UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1996
------------------------------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 333-06609-01
SPRINT SPECTRUM L.P.
(Exact name of registrant as specified in its charter)
DELAWARE 48-1165245
(State or other jurisdiction of incorporation (IRS Employer
or organization) Identification No.)
4900 Main Street, Kansas City, Missouri, 64112
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(Address of principal executive offices)
(816) 559-1000
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(Registrant's telephone number, including area code)
4717 Grand Avenue, Kansas City, Missouri, 64112
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(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
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SPRINT SPECTRUM L.P.
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FORM 10-Q FOR THE QUARTER ENDED JUNE 30, 1996
INDEX
Page
Number
----------------
Part I - Financial Information................................... 1 - 7
Item 1. Financial Statements............................... 1 - 3
Consolidated Condensed Balance Sheets................... 1
Consolidated Condensed Statements of Operations......... 2
Consolidated Condensed Statements of Cash Flows......... 3
Notes to Consolidated Condensed Financial Statements.... 4 - 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations..................... 8 - 11
Part II - Other Information 12
Item 1. Legal Proceedings.................................. 12
Item 2. Changes in Securities.............................. 12
Item 3. Defaults On Senior Securities...................... 12
Item 4. Submission of Matters to a Vote of Security Holders 12
Item 5. Other Information.................................. 12
Item 6. Exhibits and Reports on Form 8-K................... 12 - 13
Signature........................................................ 14
Exhibits
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<TABLE>
<CAPTION>
PART I.
Item 1.
SPRINT SPECTRUM L.P.
(As Reorganized)
(A Development Stage Enterprise)
CONSOLIDATED CONDENSED BALANCE SHEETS
(In Thousands)
June 30, December 31,
1996 1995
------------------ ------------------
(Unaudited)
ASSETS
CURRENT ASSETS:
<S> <C> <C>
Cash and cash equivalents......................................... $ 31,555 $ 1,123
Receivable from affiliates........................................ 4,207 340
Prepaid expenses and other assets................................. 155 188
------------------ ------------------
Total current assets............................................ 35,917 1,651
INVESTMENT IN PCS LICENSES........................................... 2,124,594 2,124,594
INVESTMENT IN UNCONSOLIDATED PARTNERSHIP............................. 9,750 85,546
NOTE RECEIVABLE--UNCONSOLIDATED PARTNERSHIP........................... 133,319 655
PROPERTY, PLANT AND EQUIPMENT, Net................................... 228,872 31,897
OTHER ASSETS......................................................... 28,876 -
================== ==================
TOTAL ASSETS......................................................... $ 2,561,328 $ 2,244,343
================== ==================
LIABILITIES AND PARTNERS' CAPITAL
CURRENT LIABILITIES:
Accounts payable.................................................. $ 37,714 $ 47,503
Payable to vendors expected to be financed........................ 20,558 -
Accrued expenses.................................................. 13,215 1,700
Accrued interest--affiliate........................................ 379 214
------------------ ------------------
Total current liabilities....................................... 71,866 49,417
DEFERRED COMPENSATION................................................ 6,606 1,856
NOTE PAYABLE--AFFILIATE............................................... 5,000 5,000
OTHER LONG TERM DEBT................................................. 472 -
COMMITMENTS AND CONTINGENCIES
LIMITED PARTNER INTEREST IN CONSOLIDATED
SUBSIDIARY........................................................ 5,000 5,000
PARTNERS' CAPITAL AND ACCUMULATED DEFICIT:
Partners' capital................................................. 2,744,315 2,296,806
Deficit accumulated during the development stage.................. (271,931) (113,736)
------------------ ------------------
Total partners' capital......................................... 2,472,384 2,183,070
================== ==================
TOTAL LIABILITIES AND PARTNERS' CAPITAL.............................. $ 2,561,328 $ 2,244,343
================== ==================
See accompanying notes to consolidated condensed financial statements.
</TABLE>
1
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<TABLE>
<CAPTION>
PART I.
Item 1.
SPRINT SPECTRUM L.P.
(As Reorganized)
(A Development Stage Enterprise)
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS (UNAUDITED)
(In Thousands)
Cumulative
Period from
October 24,
1994 (date of
Three Months Ended Six Months Ended inception) to
June 30, June 30, June 30,
------------------------------------------------------------------------------------
1996 1995 1996 1995 1996
- -------------------------------------------------------------------------------------------------------------------------
OPERATING EXPENSES:
<S> <C> <C> <C> <C> <C>
Other operating expenses......... $ 3,094 $ - $ 3,099 $ - $ 3,099
Selling, general and 43,420 4,537 74,139 8,145 141,742
administrative...................
Depreciation..................... 384 52 638 99 887
--------------- ---------------- --------------- --------------------------------
Total operating expenses....... 46,898 4,589 77,876 8,244 145,728
OPERATING LOSS...................... (46,898) (4,589) (77,876) (8,244) (145,728)
OTHER INCOME (EXPENSE):
Interest, net.................... 955 - 598 - 881
Other income..................... 72 192 215 467 253
Equity in loss of unconsolidated
partnership.................... (44,899) (5,321) (81,132) (8,730) (127,337)
--------------- ---------------- --------------- ---------------- ---------------
Total other income (expense)... (43,872) (5,129) (80,319) (8,263) (126,203)
--------------- ---------------- --------------- ---------------- ---------------
NET LOSS............................ $ (90,770) $ (9,718) $ (158,195) $ (16,507) $ (271,931)
=============== ================ =============== ================ ===============
See accompanying notes to consolidated condensed financial statements.
</TABLE>
2
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<TABLE>
<CAPTION>
PART I.
Item 1.
SPRINT SPECTRUM L.P.
(As Reorganized)
(A Development Stage Enterprise)
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
(In Thousands)
Cumulative
Period from
October 24,
1994 (date of
Six Months Ended inception) to
June 30, June 30,
-------------------------------------------------
1996 1995 1996
- ---------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C> <C>
Net loss.................................................... $ (158,195) $ (16,507) $ (271,931)
Adjustments to reconcile net loss to net cash provided
by (used in) operating activities:
Equity in loss of unconsolidated partnership............... 81,132 8,730 127,337
Depreciation .............................................. 637 99 887
Loss on equipment.......................................... - - 31
Changes in assets and liabilities:
Receivables, prepaid expenses and other assets........... (4,259) (343) (4,787)
Accounts payable and accrued expenses.................... 22,449 3,165 71,866
Deferred compensation.................................... 4,750 - 6,606
------------- -------------- -------------
Net cash used in operating activities.................. (53,486) (4,856) (69,991)
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures......................................... (197,612) (1,864) (229,826)
Proceeds on sale of equipment................................ - - 37
Microwave relocation costs................................... (27,146) - (27,146)
Purchase of PCS licenses..................................... - (2,006,156) (2,124,594)
Investment in unconsolidated partnership..................... - (97,407) (131,752)
Loan to unconsolidated partnership........................... (138,000) - (138,655)
------------- -------------- -------------
Net cash used by investing activities.................. (362,758) (2,105,427) (2,651,936)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from other long-term debt........................... 472 - 472
Debt issuance costs.......................................... (1,305) - (1,305)
Limited partner interest in consolidated subsidiary.......... - - 5,000
Borrowings from affiliates................................... - - 5,000
Partner capital contributions................................ 447,509 2,106,326 2,744,315
------------- -------------- -------------
Net cash provided by financing activities.............. 446,676 2,106,326 2,753,482
INCREASE (DECREASE) IN CASH AND CASH ------------- -------------- -------------
EQUIVALENTS.................................................. 30,432 (3,957) 31,555
CASH AND CASH EQUIVALENTS, Beginning of period.................. 1,123 5,014 -
------------- -------------- -------------
CASH AND CASH EQUIVALENTS, End of period........................ $ 31,555 $ 1,057 $ 31,555
============= ============== =============
See accompanying notes to consolidated condensed financial statements.
</TABLE>
3
<PAGE>
PART I.
Item 1.
SPRINT SPECTRUM L.P.
(As Reorganized)
(A Development Stage Enterprise)
Notes to Consolidated Condensed Financial Statements (Unaudited)
June 30, 1996 and 1995
The information contained in this Form 10-Q for the three and six-month interim
periods ended June 30, 1996 and 1995 and the cumulative period from October 24,
1994 (date of inception) to June 30, 1996 has been prepared in accordance with
instructions to Form 10-Q and Rule 10-01 of Regulation S-X. In the opinion of
management, all adjustments considered necessary, consisting only of normal
recurring accruals, to present fairly the consolidated financial position,
results of operations, and cash flows for such interim periods have been made
(See Note 1).
Certain information and footnote disclosures normally included in consolidated
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted. The results of operations for the six
months ended June 30, 1996 are not necessarily indicative of the operating
results that may be expected for the year ended December 31, 1996.
1. Basis of Presentation
Prior to July 1, 1996, substantially all wireless operations of Sprint Spectrum
L.P. and subsidiaries 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 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 ("As Reorganized").
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 thousands):
<TABLE>
<CAPTION>
Sprint
Spectrum L.P. Holdings Combined
Total Assets
<S> <C> <C> <C>
December 31, 1995........................................ $ 2,211,918 $ 2,244,343 $ 2,244,343
June 30, 1996 (unaudited)................................ 2,268,805 2,561,328 2,561,328
Partners' Capital & Accumulated Deficit
December 31, 1995........................................ 2,201,704 2,178,069 2,183,070
June 30, 1996 (unaudited)................................ 2,258,426 2,469,529 2,472,384
Net Loss
December 31, 1995........................................ (49,531) (110,429) (110,428)
June 30, 1996 (unaudited)................................ (81,278) (158,195) (158,195)
</TABLE>
The Partnership, as used in these financial statements, refers to Sprint
Spectrum L.P. and subsidiaries inclusive of those operations of Holdings
combined therewith.
4
<PAGE>
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. In addition, the Partnership estimates its share of the losses in an
unconsolidated partnership based on expected allocation percentages in effect
throughout the year. Actual results could differ from those estimates.
Paging Services: The Company has commenced paging services pursuant to
agreements with Paging Network Equipment Company (Pagenet) and Sprint
Communications, L.P. (Sprint). Through June 30, 1996, paging revenues were
approximately $917,000 and were offset in Other Income by an equal amount of
operating expenses and management fees paid to Sprint.
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.
both of which were formed by Sprint Enterprises, L.P., TCI Telephony Services,
Inc. (as successor in interest to TCI Network Services), Comcast Telephony
Services and Cox Telephony Partnership (collectively, the "Partners"). 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"). 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 and will offer services as Sprint PCS.
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 assets. On May 20, 1996, an additional subsidiary of Sprint
Spectrum L.P., Sprint Spectrum Finance Corporation ("FinCo"), was also formed to
be a co-obligor of the debt obligations discussed in Note 5.
The Partnership is consolidated with its subsidiaries, WirelessCo, L.P.,
EquipmentCo, RealtyCo and FinCo. These entities are development stage
enterprises. The partners of Sprint Spectrum L.P. have the following ownership
interests as of December 31, 1995:
Sprint Spectrum Holding Company, L.P. (general partner)........greater than 99%
MinorCo, L.P. (limited partner)....................................less than 1%
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 from PCS
services.
3. 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.") holds a 51% partnership interest in APC and is the general
managing partner. The investment in APC is accounted for under the equity
method. Summarized financial information of APC as of June 30, 1996 and December
31, 1995 is as follows (in thousands):
5
<PAGE>
June 30, 1996 December 31, 1995
---------------- ------------------
Total assets..................... $ 275,322 $ 237,326
Total liabilities................ 297,047 171,180
Total revenues................... 29,974 5,153
Net loss......................... 92,004 51,551
4. Vendor Financing
The Company has obtained financing commitments from Northern Telecom Inc.
("Nortel") for $1.3 billion and from Lucent Technologies Inc. ("Lucent") for
$1.8 billion multiple drawdown term loan facilities. The proceeds of such
facilities will be used to finance the purchase of goods and services provided
by the vendors. The financing will be nonrecourse to, and will not be guaranteed
by, the Parents or the Partners. At June 30, 1996, the Company had received
equipment and services totaling approximately $44 million from Lucent and
Nortel, of which $23 million had been paid, and $21 million is included in the
accompanying statements as payable to vendors expected to be financed.
5. Subsequent Events
Senior Notes and Senior Discount Notes: In August 1996, Sprint Spectrum L.P. and
Sprint Spectrum Finance Corporation (together, the "Issuers") issued $250
million aggregate principal amount of 11% Senior Notes due 2006 ("the Senior
Notes"), and $500 million aggregate principal amount at maturity of 12 1/2%
Senior Discount Notes due 2006 (the "Senior Discount Notes" and, together with
the Senior Notes, the "Notes"). The Senior Discount Notes were issued at a
discount to their aggregate principal amount at maturity and generated proceeds
of approximately $273 million. Cash interest on the Senior Notes will accrue at
a rate of 11% per annum and is 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 million in aggregate principal amount at maturity,
assuming all of the Senior Discount Notes remain outstanding at such date).
The Senior Notes are 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
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:
Year Redemption Price
-------- ----------------
2001 105.500%
2002 103.667%
2003 101.833%
2004 and thereafter 100.000%
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 (as defined), provided that at least 65% of the
originally issued principal amount of Senior Notes would remain outstanding
immediately after giving effect to such redemption.
6
<PAGE>
The Senior Discount Notes are 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 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 year
indicated below:
Year Redemption Price
-------- ----------------
2001 110.000%
2002 106.500%
2003 103.250%
2004 and thereafter 100.000%
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, provided that at least 65% of the originally issued
principal amount at maturity of the Senior Discount Notes would remain
outstanding immediately after giving effect to such redemption.
The Notes contain certain restrictive covenants, including (among other
requirements) limitations on additional indebtedness, limitations on restricted
payments, limitations on liens, and limitations on dividends and other payment
restrictions affecting restricted subsidiaries (as defined).
APC Transfer: Effective August 31, 1996, WirelessCo's partnership interest in
APC, the existing loans to APC, and obligations to provide additional funding to
APC were transferred to Holdings.
Handset Purchase Agreement: In September 1996, the Company entered into a
three-year contract with Samsung Electronics for the purchase of handsets
totaling more than $600 million. Under the terms of this agreement, the purchase
of handsets will commence on or after April 1, 1997.
7
<PAGE>
PART I.
Item 2.
SPRINT SPECTRUM L.P.
(As Reorganized)
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with Sprint
Spectrum's (As Reorganized) consolidated financial statements and notes thereto.
The term "Company" refers to Sprint Spectrum L.P. 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"). The
Company's consolidated financial information has not been separately included
for the period 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 Sprint Spectrum (As Reorganized) financial information that
is presented reflects the transfer of the operations of Holdings to the Company
which took place on July 1, 1996.
The Company includes certain estimates, projections and other forward-looking
statements in its reports as well as in presentations to analysts and others and
in other material disseminated to the public. There can be no assurances of
future performance and actual results may differ materially from those in the
forward-looking statements. Factors which could cause actual results to differ
materially from estimates or projections contained in forward-looking statements
include:
- the effects of vigorous competition in the markets in which the
Company will operate;
- the cost of entering new markets necessary to provide services;
- the impact of any unusual items resulting from ongoing evaluations
of the Company's business strategies;
- requirements imposed on the Company and its competitors by
the Federal Communications Commission ("FCC") and state regulatory
commissions under the Telecommunications Act of 1996;
- the possibility of one or more of the markets in which the Company
will compete being impacted by variations in political, economic
or other factors over which the Company has no control; and
- unexpected results in litigation.
General
The Company is a development stage enterprise formed for the purpose of
establishing a nationwide personal communications service ("PCS") wireless
telecommunications network. The Company acquired PCS licenses in the FCC's A
Block and B Block PCS auction which concluded in March 1995 to provide service
to 29 major trading areas ("MTAs") covering 150.3 million Pops. Additionally,
Cox has agreed to contribute to the Company, upon FCC approval, which is
pending, a PCS license for the Omaha MTA. The Company has also affiliated and
expects to continue to affiliate with other PCS providers. Pursuant to
affiliation agreements, each affiliated PCS service provider will use the
Sprint(R) (a registered trademark of Sprint Communications Company, L.P.) brand
name. Holdings owns a 49% limited partnership interest in American PCS, L.P.
("APC"), which owns a PCS license for, and operates a broadband PCS system in,
the Washington D.C./Baltimore MTA. APC has affiliated with the Company and is
marketing its products and services under the Sprint brand name. Holdings also
expects to acquire a 49% limited partnership interest in Cox Communication PCS,
L.P., 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 Communication PCS, L.P. and
will manage and control Cox Communication PCS, L.P. The Company expects to sign
an affiliation agreement with Cox Communication PCS, L.P. 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 covering 9.1 million Pops.
8
<PAGE>
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 for its PCS services 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 most MTAs by the end of the first quarter of 1997. Pop coverage at
the end of the initial launch period (approximately the end of the first quarter
of 1997) is expected to reach approximately 60% of the Pops in all of the
Company's license areas with coverage in the individual license areas ranging
from 19% to 80%. 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. 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 $2.5
billion had been expended as of June 30, 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. 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 buildout will
total approximately $3.8 billion from inception through 1998, including $3.0
billion in 1996. 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
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 June 30, 1996,
approximately $2.7 billion had been contributed to Holdings, of which $2.5
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 $1.1 billion of additional equity following June 30, 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 the Company and the Parents that provides for $1.0 billion in aggregate
equity commitments (less, subject to certain exceptions, amounts of cash equity
contributed to the Company after December 31, 1995). The Company's business plan
and the financial covenants and other terms of the Secured Financing (defined
below) 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.
9
<PAGE>
The Company has obtained commitment letters for up to an aggregate of $5.1
billion of senior secured loans from certain third parties. The Company has
obtained a commitment letter from Nortel in which Nortel has committed to
provide up to $1.3 billion in senior secured loans to finance purchases of
Nortel's PCS equipment and related services. The Company has also obtained a
commitment letter from Lucent in which Lucent committed to provide up to $1.8
billion in senior secured loans (together with the Nortel commitment, the
"Vendor Financing"). Under the related procurement contracts with Lucent and
Nortel, the Company is required to purchase minimum amounts of equipment and
services from each vendor. The Nortel portion of the Vendor Financing requires,
as a condition to funding, the commitment of additional financing from third
parties, including the Senior Notes and Senior Discount Notes, the Bank Credit
Facility (defined below) or other debt financing and equity financing. The
Company will use the proceeds from 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 will serve as
the primary financing mechanism for the buildout of the network. The Company has
received a commitment letter from Chase Securities Inc. and The Chase Manhattan
Bank ("Chase") in which Chase has committed to provide a fully underwritten $2.0
billion bank 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.
In August 1996 the Issuers issued $250 million aggregate principal amount of the
Senior Notes and $500 million aggregate principal amount at maturity of 12 1/2%
Senior Discount Notes. The Senior Discount Notes were issued at a discount to
their aggregate principal amount at maturity and generated proceeds of
approximately $273 million. Cash interest on the Senior Notes will accrue at a
rate of 11% per annum and is 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 million in
aggregate principal amount at maturity, assuming all of the Senior Discount
Notes remain outstanding at such date). The proceeds of approximately $509
million from the issuance of the Notes (net of approximately $14 million of
underwriting discounts, commissions, and offering expenses) will be used to fund
capital expenditures, including the buildout of the nationwide PCS network, to
fund working capital as required, to fund operating losses and for other
partnership purposes.
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 can be obtained on a timely basis and on terms
acceptable to the Company and within limitations contained in the Note
indentures, the agreements governing the Secured Financing and any new financing
arrangements. Failure to obtain any such 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 and could have a material adverse
effect on its business.
For the year-to-date period ended June 30, 1996, Sprint Spectrum (As
Reorganized) used cash of $53 million in operating activities, which consisted
of the operating loss of $158 million which is offset, in part, by the equity in
the loss of APC and increased payables and other accruals. Cash used in
investing activities totaled $363 million, consisting of capital expenditures
and microwave relocation costs of $225 million and advances to APC of $138
million. Since inception, substantially 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 totaled $2.7 billion through June 30, 1996.
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Effective August 31, 1996, WirelessCo's partnership interest in APC, the
existing loans to APC, and obligations to provide additional funding to APC were
transferred to Holdings. As of June 30, 1996, $98 million of equity had been
contributed and $139 million of partner advances had been extended to APC.
Results of Operations
For the Three Months Ended June 30, 1996
Sprint Spectrum (As Reorganized) incurred a loss of $91 million for the three
months ended June 30, 1996, which includes equity in APC loss of $45 million.
There was no amortization of licenses during the period as PCS service had not
been launched commercially. Professional and legal fees of $13 million were
incurred in connection with the development of the Company's infrastructure,
including services associated with the cell site acquisition and leases; network
design and buildout; and development and implementation of information systems,
including an integrated customer care, network management and billing system.
For the Six Months Ended June 30, 1996
Sprint Spectrum (As Reorganized) incurred a loss of $158 million for the six
months ended June 30, 1996, which includes equity in APC loss of $81 million.
There was no amortization of licenses during the period as PCS service had not
been launched commercially. Professional and legal fees of $24 million were
incurred in connection with the development of the Company's infrastructure,
including services associated with the cell site acquisition and leases; network
design and buildout; and development and implementation of information systems,
including an integrated customer care, network management and billing system.
11
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PART II.
Other Information
Item 1. 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. The proceeding has been stayed pending resolution of the
Company's pending site application and consideration of a revised land
use ordinance adopted by the City. Although the ultimate outcome of
this litigation and the pending application of the Company is
uncertain, the Company is confident that these proceedings will not
delay the introduction of service in the Seattle, Washington MTA. While
the Company does not believe that the outcome of the pending 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.
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.
Item 2. Changes in Securities
There were no reportable events during the quarter ended June 30, 1996.
Item 3. Defaults On Senior Securities
There were no reportable events during the quarter ended June 30, 1996.
Item 4. Submission of Matters to Votes of Security Holders
There were no reportable events during the quarter ended June 30, 1996.
Item 5. Other Information
The Company has changed the address of its principal executive offices
to:
4900 Main Street
Kansas City, Missouri 64112
As part of a reorganization of operations described in the Registrant's
prospectus dated August 20, 1996, WirelessCo transferred to Sprint
Spectrum Holding Company, L.P. WirelessCo's partnership interest in
APC, its outstanding loans to APC, and its obligations to provide
additional funding to APC, effective August 31, 1996.
Item 6. Exhibits and Reports on Form 8-K
(a) The following exhibits are filed as part of this report:
3.2 Certificate of Limited Partnership of Sprint Spectrum L.P.
(incorporated by reference to Form S-1 Registration Statement,
Registration No. 333-06609, filed on June 21, 1996).
3.3 Amended and Restated Agreement of Limited Partnership of
MajorCo, L.P. (renamed Sprint Spectrum Holding Company, L.P.)
dated January 31, 1996, among Sprint Spectrum, L.P. (renamed
Sprint Enterprises, L.P.), TCI Network Services, Comcast
12
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Telephony Services and Cox Telephony Partnership (incorporated
by reference to Form S-1 Registration Statement, Registration
No.333-06609, filed on June 21, 1996).
3.4 Agreement of Limited Partnership of MajorCo Sub, L.P. (renamed
Sprint Spectrum L.P.), dated as of March 28, 1995, among
MajorCo, L.P. and MinorCo, L.P. Corporation (incorporated by
reference to Form S-1 Registration Statement, Registration No.
333-06609, filed on June 21, 1996).
4.1 Senior Note Indenture, dated August 23, 1996, between Sprint
Spectrum L.P., Sprint Spectrum Finance Corporation, and The
Bank of New York, as Trustee (incorporated by reference to
Form S-1 Registration Statement, Registration No. 333-06609,
the form of which was filed on July 30, 1996).
4.2 Form of Senior Note (included in Exhibit 4.1).
4.3 Senior Discount Note Indenture, dated August 23, 1996, between
Sprint Spectrum L.P., Sprint Spectrum Finance Corporation, and
The Bank of New York, as Trustee (incorporated by reference to
Form S-1 Registration Statement, Registration No. 333-06609,
the form of which was filed on July 30, 1996).
4.4 Form of Senior Discount Note (included in Exhibit 4.3).
10.1 Procurement and Services Contract, dated as of January 31,
1996, between MajorCo, L.P. and Northern Telecom Inc. [Certain
schedules omitted] (incorporated by reference to Form S-1
Registration Statement, Registration No. 333-06609, filed on
July 30, 1996).
10.2 Procurement and Services Contract, dated as of January 31,
1996, between MajorCo, L.P., and AT&T Corp. [Certain schedules
omitted] (incorporated by reference to Form S-1 Registration
Statement, Registration No. 333-06609, filed on July 30,
1996).
10.3 Amended and Restated Sprint Trademark License Agreement, dated
as of January 31, 1996, between Sprint Communications Company,
L.P. and MajorCo, L.P. (incorporated by reference to Form S-1
Registration Statement, Registration No. 333-06609, filed on
July 30, 1996).
10.4 Paging Sales Agency Agreement, dated as of January 17, 1996,
between MajorCo, L.P. and Sprint Communications Company, L.P.
[Certain schedules omitted] (incorporated by reference to Form
S-1 Registration Statement, Registration No. 333-06609, filed
on July 30, 1996).
10.5 WirelessCo Affiliation Agreement, dated as of January 9, 1995,
between American PCS, L.P., and WirelessCo, L.P. (incorporated
by reference to Form S-1 Registration Statement, Registration
No. 333-06609, filed on July 30, 1996).
10.6 Second Amended and Restated Limited Partnership Agreement
dated as of January 9, 1995, among American Personal
Communications, Inc., WirelessCo, L.P. and The Washington Post
Company (incorporated by reference to Form S-1 Registration
Statement, Registration No. 333-06609, filed on July 30,
1996).
10.7 Purchase and Supply Agreement dated as of June 21, 1996,
between Sprint Spectrum L.P. and QUALCOMM Personal Electronics
and QUALCOMM Incorporated and Sony Electronics Inc. [Certain
schedules omitted] (incorporated by reference to Form S-1
Registration Statement, Registration No. 333-06609, filed on
August 12, 1996).
10.8 Commitment Letter of Northern Telecom Inc. to Sprint Spectrum
L.P. dated as of June 11, 1996.(incorporated by reference to
Form S-1 Registration Statement, Registration No. 333-06609,
filed on August 12, 1996).
10.9 Commitment Letter of Chase Securities Inc. and Chemical Bank
to Sprint Spectrum L.P. dated June 7, 1996 (incorporated by
reference to Form S-1 Registration Statement, Registration No.
333-06609, filed on August 12, 1996).
10.10 Commitment Letter from Lucent Technologies, Inc. to Sprint
Spectrum L.P. dated June 21, 1996 (incorporated by reference
to Form S-1 Registration Statement, Registration No.
333-06609, filed on August 12, 1996).
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10.11 Employment Agreement, dated as of September 29, 1995, between
MajorCo, L.P. and Joseph M. Gensheimer (incorporated by
reference to Form S-1 Registration Statement, Registration No.
333-06609, filed on July 30, 1996).
10.12 Assignment, Assumption and Amendment No. 1, dated as of June
21, 1996, to Procurement and Services Agreement, dated as of
January 31, 1996, between MajorCo, L.P. and AT&T Corp.
(incorporated by reference to Form S-1 Registration Statement,
Registration No. 333-06609, filed on July 30, 1996).
10.13 Assignment, Assumption and Amendment No. 1, dated as of June
26, 1996, to Procurement and Services Contract, dated as of
January 31, 1996, between MajorCo, L.P. and Northern Telecom,
Inc. (incorporated by reference to Form S-1 Registration
Statement, Registration No. 333-06609, filed on July 30,
1996).
10.14 Assignment and Assumption, dated as of July 1, 1996, between
Sprint Spectrum Holding Company, L.P., Sprint Spectrum L.P.,
and Sprint Spectrum Realty Company, L.P. (incorporated by
reference to Form S-1 Registration Statement, Registration No.
333-06609, filed on July 30, 1996).
10.15 Property Use Agreement, dated as of July 1, 1996, between
Sprint Spectrum Realty Company, L.P. and Sprint Spectrum L.P.
(incorporated by reference to Form S-1 Registration Statement,
Registration No. 333-06609, filed on July 30, 1996).
10.16 Assignment and Assumption, dated as of July 1, 1996, between
Sprint Spectrum Holding Company, L.P., Sprint Spectrum L.P.
and Sprint Spectrum Equipment Company, L.P. (incorporated by
reference to Form S-1 Registration Statement, Registration No.
333-06609, filed on July 30, 1996).
10.17 Equipment Lease Agreement, dated as of July 1, 1996, between
Sprint Spectrum Equipment Company, L.P. and Sprint Spectrum
L.P. [Schedule omitted] (incorporated by reference to Form S-1
Registration Statement, Registration No. 333-06609, filed on
July 30, 1996).
10.18 Customer Account and Billing System Agreement, dated as of
February 26, 1996, between Sprint Spectrum L.P. and Cincinnati
Bell Information Systems Inc. [Schedules omitted]
(incorporated by reference to Form S-1 Registration Statement,
Registration No. 333-06609, filed on July 30, 1996).
10.19 Capital Contribution Agreement, dated as of July 15, 1996,
among Sprint Corporation, Tele-Communications, Inc., Comcast
Corporation, Cox Communications, Inc. and Sprint Spectrum L.P.
(incorporated by reference to Form S-1 Registration Statement,
Registration No. 333-06609, filed on July 30, 1996).
10.20 Employment Agreement, dated as of July 29, 1996, between
Sprint Spectrum Holding Company, L.P. and Andrew Sukawaty
(incorporated by reference to Form S-1 Registration Statement,
Registration No. 333-06609, filed on August 12, 1996).
10.21 First Amendment to Capital Contribution Agreement, dated as of
July 29, 1996, among Sprint Corporation, Tele-Communications,
Inc., Comcast Corporation, Cox Communications, Inc. and Sprint
Spectrum L.P. (incorporated by reference to Form S-1
Registration Statement, Registration No. 333-06609, filed on
August 12, 1996).
10.22 Letter Agreement, dated as of August 31, 1996, between
American PCS, L.P., American Personal Communications Inc.,
WirelessCo, L.P., Sprint Spectrum L.P. and Sprint Spectrum
Holding Company, L.P. [Exhibits omitted].
27 Financial data schedule
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter ended June 30,
1996.
14
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+
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SPRINT SPECTRUM L.P.
(Registrant)
By /s/ John W. Meyer
John W. Meyer
Vice President and Controller
Dated: September 26, 1996
15
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SPRINT SPECTRUM HOLDING COMPANY, L.P.
SPRINT SPECTRUM L.P.
WIRELESSCO, L.P.
4717 Grand Avenue
Kansas City, Missouri 64112
As of August 31, 1996
American Personal Communications, Inc.
100 West Road, Suite 404
Towson, Maryland 21204
American PCS, L.P.
One Democracy Center
6901 Rockledge Drive, Suite 600
Bethesda, Maryland 20817
Gentlemen:
This letter agreement will confirm our mutual understandings
concerning certain modifications to the following agreements:
(1) Second Amended and Restated Limited Partnership
Agreement of American PCS, L.P. dated January 9, 1995
(the "Partnership Agreement"), between American
Personal Communications, Inc. ("APC Inc."),
WirelessCo, L.P. ("WirelessCo"), and The Washington
Post Company (the "Post");
(2) APC/WirelessCo Put/Call Agreement, dated January 9,
1995 (the "Put/Call Agreement"), between APC Inc. and
WirelessCo;
(3) WirelessCo Affiliation Agreement, dated January 9,
1995 (the "Affiliation Agreement"), between
WirelessCo and American PCS, L.P. (the
"Partnership"); and
(4) letter agreement, dated July 24, 1995 (the "Letter
Agreement"), between WirelessCo and the Partnership.
Certain unanticipated developments since the date of the aforesaid agreements
have given rise to the need for clarification and modification of the provisions
contained therein, which it is the purpose of this letter agreement to set
forth.
Terms used herein and not otherwise defined have the meanings
given to them in the Partnership Agreement.
1. Documentation for Existing Loans. Simultaneously with the
execution and delivery of this Agreement, the Partnership and Sprint Spectrum
Holding Company, L.P., a Delaware limited partnership ("SSHC"), shall enter into
a Loan Agreement substantially in the form of Exhibit A-1 hereto and the
Partnership shall execute and deliver to SSHC a Promissory Note substantially in
the form of Exhibit A-2 hereto (collectively, the "Loan Documentation"). The
Loan Documentation shall evidence, without limitation, indebtedness currently
outstanding from WirelessCo to the Partnership which is being assigned by
WirelessCo to SSHC pursuant to Section 2 hereof (the "Existing Loans").
2. Assignment of WirelessCo Interest.
(a) Assignment and Assumption. WirelessCo hereby assigns and conveys to Sprint
Spectrum L.P., a Delaware limited partnership ("SSLP"), which in turn hereby
assigns and conveys to SSHC, all right, title and interest of WirelessCo in and
to (i) the Partnership and under the Partnership Agreement and (ii) the Existing
Loans. SSLP hereby assumes from WirelessCo, and SSHC hereby assumes from SSLP,
all obligations, duties and undertakings of WirelessCo arising under or pursuant
to the Partnership Agreement from and after the date hereof. SSHC hereby agrees
to perform and discharge in full all such obligations, duties and undertakings.
All terms, conditions, and provisions of the Partnership Agreement applicable to
WirelessCo shall hereafter apply to SSHC with the same force as if the
references therein to WirelessCo were instead to SSHC.
(b) Consent of APC Inc. APC Inc., in its capacity as a Group Partner,
hereby approves the aforesaid transfers of WirelessCo's Interest for purposes of
clause (iii)(E) of the first paragraph of Section 12.2 of the Partnership
Agreement. APC Inc., in its capacity as Managing Partner, hereby (i) approves
the aforesaid transfers of WirelessCo's Interest for purposes of Section 12.3(f)
of the Partnership Agreement and (ii) waives in respect of the aforesaid
transfers of WirelessCo's Interest the requirement for opinions of counsel under
Section 12.3(d) of the Partnership Agreement.
(c) Representations and Warranties.
(i) WirelessCo, SSLP and SSHC hereby jointly
and severally represent and warrant to APC Inc. and
the Partnership that such transfers have been
effected in accordance with the requirements of
Section 12.3 of the Partnership Agreement, exclusive
of Section 12.3(f).
(ii) SSHC represents and warrants to APC
Inc. and the Partnership that it holds in excess of
99 percent of the total partnership interest of SSLP,
which in turn indirectly holds substantially all of
the Sprint Spectrum network operating assets.
(d) Release by APC Inc. In consideration of SSHC's assumption of all
obligations, duties and undertakings of WirelessCo arising under or pursuant to
the Partnership Agreement and the Loan Documentation from and after the date
hereof, APC Inc. releases and discharges WirelessCo and SSLP from any and all
obligations that they may have arising under or pursuant to the Partnership
Agreement or the Loan Documentation on or after the date hereof, except for the
obligations of WirelessCo under Sections 5.5 and 6.5 of the Partnership
Agreement.
3. Assignment of Affiliation Agreement.
(a) Assignment and Assumption. WirelessCo hereby assigns and conveys to
SSLP all right, title and interest of WirelessCo in, to and under the
Affiliation Agreement. SSLP hereby assumes from WirelessCo all obligations,
duties and undertakings of WirelessCo arising under or pursuant to the
Affiliation Agreement from and after the date hereof and hereby agrees to
perform and discharge in full all such obligations, duties and undertakings. The
Partnership hereby consents to such assignment, conveyance and assumption. All
terms, conditions, and provisions of the Affiliation Agreement applicable to
WirelessCo shall hereafter apply to SSLP with the same force as if the
references therein to WirelessCo were instead to SSLP.
(b) Release by the Partnership. In consideration of SSLP's assumption of
all obligations, duties and undertakings of WirelessCo arising under or pursuant
to the Affiliation Agreement from and after the date hereof, the Partnership
releases and discharges WirelessCo from any and all obligations that it may have
arising under or pursuant to the Affiliation Agreement on or after the date
hereof.
4. Assignment of Letter Agreement.
(a) Assignment and Assumption. WirelessCo hereby assigns and conveys to
SSHC all right, title and interest of WirelessCo in, to and under the Letter
Agreement. SSHC hereby assumes from WirelessCo all obligations, duties and
undertakings of WirelessCo under the Letter Agreement from and after the date
hereof and hereby agrees to perform and discharge in full all such obligations,
duties and undertakings. The Partnership hereby consents to such assignment,
conveyance and assumption. All terms, conditions, and provisions of the Letter
Agreement applicable to WirelessCo shall hereafter apply to SSHC with the same
force as if the references therein to WirelessCo were instead to SSHC.
(b) Compliance with the Letter Agreement by SSLP. SSHC hereby agrees to
procure compliance by SSLP with all terms of the Letter Agreement to the extent
the same relate to obligations assumed by SSLP hereunder with respect to the
Affiliation Agreement.
(c) Release by the Partnership. In consideration of SSHC's assumption of
all obligations, duties and undertakings of WirelessCo arising under or pursuant
to the Letter Agreement from and after the date hereof and SSHC's agreement to
procure compliance of SSLP with the terms of the Letter Agreement, the
Partnership releases and discharges WirelessCo from any and all obligations that
it may have arising under or pursuant to the Letter Agreement on or after the
date hereof.
5. Assignment of Put/Call Agreement. Simultaneously
herewith, WirelessCo, SSHC and APC Inc. shall enter into a Novation Agreement
substantially in the form of Exhibit B hereto.
6. Initial Buildout Completion Date. The definition of
"Initial Buildout Completion Date" set forth in 1.10 of the Partnership
Agreement shall be, and is hereby, amended to read in its entirety as follows:
"Initial Buildout Completion Date" means March 1, 1996.
7. Permanent Financing.
(a) Partnership to Obtain Permanent Financing. The Partnership shall use
commercially reasonable efforts to obtain appropriate third party debt financing
(the "Permanent Financing") with the purpose of (i) meeting the currently
projected cash needs of the Partnership and (ii) refinancing loans made by SSHC
to the Partnership pursuant to Section 2.4(b) of the Partnership Agreement,
other than loans made by SSHC to the Partnership pursuant to Section (A) of the
fourth paragraph of the Letter Agreement. The documentation for the Permanent
Financing shall expressly provide that such financing is non-recourse to the
Partners. The Partnership shall not grant a security interest or Lien on the
assets comprising the Local CDMA System (as defined in paragraph 12(b) hereof)
unless such grant is consented to in writing by both SSHC and APC Inc. The
Partnership shall use all commercially reasonable efforts to obtain the
Permanent Financing on or prior to December 31, 1996. Each of APC Inc. and SSHC
shall use its best efforts to provide in a timely manner all information,
including business plans and financial statements, necessary to permit the
Partnership to obtain the Permanent Financing.
(b) Consultation with SSHC. In connection with the placement and
finalization of the Permanent Financing, the Managing Partner shall consult
regularly and in good faith with SSHC, including, without limitation, as
follows:
(i) the Managing Partner shall notify and brief SSHC as to the nature
and extent of the financing required by the Partnership;
(ii) SSHC shall be provided with a
reasonable opportunity after the aforesaid
notification and briefing to identify and brief
financial institutions willing to provide the
required financing; and
(iii) the Partnership shall provide to SSHC
a copy of the term sheets that the Partnership has
received from potential providers of the proposed
financing (which providers have been separately
identified by the Partnership to SSHC prior to the
execution and delivery of this letter agreement) as
of September 13, 1996.
(c) SSHC Right to Consent. SSHC agrees that, notwithstanding the provisions
of Section 5.1(d) of the Partnership Agreement, SSHC shall not unreasonably
withhold its consent to any Permanent Financing that may be obtained by the
Partnership prior to the WirelessCo Majority Period. SSHC agrees, in connection
with its exercise of its rights under Section 5.1(d) of the Partnership
Agreement with respect to any such Permanent Financing, to review any proposed
term sheet, loan document, or other document relating to the Permanent Financing
and to communicate its approval, disapproval or comments with respect thereto to
the Managing Partner with sufficient promptness to permit the negotiation and
closing of the Permanent Financing in a timely manner as contemplated by
paragraph 7(a) hereof.
(c) Application of Proceeds of Permanent Financing. The proceeds of the
Permanent Financing, whenever obtained and in whatever amount, shall be applied,
(i) first, to pay any and all outstanding principal, together with accrued but
unpaid interest thereon, in respect of the Bridge Loan, (ii) second, to pay any
and all outstanding principal, together with accrued but unpaid interest
thereon, in respect of the Existing Loans other than the Bridge Loan, (iii)
third, to pay any and all outstanding principal, together with accrued but
unpaid interest thereon, in respect of other loans made by SSHC to the
Partnership pursuant to Section 2.4(b) of the Partnership Agreement, other than
loans made by SSHC to the Partnership pursuant to Section (A) of the fourth
paragraph of the Letter Agreement, and, (iv) fourth, to the operating and other
cash needs of the Partnership.
8. Other Third Party Financing. SSHC shall have the right to
review and approve any strategy for future debt financing of the Partnership and
the selection of any bank or other financial institution to provide such
financing; provided, however, that SSHC shall not unreasonably withhold such
approval. In connection with the placement and finalization of any such future
debt financing, the Managing Partner shall consult regularly and in good faith
with SSHC, including, without limitation, as follows:
(i) the Managing Partner shall notify and brief SSHC as to the nature
and extent of the financing required by the Partnership;
(ii) SSHC shall be provided with a
reasonable opportunity after the aforesaid
notification and briefing to identify and brief
financial institutions willing to provide the
required financing; and
(iii) the Partnership shall provide to SSHC
a term sheet for the proposed financing from each
financial institution identified by SSHC or the
Partnership as a potential provider of the proposed
financing and deemed likely by the Managing Partner
to submit such a term sheet in a timely manner, it
being understood and agreed that the Partnership will
use good faith efforts to obtain a timely term sheet
from each financial institution identified by SSHC.
SSHC agrees, in connection with its exercise of its rights under Section 5.1(d)
of the Partnership Agreement with respect to any such future debt financing, to
review any proposed term sheet, loan document, or other document relating to the
financing and to communicate its approval, disapproval or comments with respect
thereto to the Managing Partner with sufficient promptness to permit the
negotiation and closing of such financing within a timeframe that will meet the
financial needs of the Partnership.
9. Bridge Loan.
(a) SSHC to Provide Bridge Loan. SSHC shall at the request of the
Partnership lend to the Partnership up to $50,000,000 (the "Bridge Loan") in
excess of Budgeted Cash Requirements in accordance with and pursuant to the
provisions of Section 2.4(c)(iii) of the Partnership Agreement. Such amount
shall be provided to the Partnership as a loan and not as an Additional Capital
Contribution. The Bridge Loan shall be made pursuant to the Loan Documentation.
(b) Delay in Repayment of Bridge Loan. In the event that the Bridge Loan is
not repaid (pursuant to the provisions of paragraph 7(c) hereof or otherwise) in
full, together with accrued interest thereon and any other amounts that may be
payable by the Partnership with respect thereto, by immediately prior to the
close of business on December 31, 1996 (such time, the "Repayment Time"), (i)
the Managing Partner shall be deemed for purposes of the provisions of Section
2.4(c)(iii) of the Partnership Agreement to have issued as of the Repayment Time
an Additional Cash Notice (the "Repayment Cash Notice") setting forth Additional
Cash Requirements in an amount equal to that required to repay the Bridge Loan,
together with all accrued but unpaid interest thereon and any other amounts that
may be payable by the Partnership with respect thereto, immediately upon the
issuance of such Additional Cash Notice and (ii) SSHC shall be deemed for
purposes of the provisions of Section 2.4(c)(iii) of the Partnership Agreement
to have issued simultaneously with the deemed issuance of the Repayment Cash
Notice a Funding Notice in respect of the Repayment Cash Notice stating that
SSHC will fund the Additional Cash Requirements set forth in the Repayment Cash
Notice in their entirety in the form of an Additional Capital Contribution
pursuant to Section 2.3(c)(i) of the Partnership Agreement. All funding
obligations of SSHC and any Partner that may elect to make an Additional Capital
Contribution pursuant to Section 2.3(c)(ii) of the Partnership Agreement in
respect of the Repayment Cash Notice shall, notwithstanding any provisions of
the Partnership Agreement to the contrary, fall due at the Repayment Time. Upon
the deemed issuance of the Repayment Cash Notice, (i) the Partnership shall pay
to SSHC as a payment in respect of the Bridge Loan such amount, if any, as the
Partnership has received from Partners other than SSHC as Additional Capital
Contributions pursuant to Section 2.3(c)(ii) of the Partnership Agreement in
respect of the Repayment Cash Notice and (ii) such portion of principal,
interest and any other amounts that may be payable by the Partnership with
respect to the Bridge Loan as remains unpaid after application of any payments
made by the Partnership to SSHC pursuant to clause (i) of this sentence shall be
treated for all purposes as an Additional Capital Contribution by SSHC pursuant
to Section 2.3(c)(i) of the Partnership Agreement (and the obligations of the
Partnership in respect of repayment of such amounts to SSHC in respect of the
Bridge Loan shall be terminated).
(c) Application of Payments by the Partnership. Any payment made by the
Partnership on or after the date hereof in respect of loans made by SSHC to the
Partnership pursuant to Section 2.4 of the Partnership Agreement shall be
applied first to accrued but unpaid interest and outstanding principal in
respect of the Bridge Loan.
(d) Nature of Obligations. SSHC's obligations pursuant to this paragraph 9
are in addition to, and not by way of limitation of, any other obligations it
may have to provide funding to the Partnership, including such obligations in
this regard as it my have under the Letter Agreement.
10. Required Approvals.
Section 5.1(d)(ii) of the Partnership Agreement shall be, and
is hereby, amended to read in its entirety as follows:
(ii) Subject to Section 8.2(b), during the period
beginning on the Initial Buildout Completion Date and ending
on the earlier to occur of the first anniversary of the
Initial Buildout Completion Date and the beginning of the
WirelessCo Majority Period, no action may be taken by the
Managing Partner or the Partnership otherwise than with the
prior written consent of SSHC in connection with (A) any of
the matters listed on Schedule 5.1(d)(ii) hereto, (B) the
entry of the Partnership into any contract, agreement,
relationship or transaction having a duration in excess of ten
years, or (C) any action that may cause the Partnership to
deviate from a business devoted solely and exclusively to the
purpose set out in Section 1.3(a) hereof.
11. Employee Matters
(a) Employee Benefit Plans.
(i) SSHC, SSLP and the Partnership shall cooperate as
necessary (A) to cover, by January 1, 1997, the Partnership's
employees under employee benefit plans offered by the
Partnership that are in form and substance substantially
identical to those employee benefit plans offered by SSLP to
its employees and (B) to terminate by January 1 of the year
following the year in which SSHC's partnership interest in the
Partnership exceeds 50 percent or such other percentage as may
be required by law or the provisions of SSLP's employee
benefit plans prospective coverage of the Partnership's
employees under employee benefit plans then offered by the
Partnership to its employees.
(ii) The Partnership shall reimburse SSHC or SSLP, as
appropriate, for all Direct Costs (as such term is defined in
Section 13.1 of the Affiliation Agreement) incurred by SSHC or
SSLP, as the case may be, or their controlled affiliates in
providing the benefits contemplated by clause (i) of this
paragraph (a) to Partnership employees. In no event will the
Partnership be required to reimburse SSHC or SSLP pursuant to
the foregoing sentence for Direct Costs that constitute
Reimbursable Costs for purposes of Article 13 of the
Affiliation Agreement unless SSHC or SSLP designate such cost
as a Direct Cost of providing the said benefits and such cost
is removed from Reimbursable Costs charged to affiliates. As
an example, SSHC or SSLP can designate the salary and benefits
paid to a full-time benefits coordinator whose sole
responsibility is to administer the said benefits to
Partnership employees as a Direct Cost rather than a
Reimbursable Cost.
(iii) SSHC or SSLP, as the case may be, will not be
required to provide, and the Partnership will not be required
to accept, any of the benefits contemplated by clause (i) of
this paragraph (a) if (A) the cost of so providing such
benefits is commercially unreasonable or (B) providing such
benefits is prohibited by federal, state or local law,
including, without limitation, the Employee Retirement Income
Security Act of 1974.
(b) Employee Retention Plan. The Partnership, in consultation with SSHC,
shall develop an employee retention plan to foster retention by the Partnership
of its key employees.
(c) Employment Agreements. The Partnership, SSHC and APC Inc. shall
cooperate in good faith to offer appropriate long-term employment agreements,
upon terms mutually acceptable to SSHC and APC Inc., to each of the 12 employees
named on Attachment 3 hereto (the "Partnership Executives") within 30 days after
the date of this letter agreement. The aforesaid employment agreements shall
include, without limitation, provisions relating to the continuity of management
upon a change in control of the Partnership, compensation and severance
arrangements, and noncompetition covenants. SSHC and APC Inc. shall use their
best efforts over the six months following the date of this letter agreement to
cause the Partnership to negotiate and enter into the employment agreements
contemplated by the foregoing sentence with the Partnership Executives.
d) Non-Solicitation of Partnership Executives by APC Inc. APC Inc. agrees
that it will not, without the prior written consent of SSHC, hire any of the
Partnership Executives, as employees, consultants, agents or otherwise, while
APC Inc. is, and for one year after APC Inc. ceases to be, a Partner; provided,
however, that nothing herein shall limit the ability of W. Scott Schelle to
serve as an uncompensated director and officer of APC Inc.
12. Air Interface Technology Standard.
(a) Adoption of CDMA Air Interface Technology Standard. The parties
acknowledge and agree, for purposes of the terms of the Letter Agreement, that
as of the date hereof SSLP, as the successor to WirelessCo under the Affiliation
Agreement, has adopted the CDMA network air interface technology standard as the
WirelessCo network air interface technology standard and that such network air
interface technology standard is a network air interface technology standard
other than GSM.
(b) Construction of Local CDMA System. The Partnership shall proceed
forthwith to design and construct a CDMA network (the "Local CDMA System") for
the Washington-Baltimore MTA in compliance with the provisions of the
Affiliation Agreement. Within 30 days following the date on which all of the
criteria set forth in Attachment 1 hereto have been satisfied, the Partnership
shall initiate commercial marketing and use of the Local CDMA System. In its
discretion, the Partnership may initiate commercial marketing and use of the
Local CDMA System prior to the date on which all of the criteria set forth in
Attachment 1 hereto have been satisfied so long as such earlier commercial
marketing and use of the Local CDMA System will not adversely affect customer
perception of the quality of CDMA services offered by the Partnership or by
other affiliates of the WirelessCo Network (as such term is defined in the
Affiliation Agreement). The date on which the Partnership initiates commercial
use of the Local CDMA System is hereinafter referred to as the "CDMA Start
Date".
(c) SSLP Advice and Assistance.
(i) The parties acknowledge and agree that
SSLP has developed significant experience and
expertise in designing CDMA networks, access to which
experience and expertise will be of value to the
Partnership in connection with the Partnership's
design, construction, marketing and operation of the
Local CDMA System. The Partnership shall consult in
good faith with SSLP regarding all aspects of the
design, construction, marketing and operation of the
Local CDMA System. SSLP shall make available to the
Partnership, at no cost or expense to the Partnership
other than reimbursement by the Partnership of SSLP's
direct out-of-pocket expenses pursuant to the
provisions of clause (ii) of this paragraph (c), such
information and assistance, including access to and
assistance from SSLP personnel and consultants with
requisite experience and expertise, as the
Partnership may reasonably request in connection with
the design, construction, marketing and operation of
the Local CDMA System. Notwithstanding the foregoing
provisions of this clause (i), SSLP shall not be
required to devote any more time and effort to
providing the required information and assistance to
the Partnership than SSLP devotes to similar matters
in its own business or to devote time and effort at a
level that unreasonably interferes with the ability
of SSLP to conduct its own business.
(ii) The Partnership shall reimburse SSLP
for any and all direct out-of-pocket expenses,
including, without limitation, expenses relating to
travel, employee overtime, supplies and materials,
and consultant's fees, as SSLP may incur in
connection with the provision of information and
assistance to the Partnership pursuant to clause (i)
of this paragraph (c). SSLP shall invoice all such
reimbursable expenses on a monthly basis and shall,
in connection with each such invoice, provide such
supporting documentation for such expenses as the
Partnership may reasonably request.
(d) Termination of GSM Services. The Partnership shall cease to sell GSM
services to new customers (including, without limitation, new resellers) on the
later to occur of (A) November 1, 1997, and (B) the CDMA Start Date. In
addition, the Partnership shall not enter into any roaming or resale agreement
unless pursuant to the terms of such agreement it can be terminated upon the
Partnership's or SSHC's, as the case may be, decision to cease operation of the
GSM network. The provisions of the foregoing sentence shall not limit the
ability of the Partnership to continue to offer GSM service to those GSM
customers that it has as of the date it is required to cease to sell GSM
services to new customers.
(e) Writeoff Equipment.
(i) Section 2(c) of Exhibit 17.1 of the
Affiliation Agreement shall be of no further force or
effect.
(ii) The Partnership shall deliver to SSHC a
notice (the "Tax Treatment Notice") as follows: (A)
with respect to Existing Writeoff Equipment (as
hereinafter defined), within 30 days following the
CDMA Start Date; and, (B) with respect to New
Writeoff Equipment (as hereinafter defined), within
30 days following the acquisition of such equipment.
Each Tax Treatment Notice shall set forth each
relevant item of Writeoff Equipment (as hereinafter
defined), the original cost of such item for federal
tax purposes, the tax depreciation taken by the
Partnership on such item through the date of the Tax
Treatment Notice, the method then being used by the
Partnership to calculate future tax depreciation for
the item, and a schedule of future tax depreciation
for the item. SSHC shall have 20 days to review each
Tax Treatment Notice and may, within such period,
object, in writing, to any items in the Tax Treatment
Notice which do not match the books and records of
the Partnership or which are not in compliance with
then-existing tax depreciation rules and regulations
regarding regular MACRS using the declining balance
depreciation method, if available, over the customary
applicable recovery period. The Partnership and SSHC
shall work diligently in good faith to resolve any
objections raised by SSHC. Any disputes that the
Partnership and SSHC are unable to resolve shall be
submitted to a mutually agreed, independent,
nationally recognized accounting firm; and the
decision of such accounting firm shall be conclusive
and binding on the Partnership and SSHC. Once
appropriate treatment of all items set forth in the
notice is agreed to between the parties or resolved
pursuant to the foregoing sentence, such information
shall constitute the "Writeoff Information." During
the WirelessCo Majority Period, for so long as APC
Inc. remains a Group Partner, the Partnership shall
not deliver a Tax Treatment Notice or agree to
Writeoff Information unless APC Inc. has approved the
contents thereof in writing.
(iii) Beginning on the CDMA Start Date, SSHC
shall pay to the Partnership on the first day of each
calendar month 50 percent of the tax depreciation
claimed by the Partnership with respect to the
Writeoff Equipment for the previous month (pro rated
for any partial month on the basis of the number of
days elapsed in a 30-day month), as determined in
accordance with the Writeoff Information. The
obligation of SSHC to make payments pursuant to the
foregoing sentence of this clause (iii) shall
terminate, (A) as to any single item of Writeoff
Equipment, when such item is taken out of service by
the Partnership and, (B) as to all Writeoff
Equipment, on the date the Partnership gives the
notice contemplated by clause (v) of this paragraph
(e). In consideration of the payments contemplated by
this clause (iii), on and after the CDMA Start Date,
SSHC shall, notwithstanding the provisions of
paragraph 12(d) hereof, have the right by notice
delivered to the Managing Partner in accordance with
the provisions of the Partnership Agreement to cause
the Partnership to add subscribers to its GSM system
on commercially reasonable terms, provided that such
addition of subscribers will not materially adversely
affect existing GSM system customers.
(iv) Thirty days following the date when any
Writeoff Equipment is taken out of service by the
Partnership, SSHC shall pay to the Partnership an
amount equal to the Partnership's adjusted tax basis,
as determined in accordance with the Writeoff
Information, in such Writeoff Equipment on the date
when the Writeoff Equipment was taken out of service;
provided, however, that such amount shall not be less
than $1.00.
(v) At such time as the total number of
Active Subscribers (as hereinafter defined) on the
Partnership's GSM network falls below 75,000, the
Partnership shall promptly notify SSHC of such fact.
Within 30 days of the date of such notice, SSHC shall
pay to the Partnership an amount equal to the
Partnership's adjusted tax basis, as determined in
accordance with the Writeoff Information, as of the
date of the aforesaid notice in all of the Writeoff
Equipment then owned by the Partnership; provided,
however, that such amount shall not be less than
$1.00.
(vi) At such time as the Partnership
receives payment for any Writeoff Equipment pursuant
to clause (iv) or (v) of this paragraph (e), the
Partnership shall transfer to SSHC all of the
Partnership's right, title and interest to such
Writeoff Equipment and, subject to the provisions of
paragraph 12(f)(i) hereof, shall deliver (as soon as
practicable following the receipt of such payment)
such Writeoff Equipment to SSHC, at the expense of
SSHC, in accordance with the instructions of SSHC.
(f) Continuation of GSM Services.
(i) The Partnership and SSHC may agree that
the Partnership will continue to offer service to
subscribers on its GSM network notwithstanding any
payment that may be made to the Partnership by SSHC
pursuant to paragraph 12(e)(v). In the event that,
and for so long as, the Partnership and SSHC agree
that the Partnership should continue to offer service
on its GSM network pursuant to the foregoing
sentence, (A) SSHC shall make such Writeoff Equipment
as has not been taken out of service by the
Partnership available to the Partnership for purposes
of allowing the Partnership to continue to operate
its GSM network and (B) the Partnership shall pay to
SSHC on the last day of each February, May, August
and November thereafter an amount equal to (x) the
Partnership's gross revenues (determined in
accordance with GAAP (as defined in the Affiliation
Agreement) on a cash basis), net of federal, state
and local taxes imposed on or collected by the
Partnership in respect of such revenues, from the
Partnership's GSM network for the immediately
preceding calendar quarter less (y) the product of
(1) the Operating Costs (as hereinafter defined)
incurred by the Partnership in connection with the
operation of its GSM network during the immediately
preceding calendar quarter, multiplied by (2) 1.20.
(ii) In the event the Partnership continues
to offer service on its GSM network to subscribers on
March 1, 2001, and the number of Active Subscribers
on such date is greater than 200,000, (A) the
obligations of SSHC pursuant to paragraph 12(e)(iv)
and (v) shall thereupon terminate and (B) the
Partnership shall pay to SSHC an amount equal to all
payments previously made by SSHC to the Partnership
pursuant to paragraph 12(e)(iii) and 12(g) hereof.
The amount of any such payment shall be reflected in
the Annual Budget for 2001. Such payment shall be
payable by the Partnership to SSHC on March 31, 2001,
or, in the event the Partnership does not have
sufficient funds on hand on March 31, 2001, to permit
it to make such payment in a manner compatible with
the ongoing conduct of the Partnership's normal
business operations, on such date as the Partnership,
in compliance with the procedures set forth in
Section 2.5(a) of the Partnership Agreement, receives
Additional Capital Contributions in an amount
adequate to permit it to make such payment in a
manner compatible with the ongoing conduct of the
Partnership's normal business operations.
(iii) After the CDMA Start Date, the
Partnership shall not operate its GSM network in a
manner that adversely affects the ability of the
Partnership to offer and expand service over its
CDMA-based network so as to meet and maximize demand
for service over that network.
(g) GSM Installation Costs.
(i) Section (C) of the fourth paragraph of
the Letter Agreement shall be of no further force or
effect.
(ii) The Partnership will deliver to SSHC a
notice (the "Installation Cost Notice") within 30
days following the CDMA Start Date. The Installation
Cost Notice shall set forth in detail the amount of
each cost directly incurred in connection with the
installation of the Writeoff Equipment and the date
on which each such cost was incurred. SSHC shall have
20 days to review the Installation Cost Notice and
may, within such period, review the books and records
of the Partnership and otherwise verify such costs
and object, in writing, to any costs in the
Installation Cost Notice that (A) do not match the
books and records of the Partnership or (B) have been
otherwise recovered by the Partnership (for example,
by capitalization in the tax basis of the Writeoff
Equipment). The Partnership and SSHC shall work
diligently in good faith to resolve any objections
raised by SSHC. Any disputes that the Partnership and
SSHC are unable to resolve will be submitted to a
mutually agreed, independent, nationally recognized
accounting firm for resolution; and the resolution of
such accounting firm shall be conclusive and binding
on the Partnership and SSHC. The aggregate costs
agreed to between the Partnership and SSHC, or
resolved pursuant to the foregoing two sentences,
shall constitute "Installation Costs".
(iii) Within either 20 days after delivery
of the Installation Cost Notice (if SSHC has no
objection to any costs) or 10 days after resolution
pursuant to the preceding paragraph (if SSHC objects
to any costs), SSHC shall pay to the Partnership an
amount equal to the Installation Costs net of tax
benefits associated with the deductions attributable
to such Installation Costs, which tax benefits will
be calculated by multiplying the Installation Costs
by 0.40.
(h) Limits on Conversion of GSM Customers. Prior to the WirelessCo Majority
Period, the Partnership shall make no concerted effort to convert its GSM
customers to CDMA service except that the Partnership may offer its corporate
account customers the opportunity to convert from GSM service to CDMA service.
The provisions of this paragraph (h) are not intended, and shall not be
construed so as, to limit or qualify in any way the obligations of SSHC pursuant
to Section (E) of the fourth paragraph of the Letter Agreement.
(i) Loans Made Pursuant to the Letter Agreement.
(i) Notwithstanding any provision of Section
2.4(c)(iii) of the Partnership Agreement to the
contrary, any amount loaned by SSHC to the
Partnership pursuant to Section (A) of the fourth
paragraph of the Letter Agreement (A) shall be made
to the Partnership at an interest rate equal to an
average, weighted based on the portion of currently
committed facility amounts that are, pursuant to
current business plans of SSHC and its affiliates, to
be used by SSHC and its affiliates for the purpose of
financing CDMA infrastructure, between (x) the
interest rates and fees applicable to the credit
facility being provided to SSLP and its affiliates by
Lucent Technologies, Inc. ("Lucent") and (y) the
interest rates and fees applicable to the credit
facility being provided to SSLP and its affiliates by
the banking syndicate headed by Chase Manhattan Bank,
N.A. and (B) shall be (as to both principal and
interest) pari passu, in right and time of payment
and security, to any Permanent Financing, any
financing constituting a replacement for or
refinancing of Permanent Financing, or any financing
related to capitalized leases entered into by the
Partnership in the ordinary course of its business.
For purposes of the provisions of the foregoing
sentence, "fees" includes commitment fees,
origination fees, and other fees, however
denominated, applicable to the borrowing of funds
under the specified credit facility, which fees shall
be allocated evenly over the entire committed amount
of the credit facility, and interest rates and fees
shall be those set forth in the executed commitment
letter relating to the specified credit facility.
(ii) Interest payable by the Partnership
with respect to any loan made by SSHC to the
Partnership pursuant to Section (A) of the fourth
paragraph of the Letter Agreement shall be forgiven
for any portion of the period between the date on
which the Local CDMA System meets the criteria set
forth in Attachment 2 hereto and the CDMA Start Date
that is in excess of 60 days.
(iii) SSHC shall not be obligated to make
loans to the Partnership contemplated by Section (A)
of the fourth paragraph of the Letter Agreement until
appropriate notes and other documentation, in form
and substance satisfactory to the parties in their
reasonable judgment, evidencing such indebtedness of
the Partnership to SSHC have been executed by the
Partnership and delivered to SSHC. SSHC and the
Partnership agree to cooperate in good faith to
finalize such documentation on a schedule that will
permit loans contemplated by Section (A) of the
fourth paragraph of the Letter Agreement to be made
by SSHC to the Partnership in a timely manner. The
parties acknowledge and agree that the documentation
contemplated by this clause (iii) will be in form and
substance substantially identical to the Loan
Documentation with such changes thereto as may be
necessary to reflect changed circumstances and terms
and provisions contemplated by this Agreement.
(iv) SSHC may sell or securitize such loans
contemplated by Section (A) of the fourth paragraph
of the Letter Agreement as it may from time to time
make to the Partnership provided that the Partnership
is not required by virtue of any such sale or
securitization to make any filing under the
Securities Act of 1933, as amended, or the Securities
Exchange Act of 1934, as amended, or any other law,
rule or regulation made or administered by the
Securities and Exchange Commission.
(j) Definitions. For purposes hereof, the following terms have the meanings
given to them below:
(i) "Active Subscriber" means a subscriber
(whether directly or through a reseller, but not as a
roamer) to GSM services offered by the Partnership
(A) who is not more than 60 days in arrears with
respect to any bill rendered to such subscriber by
the Partnership and (B) who has utilized airtime on
the Partnership's GSM network during at least two of
the three most recently ended calendar months. Any
subscriber added to the Partnership's GSM system in
contravention of the provisions of paragraph 12(d)
hereof (including, without limitation, pursuant to
the provisions of the last sentence of paragraph
12(e)(iii) hereof) otherwise than with the written
consent of all Partners shall not be deemed an Active
Subscriber.
(ii) "Existing Writeoff Equipment" means any
equipment (including any computer software utilized
in the operation of such equipment) existing on the
books and records of the Partnership as of the CDMA
Start Date that the Partnership would at any time be
required (pursuant to GAAP) to write off due to the
adoption by SSLP of the CDMA network air interface
technology standard as the SSLP network air interface
technology standard (assuming, for purposes of
determining what equipment the Partnership would be
required to write off, that in connection with the
adoption by SSLP of the CDMA network air interface
technology standard as the SSLP network air interface
technology standard the Partnership was required to
terminate service on its GSM network as of the CDMA
Start Date);
(iii) "New Writeoff Equipment" means any
equipment (including any computer software utilized
in the operation of such equipment) acquired by the
Partnership after the CDMA Start Date that if owned
by the Partnership on the CDMA Start Date would have
constituted Existing Writeoff Equipment;
(iv) "Operating Costs" means all costs
associated with the operation and support of the
Partnership's GSM network that would not have been
incurred if the Partnership's GSM network had not
been operating, including, without limitation, (A)
all back office support systems (such as, by way of
example and not limitation, billing, customer care
and collections), (B) maintenance, (C)
interconnection, long distance, operator service,
directory assistance and other charges payable by the
Partnership to third parties, and (D) a portion of
the Partnership's management overhead expenses
(including, without limitation, affiliation fees)
equal to the aggregate management overhead expenses
incurred by the Partnership for the relevant period
multiplied by a fraction the numerator of which is
the Partnership's direct costs (determined in
accordance with the GAAP on a cash basis)
attributable to the Partnership's GSM network for the
relevant period and the denominator of which is the
Partnership's aggregate direct costs (determined in
accordance with GAAP on a cash basis) for the
relevant period; and
(v) "Writeoff Equipment" means, collectively,
Existing Writeoff Equipment and New Writeoff
Equipment.
13. Consent to Acquisition by APC, Inc. of the Post's
Interest. The parties hereto acknowledge and agree that APC Inc. acquired the
entire remaining Interest of the Post, such Interest constituting a 1 1/2
percent Interest, on March 22, 1996. The parties acknowledge that such Transfer
may, as a result of a prior termination of WirelessCo within the meaning of
Section 708 of the Code, have resulted in the termination of the Partnership
within the meaning of Section 708 of the Code and would therefore, in the
absence of the approval of the Managing Partner, have been prohibited by virtue
of the provisions of Section 12.3(f) of the Partnership Agreement. APC Inc., as
Managing Partner, hereby approves, to be effective as of March 22, 1996, the
aforesaid Transfer of the Post's Interest for purposes of Section 12.3(f) of the
Partnership Agreement, and SSHC hereby consents to such approval. The approval
of APC Inc. and consent of SSHC set forth in the foregoing sentence are limited
to the provisions of Section 12.3(f) of the Partnership Agreement and are not
intended and shall not be construed to in any way affect the obligation of the
Post and APC Inc. and its transferees to comply and have complied with each and
every other provision of the Partnership Agreement.
14. Consent to Transfer of APC Inc. Partnership Interest. APC
Inc. may hereafter decide to Transfer its Interest to a Subsidiary to be formed
by it or its stockholders and third parties yet to be identified. The parties
acknowledge that such Transfer may result in the termination of the Partnership
within the meaning of Section 708 of the Code and would therefore, in the
absence of the approval of the Managing Partner, be prohibited by virtue of the
provisions of Section 12.3(f) of the Partnership Agreement. APC Inc., as
Managing Partner, hereby approves the aforesaid Transfer of its Interest for
purposes of Section 12.3(f) of the Partnership Agreement provided that the
Transfer occurs within 18 months of the date of this Agreement, and SSHC hereby
consents to such approval. The approval of APC Inc. and consent of SSHC set
forth in the foregoing sentence are limited to the provisions of Section 12.3(f)
of the Partnership Agreement and are not intended and shall not be construed to
in any way affect the obligation of APC Inc. and its transferees to comply with
each and every other provision of the Partnership Agreement.
15. APC Inc. Stock Appreciation Rights. The Partnership
Agreement shall be, and is hereby, amended as follows:
(a) Amendment to Section 1.10 of the Partnership Agreement. The following
definition is added to Section 1.10 of the Partnership Agreement:
"Stock Appreciation Rights" means all stock
appreciation or similar rights that are (a) from time
to time granted by APC to employees of the
Partnership and (b) the sole and exclusive liability
of APC (and not the Partnership).
(b) Amendment to Section 2.8 of the Partnership Agreement. A new subsection
(d) is added to the end of Section 2.8 of the Partnership Agreement, such new
subsection to read in its entirety as follows:
(d)(i) For income tax purposes and for
purposes of this Agreement, any payments made by APC
to a holder of Stock Appreciation Rights pursuant to
the exercise of such Stock Appreciation Rights (A)
shall be treated as (1) a Capital Contribution by APC
to the Partnership in the amount of such payment,
followed by (2) a payment of such amount by the
Partnership to such holder pursuant to such exercise,
but (B) shall not constitute or be deemed to
constitute for any purpose an Additional Capital
Contribution.
(ii) For financial accounting purposes, any
accruals made on the books of the Partnership for
expenses associates with Stock Appreciation Rights
(A) will be treated as a Capital Contribution by APC
Inc. to the Partnership in the amount of such
accrual, but (B) shall not constitute or be deemed to
constitute for any purpose an Additional Capital
Contribution.
(c) Amendment to Section 3.3 of the Partnership Agreement. A new subsection
(i) is added to the end of Section 3.3 of the Partnership Agreement, such new
subsection to read in its entirety as follows:
(i) Special Allocation of Deductions or
Losses Attributable to Stock Appreciation Rights. Any
deductions or losses associated with Stock
Appreciation Rights (including deductions associated
with amounts treated as paid by the Partnership
pursuant to Section 2.8(d)) shall be allocated
entirely to APC.
(d) Intended Effect. The parties acknowledge and agree that it is their
intent that the capital contribution and allocation contemplated by the
amendments to the Partnership Agreement that are set forth in this paragraph 15
will, when matched, result in (i) no net change to APC Inc.'s Capital Account
and (ii) no adjustment in the Percentage Interests of the Partners.
16. First Year FCC Payments.
(a) Amendment to Put/Call Agreement. Section 3 of the Put/Call Agreement
shall be, and is hereby, amended to read in its entirety as follows:
If APC (i) has delivered a notice to WirelessCo
pursuant to the second proviso of Section 2.3(a) of the
Partnership Agreement or (ii) has failed to make all or any
part of an Additional Capital Contribution required under
Section 2.3(a) of the Partnership Agreement on or before the
date such contribution was due, APC shall have the right and
shall be obligated (except with respect to any Additional
Capital Contributions, up to a maximum aggregate amount of
$8,000,000, that relate to FCC Interest Payments falling due
on or prior to the first anniversary of the date on which the
first FCC Interest Payment is due) immediately to exercise any
put rights under Section 2 of this Agreement (regardless of
whether such put rights would otherwise then be exercisable)
to the extent necessary to fund such contribution.
(b) Amendment to Partnership Agreement. The first sentence of Section
3.3(h) of the Partnership Agreement shall be, and is hereby, amended to read in
its entirety as follows:
The deduction for interest paid or accrued on the
obligation of the Partnership to make the FCC Interest
Payments (excluding original issue discount imputed in the
current year that relates to such FCC Interest Payments) shall
be specially allocated to the Partner which makes, or is
required to make, the associated contribution to the
Partnership to pay such FCC Interest Payments.
17. Breach of Put/Call Agreement.
(a) Amendments to Partnership Agreement. The Partnership Agreement shall
be, and is hereby, amended as follows:
(i) The following definitions are added to
Section 1.10 of the Partnership
Agreement:
"Put/Call Agreement" means that
certain APC/WirelessCo Put/Call Agreement,
dated January 9, 1995, between APC and
WirelessCo.
"Put/Call Breach" means a breach by
WirelessCo of its obligations under the
Put/Call Agreement that has continued
uncured for thirty (30) days after the date
written notice thereof has been given to
WirelessCo by APC; provided that if, within
thirty (30) days after the date written
notice of such breach has been given to
WirelessCo by APC, WirelessCo delivers to
APC written notice (the "Put/Call Contest
Notice") that it contests such notice of
breach, such breach shall not constitute a
Put/Call Breach unless and until (and
assuming that such breach or default has not
theretofore been cured in full and that any
applicable cure period has expired) there is
a Put/Call Final Determination that
WirelessCo's actions or failures to act
constituted such a breach.
"Put/Call Final Determination" means
a final judicial determination, not subject
to further appeal, by a court of competent
jurisdiction.
(ii) The definition of "FCC Interest
Payments" set forth in Section 1.10 of the
Partnership Agreement is amended to read in its
entirety as follows:
"FCC Interest Payments" means the
amount of the FCC Payments designated by the
FCC as the interest portion thereof.
(iii) The third paragraph of Section 2.7 of
the Partnership Agreement is amended to read in its
entirety as follows:
An election by a Partner to purchase
all or any portion of another Partner's
Interest pursuant to Sections 11, 11A, 12.4
or 14.7 shall also constitute an election to
purchase an equivalent portion of any
outstanding Partner Loans held by such
selling Partner, and each purchasing Partner
shall be obligated to purchase a percentage
of such Partner Loans equal to the
percentage of the selling Partner's Interest
such purchasing Partner is obligated to
purchase for a price equal to the
outstanding principal and accrued and unpaid
interest on such Partner Loans through the
date of the closing of such purchase (except
in the case of a transfer pursuant to
Section 12.4, in which case the terms of the
Purchase Offer shall apply).
(iv) Section 5.1(d) of the Partnership
Agreement is amended by adding a new clause (iv)
thereto, which new clause shall read in its entirety
as follows:
(iv) Any decision that may be made
by the Partnership as to whether to exercise
its right to terminate that certain
WirelessCo Affiliation Agreement, dated
January 9, 1995, between WirelessCo and the
Partnership, as from time to time amended,
pursuant to an Event of Termination (as such
term is defined in said agreement) arising
under Section 14.3(g) of the said agreement
shall be made for the Partnership by APC,
and APC shall have the right to take any and
all actions for and on behalf of the
Partnership that may be necessary to effect
such termination.
(v) Section 11.5 of the Partnership
Agreement is amended to read in its
entirety as follows:
11.5 Extension of Time.
If any Transfer of a Partner's
(including any Special Limited Partner only
for purposes of Section 12 or 14.7) Interest
in accordance with this Section 11 or
Section 11A, 12 or 14.7 requires the
consent, approval, waiver, or authorization
of any Governmental Authority or of the
stockholders of a Partner (including any
Special Limited Partner only for purposes of
Section 12 or 14.7) or any of its Affiliates
as a condition to the lawful and valid
Transfer of such Partner's Interest to the
proposed transferee thereof, then each of
the time periods provided in this Section 11
or Section 11A, 12 or 14.7, as applicable,
for the closing of such Transfer shall be
suspended for the period of time during
which any such consent, approval, waiver, or
authorization is being diligently pursued;
provided, however, that in no event shall
the suspension of any time period pursuant
to this Section 11.5 extend for more than
three hundred sixty-five (365) days other
than in the case of a purchase of an Adverse
Partner's Interest. Each Partner (including
any Special Limited Partner only for
purposes of Section 12 or 14.7) agrees to
use its diligent efforts (which shall not,
with respect to any Special Limited Partner,
be required to include incurring any
out-of-pocket expenses unless such expenses
are reimbursed by the Partnership) to
obtain, or to assist the affected Partner or
the Managing Partner in obtaining, any such
consent, approval, waiver, or authorization
and shall cooperate and use its diligent
efforts to respond as promptly as
practicable to all inquiries received by it,
by the affected Partner or by the Managing
Partner from any Governmental Authority for
initial or additional information or
documentation in connection therewith.
(vi) A new section, to be designated Section
11A, is added to the Partnership Agreement, which
section reads in its entirety as set forth on Exhibit
C hereto.
(vii) Section 14.1(a)(i) of the Partnership
Agreement is amended to read in its
entirety as follows:
(i) The sale of all or
substantially all of the Property,
including, without limitation,
pursuant to Section 11A.3 hereof;
(b) Amendments to Affiliation Agreement. The Affiliation Agreement shall
be, and is hereby, amended as follows:
(i) Section 14.3 of the Affiliation
Agreement is amended by adding thereto a new
subsection, to be designated subsection (g), as
follows:
Section 14.3 Events of
Termination. The occurrence of any
of the following events shall be
deemed an "Event of Termination":
.
(g) Put/Call Breach. At the
election of APC, L.P., if a Put/Call
Breach (as defined in that certain
Amended and Restated Limited
Partnership Agreement of APC, L.P.,
dated as of January 9, 1995, as
amended from time to time (the
"Partnership Agreement")) has
occurred and is continuing and APC,
Inc. has elected pursuant to and in
accordance with Section 11A.1(a) of
the Partnership Agreement to
exercise its remedies under Section
11A.1(a)(i), (iii) or (iv) of the
Partnership Agreement.
(ii) Section 14.4 of the Affiliation
Agreement is amended to read in its entirety
as follows:
Section 14.4 Effect of Termination.
Upon the occurrence of an Event of
Termination, all right and obligation of
each Party under this agreement shall
immediately thereafter cease; provided,
however, that the provisions of this Section
14.4 and Sections 16.1, 16.2 and 16.3 shall
survive any termination of this Agreement,
and further provided, that (a) the payment
obligations under Article 13 shall survive
any termination of this Agreement if, and to
the extent, any Reimbursable Costs, Direct
Costs, or Affiliation Fees have accrued or
are otherwise due and owning from APC, L.P.
to WirelessCo as of the date of termination
of this Agreement and (b) obligations of
WirelessCo to make payments to or reimburse
APC, L.P. under Section 2(b) and (c) and
Section 4(c) of Exhibit 17.1 hereto shall
survive any termination of this Agreement.
17A. Allocation of Profits and Losses for Financial Accounting
Purposes. APC Inc. and SSHC agree to commence, promptly following the execution
and delivery of this Agreement, good faith negotiations for the purpose of
amending the Partnership Agreement, at the earliest possible time, but not later
than December 31, 1996, to provide for the basis of allocation of Profits and
Losses for financial accounting purposes in accordance with the respective
Percentage Interests of the Partners. For tax purposes, SSHC and APC Inc. agree
to continue to allocate Profits and Losses as provided in Section 3 of the
Partnership Agreement, as amended by this letter agreement.
18. Representations and Warranties of the Parties.
Each of the parties hereby represents and warrants to the others that as of the
date hereof:
(a) Authorization of Agreement. Such party has the corporate or partnership
power and authority to execute and deliver this Agreement and to perform its
obligations hereunder, and the execution, delivery and performance of this
Agreement has been duly authorized by all necessary corporate or partnership
action. Assuming the due execution and delivery by the other parties hereto,
this Agreement constitutes the legal, valid and binding obligation of such party
enforceable against such party in accordance with its terms, subject as to
enforceability to limits imposed by bankruptcy, insolvency or similar laws
affecting creditors' rights generally and the availability of equitable
remedies.
(b) No Conflict with Restrictions; No Default. Neither the execution,
delivery and performance of this Agreement nor the consummation by such party of
the transactions contemplated hereby:
(i) will conflict with, violate or result in
a breach of any of the terms, conditions or
provisions of any law, regulation, order, writ,
injunction, decree, or determination of award of any
court, any other Governmental Authority, or any
arbitrator, applicable to such party,
(ii) will conflict with, violate, result in
a breach of or constitute a default under any of the
terms, conditions or provisions of the articles of
incorporation, bylaws or partnership agreement of
such party or of any material agreement or instrument
to which such party is a party or by which such party
is or may be bound or to which any of its material
properties or assets is subject (other than any such
conflict, violation, breach or default that has been
validly and unconditionally waived),
(iii) will conflict with, violate, result in
a breach of, constitute a default under (whether with
notice or lapse of time or both), accelerate or
permit the acceleration of the performance required
by, give to others any material interests or rights
or require any consent, authorization or approval
under any indenture, mortgage, lease agreement or
instrument to which such party is a party or by which
such party is or may be bound, or
(iv) will result in the creation or
imposition of any Lien upon any of the properties or
assets of such party,
in each case which could reasonably be expected to materially impair such
party's ability to perform its obligations under this Agreement or to have a
material adverse effect on the consolidated financial condition of such party.
(c) Governmental Authorizations. Any registration, declaration or filing
with, or consent, approval, license, permit or other authorization or order by,
any Governmental Authority that is required to be obtained by such party in
connection with the valid execution, delivery, acceptance and performance by
such party under this Agreement or the consummation by such party of any
transaction contemplated hereby has been completed, made or obtained.
19. Confirmation of Agreements. Subject to such
modifications and amendments as are expressly set forth herein, the parties
hereto hereby confirm each and every one of the terms and provisions of the
Partnership Agreement, the Put/Call Agreement, the Affiliation Agreement, and
the Letter Agreement.
<PAGE>
If the foregoing correctly states our agreement with respect
to the matters herein set forth, please so indicate by signing in the space
indicated below, whereupon the contents hereof will become a binding agreement
between the parties hereto.
Very truly yours,
WIRELESSCO, L.P.
By: /s/ Bernard A. Bianchino
Name: Bernard A. Bianchino
Title: Chief Business Development
Officer
SPRINT SPECTRUM L.P.
By: /s/ Bernard A. Bianchino
Name: Bernard A. Bianchino
Title: Chief Business Development
Officer
SPRINT SPECTRUM HOLDING
COMPANY, L.P.
By: /s/ Bernard A. Bianchino
Name: Bernard A. Bianchino
Title: Chief Business Development
Officer
Agreed and accepted as of the date first set forth above:
AMERICAN PERSONAL COMMUNICATIONS, INC.
By: /s/ Wayne N. Schelle
Wayne N. Schelle
Chairman of the Board
AMERICAN PCS, L.P.
By: American Personal Communications, Inc.
Managing Partner
By: /s/ Wayne N. Schelle
Wayne N. Schelle
Chairman of the Board
<PAGE>
CONSENT
MinorCo, L.P., a Delaware limited partnership, as a limited
partner of WirelessCo and of SSLP, consents as of the date first written above
to the distribution of the Partnership Interest and assignment of the Letter
Agreement as described in Section 1 of this Agreement.
MINORCO, L.P.
By: /s/ Bernard A. Bianchino
Name: Bernard A. Bianchino
Title: Chief Business Development
Officer
- 2 -
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<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1996
<CASH> (18,174)
<SECURITIES> 49,729
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0
0
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