease Obligation" means any obligation to pay rent or other
amounts under a lease of (or other agreement conveying the right to use) any
property (whether real, personal or mixed) that is required to be classified
and accounted for as a capital lease obligation under GAAP and, for the
purpose of the Indentures, the amount of such obligation at any date shall be
the capitalized amount thereof at such date, determined in accordance with
GAAP.
"Cash Equivalents" means (i) any evidence of Indebtedness with a maturity of
365 days or less issued by or directly, fully and unconditionally guaranteed
or insured by the United States of America or any agency or instrumentality
thereof (provided that the full faith and credit of the United States of
America is pledged in support thereof); (ii) deposits, certificates of deposit
or acceptances with a maturity of 365 days or less of any institution that is
a member of the Federal Reserve System having combined capital and surplus and
undivided profits of not less than $500.0 million; (iii) commercial paper with
a maturity of 365 days or less issued by a corporation (other than an
Affiliate of Sprint Spectrum) incorporated or organized under the laws of the
United States or any state thereof or the District of Columbia and rated at
least "A-1" by S&P or "P-1" by Moody's; (iv) repurchase agreements and reverse
repurchase agreements relating to marketable direct obligations issued by or
directly, fully and unconditionally guaranteed or insured by the United States
of America or any agency or instrumentality thereof (provided that the full
faith and credit of the United States of America is pledged in support
thereof), in each case, maturing within 365 days from the date of acquisition
and (v) any "Cash Equivalents" as defined in the Bank Credit Facility as in
effect on the Issue Date.
"Change of Control" means the occurrence of any of the following events: (i)
any "person" or "group" (as such terms are used in Sections 13(d) and 14(d) of
the Exchange Act) other than a Permitted Holder or Permitted Holders or a
person or group controlled by a Permitted Holder or Permitted Holders is or
becomes the "beneficial owner" (as defined in Rules 13d-3 and 13d-5 under the
Exchange Act, except that a person shall be deemed to have "beneficial
ownership" of all securities that such person has the right to acquire,
whether such right is exercisable immediately or only after the passage of
time, upon the happening of an event or otherwise), directly or indirectly, of
more than 40% of the total Voting Equity Interests of Sprint Spectrum or
Holdings; provided a Permitted Holder or Permitted Holders or a group
controlled by a Permitted Holder or Permitted Holders does not own a greater
percentage of the total Voting Equity Interests of Sprint Spectrum or
Holdings; (ii) Sprint Spectrum or Holdings consolidates with, or merges with
or into, another person or sells, assigns, conveys, transfers, leases or
otherwise disposes of all or substantially all of its assets to any person, or
any person consolidates with, or merges with or into, Sprint Spectrum or
Holdings, in any such event pursuant to a transaction in which the outstanding
Voting Equity Interests of Sprint Spectrum or Holdings are converted into or
exchanged for cash, securities or other property, and immediately after such
transaction a "person" or "group" (as such terms are used in Sections 13(d)
and 14(d) of the Exchange Act) other than a Permitted Holder or Permitted
Holders or a person or group controlled by a Permitted Holder or Permitted
Holders is the "beneficial owner" (as defined in Rules 13d-3 and 13d-5 under
the Exchange Act, except that a person shall be deemed to have "beneficial
ownership" of all securities that such person has the right to acquire,
whether such right is exercisable immediately or only after the passage of
time, upon the happening of an event or otherwise), directly or indirectly, of
more than 40% of the total Voting Equity Interests of the surviving or
transferee person; provided a Permitted Holder or Permitted Holders or a
person or group controlled by a Permitted Holder or Permitted Holders does not
own a greater percentage of the total Voting Equity Interests of such person;
and (iii) the approval by the holders of Equity Interests of Sprint Spectrum
or Holdings of any plan or proposal for the liquidation or dissolution of
Sprint Spectrum or Holdings.
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"Change of Control Date" has the meaning set forth under "--Certain
Covenants--Change of Control."
"Change of Control Offer" has the meaning set forth under "--Certain
Covenants--Change of Control."
"Change of Control Payment Date" has the meaning set forth under "--Certain
Covenants--Change of Control."
"Commission" means the Securities and Exchange Commission.
"Common Equity Interests" means (i) with respect to a person which is a
corporation, any and all shares, interests or other participations in, and
other equivalents (however designated and whether voting or nonvoting) of,
such person's common stock and includes, without limitation, all series and
classes of such common stock and (ii) with respect to a person which is not a
corporation, Equity Interests which have characteristics similar in all
material respects to those of common stock of a corporation.
"Consolidated Income Tax Expense" means, with respect to any period, the
provision for Federal, state, local, foreign and other income taxes of Sprint
Spectrum and the Restricted Subsidiaries for such period as determined on a
consolidated basis in accordance with GAAP.
"Consolidated Interest Expense" means, with respect to any period, without
duplication, the sum of (i) the interest expense of Sprint Spectrum and the
Restricted Subsidiaries for such period as determined on a consolidated basis
in accordance with GAAP and shall, in any event, include, without limitation,
(a) any amortization of debt discount, (b) the net cost or net benefit, as the
case may be, under any Currency Agreements and Interest Rate Protection
Obligations (including any amortization of discounts), (c) the interest
portion of any deferred payment obligation, (d) all commissions, discounts and
other fees and charges owed with respect to letters of credit, bills of
exchange, promissory notes and bankers' acceptance financing and (e) all
accrued interest, (ii) all but the principal component of Capitalized Lease
Obligations paid, accrued and/or scheduled to be paid or accrued by Sprint
Spectrum and the Restricted Subsidiaries during such period as determined on a
consolidated basis in accordance with GAAP and (iii) the aggregate amount of
dividends and distributions paid or accrued during such period in respect of
Preferred Equity Interests of Sprint Spectrum and the Restricted Subsidiaries
(other than such dividends or distributions paid or accrued on or with respect
to Preferred Equity Interests owned by Sprint Spectrum or a Wholly-Owned
Restricted Subsidiary) determined on a consolidated basis in accordance with
GAAP.
"Consolidated Net Income" means, with respect to any period, the net income
(loss) of Sprint Spectrum and the Restricted Subsidiaries for such period as
determined on a consolidated basis in accordance with GAAP, adjusted, to the
extent included in calculating such net income, by excluding, without
duplication, (i) all extraordinary gains or losses, (ii) the portion of net
income (but not losses) of Sprint Spectrum allocable to minority interests in
unconsolidated persons, except to the extent that cash dividends or
distributions have actually been received by Sprint Spectrum or any Restricted
Subsidiary, (iii) net income (or loss) of any person combined with Sprint
Spectrum or a Restricted Subsidiary on a "pooling of interests" basis
attributable to any period prior to the date of combination, (iv) gains in
respect of any Asset Sales, (v) the net income of any Unrestricted Subsidiary,
except to the extent that cash dividends or distributions have actually been
received by Sprint Spectrum or a Restricted Subsidiary, (vi) the portion of
net income (but not losses of Sprint Spectrum allocable to minority interests
in Restricted Subsidiaries (other than a Subsidiary Guarantor) of such person
and (vii) the net income of any Restricted Subsidiary (other than a Subsidiary
Guarantor) for such period to the extent the declaration of dividends or
similar distributions by that Restricted Subsidiary is not at the time
permitted, directly or indirectly, by the terms of its charter or any
agreement, instrument, judgment, decree, order, statute, rule or regulation
applicable to that Restricted Subsidiary.
"Consolidated Operating Cash Flow" means, with respect to any period, the
Consolidated Net Income of Sprint Spectrum and the Restricted Subsidiaries for
such period (i) increased by (to the extent included in computing Consolidated
Net Income) the sum of (a) Consolidated Income Tax Expense for such period;
(b)
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Consolidated Interest Expense for such period; (c) depreciation of Sprint
Spectrum and the Restricted Subsidiaries for such period, determined on a
consolidated basis in accordance with GAAP; (d) amortization of Sprint
Spectrum and the Restricted Subsidiaries for such period, including, without
limitation and without duplication, amortization of any Consolidated Interest
Expense and amortization of capitalized debt issuance costs for such period,
all determined on a consolidated basis in accordance with GAAP; and (e) any
other non-cash charges that were deducted in computing Consolidated Net Income
(excluding any non-cash charge which requires an accrual or reserve for cash
charges for any future period) of Sprint Spectrum and the Restricted
Subsidiaries for such period in accordance with GAAP and (ii) decreased by any
non-cash gains that were included in computing Consolidated Net Income.
"covenant defeasance" has the meaning set forth under "--Defeasance or
Covenant Defeasance of Indentures."
"Currency Agreement" means any foreign exchange contract, currency swap
agreement or other similar agreement or arrangement designed to protect
against fluctuations in currency values.
"Debt Instrument" has the meaning set forth under "--Events of Default."
"Debt Securities" means any debt securities (including any guarantee of such
securities) issued by any Issuer and/or any Restricted Subsidiary in
connection with a public offering (whether or not underwritten) or a private
placement (provided such private placement is underwritten for resale pursuant
to Rule 144A, Regulation S or otherwise under the Securities Act or sold on an
agency basis by a broker-dealer or one of its Affiliates to 10 or more
beneficial holders); it being understood that the term "Debt Securities" shall
not include any evidence of indebtedness under any of the Vendor Credit
Facilities or the Bank Credit Facility or any other commercial bank borrowings
or similar borrowings, recourse transfers of financial assets, capital leases
or other types of borrowings incurred in a manner not customarily viewed as a
"securities offering."
"Default" means any event that is, or after notice or passage of time or
both would be, an Event of Default as set forth under "--Events of Default."
"defeasance" has the meaning set forth under "--Defeasance or Covenant
Defeasance of Indentures."
"Designation" has the meaning set forth under "--Certain Covenants--
Limitation on Designations of Unrestricted Subsidiaries."
"Designation Amount" has the meaning set forth under "--Certain Covenants--
Limitation on Designations of Unrestricted Subsidiaries."
"Disinterested Director" means, with respect to any transaction or series of
transactions, a member of the Board of Sprint Spectrum or Holdings, as the
case may be, other than any such Board member who has any material direct or
indirect financial interest in or with respect to such transaction or series
of transactions.
"Disqualified Equity Interest" means, with respect to any person, any Equity
Interest that, by its terms (or by the terms of any security into which it is
convertible or for which it is mandatorily exchangeable), or upon the
happening of any event, matures or is mandatorily redeemable, pursuant to a
sinking fund obligation or otherwise, or is exchangeable for Indebtedness at
the option of the holder thereof, or is redeemable at the option of the holder
thereof, in whole or in part, on or prior to the final maturity date of the
Notes.
"EquipmentCo" means Sprint Spectrum Equipment Company, L.P., a Delaware
limited partnership.
"Equity Interest" in any person means any and all shares, interests, rights
to purchase, warrants, options, participations or other equivalents of or
interests in (however designated) corporate stock or other equity
participations, including partnership interests, whether general or limited,
in such person.
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"Excess Proceeds" has the meaning set forth under "--Certain Covenants--
Disposition of Proceeds of Asset Sales."
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Excluded Cash Proceeds" means (i) any net cash proceeds used to make a
concurrent Investment constituting a Restricted Payment pursuant to clause
(iv) of the third paragraph of the covenant described under "--Certain
Covenants--Limitation on Restricted Payments" and (ii) the first $1.4 billion
of net cash proceeds received by Sprint Spectrum after December 31, 1995 from
capital contributions in respect of existing Equity Interests (other than
Disqualified Equity Interests) of Sprint Spectrum or from the issue or sale
(other than to a Restricted Subsidiary) of Equity Interests (other than
Disqualified Equity Interests) of Sprint Spectrum; provided that (A) net cash
proceeds referred to in the immediately preceding clause (i), (B) net cash
proceeds used to make an Investment in APC or (C) net cash proceeds used to
make an investment pursuant to clauses (ii) or (iii)(a) of the third paragraph
of the covenant described under "--Certain Covenants--Limitation on Restricted
Payments" shall not be included as part of the first $1.4 billion referred to
in this clause (ii).
"Fair Market Value" means, with respect to any asset or property, the price
that could be negotiated in an arms'-length free market transaction, for cash,
between a willing seller and a willing buyer, neither of whom is under
pressure or compulsion to complete the transaction. Unless otherwise specified
in the applicable Indenture, Fair Market Value shall be determined by the
Board of Sprint Spectrum acting in good faith.
"GAAP" means generally accepted accounting principles 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 may be approved by a significant segment of the accounting
profession of the United States of America, which are applicable on the Issue
Date.
"guarantee" means, as applied to any obligation, (i) a guarantee (other than
by endorsement of negotiable instruments for collection in the ordinary course
of business), directly or indirectly, in any manner, of any part or all of
such obligation and (ii) an agreement, direct or indirect, contingent or
otherwise, the effect of which is to assure in any way the payment or
performance (or payment of damages in the event of non-performance) of all or
any part of such obligation (other than an agreement to make a capital
contribution that otherwise is permitted by the covenant described under "--
Certain Covenants--Limitation on Restricted Payments"), including, without
limiting the foregoing, the payment of amounts drawn down under letters of
credit.
"Holdings" means Sprint Spectrum Holding Company, L.P., a Delaware limited
partnership.
"Holdings Partnership Agreement" means the Amended and Restated Agreement of
Limited Partnership of Holdings dated as of January 31, 1996.
"incur" has the meaning set forth under "--Certain Covenants--Limitation on
Additional Indebtedness."
"Indebtedness" means, with respect to any person, without duplication, (i)
any liability, contingent or otherwise, of such person (a) for borrowed money
(whether or not the recourse of the lender is to the whole of the assets of
such person or only to a portion thereof), whether as a cash advance, bill,
overdraft or money market facility loan, or (b) evidenced by a note, debenture
or similar instrument or letters of credit (including a purchase money
obligation) or by any book-entry mechanism or (c) for the payment of money
relating to a Capitalized Lease Obligation or other obligation relating to the
deferred purchase price of property or (d) in respect of any Interest Rate
Protection Obligation or any Currency Agreement; (ii) any liability of others
of the kind described in the preceding clause (i) which the person has
guaranteed or which is otherwise its legal liability; (iii) any obligation
secured by a Lien to which the property or assets of such person are subject,
whether or not the obligations secured thereby shall have been assumed by or
shall otherwise be such person's legal liability; and (iv) the greater of the
maximum repurchase or redemption price or liquidation preference of any
Disqualified
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Equity Interests of such person or, with respect to any Restricted Subsidiary
of such person, of any Equity Interests (other than Common Equity Interests)
of such Restricted Subsidiary. In no event shall "Indebtedness" include trade
payables incurred in the ordinary course of business. For purposes of the
covenant described under "--Certain Covenants--Limitation on Additional
Indebtedness" and for purposes of "--Events of Default," in determining the
principal amount of any Indebtedness (l) to be incurred by Sprint Spectrum or
a Restricted Subsidiary or which is outstanding at any date, (x) the principal
amount of any Indebtedness which provides that an amount less than the
principal amount thereof shall be due upon any declaration of acceleration
thereof shall be the accreted value thereof at the date of determination and
(y) effect shall be given to the impact of any Currency Agreements with
respect to such Indebtedness and (2) outstanding at any time under any
Currency Agreement of Sprint Spectrum or any Restricted Subsidiary, the
principal amount shall be the net payment obligation under such Currency
Agreement at such time.
"Independent Financial Advisor" means an investment banking firm of national
standing in the United States which, in the good faith judgment of the Board
of Sprint Spectrum, is independent with respect to Sprint Spectrum and its
Affiliates and qualified to perform the task for which it is to be engaged.
"Interest Rate Protection Obligation" means the obligation of any person
pursuant to any arrangement with any other person whereby, directly or
indirectly, such person is entitled to receive from time to time periodic
payments calculated by applying either a floating or a fixed rate of interest
on a stated notional amount in exchange for periodic payments made by such
person calculated by applying a fixed or a floating rate of interest on the
same notional amount and shall include without limitation, interest rate
swaps, caps, floors, collars, forward interest rate agreements and similar
agreements.
"Investment" means, with respect to any person, any advance, loan or other
extension of credit (including, without limitation, by means of any guarantee)
or any capital contribution to (by means of transfer of property to others,
payment for property or services for the account or use of others, or
otherwise), or any purchase or other acquisition of any Equity Interests,
bonds, notes, debentures or other securities of, any other person. In
addition, any foreign exchange contract, currency swap agreement or other
similar agreement made or entered into by any person shall constitute an
Investment by such person.
"Issue Date" means the original date of issuance of the Notes.
"Lien" means any mortgage, charge, pledge, lien (statutory or other),
security interest, hypothecation or assignment for security.
"Lucent Credit Facility" means the credit facility contemplated by the
commitment letter dated June 21, 1996 between Sprint Spectrum and Lucent
Technologies, Inc., as the same may be amended, modified, renewed, refunded,
replaced or refinanced from time to time.
"Material Restricted Subsidiary" means any Restricted Subsidiary which, at
any date of determination, is (i) a "Significant Subsidiary" (as that term is
defined in Regulation S-X, as in effect on the Issue Date, issued under the
Securities Act) and/or (ii) holds any FCC license for the transmission of
wireless telecommunications services and/or (iii) any of WirelessCo, RealtyCo
or EquipmentCo.
"Moody's" means Moody's Investors Service, Inc.
"Net Cash Proceeds" means, with respect to any Asset Sale, the proceeds
therefrom in the form of cash or Cash Equivalents, including payments in
respect of deferred payment obligations when received in the form of cash or
Cash Equivalents, net of (i) brokerage commissions and other fees and expenses
(including fees and expenses of legal counsel and investment bankers) related
to such Asset Sale, (ii) provisions for all taxes payable as a result of such
Asset Sale, (iii) amounts required to be paid to any person (other than Sprint
Spectrum or any Restricted Subsidiary) owning a beneficial interest in or
having a Lien on the assets subject to the Asset Sale and (iv) appropriate
amounts to be provided by Sprint Spectrum or any Restricted Subsidiary, as the
case may be, as a reserve required in accordance with GAAP against any
liabilities associated with such Asset Sale and retained
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by Sprint Spectrum or any Restricted Subsidiary, as the case may be, after
such Asset Sale, including, without limitation, pension and other post-
employment benefit liabilities and liabilities under any indemnification
obligations associated with such Asset Sale.
"Nortel Credit Facility" means the credit facility contemplated by the
commitment letter dated June 11, 1996 between Sprint Spectrum and Northern
Telecom Inc., as the same may be amended, modified, renewed, refunded,
replaced or refinanced from time to time.
"Other Senior Debt Pro Rata Share" means the amount of the applicable Excess
Proceeds obtained by multiplying the amount of such Excess Proceeds by a
fraction, (i) the numerator of which is the aggregate accreted value and/or
principal amount, as the case may be, of all Indebtedness (other than (x) the
applicable Notes and (y) Subordinated Indebtedness) of an Issuer and any
Subsidiary Guarantor outstanding at the time of the applicable Asset Sale with
respect to which an Issuer or a Subsidiary Guarantor, as the case may be, is
required to use Excess Proceeds to repay or make an offer to purchase or repay
and (ii) the denominator of which is the sum of (a) the aggregate principal
amount of all Senior Notes outstanding at the time of the applicable Asset
Sale, (b) the aggregate Accreted Value of all Senior Discount Notes
outstanding at the time of the applicable Asset Sale and (c) the aggregate
principal amount or the aggregate accreted value, as the case may be, of all
other Indebtedness (other than Subordinated Indebtedness) of an Issuer or a
Subsidiary Guarantor outstanding at the time of the applicable Asset Sale
Offer with respect to which an Issuer or a Subsidiary Guarantor, as the case
may be, is required to use the applicable Excess Proceeds to offer to repay or
make an offer to purchase or repay.
"Pari Passu Debt Securities" means any Debt Securities (and any guarantee of
any Debt Security) which would not constitute Subordinated Indebtedness.
"Partners" means, collectively, Sprint Enterprises, L.P., TCI Telephony
Services, Inc. Comcast Telephony Services and Cox Telephony Partnership, to
the extent they are Partners in Holdings, and any permitted transferee of such
Partner's interest pursuant to the Holdings Partnership Agreement.
"Permitted Assets" means property or assets that will be used in a Permitted
Business referred to in clause (i) of the definition of "Permitted Business"
(or Equity Interests of any person that will become a Restricted Subsidiary as
a result of the applicable Asset Sale to the extent such person's operations
consist of such a Permitted Business).
"Permitted Business" means (i) the delivery or distribution of
telecommunications, voice, data or video services, (ii) any business or
activity reasonably related thereto, including, without limitation, any
business conducted by Sprint Spectrum or any Restricted Subsidiary on the
Issue Date and the acquisition, holding or exploitation of any license
relating to the delivery of the services described in clause (i) of this
definition or(iii) any other business or activity in which Sprint Spectrum and
the Restricted Subsidiaries are expressly contemplated to be engaged in
pursuant to the provisions of the Holdings Partnership Agreement as in effect
on the Issue Date.
"Permitted Holder" means (i) each of Sprint Corporation, Tele-
Communications, Inc., Comcast Corporation and Cox Communications, Inc. and the
respective successors (by merger, consolidation, transfer or otherwise) to all
or substantially all of the respective businesses and assets of any of the
foregoing, (ii) any transferee of the assets resulting from a Permitted
Transaction and (iii) each person controlled by one or more persons identified
in clause (i) or (ii) of this definition.
"Permitted Investments" means any of the following: (i) Investments in any
Restricted Subsidiary (including any person that pursuant to such Investment
becomes a Restricted Subsidiary) and any person that is merged or consolidated
with or into, or transfers or conveys all or substantially all of its assets
to, Sprint Spectrum or any Restricted Subsidiary at the time such Investment
is made; (ii) Investments in Cash Equivalents;(iii) Investments in Currency
Agreements and Interest Rate Protection Obligations permitted by the covenant
described under "--Certain Covenants--Limitation on Additional Indebtedness";
(iv) loans or advances to officers or employees of Sprint Spectrum and the
Restricted Subsidiaries in the ordinary course of business for
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bona fide business purposes of Sprint Spectrum and the Restricted Subsidiaries
(including travel and moving expenses) not in excess of $5.0 million in the
aggregate at any one time outstanding, (v) Investments in evidences of
Indebtedness, securities or other property received from another person by
Sprint Spectrum or any of the Restricted Subsidiaries in connection with any
bankruptcy proceeding or by reason of a composition or readjustment of debt or
a reorganization of such person or as a result of foreclosure, perfection or
enforcement of any Lien in exchange for evidences of Indebtedness, securities
or other property of such person held by Sprint Spectrum or any of the
Restricted Subsidiaries, or for other liabilities or obligations of such other
person to Sprint Spectrum or any of the Restricted Subsidiaries that were
created in accordance with the terms of the Indentures; and (vi) Investments
made by Sprint Spectrum and the Restricted Subsidiaries as a result of
consideration received in connection with an Asset Sale made in compliance
with the covenant described under "--Certain Covenants--Disposition of
Proceeds of Asset Sales."
"Permitted Transaction" with respect to a Partner means a transaction or
series of related transactions in which (i) such Partner ceases to be a
Subsidiary of its Parent or such Partner Transfers its Interest to a Person
that is not a Controlled Affiliate of such Partner and (ii) the new Parent of
such Partner (or such Partner if it is its own Parent) or the Parent of the
transferee of the Interest after giving effect to such transaction, or the
last transaction in a series of related transactions, owns, directly and
indirectly through its Controlled Affiliates, all or a Substantial Portion of
the cable television system assets (in the case of a Cable Partner) or long
distance telecommunications business assets (in the case of Sprint) owned by
the Parent of such Partner, directly and indirectly through its Controlled
Affiliates, immediately prior to the commencement of such transaction or
series of transactions. As used herein, "Substantial Portion" means (x) in the
case of a Cable Partner, cable television systems serving 75% or more of the
aggregate number of basic subscribers served by cable television systems in
the United States of America (including its territories and possessions other
than Puerto Rico) owned by the Parent of such Cable Partner, directly and
indirectly through its Controlled Affiliates, and (y) in the case of Sprint,
long distance telecommunications business assets serving 75% or more of the
aggregate number of customers served by the long distance telecommunications
business in the United States of America (including its territories and
possessions other than Puerto Rico) owned by the Parent of Sprint, directly
and indirectly through its Controlled Affiliates. All capitalized terms used
in this definition shall have the meanings ascribed to them in the Holdings
Partnership Agreement as in effect on the Issue Date.
"Public Equity Offering" means an underwritten public offering of Common
Equity Interests made on a primary basis by Sprint Spectrum, Holdings or a
Special Purpose Corporation pursuant to a registration statement filed with,
and declared effective by, the Commission in accordance with the Securities
Act; provided that Holdings or the Special Purpose Corporation, as the case
may be, will be required to contribute as equity to, or purchase Common Equity
Interests in, Sprint Spectrum with proceeds from the Initial Public Offering
of not less than the greater of (x) $100.0 million or (y) the amount required
to effect any redemption pursuant to the second paragraphs under "--Optional
Redemption--Optional Redemption of Senior Notes" and "--Optional Redemption of
Senior Discount Notes."
"RealtyCo" means Sprint Spectrum Realty Company, L.P., a Delaware limited
partnership.
"Refinancing Indebtedness" means (i) Indebtedness of Sprint Spectrum to the
extent the proceeds thereof are used solely to refinance (whether by
amendment, renewal, extension or refunding) Indebtedness of Sprint Spectrum or
any of the Restricted Subsidiaries and (ii) Indebtedness of any Restricted
Subsidiary to the extent the proceeds thereof are used solely to refinance
(whether by amendment, renewal, extension or refunding) Indebtedness of such
Restricted Subsidiary, in each such event, incurred under the first paragraph
of the covenant described under "--Certain Covenants--Limitation on Additional
Indebtedness" or clause (a) of the second paragraph of such covenant; provided
that (a) the principal amount of Refinancing Indebtedness incurred pursuant to
this definition (or, if such Refinancing Indebtedness provides for an amount
less than the principal amount thereof to be due and payable upon a
declaration of acceleration of the maturity thereof, the accreted value of
such Indebtedness) shall not exceed the principal amount or accreted value, as
the case may be, of the Indebtedness refinanced, plus the amount of any
premium required to be paid in connection with such refinancing pursuant to
the terms of such Indebtedness or the amount of any premium reasonably
determined by the Board
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of Sprint Spectrum as necessary to accomplish such refinancing by means of a
tender offer or privately negotiated purchase, plus the amount of reasonable
expenses in connection therewith and (b) in the case of Refinancing
Indebtedness incurred by an Issuer or a Subsidiary Guarantor, such
Indebtedness has an Average Life to Stated Maturity greater than or equal to
either (A) the Average Life to Stated Maturity of the Indebtedness refinanced
or (B) the remaining Average Life to Stated Maturity of the Notes and (iii) if
the Indebtedness to be refinanced is Subordinated Indebtedness of an Issuer or
a Subsidiary Guarantor, the Indebtedness to be incurred pursuant to this
definition shall also be Subordinated Indebtedness of the Issuer or the
Subsidiary Guarantor, as applicable, whose Indebtedness is to be refinanced.
"Replacement Assets" has the meaning set forth under "--Certain Covenants--
Disposition of Proceeds of Asset Sales."
"Resolution" means, with respect to any person, a copy of a resolution
certified by the Secretary or Assistant Secretary of such person to have been
duly adopted by its Board and to be in full force and effect on the date of
such certification, and delivered to the applicable Trustee.
"Restricted Payment" means any of the following: (i) the declaration or
payment of any dividend or distribution on Equity Interests of Sprint Spectrum
or any Restricted Subsidiary or any payment made to the direct or indirect
holders (in their capacities as such), including any Special Purpose
Corporation, of Equity Interests of Sprint Spectrum or any Restricted
Subsidiary (other than dividends or distributions (a) payable solely in Equity
Interests (other than Disqualified Equity Interests) of Sprint Spectrum or in
options, warrants or other rights to purchase Equity Interests (other than
Disqualified Equity Interests) of Sprint Spectrum, (b) paid to Sprint Spectrum
or a Wholly-Owned Restricted Subsidiary or (c) paid in respect of Equity
Interests of a Restricted Subsidiary to persons other than Sprint Spectrum or
Wholly-Owned Restricted Subsidiaries on not more favorable than a pro rata
basis with dividends or distributions then being paid in respect of Equity
Interests held by Sprint Spectrum or a Wholly-Owned Restricted Subsidiary);
(ii) the purchase, redemption or other acquisition or retirement for value of
any Equity Interests of Sprint Spectrum or a Restricted Subsidiary (other than
any such Equity Interests owned by Sprint Spectrum or a Wholly-Owned
Restricted Subsidiary); (iii) the making of any principal payment on, or the
purchase, redemption, defeasance or other acquisition or retirement for value,
prior to any scheduled maturity, scheduled repayment or scheduled sinking fund
payment, of any Subordinated Indebtedness of an Issuer or any Subsidiary
Guarantor (other than any such Subordinated Indebtedness owned by Sprint
Spectrum or a Restricted Subsidiary); or (iv) the making of any Investment
(other than a Permitted Investment) in any person (other than an Investment by
a Restricted Subsidiary in Sprint Spectrum or an Investment by Sprint Spectrum
or a Restricted Subsidiary in either (x) a Restricted Subsidiary or (y) a
person that becomes a Restricted Subsidiary as a result of such Investment).
"Restricted Subsidiary" means any Subsidiary of Sprint Spectrum that has not
been designated by the Board of the Company, by a Resolution delivered to the
applicable Trustee, as an Unrestricted Subsidiary pursuant to and in
compliance with the covenant described under "--Certain Covenants--Limitation
on Designations of Unrestricted Subsidiaries." Any such Designation may be
revoked by a Resolution of Sprint Spectrum delivered to the applicable
Trustee, subject to the provisions of such covenant.
"Revocation" has the meaning set forth under "--Certain Covenants--
Limitation on Designations of Unrestricted Subsidiaries."
"S&P" means Standard & Poor's Corporation.
"Securities Act" means the Securities Act of 1933, as amended.
"Subordinated Debt Securities" means any Debt Securities (and any guarantee
of any Debt Security) that would constitute Subordinated Indebtedness.
"Subordinated Indebtedness" of any person means any Indebtedness of such
person that is expressly subordinated in right of payment to any other
Indebtedness of such person.
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"Subsidiary" means, with respect to any person, (i) any corporation of which
the outstanding Equity Interests having at least a majority of the votes
entitled to be cast in the election of directors shall at the time be owned,
directly or indirectly, by such person, or (ii) any other person of which at
least a majority in value of Equity Interests or Voting Equity Interests are
at the time, directly or indirectly, owned by such person.
"Subsidiary Guarantee" has the meaning set forth under "--Certain
Covenants--Limitation on Issuance of Certain Guarantees by, and Debt
Securities of, Restricted Subsidiaries."
"Subsidiary Guarantor" means a Restricted Subsidiary that issues a
Subsidiary Guarantee pursuant to the covenant described under "--Certain
Covenants--Limitation on Issuance of Certain Guarantees by, and Debt
Securities of, Restricted Subsidiaries."
"Surviving Entity" has the meaning set forth under "--Consolidation, Merger,
Sale of Assets, Etc."
"Total Consolidated Indebtedness" means, at any date of determination, an
amount equal the aggregate principal amount of all Indebtedness of Sprint
Spectrum and the Restricted Subsidiaries outstanding as of the date of
determination.
"Total Invested Capital" means, at any time of determination, the sum of,
without duplication, (i) the total amount of equity contributed to Sprint
Spectrum as of the Issue Date (as set forth on the March 31, 1996 consolidated
balance sheet of Sprint Spectrum), plus (ii) the aggregate net cash proceeds
received by Sprint Spectrum from capital contributions or the issuance or sale
of Equity Interests (other than Disqualified Equity Interests but including
Equity Interests issued upon the conversion of convertible Indebtedness or
from the exercise of options, warrants or rights to purchase Equity Interests
(other than Disqualified Equity Interests)) subsequent to the Issue Date,
other than to a Restricted Subsidiary, plus (iii) the aggregate net cash
proceeds received by Sprint Spectrum or any Restricted Subsidiary from the
sale, disposition or repayment of any Investment made after the Issue Date and
constituting a Restricted Payment in an amount equal to the lesser of (a) the
return of capital with respect to such Investment and (b) the initial amount
of such Investment, in either case, less the cost of the disposition of such
Investment, plus (iv) an amount equal to the consolidated net Investment on
the date of Revocation made by Sprint Spectrum and/or any of the Restricted
Subsidiaries in any Subsidiary that has been designated as an Unrestricted
Subsidiary after the Issue Date upon its redesignation as a Restricted
Subsidiary in accordance with the covenant described under "--Certain
Covenants--Limitation on Designations of Unrestricted Subsidiaries," plus (v)
Total Consolidated Indebtedness minus (vi) the aggregate amount of all
Restricted Payments (including any Designation Amount, but other than a
Restricted Payment of the type referred to in clause (iii)(b) of the third
paragraph of the covenant described under "--Certain Covenants--Limitation on
Restricted Payments") declared or made from and after the Issue Date.
"Unrestricted Subsidiary" means any Subsidiary of Sprint Spectrum (other
than FinCo, WirelessCo, RealtyCo and EquipmentCo) designated after the Issue
Date as such pursuant to and in compliance with the covenant described under
"--Certain Covenants--Limitation on Designations of Unrestricted
Subsidiaries." Any such designation may be revoked by a Resolution of Sprint
Spectrum delivered to the applicable Trustee, subject to the provisions of
such covenant.
"Vendor Credit Facilities" means, collectively, (i) the Lucent Credit
Facility; (ii) the Nortel Credit Facility; and (iii) any other credit facility
entered into with any vendor or supplier (or any financial institution acting
on behalf of such a vendor or supplier); provided that, in the case of each of
clauses (i), (ii) and (iii), the Indebtedness thereunder is incurred solely
for the purpose of financing the cost (including the cost of design,
development, site acquisition, construction, integration, handset manufacture
or acquisition or microwave relocation) of wireless telecommunications
networks or systems or for which Sprint Spectrum 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.
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"Voting Equity Interests" means, with respect to any person, Equity
Interests 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 Restricted Subsidiary" means any Restricted Subsidiary of
which 100% of the outstanding Equity Interests is owned by Sprint Spectrum or
another Wholly-Owned Restricted Subsidiary. For purposes of this definition,
(i) any directors' qualifying shares or investments by foreign nationals
mandated by applicable law and (ii) Equity Interests of a person not to exceed
1% of the total voting power of all outstanding Equity Interests of such
person and representing a right to receive not greater than 1% of the profits
of such partnership shall be disregarded in determining the ownership of a
Restricted Subsidiary.
"Wholly-Owned Subsidiary" means, with respect to any person, any other
person 100% of whose outstanding Equity Interests are owned by such person or
another Wholly-Owned Restricted Subsidiary of such person. For purposes of
this definition, (i) any directors' qualifying shares or investments by
foreign nationals mandated by applicable law and (ii) Equity Interests of a
person not to exceed 1% of the total voting power of all outstanding Equity
Interests of such person and representing a right to receive not greater than
1% of the profits of such partnership shall be disregarded in determining the
ownership of a Subsidiary.
"WirelessCo" means WirelessCo, L.P., a Delaware limited partnership.
BOOK-ENTRY; DELIVERY AND FORM
The Notes will be issued in the form of one or more fully registered global
certificates (the "Global Certificates"). The Global Certificates will be
deposited with, or on behalf of, The Depository Trust Company, New York, New
York (the "Depositary") and registered in the name of the Depositary's
nominee. The Depositary will maintain the Notes in denominations of $1,000 and
integral multiples thereof through its book-entry facilities.
Except as set forth below, the Global Certificates may be transferred, in
whole and not in part, only to another nominee of the Depositary or to a
successor of the Depositary or its nominee.
The Depositary has advised the Issuers and the Underwriters as follows: It
is a limited-purpose trust company organized under the Banking Law of the
State of New York, a member of the Federal Reserve System, a "clearing
corporation" within the meaning of the New York Uniform Commercial Code, and a
"clearing agency" registered pursuant to the provisions of Section 17A of the
Exchange Act. The Depositary was created to hold securities for its
participating organizations (the "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. Participants include securities brokers and dealers (including
the Underwriters), banks, trust companies, clearing corporations and certain
other organizations, some of whom (and/or their representatives) own the
Depositary. Access to the Depositary's book-entry system is also available to
others, such as banks, brokers, dealers and trust companies that clear through
or maintain a custodial relationship with a Participant, either directly or
indirectly ("indirect participants"). Persons who are not Participants may
beneficially own securities held by the Depositary only through Participants
or indirect participants.
The Depositary has also advised that pursuant to procedures established by
it (i) upon the issuance by the Issuers, of the Notes, the Depositary will
credit the accounts of Participants designated by the Underwriters with the
principal amount of the Senior Notes or principal amount at maturity of the
Senior Discount Notes, as the case may be, purchased by the Underwriters, and
(ii) ownership of beneficial interests in the Global Certificates will be
shown on, and the transfer of that ownership will be effected only through,
records maintained by the Depositary (with respect to Participants'
interests), the Participants and the indirect participants. A beneficial owner
is the person who has the right to sell, transfer or otherwise dispose of an
interest in the Notes and the right to receive the proceeds therefrom, as well
as principal, premium (if any) and interest payable in respect of the Notes.
The beneficial owner must rely on the foregoing arrangements to evidence its
interest in the Notes.
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Beneficial ownership of the Notes may be transferred only by complying with
the procedures of a beneficial owner's Participant (e.g., a brokerage firm)
and the Depositary. The laws of some states require that certain persons take
physical delivery in definitive form of securities which they own.
Consequently, the ability to transfer beneficial interests in the Global
Certificates is limited to such extent.
So long as a nominee of the Depositary is the registered owner of the Global
Certificates, such nominee will be considered the sole owner or holder of the
Notes for all purposes under the Indentures and any applicable laws. Except as
provided below, owners of beneficial interests in the Global Certificates will
not be entitled to have Notes registered in their names, will not receive or
be entitled to receive physical delivery of Notes in definitive form and will
not be considered the owners or holders thereof under the Indentures.
All rights of ownership must be exercised through the Depositary and the
book-entry system, and notices that are to be given to registered owners by
the Issuers or the Trustees will be given only to the Depositary. It is
expected that the Depositary will forward notices to the Participants who will
in turn forward notices to the beneficial owners. Neither the Issuers, the
Trustees, the paying agents nor the Notes registrars will have any
responsibility or obligation to assure that any notices are forwarded by the
Depositary to any Participant or by any Participant to the beneficial owners.
Neither the Issuers, the Trustees, the paying agents nor the Notes registrars
will have any responsibility or liability for any aspect of the records
relating to or payments made on account of beneficial ownership interests in
the Global Certificates, or for maintaining, supervising or reviewing any
records relating to such beneficial ownership interests.
Principal and interest payments on the Global Certificates registered in the
name of the Depositary's nominee will be made by the Issuers, either directly
or through a paying agent, to the Depositary's nominee as the registered owner
of the Global Certificates. Under the terms of the Indentures, the Issuers and
the Trustees will treat the persons in whose names the Notes are registered as
the owners of such Notes for the purpose of receiving payments of principal
and interest on such Notes and for all other purposes whatsoever. Therefore,
neither the Issuers, the Trustees nor any paying agent has any direct
responsibility or liability for the payment of principal or interest on the
Notes to owners of beneficial interests in the Global Certificates. The
Depositary has advised the Issuers and the Trustees that its present practice
upon receipt of any payment of principal or interest is to credit immediately
the accounts of the Participants with payment in amounts proportionate to
their respective holdings in principal amount of beneficial interests in the
Global Certificates as shown on the records of the Depositary. Payments by
Participants and indirect participants to owners of beneficial interests in
the Global Certificates will be governed by standing instructions and
customary practices as is now the case with securities held for the accounts
of customers in bearer form or registered in "street name" and will be the
responsibility of such Participants or indirect participants.
As long as the Notes are represented by the Global Certificates, the
Depositary's nominee will be the holder of the Notes and therefore will be the
only entity that can exercise a right to repayment or repurchase of the Notes.
See "--Certain Covenants--Change of Control" and "Certain Covenants--
Disposition of Proceeds of Asset Sales." Notice by Participants or indirect
participants or by owners of beneficial interests in the Global Certificates
held through such Participants or indirect participants of the exercise of the
option to elect repayment of beneficial interests in Notes represented by the
Global Certificates must be transmitted to the Depositary in accordance with
its procedures on a form required by the Depositary and provided to
Participants. In order to ensure that the Depositary's nominee will timely
exercise a right to repayment with respect to a particular Note, the
beneficial owner of such Note must instruct the broker or other Participant or
indirect participant through which it holds an interest in such Note to notify
the Depositary of its desire to exercise a right to repayment. Different firms
have deadlines for accepting instructions from their customers and,
accordingly, each beneficial owner should consult the broker or other
Participant or indirect participant through which it holds an interest in a
Note in order to ascertain the deadline by which such an instruction must be
given in order for timely notice to be delivered to the Depositary. The
Issuers will not be liable for any delay in delivery of notices of the
exercise of the option to elect repayment.
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The Issuers will issue Notes in definitive form in exchange for the Global
Certificates if, and only if, either (i) the Depositary is at any time
unwilling or unable to continue as depositary and a successor depositary is
not appointed by the Issuers within 90 days, or (2) an Event of Default has
occurred and is continuing and the applicable Notes registrar has received a
request from the Depositary to issue Notes in definitive form in lieu of all
or a portion of the Global Certificates. In either instance, an owner of a
beneficial interest in the Global Certificates will be entitled to have the
applicable Notes equal in principal amount or principal amount at maturity, as
the case may be, to such beneficial interest registered in its name and will
be entitled to physical delivery of such Notes in definitive form. Notes so
issued in definitive form will be issued in denominations of $1,000 and
integral multiples thereof and will be issued in registered form only, without
coupons.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following is the opinion of Simpson Thacher & Bartlett ("Tax Counsel")
regarding the material United States federal income tax consequences of the
purchase, ownership and disposition of Notes as of the date hereof. It does
not purport to be a complete analysis or listing of all potential tax
considerations that may be relevant and is generally limited to those persons
who are original purchasers of Notes and who hold Notes as capital assets
("Holders"). Moreover, it does not include special rules that may apply to
certain Holders (including insurance companies, tax-exempt organizations,
financial institutions or broker-dealers, foreign persons and persons in
special situations such as those who hold Notes as part of a straddle, hedge
or conversion transaction). In addition, the following does not consider the
effect of any applicable foreign, state, local or other tax laws or estate or
gift tax considerations.
The following is based upon currently existing provisions of the Code,
existing and proposed Treasury regulations promulgated thereunder and current
administrative rulings and court decisions. All of the foregoing are subject
to change and any such change could affect the continuing validity of this
discussion. The Company has not sought and will not seek any rulings from the
IRS with respect to the positions of the Company set forth below and there can
be no assurance that the IRS will not take positions concerning the tax
consequences of the purchase, ownership or disposition of Notes which are
different from those set forth herein.
THE FOLLOWING DOES NOT SET FORTH ALL ASPECTS OF FEDERAL INCOME TAXATION THAT
MAY BE RELEVANT TO A PARTICULAR HOLDER IN LIGHT OF SUCH HOLDER'S PARTICULAR
CIRCUMSTANCES AND INCOME TAX SITUATION. EACH HOLDER SHOULD CONSULT SUCH
HOLDER'S TAX ADVISOR AS TO THE SPECIFIC TAX CONSEQUENCES TO SUCH HOLDER OF THE
OWNERSHIP AND DISPOSITION OF NOTES, INCLUDING THE APPLICATION AND EFFECT OF
STATE, LOCAL, FOREIGN AND OTHER TAX LAWS.
STATED INTEREST ON SENIOR NOTES
A Holder of a Senior Note will be required for federal income tax purposes
to report stated interest on the Senior Notes as ordinary income in accordance
with the Holder's method of accounting for tax purposes.
STATED INTEREST ON SENIOR DISCOUNT NOTES
Stated interest on Senior Discount Notes is discussed below in "Amount of
Original Issue Discount on Senior Discount Notes" and "Taxation of Original
Issue Discount on Senior Discount Notes."
AMOUNT OF ORIGINAL ISSUE DISCOUNT ON SENIOR DISCOUNT NOTES
The Senior Discount Notes will be issued with original issue discount for
federal income tax purposes. The amount of original issue discount ("OID") on
a Senior Discount Note is the excess of its "stated redemption price at
maturity" (the sum of all payments to be made on the Senior Discount Note,
whether denominated as interest or principal) over its "issue price." The
"issue price" of each Senior Discount Note will be the initial
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offering price at which a substantial amount of the Senior Discount Notes are
sold (not including sales to bond houses, brokers or similar persons or
organizations acting in the capacity of underwriters or wholesalers).
TAXATION OF ORIGINAL ISSUE DISCOUNT ON SENIOR DISCOUNT NOTES
Each Holder (whether a cash or accrual method taxpayer) will be required to
include in income OID as it accrues, in advance of the receipt of some or all
of the related cash payments.
The amount of OID includable in income by a Holder is the sum of the "daily
portions" of OID with respect to the Senior Discount Note for each day during
the taxable year or portion of the taxable year on which such Holder held such
Senior Discount Note ("accrued OID"). The daily portion is determined by
allocating to each day in any "accrual period" a pro rata portion of the OID
allocable to that accrual period. The accrual periods for a Senior Discount
Note will be periods that are selected by the Holder that are no longer than
one year, provided that each scheduled payment occurs either on the final day
or on the first day of an accrual period. The amount of OID allocable to any
accrual period other than the initial short accrual period (if any) and the
final accrual period is an amount equal to the product of the Senior Discount
Note's "adjusted issue price" at the beginning of such accrual period and its
yield to maturity (determined on the basis of compounding at the close of each
accrual period and properly adjusted for the length of the accrual period).
The amount of OID allocable to the final accrual period is the difference
between the amount payable at maturity and the adjusted issue price of the
Senior Discount Note at the beginning of the final accrual period. The amount
of OID allocable to any initial short accrual period may be computed under any
reasonable method. The yield to maturity is the discount rate that, when used
in computing the present value of all principal and interest payments to be
made on a Senior Discount Note, produces an amount equal to its issue price.
The adjusted issue price of a Senior Discount Note at the start of any accrual
period is equal to its issue price increased by the accrued OID for each prior
accrual period determined without regard to the amortization of any
acquisition or bond premium, as described below, and reduced by any prior
payments and any payment on the first day of the current accrual period with
respect to such Senior Discount Note. The Company is required to report the
amount of OID accrued on Senior Discount Notes held of record by persons other
than corporations and other exempt Holders. Each date on which a payment of
stated interest on the Senior Discount Notes is due will be treated by the
Issuers as the last day of an accrual period.
For all periods through August 15, 2001, Holders of Senior Discount Notes
will be required to include OID in gross income without having received cash
payments with respect to such OID. For periods after August 15, 2001, accrual
of OID will continue but the Holder will be receiving cash payments of stated
interest. The cash payments of stated interest as well as the Accreted
Interest Redemption Amount are not separately includable in a Holder's income,
but rather will be treated first as payments of OID previously included in
income, and thereafter (to the extent necessary) as payments of principal.
MARKET DISCOUNT
If a Note is acquired at a "market discount," some or all of any gain
realized upon a disposition (including a sale or a taxable exchange) or
payment at maturity of such Note will be treated as ordinary income provided
that the Holder has not elected to include market discount in income
currently. "Market discount" with respect to a Note is the excess of (1) the
adjusted issue price of the Note over (2) such Holder's tax basis in the Note
immediately after its acquisition. However, if such excess is less than .25
percent of the stated redemption price at maturity multiplied by the number of
complete years to maturity (after the Holder acquired the Note), then the
market discount shall be considered to be zero. The amount of market discount
treated as having accrued will be determined either on a straight-line basis,
or, if the Holder so elects, on a constant interest method. Upon any
subsequent disposition (including a gift or payment at maturity) of such Note
(other than in connection with certain nonrecognition transactions), the
lesser of any gain on such disposition (or appreciation, in the case of a
gift) or the portion of the market discount that accrued while the Note was
held by such Holder will be treated as ordinary interest income. In lieu of
including accrued market discount in income at the time of disposition, a
Holder may elect to include market discount in income currently. Unless a
Holder makes such an election, such Holder will be required to defer a portion
of any interest expense that may otherwise be deductible on any
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indebtedness incurred or maintained to purchase or carry such Note until the
Holder disposes of the Note provided such interest expense exceeds the amount
of interest (including OID) includible in gross income with respect to such
Note.
ACQUISITION PREMIUM
If a Holder's purchase price for a Note exceeds the adjusted issue price at
the time of acquisition but is equal to or less than the sum of all amounts
payable on the Note after its purchase by the Holder, the excess (referred to
as "acquisition premium") is offset ratably against the amount of OID
otherwise includable in such Holder's taxable income.
BOND PREMIUM
A Senior Note is purchased with bond premium if its adjusted basis,
immediately after its purchase by the Holder, exceeds its face amount. A
Senior Discount Note is purchased with bond premium if its adjusted basis,
immediately after its purchase by the Holder exceeds the sum of all amounts
payable on the Senior Discount Note after its purchase by the Holder. A Holder
who purchases a Note with bond premium is not required to include any OID in
gross income and may elect to amortize such premium, using a constant yield-
to-maturity method, over the remaining term of the Note or the period to an
earlier call date, if it results in a smaller allowance. Such bond premium
generally is deemed to be an offset to interest otherwise includable in income
in respect of a Note. Any election to amortize bond premium applies to all
debt instruments (other than debt instruments the interest on which is
excludable from gross income) held by the Holder at the beginning of the first
taxable year to which the election applies or thereafter acquired by the
Holder, and is irrevocable without the consent of the IRS. Amortizable bond
premium on a Note held by a Holder that does not make such an election will
decrease the gain or increase the loss otherwise recognized on disposition of
the Note. See "--Election to Treat All Interest as OID."
ELECTION TO TREAT ALL INTEREST AS OID
Holders may elect to treat all interest on any Note as OID and calculate the
amount includable in gross income under the constant yield method described
above. For the purposes of this election, interest includes stated interest,
acquisition discount, OID, de minimis OID, market discount, de minimis market
discount and unstated interest, as adjusted by any amortizable bond premium or
acquisition premium. The election is to be made for the taxable year in which
the United States Holder acquired the Note, and may not be revoked without the
consent of the Internal Revenue Service (the "IRS"). HOLDERS MAY WANT TO
CONSULT WITH THEIR OWN TAX ADVISORS ABOUT WHETHER TO MAKE SUCH AN ELECTION IN
LIGHT OF THEIR OWN PARTICULAR SITUATIONS. TAX COUNSEL CANNOT OPINE AS TO
WHETHER A PARTICULAR HOLDER SHOULD MAKE SUCH AN ELECTION.
SALE, EXCHANGE, REDEMPTION OR RETIREMENT
A Holder will recognize gain or loss upon the sale, exchange, redemption
(other than the mandatory redemption of the Senior Discount Notes) or
retirement of a Note measured by the difference between (a) the amount of cash
and fair market value of property received (except, with respect to a Senior
Note, to the extent attributable to the payment of accrued interest) in
exchange therefor and (b) the Holder's adjusted tax basis in such Note. Any
amount attributable to accrued interest on a Senior Note would be treated as
ordinary interest income rather than an amount received in exchange for the
Note if such amount has not previously been included in income.
A Holder's initial tax basis in a Note will equal the price paid by such
Holder for such Note. The Holder's adjusted tax basis in a Senior Discount
Note will be such Holder's initial tax basis increased from time to time by
the portion of OID included in gross income to the date of disposition and
decreased from time to time by amortized premium or any payments received on
such Senior Discount Note. A Holder's tax basis in a Note would also be
increased by any market discount the Holder elected to include in income
currently.
Any gain or loss on the sale, exchange, redemption (other than the mandatory
redemption of the Senior Discount Notes) or retirement of a Note will be
capital gain or loss (except for any amount treated as ordinary
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income under the market discount rules discussed above). Any capital gain or
loss will be long-term capital gain or loss if the Note had been held for more
than one year and otherwise will be short-term capital gain or loss. Under
current law, net capital gains of individuals are, under certain
circumstances, taxed at lower rates than items of ordinary income.
BACKUP WITHHOLDING
The backup withholding rules require a payor to deduct and withhold a tax if
(a) the payee fails to furnish a taxpayer identification number ("TIN") to the
payor in the manner required or otherwise qualify for an exemption, (b) the
IRS notifies the payor that the TIN furnished by the payee is incorrect, (c)
the payee has failed to report properly the receipt of "reportable payments"
and the IRS has notified the payor that withholding is required or (d) there
has been a failure of the payee to certify under penalties of perjury that a
payee is not subject to withholding under Section 3406 of the Code. As a
result, if any one of the events discussed above 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, interest actually paid,
original issue discount and amounts paid through brokers in retirement of
Notes. Any amounts 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) generally are not subject to the backup withholding and
information reporting requirements.
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UNDERWRITING
Subject to the terms and conditions set forth in a purchase agreement (the
"Purchase Agreement") among the Issuers and each of the underwriters named
below (collectively, the "Underwriters"), the Issuers have agreed to sell to
the Underwriters, and each of the Underwriters has severally agreed to
purchase from the Issuers, the entire principal amount of the Senior Notes and
principal amount at maturity of the Senior Discount Notes set forth opposite
its name below. The Underwriters are committed to purchase all of the Senior
Notes and the Senior Discount Notes if any are purchased.
The Purchase Agreement provides that the obligations of the Underwriters to
pay for and accept delivery of the Senior Notes and the Senior Discount Notes
are subject to the approval of certain legal matters by counsel and to various
other conditions.
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT AT
PRINCIPAL MATURITY OF
AMOUNT OF SENIOR
SENIOR DISCOUNT
UNDERWRITERS NOTES NOTES
------------ ------------ ------------
<S> <C> <C>
Merrill Lynch, Pierce, Fenner & Smith
Incorporated............................ $100,000,000 $200,000,000
Lehman Brothers Inc. ............................ 100,000,000 200,000,000
Chase Securities Inc. ........................... 16,667,000 33,334,000
Donaldson, Lufkin & Jenrette Securities
Corporation..................................... 16,667,000 33,333,000
Salomon Brothers Inc ............................ 16,666,000 33,333,000
------------ ------------
Total....................................... $250,000,000 $500,000,000
============ ============
</TABLE>
The Underwriters propose to offer the Senior Notes directly to the public at
the public offering price set forth on the cover page hereof, and to certain
dealers at such price less a concession not in excess of 0.25% of the
principal amount of Senior Notes. The Underwriters may allow, and such dealers
may reallow, a discount not in excess of 0.125% of the principal amount of the
Senior Notes. After the initial public offering of the Senior Notes, the
public offering price and such concession may be changed.
The Underwriters propose to offer the Senior Discount Notes directly to the
public at the public offering price set forth on the cover page hereof, and to
certain dealers at such price less a concession not in excess of 0.137% of the
principal amount at maturity of the Senior Discount Notes. The Underwriters
may allow, and such dealers may reallow, a discount not in excess of 0.068% of
the principal amount at maturity of the Senior Discount Notes. After the
initial public offering of the Senior Discount Notes, the public offering
price and such concession may be changed.
Sprint will purchase $182,859,000 principal amount at maturity of the Senior
Discount Notes for its own account for investment. The Underwriters will not
receive a discount or commission with respect to such Senior Discount Notes.
Sprint has agreed not to offer, sell or otherwise dispose of such Senior
Discount Notes for a period of 180 days after the date of this Prospectus.
The Issuers do not intend to apply for listing of either issue of the Notes
on a national securities exchange, but have been advised by the Underwriters
that they presently intend to make a market in the Notes, as permitted by
applicable laws and regulations. The Underwriters are not obligated, however,
to make a market in the Notes, and any such market making may be discontinued
at any time at the sole discretion of the Underwriters. Accordingly, no
assurance can be given as to the liquidity of, or trading markets for, the
Notes.
The Issuers have agreed, jointly and severally, to indemnify the
Underwriters against certain liabilities, including civil liabilities under
the Securities Act, or to contribute to payments the Underwriters may be
required to make in respect thereof.
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Lehman Brothers Inc. ("Lehman") and Merrill Lynch & Co. ("Merrill Lynch")
have entered into agreements with the Company pursuant to which Lehman and
Merrill Lynch have provided general financial advisory services to the Company
and have assisted and represented the Company in arranging, structuring and
negotiating the Vendor Financings. In connection with such services, the
Company paid customary fees to each of Lehman and Merrill Lynch. Merrill Lynch
Trust Company, an affiliate of Merrill Lynch, is the trustee under a
retirement plan of the Company for which it has received customary fees. Chase
Securities Inc. is an affiliate of Chase, which has provided a commitment for
the Bank Credit Facility for which it expects to receive customary fees. In
addition, each of the Underwriters has provided, and may continue in the
future to provide, investment and/or commercial banking and other services to
the Parents and their respective affiliates.
LEGAL MATTERS
Certain legal matters relating to the Offering will be passed upon for the
Issuers by their counsel Simpson Thacher & Bartlett, New York, New York (a
partnership which includes professional corporations) and by their regulatory
counsel, Morrison & Foerster, Washington D.C. Certain legal matters with
respect to the Notes offered hereby will be passed upon for the Underwriters
by their counsel Cahill Gordon & Reindel (a partnership which includes a
professional corporation), New York, New York.
EXPERTS
The financial statements as of December 31, 1994 and 1995, for the period
October 24, 1994 to December 31, 1994, for the year ended December 31, 1995
and for the cumulative period from October 24, 1994 to December 31, 1995
included in this Prospectus and elsewhere in the Registration Statement have
been audited by Deloitte & Touche LLP, independent auditors, as stated in
their reports appearing herein and elsewhere in the Registration Statement
(which reports express an unqualified opinion and include an explanatory
paragraph referring to the development stage of Reorganized Sprint Spectrum
L.P. and subsidiary, Sprint Spectrum Finance Corporation and Sprint Spectrum
Holding Company, L.P. and subsidiaries), and have been so included in reliance
upon the reports of such firm given upon their authority as experts in
accounting and auditing.
The financial statements of American PCS, L.P. as of December 31, 1994 and
1995 and March 31, 1996, and for the years ended December 31, 1994 and 1995
and for the three months ended March 31, 1996, included in this Prospectus
have been so included in reliance on the report of Price Waterhouse LLP,
independent accountants, given on the authority of said firm as experts in
auditing and accounting.
AVAILABLE INFORMATION
The Issuers have filed with the Commission, a Registration Statement on Form
S-1 under the Securities Act of 1933, as amended (the "Securities Act"), with
respect to the Notes 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 Notes 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 Web Site
(http://www.sec.gov.) maintained by the Commission; 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>
GLOSSARY OF SELECTED TERMS
AIN: Advanced Intelligent Network. A term adopted by most telecommunications
companies to indicate the architecture of a company's communications network.
Although each company's AIN differs, it generally has three components: (1)
Signal Control Points (SCPs) which are computers that hold databases in which
customer-specific information used to route calls is stored; (ii) Signal
Switching Points (SSPs) which are digital telephone switches which talk to
SCPs in order to obtain customer-specific instructions as to how a call should
be completed; and (ii) Signal Transfer Points (STPs) which are packet switches
that shuttle messages between SSPs and SCPs.
ANALOG: A method of transmission where the wave form of the output signal is
analogous to the wave form of the input signal.
BTA: Basic Trading Area.
CDMA: Code Division Multiple Access. A digital spread-spectrum wireless
technology which allows a large number of users to access a single frequency
band that assigns a code to all speech bits, sends a scrambled transmission of
the encoded speech over the air and reassembles the speech to its original
format.
CMRS: Commercial Mobile Radio Service.
CHURN RATE: Expressed as a rate for a given measurement period, equal to the
number of subscriber units disconnected divided by the number of subscribers
at the beginning of the measurement period.
CTIA: The Cellular Telecommunications Industry Association. An industry
group in North America comprised primarily of cellular telephone service
companies and recently some PCS license holders.
DRT: Design Review Team.
DIGITAL PROTOCOLS: Technologies such as CDMA and TDMA which manage the
communication for digital signal transmission.
ESMR: Enhanced Specialized Mobile Radio. A radio communications system that
employs digital technology with a multi-site configuration that permits
frequency reuse but used in the SMR frequencies, offering enhanced dispatch
services to traditional analog SMR users.
FCC: Federal Communications Commission.
FREQUENCY: The number of cycles per second, expressed in hertz, of a
periodic oscillation or wave in radio propagation.
GSM: Global System for Mobile Communications. The standard digital cellular
telephone service in Europe and Japan, guided by a set of standards specifying
the infrastructure for digital cellular service, including the radio interface
(900 MHz), switching, signaling, and intelligent network.
HAND-OFF: The act of transferring communication with a mobile unit from one
base station to another. A hand-off transfers a call from the current base
station to the new base station. A "soft" hand-off establishes communications
with a new cell before terminating communications with the old cell.
LATA: Local access and transport area. One of 161 local telephone exchange
areas in the United States. InterLATA service refers to the service between
two LATAs and intraLATA service refers to the provision of service within a
LATA. The 1996 Act limits the ability of the Bell operating companies to
engage in interLATA service. See "Business--Regulation."
LEC: Local Exchange Carrier.
113
<PAGE>
LEO SATELLITE: Low Earth Orbit Satellite. A LEO satellite moves a few
hundred miles in orbit around the Earth. The primary advantage of LEOs is that
the terrestrial-based transmitting terminal does not have to be very powerful
because the LEO satellite is closer to the Earth than traditional
geostationary satellites which are placed in geosynchronous orbit (22,300
miles) directly over the earth's equator.
MICROWAVE RELOCATION: The transferral of the businesses and public safety
agencies which currently utilize radio spectrum within or adjacent to the
spectrum allocated to PCS licensees by the FCC.
MSA: Metropolitan Statistical Area.
MTA: Major Trading Area.
PCS: Personal Communications Services.
POPS: A short hand abbreviation for the population covered by a license or
group of licenses. Unless otherwise noted, as used herein Pops means the
Donnelley Marketing Service estimate of the December 31, 1995 population of a
geographic area.
PCIA: The Personal Communications Industry Association is a North American
trade association whose members either have PCS or paging licenses.
PSTN: Public Switched Telephony Network.
RF: Radio Frequency.
RSA: Rural Statistical Area.
ROAMING: A service offered by mobile communications carriers which allows
subscribers to use their handset while in the service area of another carrier.
Roaming agreements are negotiated between carriers.
SMR: Specialized Mobile Radio. A two-way analog mobile radio telephone
system typically used for dispatch services such as truck and taxi fleets.
TDMA: Time Division Multiple Access. A digital spread-spectrum technology
which allocates a discrete amount of frequency bandwidth to each user in order
to permit more than one simultaneous conversation on a single RF channel.
114
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
REORGANIZED SPRINT SPECTRUM L.P. AND SUBSIDIARY
Independent Auditors' Report.............................................. F-2
Consolidated Balance Sheets at December 31, 1994 and 1995 and at March 31,
1996..................................................................... F-3
Consolidated Statements of Operations for the period from October 24, 1994
to December 31, 1994, the year ended December 31, 1995, the cumulative
period from October 24, 1994 to December 31, 1995, the three months ended
March 31, 1995 and 1996, and the cumulative period from October 24, 1994
to March 31, 1996........................................................ F-4
Consolidated Statements of Changes in Partners' Capital for the period
from October 24, 1994 to December 31, 1994, the year ended December 31,
1995, the cumulative period from October 24, 1994 to December 31, 1995,
the three months ended March 31, 1995 and 1996, and the cumulative period
from October 24, 1994 to March 31, 1996 ................................. F-5
Consolidated Statements of Cash Flows for the period from October 24, 1994
to December 31, 1994, the year ended December 31, 1995, the cumulative
period from October 24, 1994 to December 31, 1995, the three months ended
March 31, 1995 and 1996, and the cumulative period from October 24, 1994
to March 31, 1996........................................................ F-6
Notes to Consolidated Financial Statements................................ F-7
SPRINT SPECTRUM HOLDING COMPANY, L.P. AND SUBSIDIARIES
Independent Auditors' Report.............................................. F-16
Consolidated Balance Sheets at December 31, 1994 and 1995 and at March 31,
1996..................................................................... F-17
Consolidated Statements of Operations for the period from October 24, 1994
to December 31, 1994, the year ended December 31, 1995, the cumulative
period from October 24, 1994 to December 31, 1995, the three months ended
March 31, 1995 and 1996, and the cumulative period from October 24, 1994
to March 31, 1996........................................................ F-18
Consolidated Statement of Changes in Partners' Capital for the period from
October 24, 1994 to December 31, 1994, the year ended December 31, 1995,
the cumulative period from October 24, 1994 to December 31, 1995, the
three months ended March 31, 1995 and 1996, and the cumulative period
from October 24, 1994 to March 31, 1996.................................. F-19
Consolidated Statements of Cash Flows for the period from October 24, 1994
to December 31, 1994, the year ended December 31, 1995, the cumulative
period from October 24, 1994 to December 31, 1995, the three months ended
March 31, 1995 and 1996, and the cumulative period from October 24, 1994
to March 31, 1996........................................................ F-20
Notes to Consolidated Financial Statements................................ F-21
SPRINT SPECTRUM FINANCE CORPORATION
Independent Auditors' Report.............................................. F-29
Opening Balance Sheet at May 21, 1996..................................... F-30
Note to Balance Sheet..................................................... F-31
AMERICAN PCS, L.P.
Report of Independent Accountants......................................... F-32
Balance Sheets at December 31, 1994 and 1995 and at March 31, 1996........ F-33
Statements of Loss for the year ended December 31, 1994 and 1995 and for
the three months ended March 31, 1995 and 1996 .......................... F-34
Statements of Cash Flows for the year ended December 31, 1994 and 1995 and
for
the three months ended March 31, 1995 and 1996........................... F-35
Statements of Changes in Partners' Capital as of December 31, 1994 and
1995 and
as of March 31, 1996..................................................... F-36
Notes to Financial Statements............................................. F-37
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
Partners of Sprint Spectrum L.P.
Kansas City, Missouri
We have audited the accompanying consolidated balance sheets of Reorganized
Sprint Spectrum L.P. and subsidiary (the "Partnership"), a development stage
enterprise, as of December 31, 1995 and 1994, and the related consolidated
statements of operations, changes in partners' capital and cash flows for the
year ended December 31, 1995, for the period from October 24, 1994 (date of
inception) to December 31, 1994, and for the cumulative period from October
24, 1994 (date of inception) to December 31, 1995. These consolidated
financial statements are the responsibility of the Partnership's management.
Our responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the consolidated financial
statements are free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the
consolidated financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as
well as evaluating the overall consolidated financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the consolidated financial position of Reorganized Sprint
Spectrum L.P. and subsidiary at December 31, 1995 and 1994, and the results of
their operations and their cash flows for the year ended December 31, 1995,
for the period from October 24, 1994 (date of inception) to December 31, 1994,
and for the cumulative period from October 24, 1994 (date of inception) to
December 31, 1995, in conformity with generally accepted accounting
principles.
As discussed in Note 1 to the consolidated financial statements, Reorganized
Sprint Spectrum L.P. and subsidiary financial statements have been restated to
retroactively reflect certain transactions between entities under common
control in a manner similar to a pooling of interest.
As discussed in Note 2 to the consolidated financial statements, Reorganized
Sprint Spectrum L.P. and its subsidiary are in the development stage as of
December 31, 1995.
DELOITTE & TOUCHE LLP
Kansas City, Missouri
July 8, 1996
F-2
<PAGE>
REORGANIZED SPRINT SPECTRUM L.P. AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED BALANCE SHEETS (IN 000'S)
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------- MARCH 31,
1994 1995 1996
-------- ---------- -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents.................. $ 5,014 $ 1,123 $ 3,119
Receivables from affiliates................ -- 340 1,629
Prepaid expenses and other assets.......... 10 188 226
-------- ---------- ----------
Total current assets..................... 5,024 1,651 4,974
INVESTMENT IN PCS LICENSES................... 118,438 2,124,594 2,124,594
INVESTMENT IN UNCONSOLIDATED PARTNERSHIP..... -- 85,546 49,314
NOTE RECEIVABLE--UNCONSOLIDATED PARTNERSHIP.. -- 655 83,655
PROPERTY, PLANT AND EQUIPMENT, Net........... 413 31,897 76,129
-------- ---------- ----------
TOTAL ASSETS................................. $123,875 $2,244,343 $2,338,666
======== ========== ==========
LIABILITIES AND PARTNERS' CAPITAL
CURRENT LIABILITIES:
Accounts payable........................... $ 3,745 $ 47,503 $ 86,698
Accrued expenses........................... -- 1,700 9,878
Accrued interest--affiliate................ -- 214 294
-------- ---------- ----------
Total current liabilities................ 3,745 49,417 96,870
DEFERRED COMPENSATION........................ -- 1,856 4,247
NOTE PAYABLE--AFFILIATE...................... -- 5,000 5,000
COMMITMENTS AND CONTINGENCIES
LIMITED PARTNER INTEREST IN CONSOLIDATED
SUBSIDIARY.................................. -- 5,000 5,000
PARTNERS' CAPITAL AND ACCUMULATED DEFICIT:
Partners' capital.......................... 123,438 2,296,806 2,408,710
Deficit accumulated during the development
stage..................................... (3,308) (113,736) (181,161)
-------- ---------- ----------
Total partners' capital.................. 120,130 2,183,070 2,227,549
-------- ---------- ----------
TOTAL LIABILITIES AND PARTNERS' CAPITAL...... $123,875 $2,244,343 $2,338,666
======== ========== ==========
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE>
REORGANIZED SPRINT SPECTRUM L.P. AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED STATEMENTS OF OPERATIONS (IN 000'S)
<TABLE>
<CAPTION>
CUMULATIVE CUMULATIVE
PERIOD FROM PERIOD FROM PERIOD FROM
OCTOBER 24, 1994 OCTOBER 24, 1994 THREE MONTHS ENDED OCTOBER 24, 1994
(DATE OF INCEPTION) YEAR ENDED (DATE OF INCEPTION) MARCH 31, (DATE OF INCEPTION)
TO DECEMBER 31, DECEMBER 31, TO DECEMBER 31, ------------------- TO MARCH 31,
1994 1995 1995 1995 1996 1996
------------------- ------------ ------------------- --------- --------- -------------------
(UNAUDITED) (UNAUDITED)
------------------- -------------------
<S> <C> <C> <C> <C> <C> <C>
OPERATING EXPENSES:
General and
administrative......... $ 1,371 $ 37,460 $ 38,831 $ 1,273 $ 19,862 $ 58,693
Professional and legal
fees................... 1,923 26,849 28,772 2,335 10,862 39,634
Depreciation............ 38 211 249 47 254 503
------- --------- --------- -------- --------- ---------
Total operating
expenses............. 3,332 64,520 67,852 3,655 30,978 98,830
------- --------- --------- -------- --------- ---------
OTHER INCOME (EXPENSE):
Interest income......... 24 260 284 275 (358) (74)
Other income............ -- 38 38 -- 143 181
Equity in loss of
unconsolidated
partnership............ -- (46,206) (46,206) (3,409) (36,232) (82,438)
------- --------- --------- -------- --------- ---------
Total other income
(expense)............ 24 (45,908) (45,884) (3,134) (36,447) (82,331)
------- --------- --------- -------- --------- ---------
NET LOSS................ $(3,308) $(110,428) $(113,736) $ (6,789) $ (67,425) $(181,161)
======= ========= ========= ======== ========= =========
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE>
REORGANIZED SPRINT SPECTRUM L.P. AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED STATEMENTS OF CHANGES IN PARTNERS' CAPITAL (IN 000'S)
<TABLE>
<CAPTION>
CUMULATIVE CUMULATIVE
PERIOD FROM PERIOD FROM PERIOD FROM
OCTOBER 24, 1994 OCTOBER 24, 1994 THREE MONTHS ENDED OCTOBER 24, 1994
(DATE OF INCEPTION) YEAR ENDED (DATE OF INCEPTION) MARCH 31, (DATE OF INCEPTION)
TO DECEMBER 31, DECEMBER 31, TO DECEMBER 31, -------------------- TO MARCH 31,
1994 1995 1995 1995 1996 1996
------------------- ------------ ------------------- -------- ---------- -------------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
PARTNERS' CAPITAL:
Balance at beginning of
period................. $ -- $ 123,438 $ -- $123,438 $2,296,806 $ --
Contributions of
capital................ 123,438 2,173,368 2,296,806 390,999 111,904 2,408,710
Receivable for capital
contributions.......... -- -- -- (3,462) -- --
-------- ---------- ---------- -------- ---------- ----------
Balance at end of
period................. 123,438 2,296,806 2,296,806 510,975 2,408,710 2,408,710
DEFICIT ACCUMULATED
DURING THE
DEVELOPMENT STAGE:
Balance at beginning of
period................. -- (3,308) -- (3,308) (113,736) --
Net loss................ (3,308) (110,428) (113,736) (6,789) (67,425) (181,161)
-------- ---------- ---------- -------- ---------- ----------
Balance at end of
period................. (3,308) (113,736) (113,736) (10,097) (181,161) (181,161)
-------- ---------- ---------- -------- ---------- ----------
TOTAL PARTNERS'
CAPITAL................ $120,130 $2,183,070 $2,183,070 $500,878 $2,227,549 $2,227,549
======== ========== ========== ======== ========== ==========
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE>
REORGANIZED SPRINT SPECTRUM L.P. AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED STATEMENTS OF CASH FLOWS (IN 000'S)
<TABLE>
<CAPTION>
CUMULATIVE CUMULATIVE
PERIOD FROM PERIOD FROM PERIOD FROM
OCTOBER 24, 1994 OCTOBER 24, 1994 THREE MONTHS ENDED OCTOBER 24, 1994
(DATE OF INCEPTION) YEAR ENDED (DATE OF INCEPTION) MARCH 31, (DATE OF INCEPTION)
TO DECEMBER 31, DECEMBER 31, TO DECEMBER 31, -------------------- TO MARCH 31,
1994 1995 1995 1995 1996 1996
------------------- ------------ ------------------- --------- --------- -------------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERAT-
ING
ACTIVITIES:
Net loss.............. $ (3,308) $ (110,428) $ (113,736) $ (6,789) $ (67,425) $ (181,161)
Adjustments to recon-
cile net loss to net
cash provided (used)
by operating
activities:
Equity in loss of un-
consolidated
partnership.......... -- 46,206 46,206 3,409 36,232 82,438
Depreciation.......... 38 211 249 47 254 503
Loss on sale of equip-
ment................. -- 31 31 -- -- 31
Changes in assets and
liabilities:
Receivables from af-
filiates prepaid
expenses and other
assets.............. (10) (518) (528) (343) (1,327) (1,855)
Accounts payable..... 3,745 43,758 47,503 (14) 39,195 86,698
Accrued expenses..... -- 1,914 1,914 301 8,258 10,172
Deferred compensa-
tion................ -- 1,856 1,856 -- 2,391 4,247
-------- ---------- ---------- --------- --------- ----------
Net cash provided
(used) by
operating activi-
ties............... 465 (16,970) (16,505) (3,389) 17,578 1,073
CASH FLOWS FROM INVEST-
ING
ACTIVITIES:
Capital expenditures.. (451) (31,763) (32,214) (190) (44,486) (76,700)
Proceeds on sale of
equipment............ -- 37 37 -- -- 37
Purchase of PCS li-
censes............... (118,438) (2,006,156) (2,124,594) (318,092) -- (2,124,594)
Investment in uncon-
solidated
partnership.......... -- (131,752) (131,752) (47,946) -- (131,752)
Loan to unconsolidated
partnership.......... -- (655) (655) -- (83,000) (83,655)
-------- ---------- ---------- --------- --------- ----------
Net cash used by in-
vesting
activities......... (118,889) (2,170,289) (2,289,178) (366,228) (127,486) (2,416,664)
CASH FLOWS FROM FINANC-
ING
ACTIVITIES:
Limited partner inter-
est in consolidated
subsidiary........... -- 5,000 5,000 -- -- 5,000
Borrowings from affil-
iates................ -- 5,000 5,000 -- -- 5,000
Partner capital con-
tributions........... 123,438 2,173,368 2,296,806 387,537 111,904 2,408,710
-------- ---------- ---------- --------- --------- ----------
Net cash provided by
financing
activities........... 123,438 2,183,368 2,306,806 387,537 111,904 2,418,710
-------- ---------- ---------- --------- --------- ----------
INCREASE (DECREASE) IN
CASH AND CASH EQUIVA-
LENTS................. 5,014 (3,891) 1,123 17,920 1,996 3,119
CASH AND CASH EQUIVA-
LENTS,
Beginning of period... -- 5,014 -- 5,014 1,123 --
-------- ---------- ---------- --------- --------- ----------
CASH AND CASH EQUIVA-
LENTS, End of period.. $ 5,014 $ 1,123 $ 1,123 $ 22,934 $ 3,119 $ 3,119
======== ========== ========== ========= ========= ==========
</TABLE>
F-6
<PAGE>
REORGANIZED SPRINT SPECTRUM L.P. AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION--REORGANIZED SPRINT SPECTRUM L.P.
Prior to July 1, 1996, substantially all wireless operations of Sprint
Spectrum L.P. and subsidiary and Sprint Spectrum Holding Company, L.P. and
subsidiaries ("Holdings") were conducted at Holdings and substantially all
operating assets and liabilities, with the exception of the interest in an
unconsolidated subsidiary (see Note 5) and the ownership interest in PCS
licenses, were held at Holdings. As of July 1, 1996, Holdings transferred
these net assets and assigned agreements related to the wireless operations to
which it was a party to Sprint Spectrum L.P. (the "Reorganization").
For purposes of these financial statements, these transactions have been
treated as transactions between entities under common control and accounted
for in a manner similar to a pooling of interest.
Accordingly, Sprint Spectrum L.P.'s historical financial statements have
been restated to reflect those operations of Holdings that were transferred on
July 1, 1996 on a pooled basis. Information with respect to the financial
position and results of operations of the separate operations pooled herein is
as follows (in 000's):
<TABLE>
<CAPTION>
SPRINT
SPECTRUM L.P. HOLDINGS COMBINED
------------- ---------- ----------
<S> <C> <C> <C>
TOTAL ASSETS
December 31, 1994...................... $ 123,875 $ 123,875 $ 123,875
December 31, 1995...................... 2,211,918 2,244,343 2,244,343
March 31, 1996 (unaudited)............. 2,258,861 2,338,666 2,338,666
PARTNERS' CAPITAL & ACCUMULATED DEFICIT
December 31, 1994...................... $ 120,130 $ 120,130 $ 120,130
December 31, 1995...................... 2,201,704 2,178,069 2,183,070
March 31, 1996 (unaudited)............. 2,248,405 2,224,298 2,227,549
NET LOSS
December 31, 1994...................... $ (3,308) $ (3,308) $ (3,308)
December 31, 1995...................... (49,531) (110,429) (110,428)
March 31, 1996 (unaudited)............. (36,299) (67,425) (67,425)
</TABLE>
The Partnership, as used in these financial statements, refers to Sprint
Spectrum L.P. and subsidiary inclusive of those operations of Holdings
combined therewith.
The financial information as of March 31, 1996 and for the three month
periods ended March 31, 1995 and 1996 is unaudited. The Partnership believes
such information includes all adjustments (consisting only of normal recurring
adjustments) necessary to present fairly the consolidated financial position,
results of operations and cash flows.
2.ORGANIZATION
Sprint Spectrum L.P. is a limited partnership formed in Delaware on March
28, 1995, by Sprint Spectrum Holding Company, L.P. ("Holdings") and MinorCo,
L.P. (collectively, the "Partners") which were formed by Sprint Enterprises,
L.P. ("Sprint"), TCI Telephony Services, Inc. ("TCI"), Cox Telephony
Partnership ("Cox") and Comcast Telephony Services ("Comcast"). The
Partnership was formed pursuant to a reorganization of the operations of an
existing partnership, WirelessCo, L.P. In March 1995, the partners of
WirelessCo, L.P. transferred their interest in WirelessCo, L.P. to Holdings.
The Partnership and certain other affiliated partnerships are doing business
as Sprint Spectrum.
F-7
<PAGE>
REORGANIZED SPRINT SPECTRUM L.P. AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The Partnership is consolidated with its subsidiary, WirelessCo, L.P. These
entities are development stage enterprises. The partners of Sprint Spectrum
L.P. have the following ownership interests as of December 31, 1995:
<TABLE>
<S> <C>
Sprint Spectrum Holding Company, L.P. (general partner)............... 99%
MinorCo, L.P. (limited partner)....................................... 1%
</TABLE>
On February 29, 1996, the Partnership's name was changed from MajorCo Sub,
L.P. to Sprint Spectrum L.P.
On May 15, 1996, Sprint Spectrum Equipment Company, L.P. ("EquipmentCo") and
Sprint Spectrum Realty Company, L.P. ("RealtyCo") were organized as
subsidiaries of Sprint Spectrum L.P. and MinorCo, L.P. for the purpose of
holding PCS network-related asssets. On May 20, 1996, an additional subsidiary
of Sprint Spectrum L.P., Sprint Spectrum Finance Corporation, was also formed
to be a co-obligor of certain proposed debt financing.
Venture Formation and Structure--A Joint Venture Formation Agreement ( the
"Formation Agreement"), dated as of October 24, 1994, and subsequently amended
as of March 28, 1995, and January 31, 1996, was entered into by Sprint
Corporation, Tele-Communications, Inc., Cox Communications, Inc., and Comcast
Corporation (collectively, the "Parents"), pursuant to which the parties
agreed to form certain entities to (i) provide national wireless
telecommunications services, including acquisition and development of personal
communications service ("PCS") licenses, (ii) develop a PCS wireless system in
the Los Angeles-San Diego Major Trading Area ("MTA") , and (iii) take certain
other actions.
On October 24, 1994, WirelessCo, L.P. was formed and on March 28, 1995,
additional partnerships were formed consisting of Holdings, MinorCo, L.P.,
NewTelco, L.P., and Sprint Spectrum L.P. As of December 31, 1995, Holdings
held ownership interests in NewTelco, L.P. and Sprint Spectrum L.P. (which
holds a 99% general partner interest in WirelessCo, L.P.). MinorCo, L.P. held
the remaining ownership interests in NewTelco, L.P., Sprint Spectrum L.P. and
WirelessCo, L.P. at December 31, 1995. An additional partnership, Cox-
California PCS, L.P., is proposed to be formed by Holdings and another entity
affiliated with Cox Communications, Inc. for the purpose of holding and
developing a PCS system using the LA-San Diego Pioneer's Preference License.
The Partners have agreed to contribute up to an aggregate of $4.2 billion of
equity to Holdings to the extent required by the annual budget of Holdings, as
approved by the Partners. As of March 31, 1996, approximately $2.4 billion had
been contributed to Holdings, of which approximately $2.2 billion had been
contributed to Sprint Spectrum L.P. and its subsidiary and the remaining $0.2
billion had been contributed or advanced to an unconsolidated partnership
investee (see Note 5).
Partnership Agreement--The Amended and Restated Agreement of Limited
Partnership of MajorCo Sub, L.P., (the "MajorCo Sub Agreement"), dated as of
March 28, 1995, among Holdings and MinorCo, L.P. provides that the purpose of
the Partnership is to engage in wireless communications services. The MajorCo
Sub Agreement provides for the governance and administration of partnership
business, allocation of profits and losses (including provisions for special
and curative allocations), tax allocations, transactions with partners,
disposition of partnership interests and other matters.
The MajorCo Sub Agreement provides for capital to be contributed by the
Partners, pursuant to circumstances defined in the MajorCo Sub Agreement,
equal to Holdings' interest in WirelessCo, L.P. and cash in the amount of
$5,000,000 for MinorCo, L.P.'s interest.
The MajorCo Sub Agreement generally provides for the allocation of profits
and losses first to the general partner (Holdings) and secondly to the limited
partner (MinorCo, L.P.), after giving effect to special allocations.
F-8
<PAGE>
REORGANIZED SPRINT SPECTRUM L.P. AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
After special allocations, profits are allocated first to the general partner
to the extent of cumulative net losses previously allocated. Secondly, the
limited partner is allocated profits to the extent of cumulative net losses
previously allocated and then up to the cumulative Preferred Return, as
defined. The general partner is allocated all remaining profits. Losses are
allocated, after considering special allocations, to the general partner until
its capital account is zero and secondly to the limited partner to the extent
of its capital account balance. Any remaining losses are allocated to the
general partner.
The financial statements have been prepared from the date of inception,
October 24, 1994, for WirelessCo, L.P., and March 28, 1995, for other
consolidated subsidiaries, through December 31, 1995 and restated to include
certain operations of Holdings as discussed in Note 1 above. The assets,
liabilities, results of operations and cash flows of entities in which the
Partnership has a controlling interest have been consolidated.
The limited partnership interest of MinorCo, L.P. in WirelessCo, L.P. is
reflected as a minority interest. Pursuant to the Amended and Restated
Agreement of Limited Partnership of WirelessCo, L.P. ("WirelessCo Agreement"),
MinorCo, L.P. has not been allocated any losses incurred by WirelessCo, L.P.
The WirelessCo Agreement stipulates that all losses are to be allocated to
Sprint Spectrum L.P., the general partner, until the general partner's capital
account is depleted. All significant intercompany accounts and transactions
have been eliminated.
Parent Undertaking--In addition to the MajorCo Sub Agreement, each Parent
has entered into an agreement which provides for certain undertakings by each
Parent in favor of other Partners and which addresses certain obligations of
the Parent pertaining to items including provision of services,
confidentiality, foreign ownership, purchasing, restrictions on disposition
and certain other matters.
Development Stage Enterprises--The Partnership and its subsidiary are
development stage enterprises. The success of their development is dependent
on a number of business factors, including securing financing to complete
network construction and fund initial operations, successfully deploying the
PCS network and attaining profitable levels of market demand for Partnership
products and services. The Partnership and its subsidiaries have not yet
generated operating revenues.
3.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Cash and Cash Equivalents--The Partnership considers all highly liquid
instruments with original maturities of three months or less to be cash
equivalents.
Property, Plant and Equipment--Property, plant and equipment are stated at
cost. Construction work in progress represents costs incurred to design and
construct the PCS network. Repair and maintenance costs are charged to expense
as incurred. When telecommunications plant is retired, or otherwise disposed
of, its book value, net of salvage, is charged to accumulated depreciation.
Property, plant and equipment are depreciated using the straight-line method
based on estimated useful lives of the assets. Depreciable lives range from 3
to 20 years.
Investment in PCS Licenses and Other Intangibles--During 1994 and 1995, the
Federal Communications Commission ("FCC") auctioned PCS licenses in specific
geographic service areas. The FCC grants licenses for terms of up to ten
years, and generally grants renewals if the licensee has complied with its
license obligations. The Partnership believes it has and will continue to meet
all requirements necessary to secure renewal of its PCS licenses. The
Partnership has also incurred costs associated with microwave relocation in
the construction of the
F-9
<PAGE>
REORGANIZED SPRINT SPECTRUM L.P. AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
PCS network. Amortization of PCS licenses and microwave relocation costs will
commence as each service area becomes operational, over estimated useful lives
of 40 years. No amortization expense was recorded in 1995, or in the period
from October 24, 1994 (date of inception) to December 31, 1994. No interest
has been incurred or capitalized pertaining to the acquisition of the PCS
licenses.
The ongoing value and remaining useful life of intangible assets are subject
to periodic evaluation. The Partnership currently expects the carrying amounts
to be fully recoverable. Impairments of intangibles and long-lived assets are
assessed based on an undiscounted cash flow methodology.
Income Taxes--The Partnership has not provided for federal or state income
taxes since such taxes are the responsibility of the individual Partners.
Financial Instruments--All of the Partnership's financial instruments,
including cash and cash equivalents, receivables from affiliates and accounts
payable are short-term in nature. Accordingly, the balance sheet amounts
approximate the fair value of the Partnership's financial instruments.
Use of Estimates--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 reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
4. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consisted of the following at December 31,
1995 and 1994:
<TABLE>
<CAPTION>
1994 1995
-------- -----------
<S> <C> <C>
Office furniture and fixtures.................... $450,910 $ 2,901,633
Telecommunications plant--construction work in
progress........................................ -- 29,200,467
-------- -----------
450,910 32,102,100
Less accumulated depreciation.................... (37,716) (204,721)
-------- -----------
$413,194 $31,897,379
======== ===========
</TABLE>
5. INVESTMENT IN UNCONSOLIDATED PARTNERSHIP
On January 9, 1995, WirelessCo, L.P., acquired a 49% limited partnership
interest in American PCS, L.P. ("APC"). American Personal Communications, Inc.
("APC, Inc.") is the general partner. The investment in APC is accounted for
under the equity method. Summarized financial information of APC as of and for
the year ended December 31, 1995, is as follows:
<TABLE>
<S> <C>
Total assets................................................. $237,325,784
Total liabilities............................................ 171,179,908
Total revenues............................................... 5,153,469
Net loss..................................................... 51,551,446
</TABLE>
F-10
<PAGE>
REORGANIZED SPRINT SPECTRUM L.P. AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The following table summarizes the status and results of WirelessCo, L.P.'s
investment in APC as of December 31, 1995:
<TABLE>
<S> <C>
Beginning investment......................................... $23,442,000
Payment for call option...................................... 10,000,000
Capital contributions........................................ 98,330,068
Equity in losses............................................. (46,206,097)
-----------
Ending investment............................................ $85,545,971
===========
</TABLE>
The unamortized excess of WirelessCo, L.P.'s investment over its equity in
the underlying net assets of APC at the date of acquisition was $10,139,459.
The excess investment amount is amortized on a straight line basis over an
estimated useful life of 40 years. Amortization included in equity in loss of
unconsolidated partnership was $239,727 for the year ended December 31, 1995.
WirelessCo, L.P. receives an affiliation fee of 3% of gross revenues from
APC for APC's affiliation with the Sprint Spectrum business.
The call option in APC acquired on January 9, 1995, provides WirelessCo,
L.P. with the right to purchase an additional interest in APC from APC, Inc.
in annual increments beginning five years after the initial PCS network build-
out is completed. The first increment, an additional 20% of the APC, Inc.
ownership interest, can be acquired in each of the fifth through seventh years
with the remaining interest available for purchase in the eighth through tenth
year. APC, Inc. also has the right to put a portion of its ownership interest
to WirelessCo, L.P. on an annual basis in an amount representing the greater
of (i) one-fifth of APC, Inc.'s initial percentage interest of 51% in APC or
(ii) the portion of APC, Inc.'s interest equal to APC, Inc.'s obligation for
annual FCC payments to be made by APC, beginning after the completion of the
initial PCS network build-out, through the fifth anniversary date. The
exercise price of the call and put options are based on the Fair Value, as
defined, of APC at the date of exercise.
During the initial five year build-out period, which began in December 1994,
APC, Inc. and WirelessCo, L.P. are obligated as follows: (a) APC, Inc. is
obligated to make capital contributions in an amount equal to the aggregate
principal and interest payments to the FCC, provided APC, Inc. has sufficient
cash flows or can obtain financing from a third party; (b) if APC, Inc. is
unable to meet such obligation, WirelessCo, L.P. is required to contribute the
shortfall, upon ten days prior notice; (c) WirelessCo, L.P. is required to
contribute equity to APC necessary for operations up to an amount of
approximately $98 million; and (d) WirelessCo, L.P. is obligated to fund the
cash requirements of APC in excess of that described in (a), (b), and (c)
above, in the form of either loans or additional capital up to a total of $275
million (including the amount in (c) above). Contributions in excess of $275
million, however, require approval of WirelessCo, L.P. and may be made in the
form of additional equity or loans. Under certain circumstances, APC, Inc. has
the right and is obligated to exercise its put right to the extent necessary
to fund additional capital contributions. As of December 31, 1995, $98 million
of equity had been contributed and $654,982 of partner advances had been
extended. Outstanding partner advances will be non-recourse and bear interest
at an agreed upon rate and will be payable at such time when APC has
sufficient funds to permit repayment. Subsequent to December 31, 1995, and
through March 31, 1996, $83 million of additional advances were extended to
APC.
The partnership agreement between WirelessCo, L.P. and APC, Inc. specifies
that losses are allocated based on capital contributions and certain other
factors. Under the equity method, WirelessCo, L.P. has recognized the majority
of the partnership losses to date in its financial statements based on its
capital contributions and commitments to provide initial funding. Loss
allocations in the future may vary depending on additional capital
contributions of APC, Inc.
F-11
<PAGE>
REORGANIZED SPRINT SPECTRUM L.P. AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
6.EMPLOYEE BENEFITS
The Partnership maintains short-term and long-term incentive plans. All
exempt employees are eligible for the short-term incentive plan commencing at
date of hire. Short-term incentive compensation is based on incentive targets
established for each position based on the Partnership's overall compensation
strategy. Targets contain both an objective Partnership component and a
personal objective component.
Employees meeting certain eligibility requirements are considered
participants in the long-term incentive plan. Long-term incentive compensation
is based upon individual performance, the achievement of certain partnership
goals and the management of departmental costs.
Employees performing services for the Partnership were employed by Sprint
Corporation through December 31, 1995. Amounts paid to Sprint Corporation
relating to pension expense and employer contributions to the Sprint
Corporation 401(k) plan for these employees approximated $323,000 in 1995. No
payments were made through December 31, 1994.
Savings and Retirement Plan--Effective January, 1996, the Partnership
established a savings and retirement program (the "Savings Plan") for certain
employees, which is intended to qualify under Section 401(k) of the Internal
Revenue Code. Most permanent full-time, and certain part-time, employees are
eligible to become participants in the plan. Participants make contributions
to a basic before tax account and supplemental before tax account. The maximum
contribution for any participant for any year is 16% of such participant's
compensation. For each eligible employee who elects to participate in the
Savings Plan and makes a contribution to the basic before tax account, the
Partnership makes a matching contribution. The matching contributions equal
50% of the amount of the basic before tax contribution of each participant up
to 6% of such employee's contribution. Contributions to the Savings Plan are
invested, at the participants discretion, in several designated investment
funds. Distributions from the Savings Plan generally will be made only upon
retirement or other termination of employment, unless deferred by the
participant.
Profit Sharing (Retirement) Plan--Effective January, 1996, the Partnership
established a profit sharing plan for its employees. Employees are eligible to
participate in the plan after completing one year of service. Profit sharing
contributions are based on the compensation, age, and years of service of the
employee. Profit sharing contributions are deposited into individual accounts
of the Partnership's 401(k) plan. Vesting occurs once a participant completes
five years of service.
7. COMMITMENTS, CONTINGENCIES AND SUBSEQUENT EVENTS
Operating Leases--Minimum rental commitments as of December 31, 1995, for
all noncancelable operating leases, consisting principally of leases for
office space and cell and switch sites, are as follows:
<TABLE>
<S> <C>
1996........................................................... $1,642,415
1997........................................................... 1,315,215
1998........................................................... 1,318,578
1999........................................................... 1,335,398
2000........................................................... 1,231,998
Thereafter..................................................... 40,370
----------
$6,883,974
==========
</TABLE>
F-12
<PAGE>
REORGANIZED SPRINT SPECTRUM L.P. AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Subsequent to December 31, 1995, and through March 31, 1996, the Partnership
entered into several significant operating leases with minimum rental
commitments over the lives of the leases of approximately $58 million.
Gross rental expense aggregated $687,486 and $104,573 for the year ended
December 31, 1995 and for the period from October 24, 1994 (date of inception)
to December 31, 1994, respectively, and is included in general and
administrative expense in the consolidated statements of operations. Certain
leases contain renewal options that may be exercised from time to time and are
excluded from the above amounts.
Procurement Contracts--On January 31, 1996, the Partnership entered into
procurement and services contracts (the "Procurement Contracts") with AT&T
Corp. (subsequently assigned to Lucent Technologies, Inc., "Lucent") and
Northern Telecom, Inc. ("Nortel" and together with Lucent, the "Vendors") for
the engineering and construction of a PCS network. Each contract provides for
an initial term of ten years with renewals for additional one-year periods.
The Vendors must achieve substantial completion of the PCS network within an
established time frame and in accordance with criteria specified in the
Procurement Contracts. Pricing for the initial equipment, software and
engineering services has been established in the Procurement Contracts. The
Procurement Contracts provide for payment terms based on delivery dates,
substantial completion dates, and final acceptance dates. In the event of
delay in the completion of the PCS network, the Procurement Contracts provide
for certain amounts to be paid to the Partnership by the Vendors. The minimum
commitments for the initial term are $0.8 billion and $1.0 billion from Lucent
and Nortel, respectively, which include, but are not limited to, all equipment
required for the establishment and installation of the PCS network.
Purchase Commitments--The Partnership has also entered into agreements to
acquire various cell and switch sites. Commitments to site acquisition vendors
are approximately $152 million and commitments for construction contracts and
purchases of equipment, handsets and other services are approximately $469
million. Such agreements have been executed by, or assigned to, Sprint
Spectrum L.P. or its subsidiaries on or before July 1, 1996.
Vendor Financing--The Partnership has obtained financing commitments from
Nortel dated June 11, 1996 for $1.3 billion and from Lucent dated June 21,
1996 for $1.8 billion of multiple drawdown term loan facilities (the "Vendor
Financing"). The proceeds of such facilities would be used to finance the
purchase of goods and services provided by the Vendors under the Procurement
Contracts. The Vendor Financing would be non-recourse to, and will not be
guaranteed by, the Parents and the Partners.
Borrowings under the Vendor Financing would be collateralized by a first
priority lien (the "Shared Lien") on (i) all of the partnership interests in
WirelessCo, L.P., RealtyCo and EquipmentCo, (ii) certain intangible property
assets and (iii) any real property having a value greater than $15 million.
The Shared Lien would serve as collateral for the Vendor Financing and certain
other financing from banks or other parties, not to exceed a specified level.
Such financing would be unconditionally guaranteed by WirelessCo, L.P.,
RealtyCo and EquipmentCo.
Loans under the Vendor Financing would amortize quarterly over the five year
period commencing on the date that is 39 months after the end of the one-year
period during which such loans were made.
Under the Vendor Financing, subject to certain conditions, the Partnership
would be required to make mandatory prepayments of 100% of the net cash
proceeds of any sale or disposition of subsidiaries or any sale of material
assets that are not reinvested in the wireless telecommunications businesses.
F-13
<PAGE>
REORGANIZED SPRINT SPECTRUM L.P. AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The Partnership would be able to elect that all or any portion of the
borrowings under the Vendor Financing bear interest at a rate per annum equal
to either (i) the ABR plus an applicable margin or (ii) the Eurodollar rate
(LIBOR) plus an applicable margin. The ABR is the higher of (x) the rate of
interest publicly announced by a commercial bank to be determined as its prime
rate in effect at its principal office in New York City and (y) the federal
funds effective rate plus 0.5%.
The Nortel portion of the Vendor Financing requires, as a condition to
funding, the commitment of certain additional financing from third-parties.
Bank Credit Facility--The Partnership has received a commitment from
Chemical Bank to provide a fully underwritten senior credit facility, (the
"Bank Credit Facility") in the amount of $2.0 billion. The proceeds of the
loans under the Bank Credit Facility would be used to finance capital
expenditures, operating losses, the working capital needs of Sprint Spectrum
L.P. and for partnership purposes.
Borrowings under the Bank Credit Facility would be unconditionally
guaranteed by WirelessCo L.P., RealtyCo and EquipmentCo. In addition,
borrowings under the Bank Credit Facility would be collateralized by the
Shared Lien. The Bank Credit Facility would be non-recourse to, and would not
be guaranteed by, the Parents or the Partners.
The Bank Credit Facility is expected to automatically reduce quarterly
commencing five years and three months following the closing date of such
facility and ending nine years after the closing date. Subject to certain
conditions, the Partnership would be required to make mandatory prepayments or
apply a portion of its excess cash flow to ratably reduce commitments under
the Bank Credit Facility and prepay loans under the Vendor Financing.
The Partnership would be able to elect that all or a portion of the
borrowings under the Bank Credit Facility bear interest at a rate per annum
equal to (i) the ABR plus an applicable margin or (ii) the Eurodollar Rate
(LIBOR) plus an applicable margin. The ABR is the higher of (x) the rate of
interest publicly announced by the administrative agent as its prime rate in
effect at its principal office in New York City and (y) the federal funds
effective rate from time to time plus 0.5%.
The Bank Credit Facility and the Vendor Financing would contain a number of
financial operating covenants that, among other things, limit the ability of
the Partnership to incur additional indebtedness, create liens and other
encumbrances, make guarantee obligations, make distributions to partners and
repurchases of equity, make acquisitions, investments, loans and advances,
merge or consolidate with another entity or engage in any business other than
the telecommunications business and related businesses as well as restrictions
on the ability of WirelessCo, RealtyCo, and EquipmentCo to incur liabilities
or engage in non-designated activities.
8. RELATED PARTY TRANSACTIONS
The Partnership reimburses Sprint Corporation for certain accounting, data
processing, and other related services, and for certain cash payments made by
Sprint Corporation on behalf of the Partnership. The Partnership is allocated
the costs of such services based on direct usage. Allocated expenses of
approximately $2,646,000 are included in general and administrative expense in
the consolidated statement of operations for 1995. No reimbursement was made
through December 31, 1994.
F-14
<PAGE>
REORGANIZED SPRINT SPECTRUM L.P. AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
PhillieCo, L.P. and a Cox affiliate were formed by certain Partners,
individually and collectively, for the purposes of providing PCS wireless
services in their respective geographic areas. The Partnership, having made
certain cash payments on behalf of PhillieCo, L.P. and Cox's affiliate, will
receive reimbursements for direct costs incurred plus an amount for management
services provided to PhillieCo, L.P. and Cox's affiliate. Included in
receivables from affiliates are receivables for services provided as of
December 31, 1995, of $183,225 and $156,528 due from PhillieCo, L.P. and,
Cox's affiliate, respectively.
Sprint acts as agent for the Partnership in sales of paging services,
purchased for resale by the Partnership from a third-party provider.
F-15
<PAGE>
INDEPENDENT AUDITORS' REPORT
Partners of Sprint Spectrum Holding Company, L.P.
Kansas City, Missouri
We have audited the accompanying consolidated balance sheets of Sprint
Spectrum Holding Company, L.P. (formerly known as MajorCo, L.P.) and
subsidiaries (the "Partnership"), a development stage enterprise, as of
December 31, 1995 and 1994, and the related consolidated statements of
operations, changes in partners' capital and cash flows for the year ended
December 31, 1995, for the period from October 24, 1994 (date of inception) to
December 31, 1994, and for the cumulative period from October 24, 1994 (date
of inception) to December 31, 1995. These consolidated financial statements
are the responsibility of the Partnership's management. Our responsibility is
to express an opinion on these consolidated financial statements based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the consolidated financial
statements are free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the
consolidated financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as
well as evaluating the overall consolidated financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the consolidated financial position of Sprint Spectrum
Holding Company, L.P. and subsidiaries at December 31, 1995 and 1994, and the
results of their operations and their cash flows for the year ended December
31, 1995, for the period from October 24, 1994 (date of inception) to December
31, 1994, and for the cumulative period from October 24, 1994 (date of
inception) to December 31, 1995, in conformity with generally accepted
accounting principles.
As discussed in Note 1 to the consolidated financial statements, Sprint
Spectrum Holding Company, L.P. and its subsidiaries are in the development
stage as of December 31, 1995.
DELOITTE & TOUCHE LLP
Kansas City, Missouri
March 29, 1996
(July 8, 1996 as to Note 6)
F-16
<PAGE>
SPRINT SPECTRUM HOLDING COMPANY, L.P. AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED BALANCE SHEETS
(IN 000'S)
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------- MARCH 31,
1994 1995 1996
-------- ---------- -----------
(UNADUITED)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents................. $ 5,014 $ 1,123 $ 3,119
Receivables from affiliates............... -- 340 1,629
Prepaid expenses and other assets......... 10 188 226
-------- ---------- ----------
Total current assets.................... 5,024 1,651 4,974
INVESTMENT IN PCS LICENSES.................. 118,438 2,124,594 2,124,594
INVESTMENT IN UNCONSOLIDATED PARTNERSHIP.... -- 85,546 49,314
NOTE RECEIVABLE--UNCONSOLIDATED
PARTNERSHIP................................ -- 655 83,655
PROPERTY, PLANT AND EQUIPMENT, Net.......... 413 31,897 76,129
-------- ---------- ----------
TOTAL ASSETS............................ $123,875 $2,244,343 $2,338,666
======== ========== ==========
LIABILITIES AND PARTNERS' CAPITAL
CURRENT LIABILITIES:
Accounts payable.......................... $ 3,745 $ 49,548 $ 87,006
Accrued expenses.......................... -- 1,700 9,878
-------- ---------- ----------
Total current liabilities............... 3,745 51,248 96,884
DEFERRED COMPENSATION....................... -- 1,856 4,247
LIMITED PARTNER INTEREST IN CONSOLIDATED
SUBSIDIARY................................. -- 13,170 13,237
COMMITMENTS AND CONTINGENCIES
PARTNERS' CAPITAL AND ACCUMULATED DEFICIT:
Partners' capital......................... 123,438 2,291,806 2,405,460
Deficit accumulated during the development
stage.................................... (3,308) (113,737) (181,162)
-------- ---------- ----------
Total partners' capital................. 120,130 2,178,069 2,224,298
-------- ---------- ----------
TOTAL LIABILITIES AND PARTNERS'
CAPITAL................................ $123,875 $2,244,343 $2,338,666
======== ========== ==========
</TABLE>
See notes to consolidated financial statements.
F-17
<PAGE>
SPRINT SPECTRUM HOLDING COMPANY, L.P. AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN 000'S)
<TABLE>
<CAPTION>
CUMULATIVE CUMULATIVE
PERIOD FROM PERIOD FROM THREE MONTHS PERIOD FROM
OCTOBER 24, 1994 OCTOBER 24, 1994 ENDED OCTOBER 24, 1994
(DATE OF INCEPTION) YEAR ENDED (DATE OF INCEPTION) MARCH 31, (DATE OF INCEPTION)
TO DECEMBER 31, DECEMBER 31, TO DECEMBER 31, ----------------- TO MARCH 31,
1994 1995 1995 1995 1996 1996
------------------- ------------ ------------------- ------- -------- -------------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
OPERATING EXPENSES:
General and
administrative......... $ 1,371 $ 37,460 $ 38,831 $ 1,273 $ 19,862 $ 58,693
Professional and legal
fees................... 1,923 28,880 30,803 2,335 10,862 41,665
Depreciation............ 38 211 249 47 254 503
------- --------- --------- ------- -------- ---------
Total operating
expenses............. 3,332 66,551 69,883 3,655 30,978 100,861
------- --------- --------- ------- -------- ---------
OTHER INCOME (EXPENSE):
Interest income......... 24 460 484 275 (291) 193
Other income............ -- 38 38 -- 143 181
Equity in loss of
unconsolidated
partnership............ -- (46,206) (46,206) (3,409) (36,232) (82,438)
Limited partner interest
in net (income) loss of
consolidated
subsidiary............. -- 1,830 1,830 -- (67) 1,763
------- --------- --------- ------- -------- ---------
Total other income
(expense)............ 24 (43,878) (43,854) (3,134) (36,447) (80,301)
------- --------- --------- ------- -------- ---------
NET LOSS................ $(3,308) $(110,429) $(113,737) $(6,789) $(67,425) $(181,162)
======= ========= ========= ======= ======== =========
</TABLE>
See notes to consolidated financial statements.
F-18
<PAGE>
SPRINT SPECTRUM HOLDING COMPANY, L.P. AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED STATEMENT OF CHANGES IN PARTNERS' CAPITAL
(IN 000'S)
<TABLE>
<CAPTION>
CUMULATIVE CUMULATIVE
PERIOD FROM PERIOD FROM PERIOD FROM
OCTOBER 24, 1994 OCTOBER 24, 1994 THREE MONTHS ENDED OCTOBER 24, 1994
(DATE OF INCEPTION) YEAR ENDED (DATE OF INCEPTION) MARCH 31, (DATE OF INCEPTION)
TO DECEMBER 31, DECEMBER 31, TO DECEMBER 31, --------------------- TO MARCH 31,
1994 1995 1995 1995 1996 1996
------------------- ------------ ------------------- -------- ----------- -------------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
PARTNERS' CAPITAL:
Balance at beginning of
period................. $ -- $ 123,438 $ -- $123,438 $ 2,291,806 $ --
Contributions of
capital................ 123,438 2,168,368 2,291,806 390,999 113,654 2,405,460
Receivable for capital
contributions.......... -- -- -- (3,462) -- --
-------- ----------- ---------- -------- ----------- ----------
Balance at end of
period................. 123,438 2,291,806 2,291,806 510,975 2,405,460 2,405,460
DEFICIT ACCUMULATED
DURING THE DEVELOPMENT
STAGE:
Balance at beginning of
period................. -- (3,308) -- (3,308) (113,737) --
Net loss................ (3,308) (110,429) (113,737) (6,789) (67,425) (181,162)
-------- ----------- ---------- -------- ----------- ----------
Balance at end of
period................. (3,308) (113,737) (113,737) (10,097) (181,162) (181,162)
-------- ----------- ---------- -------- ----------- ----------
TOTAL PARTNERS'
CAPITAL................ $120,130 $ 2,178,069 $2,178,069 $500,878 $ 2,224,298 $2,224,298
======== =========== ========== ======== =========== ==========
</TABLE>
See notes to consolidated financial statements.
F-19
<PAGE>
SPRINT SPECTRUM HOLDING COMPANY, L.P. AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN 000'S)
<TABLE>
<CAPTION>
PERIOD FROM CUMULATIVE CUMULATIVE
OCTOBER 24, 1994 PERIOD FROM PERIOD FROM
(DATE OF OCTOBER 24, 1994 THREE MONTHS ENDED OCTOBER 24, 1994
INCEPTION) YEAR ENDED (DATE OF INCEPTION) MARCH 31, (DATE OF INCEPTION)
TO DECEMBER 31, DECEMBER 31, TO DECEMBER 31, ------------------- TO MARCH 31,
1994 1995 1995 1995 1996 1996
---------------- ------------ ------------------- --------- -------- -------------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
CASH FLOWS FROM
OPERATING ACTIVITIES:
Net loss............... $ (3,308) $ (110,429) $ (113,737) $ (6,789) $(67,425) $ (181,162)
Adjustments to
reconcile net loss to
net cash provided
(used) by operating
activities:
Equity in loss of
unconsolidated
partnership.......... -- 46,206 46,206 3,409 36,232 82,438
Limited partner
interest in net
income (loss) of
consolidated
subsidiary........... -- (1,830) (1,830) -- 67 (1,763)
Depreciation.......... 38 211 249 47 254 503
Loss on sale of
equipment............ -- 31 31 -- -- 31
Changes in assets and
liabilities:
Receivables from
affiliates, prepaid
expenses and other
assets.............. (10) (518) (528) (343) (1,327) (1,855)
Accounts payable..... 3,745 45,803 49,548 (14) 37,458 87,006
Accrued expenses..... -- 1,700 1,700 301 8,178 9,878
Deferred
compensation........ -- 1,856 1,856 -- 2,391 4,247
--------- ----------- ----------- --------- -------- -----------
Net cash provided
(used) by operating
activities......... 465 (16,970) (16,505) (3,389) 15,828 (677)
CASH FLOWS FROM
INVESTING ACTIVITIES:
Capital expenditures... (451) (31,763) (32,214) (190) (44,486) (76,700)
Proceeds on sale of
equipment............. -- 37 37 -- -- 37
Purchase of PCS
licenses.............. (118,438) (2,006,156) (2,124,594) (318,092) -- (2,124,594)
Investment in
unconsolidated
partnership........... -- (131,752) (131,752) (47,946) -- (131,752)
Loan to unconsolidated
partnership........... -- (655) (655) -- (83,000) (83,655)
--------- ----------- ----------- --------- -------- -----------
Net cash used in
investing
activities......... (118,889) (2,170,289) (2,289,178) (366,228) (127,486) (2,416,664)
CASH FLOWS FROM
FINANCING ACTIVITIES:
Limited partner
interest in
consolidated
subsidiary............ -- 15,000 15,000 5,000 -- 15,000
Partner capital
contributions......... 123,438 2,168,368 2,291,806 382,537 113,654 2,405,460
--------- ----------- ----------- --------- -------- -----------
Net cash provided by
financing
activities......... 123,438 2,183,368 2,306,806 387,537 113,654 2,420,460
--------- ----------- ----------- --------- -------- -----------
INCREASE (DECREASE) IN
CASH AND CASH
EQUIVALENTS............ 5,014 (3,891) 1,123 17,920 1,996 3,119
CASH AND CASH
EQUIVALENTS, Beginning
of period.............. -- 5,014 -- 5,014 1,123 --
--------- ----------- ----------- --------- -------- -----------
CASH AND CASH
EQUIVALENTS, End of
period................. $ 5,014 $ 1,123 $ 1,123 $ 22,934 $ 3,119 $ 3,119
========= =========== =========== ========= ======== ===========
</TABLE>
See notes to consolidated financial statements.
F-20
<PAGE>
SPRINT SPECTRUM HOLDING COMPANY, L.P. AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION
Sprint Spectrum Holding Company, L.P. (the "Partnership") is a limited
partnership formed in Delaware on March 28, 1995, by Sprint Enterprises L.P.
("Sprint"), TCI Network Services ("TCI"), Cox Telephony Partnership ("Cox")
and Comcast Telephony Services ("Comcast") (the "Partners"). The Partnership
was formed pursuant to a reorganization of the operations of an existing
partnership, WirelessCo, L.P. In March 1995, the partners of WirelessCo, L.P.
transferred their interest in WirelessCo, L.P. to Sprint Spectrum Holding
Company, L.P. The Partnership and certain other affiliated partnerships are
doing business as Sprint Spectrum.
The Partnership is consolidated with certain subsidiaries, including Sprint
Spectrum L.P., WirelessCo, L.P. and NewTelco, L.P. These entities are
development stage enterprises. The Partners of Sprint Spectrum have the
following ownership interests in Sprint Spectrum Holding Company, L.P. as of
December 31, 1995:
<TABLE>
<S> <C>
Sprint Enterprises, L.P. ............................................. 40%
TCI Network Services.................................................. 30%
Cox Telephony Partnership............................................. 15%
Comcast Telephony Services............................................ 15%
</TABLE>
Each Partner's ownership interest consists of a 99% general partner interest
and a 1% limited partnership interest.
On February 29, 1996, the Partnership's name was changed to Sprint Spectrum
Holding Company, L.P. from MajorCo, L.P. and MajorCo Sub, L.P. changed its
name to Sprint Spectrum L.P.
Venture Formation and Affiliated Partnerships--A Joint Venture Formation
Agreement ( the "Formation Agreement"), dated as of October 24, 1994, and
subsequently amended as of March 28, 1995, and January 31, 1996, was entered
into by Sprint Corporation, Tele-Communications, Inc., Cox Communications,
Inc., and Comcast Corporation (collectively, the "Parents"), pursuant to which
the parties agreed to form certain entities to (i) provide national wireless
telecommunications services, including acquisition and development of personal
communications service ("PCS") licenses, (ii) develop a PCS wireless system in
the Los Angeles-San Diego Major Trading Area ("MTA") and (iii) take certain
other actions.
On October 24, 1994, WirelessCo, L.P. was formed and on March 28, 1995,
additional partnerships were formed consisting of Sprint Spectrum Holding
Company, L.P., MinorCo, L.P., NewTelco, L.P., and Sprint Spectrum L.P. As of
December 31, 1995, the Partnership held ownership interests in NewTelco, L.P.
and Sprint Spectrum L.P. (which holds a 99% general partner interest in
WirelessCo, L.P.). MinorCo, L.P. held the remaining ownership interests in
NewTelco, L.P., Sprint Spectrum L.P. and WirelessCo, L.P. at December 31,
1995. An additional partnership, Cox-California PCS, L.P., is proposed to be
formed by the Partnership and another entity affiliated with Cox
Communications, Inc. for the purpose of holding and developing a PCS system
using the LA-San Diego Pioneer's Preference License.
Partnership Agreement--The Amended and Restated Agreement of Limited
Partnership of MajorCo, L.P. (the "MajorCo Agreement"), dated as of January
31, 1996, among Sprint, TCI, Comcast and Cox provides that
F-21
<PAGE>
SPRINT SPECTRUM HOLDING COMPANY, L.P. AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
the purpose of the Partnership is to engage in wireless communications
services. The MajorCo Agreement provides for the governance and administration
of partnership business, allocation of profits and losses (including
provisions for special and curative allocations), tax allocations,
transactions with partners, disposition of partnership interests and other
matters.
The MajorCo Agreement provides for a planned capital amount to be
contributed by the Partners, pursuant to circumstances defined in the MajorCo
Agreement, equal to the sum of $1.898 billion over an initial period from
January 1, 1996, through December 31, 1997. Such amount is included as a
portion of "Total Mandatory Contributions", defined in the MajorCo Agreement
as the sum of $4.2 billion, plus agreed upon values attributable to the
contributions of certain additional PCS licenses by a Partner. Approximately
$2.3 billion of such Total Mandatory Contributions amount has been previously
contributed to Sprint Spectrum Holding Company, L.P., WirelessCo, L.P. and
other affiliated partnerships.
The planned capital amount would be contributed in accordance with a capital
contribution schedule in the approved budget. The partnership board may
request capital contributions be made more quickly than that provided for in
the budget, but always subject to the Total Mandatory Contributions limit. The
Partners may agree to contribute capital in excess of the Total Mandatory
Contributions limit.
The MajorCo Agreement generally provides for the allocation of profits and
losses according to each Partner's proportionate percentage interest, after
giving effect to special allocations. After special allocations, profits are
allocated to partners to the extent of and in proportion to cumulative net
losses previously allocated. Losses are allocated, after considering special
allocations, according to each Partner's allocation of net profits previously
allocated.
Parent Undertaking--In addition to the MajorCo Agreement, each Parent has
entered into an agreement which provides for certain undertakings by each
Parent in favor of other Partners and which addresses certain obligations of
the Parent pertaining to items including provision of services,
confidentiality, foreign ownership, purchasing, restrictions on disposition
and certain other matters.
Trademark Agreement--Sprint(R) is a registered trademark of Sprint
Communications Company, L.P. and is licensed to the Partnership on a royalty-
free basis pursuant to a trademark license agreement between the Partnership
and Sprint.
Development Stage Enterprises--The Partnership and its subsidiaries are
development stage enterprises. The success of their development is dependent
on a number of business factors, including securing financing to complete
network construction and fund initial operations, successfully deploying the
PCS network and attaining profitable levels of market demand for Partnership
products and services. The partnership and its subsidiaries have not yet
generated operating revenues.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation--The financial statements have been prepared from the
date of inception, October 24, 1994, for WirelessCo, L.P., and March 28, 1995,
for other consolidated subsidiaries, through December 31, 1995. The assets,
liabilities, results of operations and cash flows of entities in which the
Partnership has a controlling interest have been consolidated.
The financial information as of March 31, 1996 and for the three month
periods ended March 31, 1996 and 1995 is unaudited. The Partnership believes
such information includes all adjustments (consisting only of normal
F-22
<PAGE>
SPRINT SPECTRUM HOLDING COMPANY, L.P. AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
recurring adjustments) necessary to present fairly the consolidated financial
position, results of operations and cash flows.
The limited partnership interest of MinorCo, L.P. in WirelessCo, L.P.,
Sprint Spectrum L.P. and NewTelco, L.P. is reflected as a minority interest.
Pursuant to the Amended and Restated Agreement of Limited Partnership of
WirelessCo, L.P. ("WirelessCo Agreement"), MinorCo, L.P. has not been
allocated any losses incurred by WirelessCo, L.P. The WirelessCo Agreement
stipulates that all losses are to be allocated to Sprint Spectrum L.P., the
general partner, until the general partner's capital account is depleted.
Pursuant to the Agreement of Limited Partnership of NewTelco, L.P. ("NewTelco
Agreement"), MinorCo, L.P., the limited partner, has been allocated $1,829,882
of losses incurred by NewTelco, L.P. for the year ended December 31, 1995, as
losses in excess of the general partner's capital account (which consisted of
$1,000) are to be allocated to the limited partner to the extent of its
capital account. All significant intercompany accounts and transactions have
been eliminated.
Cash and Cash Equivalents--The Partnership considers all highly liquid
instruments with original maturities of three months or less to be cash
equivalents.
Property, Plant and Equipment--Property, plant and equipment are stated at
cost. Construction work in progress represents costs incurred to design and
construct the PCS network. Repair and maintenance costs are charged to expense
as incurred. When telecommunications plant is retired, or otherwise disposed
of, its book value, net of salvage, is charged to accumulated depreciation.
Property, plant and equipment are depreciated using the straight-line method
based on estimated useful lives of the assets. Depreciable lives range from 3
to 20 years.
Investment in PCS Licenses and Other Intangibles--During 1994 and 1995, the
Federal Communications Commission ("FCC") auctioned PCS licenses in specific
geographic service areas. The FCC grants licenses for terms of up to ten
years, and generally grants renewals if the licensee has complied with its
license obligations. The Partnership believes it has and will continue to meet
all requirements necessary to secure renewal of its PCS licenses. The
Partnership has also incurred costs associated with microwave relocation in
the construction of the PCS network. Amortization of PCS licenses and
microwave relocation costs will commence as each service area becomes
operational, over estimated useful lives of 40 years. No amortization expense
was recorded in 1995, or in the period from October 24, 1994 (date of
inception) to December 31, 1994. No interest expense has been incurred or
capitalized pertaining to the acquisition of the PCS licenses.
The ongoing value and remaining useful life of intangible assets are subject
to periodic evaluation. The Partnership currently expects the carrying amounts
to be fully recoverable. Impairments of intangibles and long-lived assets are
assessed based on an undiscounted cash flow methodology.
Income Taxes--The Partnership has not provided for federal or state income
taxes since such taxes are the responsibility of the individual Partners.
Financial Instruments--All of the Partnership's financial instruments,
including cash and cash equivalents, receivables from affiliates and accounts
payable are short-term in nature. Accordingly, the balance sheet amounts
approximate the fair value of the Partnership's financial instruments.
Use of Estimates--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 reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
F-23
<PAGE>
SPRINT SPECTRUM HOLDING COMPANY, L.P. AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
3. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consisted of the following at December 31,
1994 and 1995:
<TABLE>
<CAPTION>
1994 1995
-------- -----------
<S> <C> <C>
Office furniture and fixtures....................... $450,910 $ 2,901,633
Telecommunications plant--construction work in pro-
gress.............................................. -- 29,200,467
-------- -----------
450,910 32,102,100
Less accumulated depreciation....................... (37,716) (204,721)
-------- -----------
$413,194 $31,897,379
======== ===========
</TABLE>
4. INVESTMENT IN UNCONSOLIDATED PARTNERSHIP
On January 9, 1995, WirelessCo, L.P., acquired a 49% limited partnership
interest in American PCS, L.P. ("APC"). American Personal Communications, Inc.
("APC, Inc.") is the general partner. The investment in APC is accounted for
under the equity method. Summarized financial information of APC as of and for
the year ended December 31, 1995, is as follows:
<TABLE>
<S> <C>
Total assets.................................................... $237,325,784
Total liabilities............................................... 171,179,908
Total revenues.................................................. 5,153,469
Net loss........................................................ 51,551,446
</TABLE>
The following table summarizes the status and results of WirelessCo, L.P.'s
investment in APC as of December 31, 1995:
<TABLE>
<S> <C>
Beginning investment........................................... $ 23,422,000
Payment for call option........................................ 10,000,000
Capital contributions.......................................... 98,330,068
Equity in losses............................................... (46,206,097)
------------
Ending investment.............................................. $ 85,545,971
============
</TABLE>
The unamortized excess of WirelessCo, L.P.'s investment over its equity in
the underlying net assets of APC at the date of acquisition was $10,139,459.
The excess investment amount is amortized on a straight line basis over an
estimated useful life of 40 years. Amortization included in equity in loss of
unconsolidated partnership was $239,727 for the year ended December 31, 1995.
WirelessCo, L.P. receives an affiliation fee of 3% of gross revenues from
APC for APC's affiliation with the Sprint Spectrum business.
The call option in APC acquired on January 9, 1995, provides WirelessCo,
L.P. with the right to purchase an additional interest in APC from APC, Inc.
in annual increments beginning five years after the initial PCS network build-
out is completed. The first increment, an additional 20% of the APC, Inc.
ownership interest, can be acquired in each of the fifth through seventh years
with the remaining interest available for purchase in the eighth through tenth
year. APC, Inc. also has the right to put a portion of its ownership interest
to WirelessCo, L.P. on an annual basis in an amount representing the greater
of (i) one-fifth of APC, Inc.'s initial percentage interest of 51% in APC or
(ii) the portion of APC, Inc.'s interest equal to APC, Inc.'s obligation for
annual FCC
F-24
<PAGE>
SPRINT SPECTRUM HOLDING COMPANY, L.P. AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
payments to be made by APC, beginning after the completion of the initial PCS
network build-out, through the fifth anniversary date. The exercise price of
the call and put options are based on the Fair Value, as defined, of APC at
the date of exercise.
During the initial five year build-out period, which began in December 1994,
APC, Inc. and WirelessCo, L.P. are obligated as follows: (a) APC, Inc. is
obligated to make capital contributions in an amount equal to the aggregate
principal and interest payments to the FCC, provided APC, Inc. has sufficient
cash flows or can obtain financing from a third party; (b) if APC, Inc. is
unable to meet such obligation, WirelessCo, L.P. is required to contribute the
shortfall, upon ten days prior notice; (c) WirelessCo, L.P. is required to
contribute equity to APC necessary for operations up to an amount of
approximately $98 million; and (d) WirelessCo, L.P. is obligated to fund the
cash requirements of APC in excess of that described in (a), (b), and (c)
above, in the form of either loans or additional capital up to a total of $275
million (including the amount in (c) above). Contributions in excess of $275
million, however, require approval of WirelessCo, L.P. and may be made in the
form of additional equity or loans. Under certain circumstances, APC, Inc. has
the right and is obligated to exercise its put right to the extent necessary
to fund additional capital contributions. As of December 31, 1995, $98 million
of equity had been contributed and $654,982 of partner advances had been
extended. Outstanding partner advances will be non-recourse and bear interest
at an agreed upon rate and will be payable at such time when APC has
sufficient funds to permit repayment. Subsequent to December 31, 1995, and
through March 29, 1996, $83 million of additional advances were extended to
APC.
The partnership agreement between WirelessCo, L.P. and APC, Inc. specifies
that losses are allocated based on capital contributions and certain other
factors. Under the equity method, WirelessCo, L.P. has recognized the majority
of the partnership losses to date in its financial statements based on its
capital contributions and commitments to provide initial funding. Loss
allocations in the future may vary depending on additional capital
contributions of APC, Inc.
5. EMPLOYEE BENEFITS
The Partnership maintains short-term and long-term incentive plans. All
exempt employees are eligible for the short-term incentive plan commencing at
date of hire. Short-term incentive compensation is based on incentive targets
established for each position based on the Partnership's overall compensation
strategy. Targets contain both an objective Partnership component and a
personal objective component.
Employees meeting certain eligibility requirements are considered
participants in the long-term incentive plan. Long-term incentive compensation
is based upon individual performance, the achievement of certain partnership
goals and the management of departmental costs.
Employees performing services for the Partnership were employed by Sprint
Corporation through December 31, 1995. Amounts paid to Sprint Corporation
relating to pension expense and employer contributions to the Sprint
Corporation 401(k) plan for these employees approximated $323,000 in 1995. No
payments were made through December 31, 1994.
Savings and Retirement Plan--Effective January, 1996, the Partnership
established a savings and retirement program (the "Savings Plan") for certain
employees, which is intended to qualify under Section 401(k) of the Internal
Revenue Code. Most permanent full-time, and certain part-time, employees are
eligible to become participants in the plan. Participants make contributions
to a basic before tax account and supplemental before tax account. The maximum
contribution for any participant for any year is 16% of such participant's
compensation. For each eligible employee who elects to participate in the
Savings Plan and makes a contribution
F-25
<PAGE>
SPRINT SPECTRUM HOLDING COMPANY, L.P. AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
to the basic before tax account, the Partnership makes a matching
contribution. The matching contributions equal 50% of the amount of the basic
before tax contribution of each participant up to 6% of such employee's
contribution. Contributions to the Savings Plan are invested, at the
participants discretion, in several designated investment funds. Distributions
from the Savings Plan generally will be made only upon retirement or other
termination of employment, unless deferred by the participant.
Profit Sharing (Retirement) Plan--Effective January, 1996, the Partnership
established a profit sharing plan for its employees. Employees are eligible to
participate in the plan after completing one year of service. Profit sharing
contributions are based on the compensation, age, and years of service of the
employee. Profit sharing contributions are deposited into individual accounts
of the Partnership's 401(k) plan. Vesting occurs once a participant completes
five years of service.
6. COMMITMENTS, CONTINGENCIES AND SUBSEQUENT EVENTS
Operating Leases--Minimum rental commitments as of December 31, 1995, for
all noncancelable operating leases, consisting principally of leases for
office space and cell and switch sites, are as follows:
<TABLE>
<S> <C>
1996.............................................................. $1,642,415
1997.............................................................. 1,315,215
1998.............................................................. 1,318,578
1999.............................................................. 1,335,398
2000.............................................................. 1,231,998
Thereafter........................................................ 40,370
----------
$6,883,974
==========
</TABLE>
Subsequent to December 31, 1995, and through March 29, 1996, the Partnership
entered into several significant operating leases with minimum rental
commitments over the lives of the leases of approximately $58 million.
Gross rental expense aggregated $687,486 and $104,573 for the year ended
December 31, 1995 and for the period from October 24, 1994 (date of inception)
to December 31, 1994, respectively, and is included in general and
administrative expense in the consolidated statements of operations. Certain
leases contain renewal options that may be exercised from time to time and are
excluded from the above amounts.
On May 15, 1996, Sprint Spectrum Equipment Company, L.P. ("EquipmentCo") and
Sprint Spectrum Realty Company, L.P. ("RealtyCo") were organized as
subsidiaries of Sprint Spectrum L.P. and MinorCo, L.P. for the purpose of
holding PCS network-related asssets. On May 20, 1996, an additional subsidiary
of Sprint Spectrum L.P., Sprint Spectrum Finance Corporation, was also formed
to be a co-obligor of certain proposed debt financing.
Procurement Contracts--On January 31, 1996, the Partnership entered into
procurement and services contracts (the "Procurement Contracts") with AT&T
Corp. (subsequently assigned to Lucent Technologies, Inc., "Lucent") and
Northern Telecom, Inc. ("Nortel" and together with Lucent, the "Vendors") for
the engineering and construction of a PCS network. The Procurement Contracts
were assigned to Sprint Spectrum L.P. and then to EquipmentCo by the
Partnership on June 21, 1996 for the Lucent contract and June 26, 1996 for the
Nortel contract. Each contract provides for an initial term of ten years with
renewals for additional one-year periods. The Vendors must achieve substantial
completion of the PCS network within an established time frame and in
F-26
<PAGE>
SPRINT SPECTRUM HOLDING COMPANY, L.P. AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
accordance with criteria specified in the Procurement Contracts. Pricing for
the initial equipment, software and engineering services has been established
in the Procurement Contracts. The Procurement Contracts provide for payment
terms based on delivery dates, substantial completion dates, and final
acceptance dates. In the event of delay in the completion of the PCS network,
the Procurement Contracts provide for certain amounts to be paid to the
Partnership by the Vendors. The minimum commitments for the initial term are
$0.8 billion and $1.0 billion from Lucent and Nortel, respectively, which
include, but are not limited to, all equipment required for the establishment
and installation of the PCS network.
Purchase Commitments--The Partnership has also entered into agreements to
acquire various cell and switch sites. Commitments to site acquisition vendors
are approximately $152 million and commitments for construction contracts and
purchases of equipment, handsets and other services are approximately $469
million. Such agreements have been executed by, or assigned to, Sprint
Spectrum L.P. or its subsidiaries on or before July 1, 1996.
Vendor Financing--Sprint Spectrum L.P. has obtained financing commitments
from Nortel dated June 11, 1996 for $1.3 billion and from Lucent dated June
21, 1996 for $1.8 billion of multiple drawdown term loan facilities (the
"Vendor Financing"). The proceeds of such facilities would be used to finance
the purchase of goods and services provided by the Vendors under the
Procurement Contracts. The Vendor Financing would be non-recourse to, and will
not be guaranteed by, the Parents and the Partners.
Borrowings under the Vendor Financing would be collateralized by a first
priority lien (the "Shared Lien") on (i) all of the partnership interests in
WirelessCo, L.P., RealtyCo and EquipmentCo, (ii) certain intangible property
assets and (iii) any real property having a value greater than $15 million.
The Shared Lien would serve as collateral for the Vendor Financing and certain
other financing from banks or other parties, not to exceed a specified level.
Such financing would be unconditionally guaranteed by WirelessCo, L.P.,
RealtyCo and EquipmentCo.
Loans under the Vendor Financing would amortize quarterly over the five year
period commencing on the date that is 39 months after the end of the one-year
period during which such loans were made.
Under the Vendor Financing, subject to certain conditions, Sprint Spectrum
L.P. would be required to make mandatory prepayments of 100% of the net cash
proceeds of any sale or disposition of subsidiaries or any sale of material
assets that are not reinvested in the wireless telecommunications businesses.
Sprint Spectrum L.P. would be able to elect that all or any portion of the
borrowings under the Vendor Financing bear interest at a rate per annum equal
to either (i) the ABR plus an applicable margin or (ii) the Eurodollar rate
(LIBOR) plus an applicable margin. The ABR is the higher of (x) the rate of
interest publicly announced by a commercial bank to be determined as its prime
rate in effect at its principal office in New York City and (y) the federal
funds effective rate plus 0.5%.
The Nortel portion of the Vendor Financing requires, as a condition to
funding, the commitment of certain additional financing from third-parties.
Bank Credit Facility--Sprint Spectrum L.P. has received a commitment from
Chemical Bank to provide a fully underwritten senior credit facility, (the
"Bank Credit Facility") in the amount of $2.0 billion. The proceeds of the
loans under the Bank Credit Facility would be used to finance capital
expenditures, operating losses, the working capital needs of Sprint Spectrum
L.P. and for partnership purposes.
F-27
<PAGE>
SPRINT SPECTRUM HOLDING COMPANY, L.P. AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Borrowings under the Bank Credit Facility would be unconditionally
guaranteed by WirelessCo L.P., RealtyCo and EquipmentCo. In addition,
borrowings under the Bank Credit Facility would be collateralized by the
Shared Lien. The Bank Credit Facility would be non-recourse to, and would not
be guaranteed by, the Parents or the Partners.
The Bank Credit Facility is expected to automatically reduce quarterly
commencing five years and three months following the closing date of such
facility and ending nine years after the closing date. Subject to certain
conditions, Sprint Spectrum L.P. would be required to make mandatory
prepayments or apply a portion of its excess cash flow to ratably reduce
commitments under the Bank Credit Facility and prepay loans under the Vendor
Financing.
Sprint Spectrum L.P. would be able to elect that all or any portion of the
borrowings under the Bank Credit Facility bear interest at a rate per annum
equal to (i) the ABR plus an applicable margin or (ii) the Eurodollar Rate
(LIBOR) plus an applicable margin. The ABR is the higher of (x) the rate of
interest publicly announced by the administrative agent as its prime rate in
effect at its principal office in New York City and (y) the federal funds
effective rate from time to time plus 0.5%.
The Bank Credit Facility and the Vendor Financing would contain a number of
financial operating covenants that, among other things, limit the ability of
Sprint Spectrum L.P. to incur additional indebtedness, create liens and other
encumbrances, make guarantee obligations, make distributions to partners and
repurchases of equity, make acquisitions, investments, loans and advances,
merge or consolidate with another entity or engage in any business other than
the telecommunications business and related businesses as well as restrictions
on the ability of WirelessCo, L.P., RealtyCo, and EquipmentCo to incur
liabilities or engage in non-designated activities.
7. RELATED PARTY TRANSACTIONS
The Partnership reimburses Sprint Corporation for certain accounting, data
processing, and other related services, and for certain cash payments made by
Sprint Corporation on behalf of the Partnership. The Partnership is allocated
the costs of such services based on direct usage. Allocated expenses of
approximately $2,646,000 are included in general and administrative expense in
the consolidated statement of operations for 1995. No reimbursement was made
through December 31, 1994.
PhillieCo, L.P. and a Cox affiliate were formed by certain Partners,
individually and collectively, for the purposes of providing PCS wireless
services in their respective geographic areas. The Partnership, having made
certain cash payments on behalf of PhillieCo, L.P. and Cox's affiliate, will
receive reimbursements for direct costs incurred plus an amount for management
services provided to PhillieCo, L.P. and Cox's affiliate. Included in
receivables from affiliates are receivables for services provided as of
December 31, 1995, of $183,225 and $156,528 due from PhillieCo, L.P. and,
Cox's affiliate, respectively.
Sprint acts as agent for the Partnership in sales of paging services,
purchased for resale by the Partnership from a third-party provider.
* * * * * *
F-28
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors of Sprint Spectrum Finance Corporation
Kansas City, Missouri
We have audited the accompanying balance sheet of Sprint Spectrum Finance
Corporation (a wholly-owned subsidiary of Sprint Spectrum L.P.), as of May 21,
1996. This financial statement is the responsibility of the Company's
management. Our responsibility is to express an opinion on this financial
statement based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan 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 audit provides a reasonable basis
for our opinion.
In our opinion, such balance sheet presents fairly, in all material respects,
the financial position of Sprint Spectrum Finance Corporation as of May 21,
1996 in conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Kansas City, Missouri
August 8, 1996
F-29
<PAGE>
SPRINT SPECTRUM FINANCE CORPORATION
(A WHOLLY-OWNED SUBSIDIARY OF SPRINT SPECTRUM L.P.)
OPENING BALANCE SHEET
MAY 21, 1996
ASSETS
<TABLE>
<S> <C>
Receivable from parent................................................... $100
----
TOTAL ASSETS........................................................... $100
====
STOCKHOLDER'S EQUITY
Common stock, $1.00 par value; 1,000 shares authorized; 100 shares issued
and outstanding......................................................... $100
----
TOTAL STOCKHOLDER'S EQUITY............................................. $100
====
</TABLE>
See note to balance sheet.
F-30
<PAGE>
SPRINT SPECTRUM FINANCE CORPORATION
(A WHOLLY-OWNED SUBSIDIARY OF SPRINT SPECTRUM L.P.)
NOTE TO BALANCE SHEET
MAY 21, 1996
Sprint Spectrum Finance Corporation (the "Finance Corp."), a Delaware
corporation, was formed on May 21, 1996 and is a wholly-owned subsidiary of
Sprint Spectrum L.P. (the "Partnership").
The Partnership and Finance Corp. intend to offer approximately $150,000,000
aggregate principal amount of Senior Notes, and Senior Discount Notes at a
discount to their aggregate principal amount at maturity to generate gross
proceeds to the Partnership of approximately $500,000,000. Finance Corp. would
be a co-obligor for the new Senior and Senior Discount Notes to be offered.
The Partnership contributed $100 to Finance Corp. on May 21, 1996 in exchange
for 100 shares of common stock.
F-31
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Partners
of American PCS, L.P.
In our opinion, the accompanying balance sheets and the related statements
of loss, of cash flows and of changes in partners' capital present fairly, in
all material respects, the financial position of American PCS, L.P. at
December 31, 1994 and 1995 and at March 31, 1996, and the results of its
operations and its cash flows for the years ended December 31, 1994 and 1995
and the three months ended March 31, 1996, in conformity with generally
accepted accounting principles. These financial statements are the
responsibility of the Partnership's management; our responsibility is to
express an opinion on these financial statements based on our audits. We
conducted our audits of these statements in accordance with generally accepted
auditing standards which 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, assessing
the accounting principles used and significant estimates made by management,
and evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
Washington, D.C.
June 19, 1996
F-32
<PAGE>
AMERICAN PCS, L.P.
(A DELAWARE LIMITED PARTNERSHIP)
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
------------------------- ------------
1994 1995 1996
------------ ------------ ------------
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents......... $ 1,671,728 $ 7,637,436 $ 12,711,657
Accounts receivable, less
allowance of $250,000 and
$1,225,000 at December 31, 1995
and March 31, 1996,
respectively..................... -- 3,909,169 9,444,464
Inventory......................... -- 5,186,190 10,406,230
Receivable from limited partner... 122,781 -- --
Prepaid expenses.................. 248,218 1,049,003 1,169,605
------------ ------------ ------------
Total current assets............ 2,042,727 17,781,798 33,731,956
Property and equipment, net......... 9,625,926 116,547,158 125,148,817
License, net of accumulated
amortization of $320,567 at
December 31, 1995 and $961,701 at
March 31, 1996..................... 92,876,203 102,260,322 101,619,188
Other assets........................ 765,749 736,506 671,909
------------ ------------ ------------
Total assets.................... $105,310,605 $237,325,784 $261,171,870
============ ============ ============
LIABILITIES AND PARTNERS' CAPITAL
Current liabilities:
Accounts payable and accrued
expenses......................... $ 2,325,016 $ 71,323,125 $ 45,616,778
Accrued interest.................. -- 6,509,983 8,320,769
Due to related parties............ 141,435 2,151,323 89,472,501
Accrued payroll and related
expenses......................... 677,444 2,397,947 1,169,879
Current portion of long-term
debt............................. 1,326,625 2,532,219 2,559,901
------------ ------------ ------------
Total current liabilities....... 4,470,520 84,914,597 147,139,828
Long-term debt...................... 81,472,831 86,265,311 86,980,016
------------ ------------ ------------
Total liabilities............... 85,943,351 171,179,908 234,119,844
Commitments (Note 8)
Partners' capital................... 19,367,254 66,145,876 27,052,026
------------ ------------ ------------
Total liabilities and partners'
capital........................ $105,310,605 $237,325,784 $261,171,870
============ ============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-33
<PAGE>
AMERICAN PCS, L.P.
(A DELAWARE LIMITED PARTNERSHIP)
STATEMENTS OF LOSS
<TABLE>
<CAPTION>
FOR THE YEAR ENDED THREE MONTHS ENDED
DECEMBER 31, MARCH 31,
------------------------- -------------------------
1994 1995 1995 1996
----------- ------------ ----------- ------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Revenues:
Airtime and access
charges............... $ -- $ 598,768 $ -- $ 5,488,846
Handset sales.......... -- 4,406,383 -- 6,102,444
Other.................. -- 148,318 1,700 7,051
----------- ------------ ----------- ------------
-- 5,153,469 1,700 11,598,341
----------- ------------ ----------- ------------
Cost and expenses:
Cost of handset sales.. -- 13,621,834 -- 18,681,368
Operating expenses..... -- 3,792,048 -- 7,213,114
Selling, general and
administrative........ 7,413,659 35,767,479 3,784,545 16,722,629
Depreciation and amor-
tization.............. 491,447 2,751,841 137,959 4,536,881
----------- ------------ ----------- ------------
7,905,106 55,933,202 3,922,504 47,153,992
----------- ------------ ----------- ------------
Operating loss......... (7,905,106) (50,779,733) (3,920,804) (35,555,651)
Other (income) expense:
Interest income........ (27,448) (1,201,461) (23,631) (314,787)
Interest expense....... 566 1,976,856 141,147 4,839,774
Other, net............. 5,929 (3,682) 15 13,212
----------- ------------ ----------- ------------
Net loss................. $(7,884,153) $(51,551,446) $(4,038,335) $(40,093,850)
=========== ============ =========== ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-34
<PAGE>
AMERICAN PCS, L.P.
(A DELAWARE LIMITED PARTNERSHIP)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE THREE
FOR THE YEAR ENDED MONTHS ENDED
DECEMBER 31, MARCH 31,
-------------------------- -------------------------
1994 1995 1995 1996
------------ ------------ ----------- ------------
(UNAUDITED)
<S> <C> <C> <C> <C>
CASH FLOWS FROM
OPERATING ACTIVITIES:
Net loss................ $ (7,884,153) $(51,551,446) $(4,038,335) $(40,093,850)
Adjustments to reconcile
net loss to net cash
(used in) provided by
operating activities:
Depreciation and
amortization......... 491,447 2,751,841 137,958 4,536,881
Provision for
allowance............ -- 250,000 -- 975,000
Accretion of debt
discount............. -- -- -- 999,094
Loss on sale of
assets............... 5,125 3,682 -- --
Change in assets and
liabilities:
Increase in accounts
receivable......... -- (4,159,169) -- (6,510,295)
Increase in
inventory.......... -- (5,186,190) -- (5,220,040)
Increase in prepaid
expenses........... (195,410) (800,785) (90,420) (120,602)
(Increase) decrease
in other
receivables........ (21,921) 122,781 122,781 --
Increase in other
assets............. (188,517) (274,506) (29,190) (12,392)
Increase (decrease)
in accounts payable
and accrued
expenses........... 1,190,590 68,998,109 1,156,271 (25,706,347)
Increase in accrued
interest........... -- 1,312,828 -- 1,810,786
Increase in due to
related parties.... 141,435 1,354,907 70,277 4,321,178
Increase (decrease)
in accrued payroll
and related
expenses........... 677,444 1,720,503 (400,571) (1,228,068)
------------ ------------ ----------- ------------
Net cash (used in)
provided by
operating
activities......... (5,783,960) 14,542,555 (3,071,229) (66,248,655)
------------ ------------ ----------- ------------
CASH FLOWS FROM
INVESTING ACTIVITIES:
Capital expenditures,
net.................. (8,773,442) (105,439,229) (8,859,884) (12,420,417)
License costs......... (3,069,740) (515,366) (140,663) --
------------ ------------ ----------- ------------
Net cash used in
investing
activities......... (11,843,182) (105,954,595) (9,000,547) (12,420,417)
------------ ------------ ----------- ------------
CASH FLOWS FROM
FINANCING ACTIVITIES:
Partners' capital
contributions........ 19,100,000 98,330,068 14,524,000 1,000,000
Repayment of notes
payable.............. -- (1,326,625) -- --
Principal payments
under capital lease
obligations.......... -- (280,676) -- (256,707)
Advances from related
party................ -- 654,981 -- 83,000,000
------------ ------------ ----------- ------------
Net cash provided by
financing
activities......... 19,100,000 97,377,748 14,524,000 83,743,293
------------ ------------ ----------- ------------
Net increase in cash and
cash equivalents....... 1,472,858 5,965,708 2,452,224 5,074,221
Beginning cash and cash
equivalents............ 198,870 1,671,728 1,671,728 7,637,436
------------ ------------ ----------- ------------
Ending cash and cash
equivalents............ $ 1,671,728 $ 7,637,436 $ 4,123,952 $ 12,711,657
============ ============ =========== ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-35
<PAGE>
AMERICAN PCS, L.P.
(A DELAWARE LIMITED PARTNERSHIP)
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
<TABLE>
<CAPTION>
AMERICAN
PERSONAL THE WASHINGTON
COMMUNICATIONS, INC. WIRELESSCO, L.P. POST COMPANY TOTAL
-------------------- ---------------- -------------- ------------
<S> <C> <C> <C> <C>
Balance, December 31,
1993 (unaudited)....... $ -- $ -- $ 8,151,407 $ 8,151,407
Capital
contributions........ -- -- 19,100,000 19,100,000
Allocation of net
loss................. -- -- (7,884,153) (7,884,153)
----------- ----------- ------------ ------------
Balance, December 31,
1994................... -- -- 19,367,254 19,367,254
----------- ----------- ------------ ------------
Allocation of net loss
for the period
January 1, 1995 to
January 9, 1995...... -- -- (392,195) (392,195)
Allocation of net loss
for the period
January 10, 1995 to
December 31, 1995.... (5,001,957) (45,908,065) (249,229) (51,159,251)
----------- ----------- ------------ ------------
1995 net loss...... (5,001,957) (45,908,065) (641,424) (51,551,446)
----------- ----------- ------------ ------------
Change in ownership
interest............. 5,285,910 13,282,541 (18,568,451) --
----------- ----------- ------------ ------------
Capital
contributions........ -- 98,330,068 -- 98,330,068
----------- ----------- ------------ ------------
Balance, December 31,
1995................... 283,953 65,704,544 157,379 66,145,876
----------- ----------- ------------ ------------
Capital contribution.. 1,000,000 -- -- 1,000,000
Allocation of net
loss................. (3,708,873) (36,227,598) (157,379) (40,093,850)
----------- ----------- ------------ ------------
Balance, March 31,
1996................... $(2,424,920) $29,476,946 $ -- $ 27,052,026
=========== =========== ============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-36
<PAGE>
AMERICAN PCS, L.P.
(A DELAWARE LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
NOTE 1--ORGANIZATION AND BUSINESS
General
American PCS, L.P. (the Partnership) is a Delaware limited partnership
operating a personal communications services (PCS) system in the greater
Washington, D.C./Baltimore area. Development stage activities during the
period from September 20, 1990 (inception) through November 14, 1995 consisted
principally of forming the partnership, obtaining experimental and commercial
licenses from the Federal Communications Commission (FCC), and designing and
constructing a communications system. At November 15, 1995, the Partnership
had finished the design and the construction of a significant portion of the
communications system, and had commenced operations. Accordingly, as of
November 1995, the Partnership was no longer considered a development stage
enterprise for financial reporting purposes.
In 1990, the Partnership was awarded an experimental license by the FCC and
subsequently operated an experimental PCS system in the Washington,
D.C./Baltimore area. In December 1993, the Partnership was awarded a pioneer's
preference by the FCC, which guaranteed the Partnership receipt of one of two
30 MHZ PCS commercial licenses for the intended area. In December 1994, the
Partnership obtained the commercial license and began construction of a
communication system shortly thereafter.
Partnership Agreement
The Partnership was formed on September 20, 1990 in accordance with a
limited partnership agreement between American Personal Communications, Inc.
(APC) and The Washington Post Company (the Post). In January 1995, the Post
sold substantially all of its interest in the Partnership to two parties: APC
and WirelessCo, L.P. (WirelessCo) a subsidiary of Sprint Spectrum L.P. In
March 1996, the Post sold its remaining interest to APC. As a result of these
transactions, APC's interest is 51% and WirelessCo's interest is 49%. APC is a
General and Limited Partner and WirelessCo is a Limited Partner with no voting
rights or management control.
During the initial five year buildout period, which began in December 1994,
APC and WirelessCo are obligated as follows: (a) APC is obligated to make
capital contributions in an amount equal to the aggregate principal and
interest payments to the FCC, provided APC has sufficient cash flows or can
obtain financing from a third party; (b) if APC is unable to meet such
obligation, WirelessCo is required to contribute the shortfall, upon ten days
prior notice; (c) WirelessCo is required to contribute equity to the
Partnership necessary for operations up to an amount of approximately $98
million; and (d) WirelessCo is obligated to fund the cash requirements of the
Partnership in excess of that described in (a), (b) and (c) above, in the form
of either loans or additional capital up to a total of $275 million (including
the amount in (c) above). Contributions in excess of the $275 million,
however, require approval of WirelessCo and may be made in the form of
additional equity or loans.
Profit and losses will be allocated to the partners in accordance with
certain special allocations and formulas set forth in the partnership
agreement. These formulas are based on amounts which include, among others,
capital contributions, prior year losses and distributions of property and
cash to the partners. Once these provisions are satisfied, profit and losses
will be allocated in proportion to the partners' percentage interests.
NOTE 2--SIGNIFICANT ACCOUNTING POLICIES
Basis of presentation
The Partnership prepares its financial statements on the accrual basis of
accounting in accordance with generally accepted accounting principles. The
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the amounts reported in the financial statements. Actual results
may differ from those estimates.
F-37
<PAGE>
AMERICAN PCS, L.P.
(A DELAWARE LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Revenue recognition
Airtime and access charges are recorded as revenue based on the amount of
communications services rendered as measured principally by traffic processed
after deducting an estimate of the traffic that will neither be billed nor
collected. Revenue from the sale of handsets and related accessories is
recognized upon shipment or point-of-sale.
Cash and cash equivalents
All highly liquid investments with an original maturity of three months or
less at the date of acquisition are considered cash equivalents.
Inventory
Inventory, consisting of handsets and related accessories, is stated at the
lower of cost or replacement value. Costs are based on the first-in, first-out
method.
Property and equipment
Property and equipment are stated at cost. Depreciation is calculated using
the straight-line method over the related assets' estimated useful lives
ranging from five to forty years. Leasehold improvements are amortized over
the shorter of the term of the related lease or the estimated useful lives of
the assets.
Equipment under capital leases
The Partnership leases certain of its office and other equipment under
capital lease agreements. The assets and liabilities under capital leases are
recorded at the lesser of the present value of aggregate future minimum lease
payments, including estimated bargain purchase options, or the fair value of
the assets under lease. Assets under these capital leases are depreciated over
their estimated useful lives of five to seven years, which are generally
longer than the terms of the leases.
License
The PCS license includes FCC, legal and consulting fees and capitalized
interest. The FCC license fee has been recorded at its fair value on the basis
of the payment terms to the FCC and the Partnership's estimated incremental
borrowing rate for similar debt at the date of award. The license expires in
December 2004; however, FCC rules provide for renewal expectancy provisions.
The Partnership expects to exercise the renewal provisions, and accordingly
the license is being amortized using the straight-line method over a period of
40 years. Amortization of these amounts commenced upon launch of the system in
November 1995.
Amortization of the license cost was $320,567 and $641,134 for the year
ended December 31, 1995 and the three months ended March 31, 1996,
respectively. Additionally, interest capitalized during 1995 as part of the
license cost was $9,193,528.
The ongoing value and remaining useful life of intangible assets are subject
to periodic evaluation. The Partnership currently expects the carrying amounts
to be fully recoverable. Impairments of intangible assets are assessed based
on an undiscounted cash flow methodology.
Organizational costs
Certain costs, totaling $1,539,780, were incurred during the formation of
the Partnership and have been deferred and included in other assets. These
costs are being amortized on a straight-line basis over a period of five
years. Accumulated amortization at December 31, 1994 and 1995 and March 31,
1996 was $975,194, $1,283,151 and $1,360,140, respectively.
F-38
<PAGE>
AMERICAN PCS, L.P.
(A DELAWARE LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Preoperating costs
Prior to commencement of operations, preoperating costs, such as salaries,
marketing, recruiting and administrative costs, were expensed as incurred.
Preoperating costs, totaling $7,905,106 and $28,805,236 for the years ended
December 31, 1994 and 1995, respectively, are classified as selling, general
and administrative expenses and depreciation and amortization expenses in the
Statements of Loss.
Income taxes
No provision has been made for Federal and state income taxes since such
taxes, if any, are the responsibility of the individual partners.
Concentration of credit risk
The Partnership's subscribers are dispersed throughout the Washington,
D.C./Baltimore area. No single subscriber accounted for a significant amount
of the Partnership's revenue. A significant portion of handset sales revenue
is earned through certain retailers. Sales to one retailer accounted for 25%
and 37% of total handset sales revenue for the year ended December 31, 1995
and the three months ended March 31, 1996, respectively. The Partnership
reviews the credit histories of potential subscribers and retailers prior to
extending credit and maintains allowances for potential credit losses. The
Partnership maintains cash and cash equivalents in high credit financial
institutions. The Partnership believes that its risk from concentration of
credit is limited.
Interim financial statements
The interim financial data for the three months ended March 31, 1995 is
unaudited. However, in the opinion of the Partnership, the interim financial
data includes all adjustments, consisting only of normal recurring
adjustments, necessary for a fair statement of the results for the interim
periods.
NOTE 3--PROPERTY AND EQUIPMENT
Property and equipment at December 31, 1994 and 1995 and at March 31, 1996
consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
------------------------ ------------
1994 1995 1996
---------- ------------ ------------
<S> <C> <C> <C>
Communications system.................. $ -- $106,225,628 $114,304,350
Office and other equipment............. 830,297 913,290 954,520
Leasehold improvements................. 77,894 1,959,463 2,032,897
---------- ------------ ------------
908,191 109,098,381 117,291,767
Less accumulated depreciation and
amortization........................ (304,778) (2,144,822) (5,789,103)
---------- ------------ ------------
603,413 106,953,559 111,502,664
---------- ------------ ------------
Leased office and other equipment...... -- 3,609,002 3,609,002
Less accumulated depreciation........ -- (279,576) (454,053)
---------- ------------ ------------
-- 3,329,426 3,154,949
---------- ------------ ------------
Communications system construction in
progress.............................. 9,022,513 6,264,173 10,491,204
---------- ------------ ------------
Net property and equipment............. $9,625,926 $116,547,158 $125,148,817
========== ============ ============
</TABLE>
Depreciation and amortization expense for the years ended December 31, 1994
and 1995 and the three months ended March 31, 1996 was $183,490, $2,123,317
and $3,808,030, respectively.
F-39
<PAGE>
AMERICAN PCS, L.P.
(A DELAWARE LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
NOTE 4--LONG-TERM DEBT
Long-term debt at December 31, 1994 and 1995 and at March 31, 1996 consists
of the following:
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
------------------------ -----------
1994 1995 1996
----------- ----------- -----------
<S> <C> <C> <C>
Due to FCC less unamortized discount of
$23,978,236, $19,981,863 and
$18,982,770........................... $78,365,303 $82,361,676 $83,360,769
Note payable, less unamortized discount
of $1,010,360, $522,146
and $423,228.......................... 4,434,153 3,107,528 3,107,528
Capital lease obligations at interest
rates ranging from 8.33%
to 10.94%............................. -- 3,328,326 3,071,620
----------- ----------- -----------
82,799,456 88,797,530 89,539,917
Less current portion................. (1,326,625) (2,532,219) (2,559,901)
----------- ----------- -----------
Total long-term debt................... $81,472,831 $86,265,311 $86,980,016
=========== =========== ===========
</TABLE>
The Partnership became obligated to the FCC for $102,343,539 upon receipt
of the commercial PCS license. In March 1996, the FCC determined that interest
on the amount due will begin to accrue on March 8, 1996 (at an interest rate
of 7.75%). Beginning with the first payment due in April 1996, the FCC has
granted two years of interest-only payments followed by three years of
principal and interest payments. Principal payments total $23,420,619,
$33,400,477, $36,065,221 and $9,457,222 in 1998, 1999, 2000 and 2001,
respectively. Based on the interest and payment provisions determined by the
FCC and the Partnership's incremental borrowing rate for similar debt, the
Partnership has accrued interest beginning upon receipt of the license at an
effective rate of 13%. The unamortized discount is reflected as a reduction to
the cost of the license.
The note payable was issued in exchange for services received in obtaining
the license. The non-interest bearing note requires three equal payments of
$1,814,837, the first of which was paid on October 13, 1995, and the remaining
two payments are to be made on August 13, 1996 and June 13, 1997. The
unamortized discount was calculated using an interest rate of prime plus 2%,
or 10.5% at the time the debt was issued, which approximated the Partnership's
incremental borrowing rate for similar debt.
The estimated fair value of the Partnership's debt approximated its carrying
value at March 31, 1996.
Interest paid was $1,000, $664,000 and $85,513 for the years ended December
31, 1994 and 1995 and the three months ended March 31, 1996, respectively.
NOTE 5--LEASES
The Partnership has various non-cancellable operating leases for office
space and communications system sites. Rental expense related to operating
leases was $695,482, $1,681,276 and $1,977,398 for the years ended December
31, 1994 and 1995 and the three months ended March 31, 1996, respectively.
During 1995, the Partnership incurred capital lease obligations of
$3,609,002. The Partnership did not enter into any new capital lease
obligations during the first three months of 1996. The capital lease
obligations are generally repayable in 36-60 monthly installments from the
dates of purchase.
F-40
<PAGE>
AMERICAN PCS, L.P.
(A DELAWARE LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Future minimum lease payments required under capital leases and non-
cancellable operating leases as of March 31, 1996 are as follows:
<TABLE>
<CAPTION>
EAR ENDINGY CAPITAL OPERATING
DCEMBER 31,E LEASES LEASES
- ------------ ---------- -----------
<S> <C> <C>
1996 (nine months ending December 31,)................ $1,013,468 $ 6,776,189
1997.................................................. 1,351,320 8,996,509
1998.................................................. 998,978 9,079,073
1999.................................................. 96,271 8,981,275
2000.................................................. 65,477 7,372,796
Thereafter............................................ -- 19,892,775
---------- -----------
3,525,514 $61,098,617
---------- ===========
Less amounts representing interest.................... (453,894)
----------
Present value of minimum lease payments............... $3,071,620
==========
</TABLE>
NOTE 6--RETIREMENT SAVINGS PLAN
The Partnership has an employee savings plan that qualifies as a deferred
salary arrangement under Section 401(k) of the Internal Revenue code. All
employees completing one year of service are eligible and may contribute up to
15% of their pretax earnings. The Partnership matches 100% of the first 3% of
the employee's contribution. Employees are immediately fully vested in the
Partnership's contributions. In addition, the Partnership makes discretionary
contributions on behalf of eligible participants in the amount of 2% of
employee's compensation. The Partnership's expenses relating to the employee
savings plan were $38,000, $109,000 and $44,005 for the years ended December
31, 1994 and 1995 and the three months ended March 31, 1996, respectively.
NOTE 7--RELATED PARTY TRANSACTIONS
Certain contributions from WirelessCo aggregating $654,981, exceeded amounts
required under the partnership agreement as capital contributions. As of March
31, 1996, such amounts aggregated $86,254,346 including $2,599,365 of accrued
interest. Such amounts are not evidenced by a note agreement and accordingly,
have been classified as due to related parties.
The Partnership is a party to an affiliation agreement with WirelessCo under
which the Partnership agrees to conform to certain standards established by
WirelessCo and receives the right to use the "Sprint" brand in connection with
its offering of wireless products and services. The Partnership is obligated
as part of this agreement to pay a fee of 3% of its service revenue and to
reimburse WirelessCo for a certain portion of national expenses that are
deemed to benefit all WirelessCo markets, including the Partnership's markets.
During 1995, the Partnership was not allocated any national expenses by
WirelessCo. Total fees incurred and owed to WirelessCo at March 31, 1996 are
$3,487,639. WirelessCo allocated $1,360,627 of national expenses to the
Partnership for the three months ended March 31, 1996.
The Partnership has a Sales Agency and Billing Collection agreement with
Sprint Communications Company, L.P. ("Sprint") under which the Partnership
acts as an agent to sell, bill and collect for Sprint long distance service
provided to its customers. Additionally, the Partnership purchases various
communications services from Sprint in support of its network infrastructure
and general business and obtains supplemental customer service support from
Sprint. The net cost of services received from Sprint for the year ended
December
F-41
<PAGE>
AMERICAN PCS, L.P.
(A DELAWARE LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
31, 1995 and the three months ended March 31, 1996 was $882,306 and
$1,556,930, respectively. Amounts outstanding at December 31, 1995 and March
31, 1996 totaled $711,517 and $2,483,744, respectively.
A company that is partially owned by the chairman of the General Partner
performed consulting services for the Partnership related to the determination
and acquisition of base station sites for the communications system. Amounts
capitalized for these services totaled $1,468,994 and $2,407,400 for the years
ended December 31, 1994 and 1995, respectively. At December 31, 1994 and 1995
and at March 31, 1996, the Partnership owed the company approximately
$141,435, $759,325 and $28,768, respectively.
During 1995, APC granted to certain executives of the Partnership 27,147
stock appreciation rights. All stock appreciation rights entitle the holder to
receive the difference between the fair value of the rights exercised, based
on the fair value of APC's common stock, and the base price ($1,118 per share)
of the exercised rights. The stock appreciation rights are exercisable upon
the sale of a general or limited interest in the Partnership by APC which
results in available cash proceeds, as defined in the respective agreements,
of at least $5 million. Upon exercise of the rights, the holder will receive
cash unless certain conditions are present which would allow APC to pay the
holder in APC stock, promissory notes, or a combination thereof. The stock
appreciation rights terminate upon the earlier to occur of (a) the tenth
anniversary of the grant date, (b) the exercise in full of such rights or (c)
the termination of such rights. In general, the rights expire upon the
employees' termination of employment. Substantially all of the rights were
vested at the grant date.
As of December 31, 1995 and March 31, 1996, there were 21,498 rights
outstanding. During the year ended December 31, 1995, 5,649 rights were
forfeited. No rights were forfeited during the three months ended March 31,
1996. No stock appreciation rights have been exercised. The estimated
liability related to the stock appreciation rights, based on the fair value of
APC's common stock, was approximately $10 million and $22 million at December
31, 1995 and March 31, 1996, respectively, and is being amortized over a
period of approximately six years.
The Partnership leases office space from a limited partnership owned by
officers of APC. Lease payments of $65,215 and $13,560 were paid to the
limited partnership during the year ended December 31, 1995 and the three
months ended March 31, 1996, respectively.
A corporation owned by the chairman of the General Partner provided certain
consulting services in 1994, and in return, the Partnership made payments of
approximately $357,000. In addition, the Partnership paid the owner of the
corporation $100,000 in 1994 for consulting fees.
NOTE 8--COMMITMENTS
In February 1995, the Partnership selected Ericsson, Inc. and Northern
Telecom as the companies to supply the infrastructure equipment for the
communications network. Ericsson supplies switching and base station radio
equipment for the Washington-Baltimore corridor, while Northern Telecom
provides base stations for Maryland's Eastern Shore and western portions of
the Partnership's major trading area.
The contract with Ericsson is a five year acquisition agreement for certain
network hardware, software, handsets and documentation. Although the agreement
is for five years, the initial purchase commitment relates only to the initial
network configuration, which was substantially completed in December 1995 at a
contract price of approximately $47 million. Subsequent to December 31, 1995,
the Partnership has agreed to acquire additional equipment totaling $33.5
million. At June 19, 1996 the Partnership had approximately a $20.7 million
commitment remaining under the agreement.
F-42
<PAGE>
AMERICAN PCS, L.P.
(A DELAWARE LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
The Northern Telecom agreement is for 2 1/2 years and provides for the
purchase of network hardware, software and documentation as well as the
installation of the equipment. During the agreement period, the Partnership is
required to purchase at least $12 million in communication equipment. At June
19, 1996, the Partnership had approximately a $2.9 million commitment
remaining under the agreement.
The Partnership has handset supply agreements with various vendors extending
over the next 12 to 18 months. At June 19, 1996, the Partnership had
approximately a $51.8 million commitment remaining under these agreements.
F-43
<PAGE>
SPRINT SPECTRUM L.P.
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Pop Data Regarding Sprint Spectrum Market Areas
<TABLE>
<CAPTION>
MTA ESTIMATED PRICE
NUMBER SPRINT SPECTRUM MARKETS 1995 POPS PER POP (a)
------ -------------------------------------- ------------- -----------
(in Millions)
OWNED MARKETS:
--------------
<S> <C> <C> <C>
1 New York 26.8 $16.76
4 San Francisco-Oakland-San Jose 13.0 17.37
5 Detroit 10.0 8.61
7 Dallas-Ft. Worth 10.5 9.12
8 Boston-Providence 9.7 13.44
12 Minneapolis-St. Paul 6.1 6.63
15 Miami-Ft. Lauderdale 5.7 25.64
17 New Orleans-Baton Rouge 5.0 19.07
19 St. Louis 4.7 24.51
20 Milwaukee 4.6 18.73
21 Pittsburgh 4.0 7.00
22 Denver 4.1 16.60
24 Seattle 4.2 27.48
26 Louisville-Lexington-Evansville 3.6 13.10
27 Phoenix 4.0 21.54
29 Birmingham 3.3 10.97
30 Portland 3.2 11.16
31 Indianapolis 3.0 23.34
32 Des Moines-Quad Cities 2.9 7.00
33 San Antonio 3.2 18.21
34 Kansas City 3.0 8.11
35 Buffalo-Rochester 2.8 6.80
36 Salt Lake City 2.7 17.95
40 Little Rock 2.1 6.01
41 Oklahoma City 1.9 7.00
42 Spokane-Billings 1.9 3.32
43 Nashville 1.9 9.26
46 Wichita 1.1 4.36
48 Tulsa 1.1 15.32
----- ------
TOTAL 150.3 $14.54
45 Omaha (to be contributed) 1.7 3.06
AFFILIATED MARKETS:
-------------------
10 Washington, D.C.-Baltimore (APC) 8.3 $13.16
2 Los Angeles-San Diego (Cox-California) 21.5 $13.16
9 Philadelphia (PhillieCo) 9.1 $9.52
-----
SPRINT SPECTRUM AND AFFILIATES TOTAL 190.9
National Total (A and B Blocks) $15.29
National Total (C Block) $40.00(b)
</TABLE>
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(a) Based on 1990 Census.
(b) Includes re-auctioned licenses, net of 25% bidding credit.
<PAGE>
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NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR MAKE ANY REPRESENTATIONS, OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS. IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE
RELIED UPON AS HAVING BEEN AUTHORIZED BY THE ISSUERS OR THE UNDERWRITERS. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER
TO BUY, THE NOTES IN ANY JURISDICTION WHERE, OR TO ANY PERSON TO WHOM, IT IS
UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PRO-
SPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE AN
IMPLICATION THAT THERE HAS NOT BEEN ANY CHANGE IN THE FACTS SET FORTH IN THIS
PROSPECTUS OR IN THE AFFAIRS OF THE ISSUERS SINCE THE DATE HEREOF.
---------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary....................................................... 3
Risk Factors............................................................. 14
The Reorganization....................................................... 25
The Company.............................................................. 25
Use of Proceeds.......................................................... 28
Capitalization........................................................... 28
Selected Historical and Pro Forma Financial Data......................... 29
Pro Forma Condensed Financial Statements................................. 30
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 32
Business................................................................. 36
Management............................................................... 57
Certain Relationships and Related Transactions........................... 64
Principal Security Holders............................................... 66
The Partnership Agreements............................................... 67
Description of Vendor Contracts and Financing............................ 74
Description of the Notes................................................. 79
Certain Federal Income Tax Consequences.................................. 107
Underwriting............................................................. 111
Legal Matters............................................................ 112
Experts.................................................................. 112
Available Information.................................................... 112
Glossary of Selected Terms............................................... 113
Index to Financial Statements............................................ F-1
</TABLE>
---------------
UNTIL NOVEMBER 18, 1996 (90 DAYS AFTER THE DATE OF THIS PROSPECTUS) ALL
DEALERS EFFECTING TRANSACTIONS IN THE NOTES, 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.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
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$750,000,000
SPRINT SPECTRUM L.P.
SPRINT SPECTRUM FINANCE CORPORATION
$250,000,000 11% SENIOR NOTES DUE 2006
$500,000,000 12 1/2% SENIOR DISCOUNT NOTES DUE 2006
---------------
PROSPECTUS
---------------
LEHMAN BROTHERS
MERRILL LYNCH & CO.
CHASE SECURITIES INC.
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
SALOMON BROTHERS INC
AUGUST 20, 1996
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