<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 9, 1996
REGISTRATION NO. 333-06609
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------
SPRINT SPECTRUM L.P.
(EXACT NAME OF CO-REGISTRANT ISSUER AS SPECIFIED IN ITS CHARTER)
DELAWARE 4812 48-1165245
(STATE OR OTHER (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
JURISDICTION OF CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
INCORPORATION OR
ORGANIZATION)
---------------
SPRINT SPECTRUM FINANCE CORPORATION
(EXACT NAME OF CO-REGISTRANT ISSUER AS SPECIFIED IN ITS CHARTER)
DELAWARE 4812 43-1746537
(STATE OR OTHER (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
JURISDICTION OF CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
INCORPORATION OR
ORGANIZATION)
---------------
4717 GRAND AVENUE--FIFTH FLOOR JOSEPH M. GENSHEIMER, ESQ.
KANSAS CITY, MISSOURI 64112 SPRINT SPECTRUM HOLDING COMPANY, L.P.
(816) 559-1000 4717 GRAND AVENUE--FIFTH FLOOR
(ADDRESS, INCLUDING ZIP CODE, AND KANSAS CITY, MISSOURI 64112
TELEPHONE NUMBER, (816) 559-1000
INCLUDING AREA CODE, OF EACH (NAME, ADDRESS, INCLUDING ZIP CODE,
REGISTRANT'S PRINCIPAL EXECUTIVE AND TELEPHONE NUMBER,
OFFICES) INCLUDING AREA CODE, OF AGENT FOR
SERVICE)
---------------
COPIES TO:
JOHN B. TEHAN, ESQ. JONATHAN A. SCHAFFZIN, ESQ.
SIMPSON THACHER & BARTLETT DANIEL J. ZUBKOFF, ESQ.
425 LEXINGTON AVENUE CAHILL GORDON & REINDEL
NEW YORK, NEW YORK 10017 80 PINE STREET
(212) 455-2000 NEW YORK, NEW YORK 10005
(212) 701-3000
---------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As promptly
as practicable after this Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration number of the earlier effective
registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If the delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. [_]
THE REGISTRANTS HEREBY AMEND THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANTS
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(a) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(a), MAY DETERMINE.
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<PAGE>
Cross Reference Sheet pursuant to Rule 404(a) of the Securities Act of 1933
and Item 501(b) of Regulation S-K showing the location or heading in the
Prospectus of the Information required by Part I of Form S-1.
<TABLE>
<CAPTION>
ITEM FORM S-1 CAPTION HEADING OR LOCATION IN PROSPECTUS
---- ---------------- ---------------------------------
<C> <S> <C>
1. Outside Front Cover of
Prospectus.................... Outside Front Cover Page of Prospectus
2. Inside Front and Outside Back
Cover Pages of Prospectus..... Inside Front and Outside Back Cover
Pages of Prospectus
3. Summary Information, Risk
Factors and Ratio of Earnings
to Fixed Charges.............. Prospectus Summary; Risk Factors;
Selected Historical and Pro Forma
Financial Data
4. Use of Proceeds................ Use of Proceeds
5. Determination of Offering
Price......................... *
6. Dilution....................... *
7. Selling Security Holders....... *
8. Plan of Distribution........... Underwriting
9. Description of Securities to be
Registered.................... Description of the Notes; Certain
10. Interests of Named Experts and Federal Income Tax Consequences
Counsel....................... *
11. Information with Respect to the
Registrants................... Prospectus Summary; Risk Factors; The
Company; Capitalization; Selected
Historical and Pro Forma Financial
Data; Management's Discussion and
Analysis of Financial Condition and
Results of Operations; Business;
Management; Certain Relationships and
Related Transactions; Principal
Security Holders; The Partnership
Agreements; Description of Vendor
Contracts and Financing; Description of
the Notes; Certain Federal Income Tax
Consequences; Underwriting; Financial
Statements
12. Disclosure of Commission
Position on Indemnification
for Securities Act
Liabilities................... *
</TABLE>
- - --------
* Omitted because inapplicable or the answer is in the negative.
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED JULY 9, 1996
PROSPECTUS
$650,000,000 GROSS PROCEEDS
SPRINT SPECTRUM L.P.
SPRINT SPECTRUM FINANCE CORPORATION
$150,000,000 % SENIOR NOTES DUE 2006
$ % SENIOR DISCOUNT NOTES DUE 2006
----------
Sprint Spectrum L.P. ("Sprint Spectrum") and Sprint Spectrum Finance
Corporation ("FinCo" and, together with Sprint Spectrum, the "Issuers") are
offering (the "Offering") $150,000,000 aggregate principal amount of their %
Senior Notes due 2006 (the "Senior Notes") and $ aggregate principal amount
at maturity of their % Senior Discount Notes due 2006 (the "Senior Discount
Notes" and, together with the Senior Notes, the "Notes"). The Senior Discount
Notes will be issued at a discount to their aggregate principal amount at
maturity and will generate gross proceeds to the Issuers of approximately
$500,000,000. The yield to maturity of the Senior Discount Notes is %
(computed on a semi-annual bond equivalent basis), calculated from ,
1996. See "Certain Federal Income Tax Consequences."
(continued on next page)
SEE "RISK FACTORS" BEGINNING ON PAGE 13 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS IN EVALUATING AN INVESTMENT
IN THE NOTES.
----------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
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<TABLE>
<CAPTION>
PRINCIPAL UNDERWRITING
AMOUNT AT PRICE TO DISCOUNTS AND PROCEEDS TO
MATURITY PUBLIC(1) COMMISSIONS(2) COMPANY(3)
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<S> <C> <C> <C> <C>
Per Senior Note........ % % % %
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Total.................. $ $ $ $
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Per Senior Discount
Note.................. % % % %
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Total.................. $ $ $ $
</TABLE>
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(1) Plus accrued interest, if any, in the case of the Senior Notes, and accrued
original issue discount, if any, in the case of Senior Discount Notes, in
each case from , 1996.
(2) The Issuers, jointly and severally, have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act of 1933, as amended. See "Underwriting."
(3) Before deducting expenses payable by the Issuers estimated at $ .
----------
The Notes are offered by the Underwriters, subject to prior sale, when, as
and if issued to and accepted by the Underwriters, and subject to approval of
certain legal matters by counsel for the Underwriters and certain other
conditions. The Underwriters reserve the right to withdraw, cancel or modify
such offer and to reject any orders in whole or in part. It is expected that
delivery of the Notes offered hereby will be made in New York, New York on or
about , 1996.
----------
Joint Book-Running Managers
LEHMAN BROTHERS MERRILL LYNCH & CO.
----------
MERRILL LYNCH & CO.
LEHMAN BROTHERS
CHASE SECURITIES INC.
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
SALOMON BROTHERS INC
----------
The date of this Prospectus is , 1996.
<PAGE>
(continued from previous page)
Cash interest on the Senior Notes will accrue at a rate of % per annum and
will be payable semi-annually in arrears on each and , commencing
, 1997. Cash interest will not accrue or be payable on the Senior
Discount Notes prior to , 2001. Thereafter, cash interest on the Senior
Discount Notes will accrue at a rate of % per annum and will be payable
semi-annually in arrears on each and , commencing , 2002.
The Notes will be redeemable at the option of the Issuers, in whole or in
part, at any time on or after , 2001 at the redemption prices set forth
herein, plus accrued and unpaid interest, if any, to the date of redemption.
In addition, prior to , 1999, the Issuers may redeem up to 35% of the
originally issued principal amount of Senior Notes and up to 35% of the
originally issued principal amount at maturity of Senior Discount Notes at a
redemption price equal to % of the principal amount of the Senior Notes so
redeemed, plus accrued and unpaid interest, if any, thereon to the redemption
date and % of the Accreted Value (as defined) at the redemption date of the
Senior Discount Notes so redeemed with the net proceeds of one or more Public
Equity Offerings (as defined) of Common Equity Interests (as defined) of
Sprint Spectrum, Sprint Spectrum Holding Company, L.P. ("Holdings") or a
Special Purpose Corporation (as defined), in any such case, resulting in gross
proceeds of at least $100 million; provided that at least 65% of the
originally issued principal amount of Senior Notes and 65% of the originally
issued principal amount at maturity of Senior Discount Notes would remain
outstanding immediately after giving effect to such redemption.
The Notes will be senior unsecured obligations of the Issuers ranking pari
passu in right and priority of payment with all existing and future
indebtedness of the Issuers that is not by its terms subordinated in right and
priority to the Notes. A substantial portion of the assets of Sprint Spectrum
on a consolidated basis will be owned by Sprint Spectrum's subsidiaries and,
accordingly, claims of holders of the Notes will be effectively subordinated
to claims of creditors (including trade creditors) of such subsidiaries.
Sprint Spectrum and its subsidiaries are expected to incur substantial
additional indebtedness following the Offering, including up to $3.1 billion
under vendor credit facilities and $2.0 billion under a bank credit facility.
In the event of a Change of Control (as defined), the Issuers will be
obligated to make an offer to purchase all outstanding Notes at a purchase
price equal to (i) 101% of the principal amount thereof, in the case of the
Senior Notes, plus accrued and unpaid interest, if any, thereon to the date of
purchase and (ii) (a) 101% of the Accreted Value thereof, in the case of the
Senior Discount Notes, if purchased on or before , 2001, and (b) 101% of
the principal amount at maturity of the Senior Discount Notes, plus accrued
and unpaid interest, if any, thereon, if purchased after , 2001. In
addition, the Issuers will, subject to certain conditions, be obligated to
make an offer to purchase Notes with the net cash proceeds of certain sales or
other dispositions of assets. See "Description of the Notes--Certain
Covenants." There can be no assurance that the Issuers will have the financial
resources necessary to purchase the Notes upon a Change of Control.
The Senior Notes and the Senior Discount Notes will each be represented by
one or more global securities (collectively, the "Global Securities") in
registered form, which will be deposited with a custodian for, and registered
in the name of, The Depository Trust Company ("DTC") or its nominee in New
York, New York. Beneficial interests in the Global Securities will be
represented, and transfers thereof will be effected, through book-entry
accounts maintained by DTC and its participants. Except as described herein,
Notes in definitive form will not be issued. See "Description of the Notes--
Book-Entry; Delivery and Form."
2
<PAGE>
[MAP TO COME]
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE SECURITIES
OFFERED HEREBY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
3
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and financial statements, including the notes thereto, appearing
elsewhere in this Prospectus. As used in this Prospectus, unless the context
otherwise requires, the term "Holdings" refers to Sprint Spectrum Holding
Company, L.P., and the term "Company" refers to Sprint Spectrum L.P. ("Sprint
Spectrum") and its direct and indirect subsidiaries, including Sprint Spectrum
Finance Corporation ("FinCo"), WirelessCo, L.P. ("WirelessCo"), Sprint Spectrum
Realty Company, L.P. ("RealtyCo") and Sprint Spectrum Equipment Company, L.P.
("EquipmentCo"). Sprint Spectrum and FinCo are collectively referred to as the
"Issuers." See "The Company" and "Business--General." To date, substantially
all wireless operations of the Company and Holdings have been conducted at
Holdings and all assets, with the exception of the interest in American PCS,
L.P. ("APC") and the PCS (as defined) licenses which are held by WirelessCo,
are held at Holdings. Holdings and the Company are reorganizing (the
"Reorganization") operations so that the assets used in the Company's PCS
business are owned by subsidiaries of Sprint Spectrum and the investment in APC
will be transferred to Holdings. Effective July 1, 1996, Holdings' assets used
in the Company's PCS business were transferred to subsidiaries of Sprint
Spectrum; the transfer of the interest in APC is expected to occur after the
Offering. Unless otherwise indicated, all information in this Prospectus
assumes that all elements of the Reorganization have occurred. Certain of the
statements contained in this summary and elsewhere in this Prospectus,
including information with respect to the Company's expected PCS operations and
buildout, its strategy for its PCS business and related financings are forward-
looking statements. See "Risk Factors" for a discussion of important factors
that could affect such matters. The term population equivalents ("Pops") means
the Donnelley Marketing Service estimate of the December 31, 1995 population of
a geographic area. A glossary of additional terms appearing herein has been
included in this Prospectus. See "Glossary of Selected Terms."
THE COMPANY
Sprint Spectrum intends to become a leading provider of wireless
communications products and services in the United States. The Company is the
largest broadband wireless personal communications services ("PCS") company in
the United States in terms of total licensed Pops, with licenses (including
those to be contributed to the Company and those owned by licensees that have
affiliated or have agreed to affiliate with the Company) to provide service in
33 major trading areas ("MTAs") covering 190.9 million Pops (73% of the total
United States population), including eight of the nation's ten largest MTAs.
The Company intends to commence marketing efforts and launch commercial service
in certain MTAs in the fourth quarter of 1996 and to continue to expand its
coverage in its PCS markets to reach approximately 70% of the Pops in its
license areas in the aggregate by the end of 1997. Thereafter, the Company will
evaluate further coverage expansion on a market-by-market basis, eventually
targeting coverage of 80% of the Pops in its license areas in the aggregate,
thereby substantially completing its planned network buildout.
The general partner of Sprint Spectrum is Holdings, a limited partnership
formed by Sprint Enterprises, L.P., which has a 40% partnership interest in
Holdings, TCI Telephony Services, Inc., which has a 30% partnership interest in
Holdings, and Comcast Telephony Services and Cox Telephony Partnership, each of
which has a 15% partnership interest in Holdings (collectively, the
"Partners"). Holdings has a greater than 99% general partnership interest in
the Company. The Partners are subsidiaries of, respectively, Sprint Corporation
("Sprint"), Tele-Communications, Inc. ("TCI"), Comcast Corporation ("Comcast")
and Cox Communications, Inc. ("Cox" and, together with Sprint, TCI and Comcast,
the "Parents").
The Partners have agreed to contribute up to an aggregate of $4.2 billion of
equity to Holdings, to the extent required by the annual budgets of Holdings
through fiscal 1999 as approved by the Partners. As of March 31, 1996,
approximately $2.4 billion had been contributed to Holdings, of which $2.2
billion had been contributed to the Company and the remaining $0.2 billion had
been contributed or advanced to APC. The Company
4
<PAGE>
currently intends to obtain up to $1.4 billion of additional equity following
March 31, 1996 (of which up to $1.0 billion is expected to be, but is not
presently committed to be, provided by the Parents), resulting in $3.6 billion
in aggregate invested equity capital in the Company. There can be no assurance
that any additional capital will be obtained in the form of equity from the
Partners or otherwise. See "--Network Buildout and Financing Plan."
The Company was the successful bidder for 29 PCS licenses in the Federal
Communications Commission's ("FCC") A Block and B Block PCS auction which
concluded in March 1995. The Company's 29 wholly-owned markets cover 150.3
million Pops and include, among others, the New York, San Francisco, Detroit,
Dallas/Fort Worth and Boston/Providence MTAs. Additionally, Cox has agreed to
contribute to the Company, upon FCC approval which is pending, a PCS license
for the Omaha MTA that it purchased in the broadband PCS auction in March 1995.
In order to increase its Pop coverage, the Company has affiliated and expects
to continue to affiliate with other PCS providers, including those in which
Holdings or affiliates of its Partners have an interest. Pursuant to
affiliation agreements, each affiliated PCS service provider will be included
in the Company's national network and will use the Sprint(R) (a registered
trademark of Sprint Communications Company, L.P.) brand name. Holdings owns a
49% limited partnership interest in APC, which owns a PCS license for, and
operates a broadband PCS system in, the Washington D.C./Baltimore MTA. APC has
affiliated with Sprint Spectrum and is marketing its products and services
under the Sprint brand name. APC launched its PCS service in November 1995 and
is the nation's first commercially operational PCS system. As of May 15, 1996,
APC had approximately 80,000 subscribers. See "Business--General" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations." Holdings also expects to acquire a 49% limited partnership
interest in Cox California PCS, L.P. ("Cox-California"), a partnership that
will be formed to hold a PCS license for the Los Angeles-San Diego MTA covering
21.5 million Pops. Cox, which currently owns this license, has agreed to
contribute the license to Cox-California and will manage and control Cox-
California. The Company expects to sign an affiliation agreement with Cox-
California. 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.
The table below presents the owned and affiliated Pops:
<TABLE>
<CAPTION>
1995 AVERAGE LICENSE
POPULATION PURCHASE PRICE
OWNED/AFFILIATED # OF MTAS IN MTA(S) PER 1990 POP(1)
---------------- --------- ------------- ---------------
(MILLIONS)
<S> <C> <C> <C>
Owned.................................... 29 150.3 $14.54
Omaha (to be contributed)................ 1 1.7 $ 3.06
Affiliated:
APC (Baltimore/Washington)(2).......... 1 8.3 $13.16
Cox-California (Los Angeles/San Die-
go)(3)................................ 1 21.5 $13.16
PhillieCo (Philadelphia)(4)............ 1 9.1 $ 9.52
--- -----
Total................................ 33 190.9
=== =====
</TABLE>
- - --------
(1) Cost to winning bidder in FCC auction(s) or in connection with the award of
Pioneer's Preference license (as defined).
(2) Holdings owns a 49% limited partnership interest in APC, which has signed
an affiliation agreement with the Company.
(3) Holdings intends to acquire a 49% limited partnership interest in, and the
Company expects to sign an affiliation agreement with, Cox-California.
(4) Owned by subsidiaries of Sprint, TCI and Cox. The Company expects to sign a
services and affiliation agreement with PhillieCo.
5
<PAGE>
STRATEGY
The Company intends to achieve its objective of becoming a leading provider
of wireless communications products and services in the United States by
employing strategies for network construction, service offering, branding and
marketing which utilize the Company's competitive advantages. These competitive
advantages are expected to include:
. State-of-the-art technology. The Company is implementing a state-of-the-
art PCS network using Code Division Multiple Access ("CDMA") digital
technology which, the Company believes, provides benefits relative to
current analog systems. The Company believes that its digital technology
will increase system capacity by approximately 7 to 10 times, offer
better call quality and clarity and provide a wider variety of advanced
features and applications.
. National network. Sprint Spectrum intends to offer wireless service on a
national basis with a single technology (CDMA) operating on a uniform
spectrum (1.9 GHz), thereby providing consistent functionality and high
quality service. The Company currently owns (including the Omaha license
to be contributed to the Company), or expects to have affiliate
relationships with PCS providers who own, PCS licenses covering 190.9
million Pops and intends to pursue additional coverage on a market-by-
market basis through license acquisitions and affiliation or resale
agreements with other CDMA-based PCS providers. Together the Company and
other PCS licensees that have announced their intentions to implement
CDMA technology, have licenses covering territories representing
approximately 89% of the United States population. The Company expects to
gain cost advantages in purchasing power, operations and marketing
because of the national scope and operating scale of its network. The
Company believes it will have the flexibility to utilize pricing and
promotional programs on a national basis to provide incentives for
customer subscription and increased usage.
. National brand. The Company will market and promote its wireless products
and services under the Sprint brand which is one of the most widely
recognized and respected brands in the telecommunications market. The
Company expects that the use of the Sprint brand will build consumer
confidence and accelerate consumer acceptance of the Company's products
and services.
. Strong Parent sponsorship. The Company intends to capitalize on the
communications expertise of the Parents, including local exchange carrier
services, cable television services and long distance telephone services.
In addition, the size and breadth of the customer base of each Parent
provides a key advantage for the Company's distribution and marketing
efforts. Subject to certain exceptions, the Parents and the Company
intend to cross-market the Company's wireless services with the long
distance, local telephone and cable-based entertainment services of the
Parents in order to accelerate subscriber growth and increase retention
rates while improving overall customer satisfaction. Sprint has a
combined customer base of 14 million long distance and local telephone
subscribers and TCI, Comcast and Cox (collectively, the "Cable Parents")
have 20 million cable television customers. See "Business--Relationship
with Partners and Parents."
6
<PAGE>
NETWORK BUILDOUT AND FINANCING PLAN
The Company intends to commence marketing efforts and launch commercial
service in the fourth quarter of 1996 and to continue to expand its coverage in
its PCS markets to reach approximately 70% of the Pops in its license areas in
the aggregate by the end of 1997. Thereafter, the Company will evaluate further
coverage expansion on a market-by-market basis, eventually targeting coverage
of 80% of the Pops in its license areas in the aggregate, thereby substantially
completing its planned network buildout.
The Company is developing a network infrastructure, including network
management systems, to support a range of wireless services, including voice,
data, messaging, paging and facsimile. A planning and engineering team,
comprised of approximately 1,350 engineering and operations employees and
thousands of independent contractors, consultants, agents and other third
parties, is designing and constructing the Company's network based on national
and regional marketing product requirements to meet the Company's targets for
consistency, uniformity and reliability.
The Company has selected Lucent Technologies Inc. ("Lucent") and Northern
Telecom Inc. ("Nortel" and, together with Lucent, the "Vendors"), two of the
leading telecommunications equipment manufacturers, to construct the Company's
wireless network. The Vendors were selected because of their extensive
experience in wireless technology and their willingness to deliver against
specifications developed by the Company. The Company has entered into
procurement and services contracts (the "Procurement Contracts") with each of
Lucent and Nortel pursuant to which the Vendors will bear a significant portion
of the responsibility for the construction of the Company's network. To
mitigate against a substantial portion of the risks of completion delay and
performance of the network and to ensure the Company has received competitive
terms and conditions, the Procurement Contracts include, among other things,
deferred payment schedules, liquidated damages provisions, extended warranty
periods and "most favored customer" status.
The buildout of the Company's PCS network and the marketing and distribution
of the Company's PCS products and services will require substantial capital.
The Company currently estimates that its capital requirements (capital
expenditures, license acquisitions, working capital, debt service requirements
and anticipated operating losses) for the period from inception through the end
of 1998 (assuming substantial completion of the Company's network buildout to
cover 80% of the Pops in its current license areas in the aggregate by the end
of 1998), will total approximately $7.9 billion (of which approximately $2.2
billion had been expended as of March 31, 1996). The Company will also require
substantial additional capital after 1998 for coverage expansion, volume-driven
network capacity and other capital expenditures for existing and new license
areas (if any), new license acquisitions or affiliation arrangements (if any),
working capital, debt service requirements and anticipated further operating
losses. The Company will have certain commitments that must be funded in any
event, including lease obligations for cell and switch sites, minimum purchase
obligations under the Procurement Contracts and amortization under the Secured
Financing (as defined). 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, unforeseen
delays, cost overruns, unanticipated expenses, regulatory changes, engineering
design changes and other technological risks.
The Company currently has no sources of revenue to meet its capital
requirements. The Partners have agreed to contribute up to an aggregate of $4.2
billion of equity to Holdings to the extent required by the annual budgets of
Holdings through fiscal 1999 as approved by the Partners. As of March 31, 1996,
approximately $2.4 billion had been contributed to Holdings, of which $2.2
billion had been contributed to the Company and the remaining $0.2 billion had
been contributed or advanced to APC. The Company currently intends to obtain up
to $1.4 billion of additional equity following March 31, 1996, resulting in
$3.6 billion in aggregate invested equity capital in the Company, although
there can be no assurance that any additional capital will be obtained in the
form of equity from the Parents or otherwise. The Parents presently expect to
make available or cause Holdings to make available to the Company up to $1.0
billion of such additional equity, to the extent required by the Company. The
Company's business plan and the financial covenants and other terms of the
Secured Financing will require such additional equity financing prior to the
end of 1998, absent a new financing source. The
7
<PAGE>
$0.8 billion balance (of the $4.2 billion) that may be available to Holdings
from the Partners may be used by Holdings to fund the Company's capital needs,
Holdings' other affiliate commitments and/or to make other wireless
investments. See "Risk Factors--Substantial Capital Requirements and Liquidity"
and "The Partnership Agreements--Holdings Partnership Agreement--Capital
Contributions" for a discussion of the equity capital commitments to Holdings.
Sprint Spectrum has obtained commitment letters for up to an aggregate of
$5.1 billion of senior secured loans from certain third-parties. Sprint
Spectrum has obtained a commitment letter from Nortel in which Nortel has
committed to provide up to $1.3 billion in senior secured loans (the "Nortel
Financing") to finance purchases of Nortel's PCS equipment and related
services. Sprint Spectrum has also obtained a commitment letter from Lucent to
provide up to $1.8 billion in senior secured loans (the "Lucent Financing" and,
together with the Nortel Financing, the "Vendor Financing") to finance
purchases of Lucent's PCS equipment and related services. Under the Procurement
Contracts, the Company is required to purchase minimum amounts of equipment and
services from each Vendor. Sprint Spectrum has also obtained a commitment
letter from Chase Securities Inc. and Chemical Bank in which Chemical Bank has
committed to provide a $2.0 billion fully underwritten senior secured credit
facility (the "Bank Credit Facility" and, together with the Vendor Financing,
the "Secured Financing") to finance working capital, capital expenditures,
operating losses and other partnership purposes. There can be no assurance that
the conditions for borrowings under the Vendor Financing or the Bank Credit
Facility will be met. See "Description of Vendor Contracts and Financing."
The following table describes the estimated sources and uses of capital by
the Company since inception and through 1998, assuming the Company covers
approximately 80% of the Pops in its current license areas in the aggregate,
thereby substantially completing the planned buildout of its PCS network. See
"Business--Network Buildout." This table is based on certain assumptions as to
the terms and covenant requirements of the Secured Financing and as to how the
Company will elect to use available amounts under those facilities. See
"Description of Vendor Contracts and Financing."
<TABLE>
<CAPTION>
SOURCES:
-------- (IN BILLIONS)
<S> <C>
Equity Contributions Received(1)............................... $2.2
Unfunded Equity(2)............................................. 1.0
Vendor Financing(3)............................................ 2.6
Bank Credit Facility(4)........................................ 1.1
Net Proceeds to the Company from the Offering.................. 0.6
Future Capital Required(5)..................................... 0.4
----
Total Sources................................................ $7.9
====
USES:
PCS Licenses................................................... $2.1
PCS Network Buildout........................................... 3.8
Cash Debt Service Requirements(6).............................. 0.2
Operating Losses and Working Capital........................... 1.8
----
Total Uses................................................... $7.9
====
</TABLE>
- - --------
(1) As of March 31, 1996.
(2) While the Partners' capital contribution commitments are to Holdings and
are subject to the conditions described above and under "The Partnership
Agreements--Holdings Partnership Agreement--Capital Contributions," it is
expected that approximately $1.0 billion of additional funding will be
obtained in the form of equity from Holdings through the capital
contribution provisions of the Holdings Partnership Agreement. The
Company's business plan and the financial covenants and other terms of the
Secured Financing will require such additional equity financing prior to
the end of 1998, absent a new financing source.
(3) Sprint Spectrum has obtained commitments from Nortel for an aggregate $1.3
billion secured credit facility and from Lucent for an aggregate $1.8
billion secured credit facility. Of this aggregate amount of $3.1 billion
of Vendor Financing, the Company expects to have borrowed approximately
$2.6 billion prior to December 31, 1998, based upon availability
thereunder.
(4) Sprint Spectrum has obtained a commitment from Chemical Bank to provide a
$2.0 billion fully underwritten secured credit facility, of which $1.1
billion is expected to have been drawn prior to December 31, 1998, based
upon availability thereunder.
(5) The Company's business plan assumes that such additional capital will be
obtained in the form of equity (from the Partners or other sources), but it
may be obtained through other means including the following: debt
offerings, bank financing and vendor financing. There can be no assurance
that these sources will be available when needed or on terms acceptable to
the Company.
(6) Includes interest expense and assumes certain interest rates.
8
<PAGE>
THE OFFERING
Securities Offered.......... $150,000,000 aggregate principal amount of %
Senior Notes due 2006 (the "Senior Notes").
$ aggregate principal amount at maturity of
% Senior Discount Notes due 2006 (the "Senior
Discount Notes" and, together with Senior Notes,
the "Notes"). The Senior Discount Notes will be
issued at a discount to their aggregate principal
amount at maturity and will generate gross pro-
ceeds to the Issuers of approximately
$500,000,000. The yield to maturity of the Senior
Discount Notes will be % (computed on a semi-
annual bond equivalent basis), calculated from
, 1996. See "Certain Federal Income Tax
Consequences."
Issuers..................... The Notes will be joint and several obligations
of the Issuers. Sprint Spectrum will receive all
of the net proceeds from the Offering.
Non-Recourse to Holdings,
the Partners and the
Parents...............
The Senior Notes and the Senior Discount Notes
are non-recourse to Holdings, the Partners and
the Parents.
Maturity Date............... , 2006.
Ranking..................... The Notes will rank pari passu in right of pay-
ment and priority with all other existing and fu-
ture indebtedness of the Issuers that is not by
its terms subordinated in right of payment and
priority to the Notes and will rank senior in
right of payment to all indebtedness of the Is-
suers that is expressly subordinated to the
Notes. A substantial portion of the assets of
Sprint Spectrum on a consolidated basis will be
owned by Sprint Spectrum's subsidiaries, and ac-
cordingly, claims of holders of the Notes will be
effectively subordinated to claims of creditors
(including trade creditors) of such subsidiaries.
Interest Rate and Payment
Dates: The Senior
Notes.................
Cash interest on the Senior Notes will accrue at
a rate of % per annum and will be payable
semi-annually in arrears on each and
, commencing , 1997.
The Senior Discount Cash interest will not accrue or be payable on
Notes... the Senior Discount Notes prior to , 2001.
Thereafter, cash interest on the Senior Discount
Notes will accrue at a rate of % per annum and
will be payable semi-annually in arrears on each
and , commencing , 2002.
Original Issue Discount..... For federal income tax purposes, the Senior Dis-
count Notes will be treated as having been issued
with "original issue discount" equal to the dif-
ference between the issue price of the Senior
Discount Notes and the sum of all cash payments
(whether denominated as
9
<PAGE>
principal or interest) to be made thereon. Each
holder of a Senior Discount Note must include as
gross income for federal income tax purposes a
portion of such original issue discount for each
day during each taxable year in which a Senior
Discount Note is held even though no cash inter-
est payments will be received prior to ,
2002. See "Certain Federal Income Tax
Consequences."
Optional Redemption.........
The Notes will be redeemable at the option of the
Issuers, in whole or in part, at any time on or
after , 2001 at the redemption prices set
forth under "Description of the Notes--Optional
Redemption," plus accrued and unpaid interest, if
any, thereon to the date of redemption. In addi-
tion, prior to , 1999, the Issuers may redeem
up to 35% of the originally issued principal
amount of Senior Notes and up to 35% of the orig-
inally issued principal amount at maturity of the
Senior Discount Notes at a redemption price equal
to % of the Senior Notes so redeemed, plus ac-
crued and unpaid interest, if any, thereon to the
redemption date and % of the Accreted Value at
the redemption date of the Senior Discount Notes
so redeemed, in each case with the net proceeds
of one or more Public Equity Offerings (as de-
fined) of Common Equity Interests (as defined) of
Sprint Spectrum, Holdings or a Special Purpose
Corporation (as defined), in either case, result-
ing in gross proceeds of at least $100 million;
provided that at least 65% of the originally
issued principal amount of Senior Notes and 65%
of the originally issued principal amount at ma-
turity of Senior Discount Notes would remain out-
standing immediately after giving effect to such
redemption.
Change of Control...........
In the event of a Change of Control (as defined),
the Issuers will be obligated to make an offer to
purchase all outstanding Notes at a purchase
price equal to (i) 101% of the principal amount
thereof, in the case of the Senior Notes, plus
accrued and unpaid interest, if any, thereon to
the Change of Control Payment Date (as defined)
and (ii)(a) 101% of the Accreted Value thereof on
the Change of Control Payment Date, in the case
of the Senior Discount Notes, if the Change of
Control Payment Date is on or before ,
2001, and (b) 101% of the principal amount at ma-
turity of the Senior Discount Notes, plus accrued
and unpaid interest, if any, thereon to the
Change of Control Payment Date, if the Change of
Control Payment Date is after , 2001. See
"Description of the Notes--Certain Covenants--
Change of Control."
Asset Sale Offer............ The Issuers will, under certain circumstances, be
obligated to make an offer to purchase Notes with
the proceeds of certain asset sales at a purchase
price equal to (i) 100% of the principal amount
of the Senior Notes, plus accrued and unpaid in-
terest, if any, thereon to the purchase date and
(ii)(a) 100% of the Accreted Value of the Senior
Discount Notes on the purchase date, if such date
is on or before , 2001, and (b) 100% of the
principal amount
10
<PAGE>
of the Senior Discount Notes, plus accrued and
unpaid interest, if any, thereon to the purchase
date, if such date is after , 2001. See
"Description of the Notes--Certain Covenants--
Disposition of Proceeds of Asset Sales."
Certain Covenants........... The indentures under which the Notes will be is-
sued (the "Indentures") will contain certain re-
strictive covenants, including (i) limitations on
additional indebtedness, (ii) limitations on re-
stricted payments, (iii) limitations on liens,
(iv) limitations on dividends and other payment
restrictions affecting Restricted Subsidiaries
(as defined), (v) limitations on equity interests
of Restricted Subsidiaries, (vi) limitations on
transactions with equity holders and affiliates,
(vii) limitations on issuances of certain guaran-
tees by Restricted Subsidiaries, (viii) limita-
tions on activities of the Issuers and the Re-
stricted Subsidiaries, (ix) limitations on the
disposition of proceeds of asset sales and (x)
limitations on designations of Unrestricted Sub-
sidiaries (as defined). In addition, the Inden-
tures will limit the ability of the Issuers to
consolidate, merge or sell all or substantially
all of their assets. These covenants are subject
to important exceptions and qualifications. See
"Description of the Notes--Certain Covenants."
Use of Proceeds............. The net proceeds to Sprint Spectrum from the sale
of the Notes offered hereby will be approximately
$ , after deducting estimated discounts, com-
missions and offering expenses. The Company in-
tends to use the net proceeds from the Offering
to fund capital expenditures, including the
buildout of a nationwide PCS network, to fund
working capital and debt service requirements, to
fund operating losses and for other partnership
purposes.
RISK FACTORS
Prospective investors should carefully consider, in addition to the other
information in this Prospectus, the information set forth under the heading
"Risk Factors" beginning on page 13 before purchasing the Notes offered hereby.
11
<PAGE>
SUMMARY HISTORICAL AND PRO FORMA CONSOLIDATED FINANCIAL DATA
The following table presents summary historical consolidated financial data
for the Company as of the dates and for the periods indicated. The consolidated
financial data for the period from October 24, 1994 to December 31, 1994 and
for the year ended December 31, 1995 were derived from the audited consolidated
financial statements of the Company. The consolidated financial data for the
quarters ended March 31, 1995 and March 31, 1996, respectively, and for the
cumulative period from October 24, 1994 to March 31, 1996 were derived from the
unaudited financial statements of the Company. Due to the development stage
nature of the Company, period-to-period comparisons of financial data are not
indicative of results for subsequent periods or the full year and should not be
relied upon as an indication of the future performance of the Company. The
following data should be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the Company's
consolidated financial statements and the notes thereto included elsewhere in
this Prospectus.
The Company's historical consolidated financial information does not reflect
the Reorganization. To assist prospective investors, the pro forma and as
adjusted data set forth below reflect the historical financial information of
the Company as adjusted to give effect to (1) the Reorganization on a pro forma
basis as if it had occurred at the beginning of the periods presented or as of
the date presented and (2) the Reorganization and the Offering as if they had
occurred on March 31, 1996.
<TABLE>
<CAPTION>
FOR THE PRO FORMA
FOR THE CUMULATIVE FOR THE
PERIOD FROM PERIOD FROM REORGANIZATION
OCTOBER 24, OCTOBER 24, -------------------------
1994 FOR THE THREE 1994 FOR THE
(DATE OF FOR THE MONTHS ENDED (DATE OF FOR THE THREE MONTHS
INCEPTION) TO YEAR ENDED MARCH 31, INCEPTION) TO YEAR ENDED ENDED
DECEMBER 31, DECEMBER 31, ----------------- MARCH 31, DECEMBER 31, MARCH 31,
1994 1995 1995 1996 1996 1995 1996
------------- ------------ ------- -------- ------------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA
(IN THOUSANDS):
Operating expenses:
General and
administrative........ $ 1,371 $ 1,221 $ 1,273 $ -- $ 2,592 $ 37,460 $ 19,862
Professional and legal
fees.................. 1,923 2,310 2,335 -- 4,233 26,849 10,862
Depreciation........... 38 47 47 -- 85 211 254
------- -------- ------- -------- -------- -------- --------
Total operating
expenses.............. 3,332 3,578 3,655 -- 6,910 64,520 30,978
Other income (expense):
Interest income........ 24 253 275 (67) 210 260 (358)
Other income........... -- -- -- -- -- 38 143
Equity in loss of
unconsolidated
partnership........... -- (46,206) (3,409) (36,232) (82,438) -- --
------- -------- ------- -------- -------- -------- --------
Total other income
(expense)............. 24 (45,953) (3,134) (36,299) (82,228) 298 (215)
------- -------- ------- -------- -------- -------- --------
Net loss................ $(3,308) $(49,531) $(6,789) $(36,299) $(89,138) $(64,222) $(31,193)
======= ======== ======= ======== ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
AT MARCH 31, 1996
--------------------------------
PRO FORMA
AS
ACTUAL PRO FORMA ADJUSTED
---------- ---------- ----------
BALANCE
SHEET DATA
(IN
THOUSANDS):
<S> <C> <C> <C>
Assets:
Current assets............ $ 1,298 $ 4,974 $ 654,974(1)
Investment in PCS
licenses................. 2,124,594 2,124,594 2,124,594
Investment in
unconsolidated
partnership.............. 49,314 -- --
Note receivable--
unconsolidated
partnership.............. 83,655 -- --
Property, plant and
equipment (net).......... -- 76,129 76,129
---------- ---------- ----------
Total assets.............. $2,258,861 $2,205,697 $2,855,697
========== ========== ==========
Liabilities and partners'
capital:
Current liabilities....... $ 456 $ 96,870 $ 96,870
Deferred compensation..... -- 4,247 4,247
Note payable to
affiliate................ 5,000 5,000 5,000
Long-term debt............ -- -- 650,000(1)
Limited partner interest
in consolidated
subsidiary............... 5,000 10,000 10,000
Partners' capital......... 2,248,405 2,089,580 2,089,580
---------- ---------- ----------
Total liabilities and
partners' capital........ $2,258,861 $2,205,697 $2,855,697
========== ========== ==========
</TABLE>
- - -------
(1) Reflects gross proceeds of $650 million from the Offering before
underwriting discounts and commissions and expenses.
12
<PAGE>
RISK FACTORS
Prospective investors should consider carefully, in addition to the other
information contained in this Prospectus, the following factors before
purchasing the Notes offered hereby.
DEVELOPMENT STAGE COMPANY; ABSENCE OF COMMERCIAL OPERATIONS
The Company is at an early stage of development and, as of the date of this
Prospectus, has not commenced commercial PCS operations. The Company will
require expenditures of significant funds for development, construction,
testing and deployment of its PCS network before commencement of commercial
operations, which is expected to occur in the fourth quarter of 1996. Such
development, construction, testing and deployment of the Company's PCS network
are expected to place significant demands on the Company's managerial,
operational and financial resources. The Company's future performance will
depend, in part, on the Company's ability to implement its operational and
financial systems, to expand its employee base and to train and manage its
employees, including engineering, customer support, marketing and sales
personnel. There can be no assurance that the Company will be able to manage
operations successfully. Management's failure to guide and control growth
effectively (including implementing adequate systems, procedures and controls
in a timely manner) could have a material adverse effect on the Company. In
addition, there can be no assurance that the Company will be able to attract
or retain the highly qualified personnel required to operate its network
successfully. The Company is currently conducting a search for a new Chief
Executive Officer to succeed Ronald LeMay, who has returned to Sprint as
President and Chief Operating Officer. However, Mr. LeMay is continuing with
the Company as Chief Executive Officer and President until such time as a
successor is named. In addition, the Company is actively searching for a
senior marketing executive. See "Business--General" and "Management."
OPERATING LOSSES AND NEGATIVE CASH FLOW FROM OPERATIONS
As of March 31, 1996, after giving effect to the Reorganization, the Company
had incurred cumulative net losses of approximately $98.7 million since its
inception. The Company expects to continue to incur significant operating
losses and to generate significant negative cash flow from operating
activities during the next several years while it develops and constructs its
PCS network and builds its customer base. If and when the Company has
successfully completed its network buildout and started to provide products
and services to customers, the Company's operating profitability will depend
upon many factors, including, among others, its ability to market its products
and services successfully, achieve its projected market penetration, manage
customer turnover rates effectively and price its products and services
competitively. There can be no assurance that the Company will achieve or
sustain operating profitability or positive cash flow from operating
activities in the future. If the Company does not achieve and maintain
operating profitability and positive cash flow from operating activities on a
timely basis, it may not be able to meet its debt service requirements,
including its obligations with respect to the Notes.
SUBSTANTIAL CAPITAL REQUIREMENTS AND LIQUIDITY
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, license acquisitions, working capital, debt service requirements
and anticipated operating losses) for the period from inception through the
end of 1998 (assuming substantial completion of the Company's network buildout
to cover 80% of the Pops in its current license areas in the aggregate by the
end of 1998), will total approximately $7.9 billion (of which approximately
$2.2 billion had been expended as of March 31, 1996). The Company will also
require substantial additional capital after 1998 for coverage expansion,
volume-driven network capacity and other capital expenditures for existing and
new license areas (if any), new license acquisitions or affiliation
arrangements (if any), working capital, debt service requirements and
anticipated further operating losses. There can be no assurance that the
Company will be able to arrange additional financing to fund capital
requirements until the Company achieves positive operating cash flow or that
such financing will be on terms acceptable to the Company. The Company will
have certain
13
<PAGE>
commitments that must be funded in any event, including lease obligations for
cell and switch sites, minimum purchase obligations under the Procurement
Contracts and amortization under the Secured Financing. 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, 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. Sprint Spectrum has obtained commitments from Nortel for $1.3
billion and from Lucent for $1.8 billion of senior secured loans to finance
purchases of PCS equipment and related services and costs. Under the
Procurement Contracts, the Company is required to purchase minimum amounts of
equipment and services from each Vendor. The Nortel Financing requires, as a
condition to funding, the commitment of additional financing from third-
parties, including the Offering, the Bank Credit Facility or other debt
financing and equity financing. The Vendor Financing will contain customary
conditions which must be satisfied in order for the Company to access funds.
Sprint Spectrum has also received a commitment from Chemical Bank to provide a
fully underwritten $2.0 billion Bank Credit Facility to finance working
capital, capital expenditures, operating losses and other partnership
purposes. The Bank Credit Facility will also include certain conditions to
borrowing availability. See "Description of Vendor Contracts and Financing--
Bank Credit Facility." These commitments are subject to, among other things,
the execution and delivery of definitive documentation. There can be no
assurance that the conditions to the Vendor Financing or the Bank Credit
Facility will be satisfied. The inability of the Company to access such funds
may have a material adverse effect on the Company, and there can be no
assurance that the Company will be able to obtain replacement funds from
alternative sources.
The Partners have agreed to contribute up to an aggregate of $4.2 billion of
equity to Holdings to the extent required by the annual budgets of Holdings
through fiscal 1999 as approved by the Partners. As of March 31, 1996,
approximately $2.4 billion had been contributed to Holdings, of which $2.2
billion had been contributed to the Company and the remaining $0.2 billion had
been contributed or advanced to APC. The Company currently intends to obtain
up to $1.4 billion of additional equity following March 31, 1996, resulting in
$3.6 billion in aggregate invested equity capital in the Company, although
there can be no assurance that any additional capital will be obtained in the
form of equity. The Parents presently expect to make available or cause
Holdings to make available to the Company up to $1.0 billion of such
additional equity, to the extent required by the Company. The Company's
business plan and the financial covenants and other terms of the Secured
Financing will require such additional equity financing prior to the end of
1998, absent a new financing source. The $0.8 billion balance (of the $4.2
billion) that may be available to Holdings from the Partners may be used by
Holdings to fund the Company's capital needs and its other affiliate
commitments or to make other wireless investments. Amounts budgeted by the
Company, as approved by the Partners in future years, will determine the
extent to which the commitments will actually be utilized. See "--Substantial
Capital Requirements and Liquidity" and "The Partnership Agreements--Holdings
Partnership Agreement--Capital Contributions" for a discussion of the equity
capital commitments to Holdings.
Sources of funding for the Company's further financing requirements may
include additional vendor financing, public offerings or private placements of
equity and/or debt securities, commercial bank loans and/or capital
contributions from Holdings or the Partners. There can be no assurance that
the Secured Financing or any other additional financing will be available to
the Company or, if available, that such financing can be obtained on a timely
basis and on terms acceptable to the Company and within limitations contained
in the Indentures, the agreements governing the Vendor Financing, the Bank
Credit Facility and any new financing arrangements. Failure to obtain any such
financing could result in the delay or abandonment of the Company's
development and expansion plans or the failure to meet regulatory
requirements. It also could impair the Company's ability to meet its debt
service requirements (including its obligations with respect to the Notes) and
could have a material adverse effect on its business. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations--
Liquidity and Capital Resources."
14
<PAGE>
NETWORK BUILDOUT AND SYSTEM IMPLEMENTATION RISKS
In order for the Company to complete its PCS network and provide its
wireless communications products and services to customers on a nationwide
basis it must successfully (i) relocate microwave paths that may affect the
Company's operations, (ii) lease, acquire or otherwise attain rights to a
sufficient number of cell and switch sites, (iii) complete the radio frequency
("RF") design, including cell site design, frequency planning and network
optimization, for each of the Company's markets, (iv) complete the fixed
network design, which encompasses engineering network switching systems, radio
systems, interconnecting facilities and systems and operating support systems,
(v) establish sufficiently broad population and geographic coverage across the
continental United States and (vi) develop and implement sophisticated
information systems. There can be no assurance that these events will occur on
a timely basis or on the cost basis assumed by the Company or at all.
Implementation of the network involves various risks and contingencies, many
of which are not within the control of the Company and all of which could have
a material adverse effect on the implementation of the Company's system should
there be delays or other problems.
Relocation of microwave paths. For a period of up to five years after the
grant of a PCS license (subject to extension), a PCS licensee will be required
to share spectrum with existing microwave licensees that operate certain
microwave paths within its license area, but PCS licensees may not interfere
with existing licensees. See "Business--Network Buildout--Microwave
Relocation." The Company believes it must relocate a total of 1,400 microwave
paths, of which approximately 600 need to be relocated to launch commercial
service. As of June 14, 1996, 746 relocation agreements were under
negotiation, 289 agreements had been reached and 101 paths had been relocated.
In places where relocation is necessary to permit operation of the Company's
PCS system, any delay in the relocation of such licensees may affect adversely
the Company's ability to commence commercial operations, which could have a
material adverse effect on the Company.
The FCC has adopted a transition plan to facilitate the relocation of
existing microwave operators to other spectrum blocks. This transition plan
allows non-public safety entities to operate in the PCS spectrum for a two-
year voluntary negotiation period and an additional one-year mandatory
negotiation period. For public safety entities dedicating a majority of their
system communications for police, fire or emergency medical services
operations, the voluntary negotiation period is three years, with a two-year
mandatory negotiation period. Parties unable to reach agreement within these
time periods may refer the matter to the FCC for resolution, but the existing
microwave user is permitted to continue its operations until final FCC
resolution. The voluntary negotiation period began with the grant of licenses
to the Company in March 1995. See "Business--Regulation--FCC Relocation
Requirements." There can be no assurance that the Company will be successful
in reaching timely agreements with the existing microwave licensees or that
any such agreements will be on terms favorable to the Company. Further,
depending on the terms of such agreements, the Company's ability to operate
its PCS systems profitably may be adversely affected.
Site acquisition. The successful implementation of the Company's PCS system
will be dependent, to a significant degree, upon the Company's ability to
lease or acquire cell sites for the location of its base station equipment.
The cell site selection process will require the lease or acquisition of
approximately 5,700 sites in 31 MTAs prior to commencement of commercial
operations of the Company's PCS network, many of which are likely to require
the Company to obtain zoning variances or other local governmental or third-
party approvals or permits. As of June 14, 1996, the Company had signed leases
or options for 2,705 sites of which 477 were pending zoning and 245 were zoned
and ready for construction. There are currently 133 sites under construction.
The inability of the Company to lease, acquire or otherwise attain rights to
the requisite number of cell sites or to obtain the requisite zoning and other
local approvals in a timely and cost-effective manner could have a material
adverse effect on the Company. As the Company expands the geographic coverage
of the system, it expects that the site acquisition process will continue,
subject to site availability and the continued need to receive zoning and
other local approvals.
15
<PAGE>
Radio frequency design implementation. There can be no assurance that the
Company and the Vendors will be able to implement the RF designs as scheduled
to meet the proposed service launch date or that changes to the RF design
resulting from site location, microwave interference or construction
difficulties will not have a negative impact on the ability of the Company to
operate the network successfully. Failure to implement RF designs could delay
such proposed launch and could delay completion of the initial buildout. Any
such significant delay could have a material adverse effect on the Company.
Network design and equipment. The Procurement Contracts require the Vendors
to provide the network infrastructure equipment and to assume much of the
responsibility for the design, engineering and construction of the network.
The Vendors, in turn, have subcontracted certain design, engineering and
construction responsibilities to major engineering and construction companies.
Any failure of the Vendors to manage the construction of the network or to
meet the Company's schedule will have an adverse impact on the ability of the
Company to commence commercial operations or to complete the initial buildout
of the network in a timely fashion. Problems in equipment availability and
performance and construction could delay the Company's launch of commercial
operations and initial network buildout or result in increased costs, which in
turn, could have a material adverse effect on the Company.
Lack of complete nationwide footprint. In order for the Company's
subscribers to use their handsets in areas outside the Company's network,
another CDMA-based PCS provider must operate in such area or the subscriber
must have a dual-mode, dual-band handset which would allow access to analog
cellular or other digital systems and, in either case, the Company must have
arrangements with such other PCS or cellular providers permitting the
Company's subscribers to access their respective services. The Company
currently does not have a license or any affiliation agreement enabling it to
provide coverage for 27% of the Pops in the United States, including those in
the following major cities and surrounding regions: Atlanta, Charlotte,
Chicago, Cincinnati, Cleveland, Columbus, El Paso, Houston, Jacksonville,
Knoxville, Memphis, Richmond and Tampa. Although there can be no assurance
that CDMA-based PCS providers will operate in these areas, the Company may
enter into affiliation agreements or contracts permitting subscribers to
utilize the services of any CDMA-based PCS providers in each of these areas.
The failure to obtain coverage for such areas may significantly impair the
Company's ability to provide nationwide service to its customers, which may
discourage potential customers from subscribing or encourage existing
customers to cancel their subscriptions. The ability of the Company's
subscribers to use other providers' PCS services will be limited by certain
technological constraints as well as the current lack of availability of dual-
mode, dual-band handsets which would permit the Company's subscribers to
utilize the services of non-CDMA-based PCS providers. See "--Technology Risks;
Availability of Handsets."
Information systems. The successful implementation and launch of the
Company's PCS system is dependent on the Company's ability to develop and
implement an integrated customer care, network management and billing system.
The majority of the systems work (including integration of hardware and
software) will be performed by the vendors using their platforms, some of
which are currently in development, some of which have not been tested in a
commercial environment and most of which have not been tested together to
ensure that they work as an integrated whole. Integration requires that
numerous and diverse hardware and software platforms work together through
interfaces that have not yet been tested together. The billing system that
will be a key component of the system operations is in testing and is not
currently used in commercial production by any wireless provider. Any failure
to develop an integrated information systems solution on schedule will have an
adverse effect on the ability of the Company to commence PCS commercial
operations in the fourth quarter of 1996.
Other factors. The Company's success in the implementation and operation of
its system is subject to other factors beyond the Company's control. These
factors include, without limitation, changes in general and local economic
conditions, availability of equipment necessary to operate the PCS system,
changes in communications service rates charged by others, fluctuations in the
supply and demand for PCS and the
16
<PAGE>
commercial viability of PCS systems as a result of competition with wireline
and wireless operators in the same geographic area, demographic changes that
might affect negatively the potential market for PCS, changes in federal and
state regulation of PCS systems (including the enactment of new statutes and
the promulgation of changes in the interpretation or enforcement of existing
or new rules and regulations) and advancements in technology that have the
potential of rendering obsolete the technology and equipment that the Company
is using to construct its PCS system. There can be no assurance that the
occurrence of one or more of these factors will not have a material adverse
effect on the Company's financial condition and results of operations.
TECHNOLOGY RISKS; AVAILABILITY OF HANDSETS
To date, CDMA technology has only recently been deployed in the United
States or internationally. Although the Company has selected CDMA technology
because the Company believes it will offer several advantages over other
technologies, CDMA may not provide the advantages expected by the Company. See
"Business--CDMA Technology."
CDMA is incompatible with other PCS technologies such as TDMA or GSM.
Although the Company believes that CDMA will become the dominant PCS
technology in North America, there can be no assurance that this will be the
case. See "Business--CDMA Technology." In order for the Company's subscribers
to use non-dual-mode handsets in other PCS markets (and vice versa), at least
one PCS licensee in the other market must deploy CDMA (as opposed to the other
competing PCS technologies) and such licensee must agree to allow subscribers
to utilize its network. While several major PCS providers have publicly
announced that they intend to deploy CDMA-based PCS systems, there can be no
assurance that such providers will do so.
Currently there are expected to be limited suppliers of CDMA handsets.
Although Sprint Spectrum has entered into an agreement with one such supplier
to purchase quantities of handsets it believes are sufficient to satisfy the
anticipated demand when commercial operations commence, there can be no
assurance that the supplier will be able to manufacture and deliver the number
of handsets ordered or that such supply will in fact be sufficient to meet
initial demand. Sprint Spectrum is currently negotiating with other suppliers
for the delivery of additional CDMA handsets commencing in the second quarter
of 1997. There can be no assurance, however, that terms satisfactory to Sprint
Spectrum will be reached with these suppliers or that these suppliers will
commence production or, if they do commence production, that they will be able
to deliver quality handsets in sufficient quantities in a timely manner.
While the Company believes that dual-mode, dual-band handsets that allow a
user to access both PCS systems and cellular networks will be commercially
available in the first half of 1997 (although sufficient quantities may not be
commercially available until the third quarter of 1997), there can be no
assurance that such handsets can be manufactured successfully or that the
Company's subscribers can obtain such handsets at competitive prices. In
addition, such dual-mode, dual-band handsets are expected to be more expensive
than single-mode handsets. Although the Company has been working closely with
its suppliers to develop high-quality dual-mode, dual-band handsets, such
handsets may fail to operate as expected. The lack of interoperability or the
comparatively higher cost of such handsets may impede the Company's ability to
attract current cellular subscribers or potential new wireless communications
subscribers.
AFFILIATE TRANSACTIONS; CONFLICTS OF INTEREST
The Company currently engages and intends to continue to engage in
transactions with Holdings and the Parents, including those transactions
described below. The Company has entered into and expects to enter into
affiliation agreements with other affiliates of Holdings, such as APC, Cox-
California and PhillieCo. Subject to certain conditions, the Company expects
to enter into sales agency agreements with the Parents for co-marketing of the
Company's wireless products and services, Sprint's long distance and local
telephone services and the Cable Parents' cable-based entertainment services.
The Parents and certain of their affiliates will be non-exclusive sales agents
for the Company's wireless services. The Company, in turn, will be a non-
exclusive sales
17
<PAGE>
agent for those services Sprint and the Cable Parents make available to the
Company. In addition, Sprint currently serves as the Company's agent for
selling paging services and will market these services through direct mail,
direct sales, employee programs, advertising and promotions. While the Company
will endeavor to negotiate all transactions with the Parents and their
affiliates on an arm's-length basis, there can be no assurance that all such
transactions will be on terms no less favorable to the Company than could
reasonably be obtained in a comparable arm's length transaction with a non-
affiliate or that significant conflicts of interest between the Company and
Holdings or any of the Parents will not develop. See "The Partnership
Agreements--Holdings Partnership Agreement" and "Certain Relationships and
Related Transactions."
DEADLOCK EVENT
The Holdings Partnership Agreement (as defined) provides that Holdings will
be dissolved upon the failure of the General Partners (as defined) of Holdings
to resolve a "Deadlock Event," which is deemed to occur if the Partnership
Board (as defined) (i) fails to approve a proposed annual budget or business
plan for two consecutive fiscal years or (ii) if the position of chief
executive officer remains vacant for sixty days after a candidate has been
proposed by at least two Partners having an aggregate of at least 33% of the
Voting Percentage Interest (as defined). Upon the occurrence of a Deadlock
Event, the General Partners will first try for a period of 20 days to use
their good faith efforts to resolve the Deadlock Event. If the General
Partners are unable to resolve the matter, such matter will be referred to the
chief executive officers of the Parents. In the event the chief executive
officers fail to reach a resolution, the matter will be referred to a
mediation service. If the mediator and the General Partners fail to resolve
the Deadlock Event, Holdings will be liquidated unless the Partnership Board,
by a majority vote of 75%, determines not to dissolve or the buy-sell
arrangements contained in the Holdings Partnership Agreement are employed.
There can be no assurance that a Deadlock Event will not occur or if such
event does occur that resolution procedures will be successful or that the
Deadlock Event will not have a material adverse effect on the ability of
Sprint Spectrum's management to operate the Company's PCS business in the
ordinary course. See "The Partnership Agreements--Holdings Partnership
Agreement."
ABILITY TO SERVICE DEBT; RESTRICTIVE COVENANTS; REFINANCING RISKS
The Company expects to incur, and the Indentures will permit the Company to
incur, substantial indebtedness in addition to the Notes, including
indebtedness under the $2.0 billion Bank Credit Facility and the $3.1 billion
Vendor Financing. See "--Substantial Capital Requirements and Liquidity."
The Secured Financing and the respective credit agreements relating thereto
will contain, and any additional financing agreements may contain, certain
restrictive covenants. The restrictions contained in the Indentures and those
expected to be contained in the Secured Financing will affect, and in some
cases will limit or prohibit significantly, among other things, the ability of
the Company to incur additional indebtedness (beyond specified amounts), make
prepayments of certain indebtedness, pay dividends, make investments, engage
in transactions with equityholders and affiliates, issue equity of
subsidiaries, create liens, sell assets and engage in mergers and
consolidations. If the Company fails to comply with the restrictive covenants
in the Indentures, the Company's obligation to repay the Notes may be
accelerated. However, the limitations set forth in the Indentures will be
subject to a number of important qualifications and exceptions. In particular,
while the Indentures will restrict the Company's ability to incur additional
indebtedness by requiring compliance with certain financial ratios, they will
permit the Company and its subsidiaries to incur substantial additional
indebtedness. See "Description of the Notes." In addition to the restrictive
covenants described above, the Secured Financing will require the Company to
maintain certain financial ratios and other operating performance tests. The
failure of the Company to maintain such ratios or comply with such tests would
constitute events of default under the Secured Financing notwithstanding the
ability of the Company to meet its debt service obligations. An event of
default under the Secured Financing would allow the lenders thereunder to
accelerate the maturity of the indebtedness thereunder. In such event, a
significant portion of the Company's other indebtedness (including the Notes)
may be declared immediately due and payable. See "Description of Vendor
Contracts and Financing."
18
<PAGE>
The Company's ability to meet its debt obligations will be dependent upon
the Company's successful completion of its planned PCS network and the
Company's future performance, which is subject to numerous factors, many of
which are beyond the Company's control. See "--Network Buildout and System
Implementation Risks." There can be no assurance that the Company can complete
construction of its wireless network or that, if completed, the Company will
generate sufficient cash flow from operating activities to meet its debt
service, capital expenditure and working capital requirements. Substantially
all of the indebtedness under the Secured Financing is likely to mature prior
to the maturity of the Notes. The Company expects that such indebtedness and
the Notes may need to be refinanced at their maturity. The Company's ability
to refinance such indebtedness will depend on, among other things, its
financial condition at the time, the restrictions in the instruments governing
its indebtedness and other factors, including market conditions, beyond the
control of the Company. In addition, in the event the completion of its
wireless network is delayed or the Company does not generate sufficient cash
flow from operating activities to meet its debt service requirements, the
Company may need to seek additional financing not currently contemplated.
There can be no assurance that any such financing or refinancing could be
obtained on terms that are acceptable to the Company, if at all. In the
absence of such financing or refinancing, the Company could be forced to
dispose of assets in order to cover any shortfall in the payments due on its
indebtedness and such disposition may occur under circumstances that might not
be favorable to realizing the highest price for such assets.
STRUCTURAL SUBORDINATION OF THE NOTES TO SUBSIDIARY INDEBTEDNESS; ASSET
ENCUMBRANCES
The Notes will not be obligations of any of the subsidiaries of Sprint
Spectrum (other than FinCo). A substantial portion of the assets of Sprint
Spectrum will be owned by Sprint Spectrum's subsidiaries and, accordingly,
claims of holders of Notes will be structurally subordinated to the claims of
such subsidiaries' creditors, including lenders and trade creditors, of such
subsidiaries. The Indentures will permit Sprint Spectrum and its subsidiaries
to incur substantial indebtedness, including indebtedness expected to be
incurred under the Secured Financing. See "Description of the Notes--Certain
Covenants."
The Notes will not be secured by any of the Company's assets. The
obligations of the Company and its principal subsidiaries under the Secured
Financing will be secured by substantially all of the assets of Sprint
Spectrum including the partnership interests it holds in WirelessCo, RealtyCo
and EquipmentCo. If the Company becomes insolvent or is liquidated, or if
payment under the Secured Financing is accelerated, the lenders under the
Secured Financing would be entitled to exercise the remedies available to a
secured lender under applicable law and pursuant to the terms of the Secured
Financing. Accordingly, any claims of such lenders with respect to such assets
will be prior to any claim of the holders of the Notes with respect to such
assets. There can be no assurance that the Company's assets could be sold
quickly enough, or for sufficient amounts, to enable the Company to meet its
obligations (including its obligations with respect to the Notes). See
"Description of Vendor Contracts and Financing."
LIMITED PCS OPERATING HISTORY IN THE UNITED STATES; SIGNIFICANT CHANGE IN
WIRELESS INDUSTRY
PCS systems have no significant operating history in the United States and
there can be no assurance that operation of these systems will become
profitable. In addition, the extent of potential demand for PCS in the
Company's markets cannot be estimated with any degree of certainty. The
inability of the Company to establish PCS service or to obtain appropriate
equipment for its PCS system could have a material adverse effect on the
Company's financial condition and results of operations. The wireless
telecommunications industry is experiencing significant technological change,
as evidenced by the increasing pace of digital upgrades in existing analog
wireless systems, evolving industry standards, ongoing improvements in the
capacity and quality of digital technology, shorter development cycles for new
products and enhancements and changes in end-user requirements and
preferences. There is also uncertainty as to the extent of customer demand as
well as the extent to which airtime and monthly access rates may continue to
decline. As a result, the future prospects of the industry and the Company and
the success of PCS and other competitive services remain uncertain.
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<PAGE>
COMPETITION
There is substantial competition in the wireless telecommunications
industry. In addition, the Company expects competition in the wireless
telecommunications business to intensify as a result of the entrance of new
competitors and the development of new technologies, products and services.
Each of the markets in which the Company competes will be served by other two-
way wireless service providers, including cellular and PCS operators and
resellers. Many of these competitors have been operating for a number of
years, currently serve a substantial subscriber base and have significantly
greater financial and technical resources than those available to the Company.
Certain of the Company's competitors are operating, or planning to operate,
through joint ventures and affiliation arrangements, wireless
telecommunications systems that encompass most of the United States. Principal
PCS competitors in the Company's markets include American Portable Telecom,
Inc., AT&T Wireless Services, Inc., Omnipoint Corporation, Pacific Bell Mobile
Systems, Inc., PCS PrimeCo L.P. and Western Wireless Corporation.
The Company also expects that existing cellular providers, some of which
have an infrastructure in place and have been operational for a number of
years, will upgrade their systems and provide expanded and digital services to
compete with the Company's PCS system. Principal cellular providers in the
Company's markets include AirTouch Communications, Inc., BellSouth Mobility,
Inc., Ameritech Mobile Communications, Inc., Bell Atlantic NYNEX Mobile,
Southwestern Bell Mobile Systems, AT&T Wireless Services, Inc., GTE Mobilnet,
Inc. and 360(degrees) Communications Company.
The Company anticipates that market prices for two-way wireless services
generally will decline in the future based upon increased competition. The
Company intends to compete to attract and retain customers principally on the
basis of services and features and packages thereof, its emphasis on customer
care, the size and location of its service areas and pricing. The Company's
ability to compete successfully will also depend, in part, on its ability to
anticipate and respond to various competitive factors affecting the industry,
including new services that may be introduced, changes in consumer
preferences, demographic trends, economic conditions and discount pricing
strategies by competitors all of which could adversely affect the Company's
operating margins.
Handsets used for CDMA-based PCS systems will not be compatible with
cellular systems and vice versa. The Company expects dual-mode, dual-band
handsets to be commercially available in the first half of 1997 (although
sufficient quantities may not be commercially available until the third
quarter of 1997). Once such handsets are available, if the Company decides to
offer roaming services and is able to negotiate satisfactory roaming
agreements, subscribers will be able to roam by using the existing cellular
wireless system in other markets. Until then, this lack of interoperability
may impede the Company's ability to attract current cellular subscribers or
potential new wireless communication subscribers that desire the ability to
access different service providers in the same and other markets.
Initially the cost to the Company of PCS handsets may not be competitive
with the cost to cellular operators of analog cellular handsets. While the
Company believes that its PCS handsets will be competitively priced as
compared to digital cellular handsets of comparable size, weight and features,
cellular operators may subsidize the sale of digital handset units at prices
below those with which the Company can compete.
The Company's ability to compete successfully in the wireless communications
market will be dependent upon, among other things, its ability to complete the
buildout of its wireless network and offer its products and services to
customers on a timely basis. There can be no assurance that the Company will
be able to compete successfully in this environment or that new technologies
and products that are more commercially effective than the Company's
technologies and products will not be developed.
GOVERNMENT REGULATION
The licensing, construction, operation, sale and interconnection
arrangements of wireless telecommunications systems are regulated to varying
degrees by the FCC and, depending on the jurisdiction, state and local
regulatory agencies. In addition, the FCC, in conjunction with the Federal
Aviation Administration
20
<PAGE>
(the "FAA"), regulates tower marking and lighting. There can be no assurance
that either the FCC, the FAA or those state agencies having jurisdiction over
the Company's business will not adopt regulations or take other actions that
would adversely affect the business of the Company.
FCC licenses to provide PCS services are subject to renewal and revocation.
The Company's PCS licenses will expire in 2005. There may be competition for
the licenses held by the Company upon their expiration and there can be no
assurance that the Company's licenses will be renewed. FCC rules require all
PCS licensees to meet certain requirements including, without limitation,
coverage of 33% of Pops in each MTA within the first five years and 67% within
the first 10 years of the award of a license. There can be no assurance that
the Company will be able to obtain the requisite coverage in each MTA. Failure
to comply with these requirements could cause revocation or forfeiture of the
Company's PCS licenses or the imposition of fines on the Company by the FCC.
See "Business--Regulation."
RADIO FREQUENCY EMISSION CONCERNS; MEDICAL DEVICE INTERFERENCE
Certain interest groups have requested that the FCC investigate claims that
wireless communications technology poses health concerns and causes
interference with hearing aids and other medical devices. The Center for the
Study of Electromagnetic Compatibility at the University of Oklahoma, which
was founded in 1994 with funds from the wireless industry, is studying this
issue and has released results from the first phase of its study which focused
on worst case (operation at full-power) interaction and which indicated that
the three wireless technologies tested, including CDMA, caused interference in
some instances, but not all, with hearing aids. In addition, the Personal
Communications Industry Association (the "PCIA") announced in July 1995 that
it was undertaking an industry-wide study to gather information on possible
PCS interference with medical devices for all PCS protocols. There can be no
assurance that the findings of such studies will not have an adverse effect on
the Company's financial condition and results of operations or that such
findings will not lead to additional governmental regulations that will have
an adverse effect on the Company's financial condition and results of
operations.
Preliminary results from researchers working under the guidance of the
Wireless Technology Research LLC ("WTR") indicate that digital wireless
telephones cause interference to some users of cardiac pacemakers. The
researchers have recommended that patients dependent on pacemakers avoid using
digital telephones and that nondependent users keep such telephones away from
implanted devices. Permanent recommendations from the WTR are expected in July
or August of 1996. There can be no assurance that such recommendations will
not lead to governmental regulation or that such recommendations will not have
a material adverse effect on the Company.
Media reports have suggested that certain RF emissions from portable
cellular telephones might be linked to cancer. Concerns over RF emissions may
have the effect of discouraging the use of cellular telephones and other
wireless communications services, including PCS, which could have an adverse
effect upon the Company's financial condition and results of operations. The
FCC has a rulemaking proceeding pending to update the guidelines and methods
it uses for evaluating RF emissions from radio equipment, including cellular
telephones. Although PCS handsets operate at lower power than cellular
handsets and are therefore likely to comply with the new proposed standards,
the same concerns about RF emissions could be present with PCS handsets.
REPURCHASE OF THE NOTES UPON A CHANGE OF CONTROL
Upon a Change of Control (as defined), the Company must offer to purchase
the (i) Senior Notes then outstanding at a purchase price equal to 101% of the
principal amount thereof, plus accrued and unpaid interest to the date of
purchase and (ii) Senior Discount Notes then outstanding at a purchase price
equal to 101% of the Accreted Value if the Change of Control Payment Date (as
defined) is on or before , 2001 and 101% of the principal amount at
maturity of the Senior Discount Notes, plus accrued and unpaid interest
thereon to the Change of Control Payment Date, if such date is after ,
2001. See "Description of the Notes--Certain Covenants--Change of Control."
21
<PAGE>
The Change of Control purchase feature of the Notes may in certain
circumstances discourage or make more difficult a sale or takeover of the
Company. In addition, a "change of control" or the loss of the Company's right
to use the Sprint trademark under the trademark license agreement will
constitute an event of default under the Bank Credit Facility and the Vendor
Financing, permitting the lenders thereunder to accelerate their secured
claims against Sprint Spectrum and its subsidiaries. There can be no assurance
that Sprint Spectrum will have sufficient funds available at the time of any
Change of Control, or following satisfaction of such prior claims, to effect a
Change of Control Offer (as defined).
ORIGINAL ISSUE DISCOUNT CONSEQUENCES OF SENIOR DISCOUNT NOTES
The Senior Discount Notes will be issued at a substantial discount from
their principal amount at maturity. Although cash interest will not accrue on
the Senior Discount Notes prior to , 2001, and there will be no periodic
payments of cash interest on the Senior Discount Notes prior to , 2002,
original issue discount (the difference between the stated redemption price at
maturity and the issue price of the Senior Discount Notes) will accrue from
the issue date of the Senior Discount Notes. Consequently, purchasers of
Senior Discount Notes generally will be required to include amounts in gross
income for United States federal income tax purposes in advance of their
receipt of the cash payments to which the income is attributable. Such amounts
in the aggregate will be equal to the difference between the stated redemption
price at maturity (inclusive of stated interest on the Senior Discount Notes)
and the issue price of the Senior Discount Notes. See "Certain Federal Income
Tax Consequences" for a more detailed discussion of the federal income tax
consequences of the purchase, ownership and disposition of the Senior Discount
Notes.
In the event a bankruptcy case is commenced by or against the Company under
the United States Bankruptcy Code after the issuance of the Senior Discount
Notes, the claim of a holder of Senior Discount Notes may be limited to an
amount equal to the sum of (i) the initial offering price and (ii) that
portion of the original issue discount which is not deemed to constitute
"unmatured interest" for purposes of the Bankruptcy Code. Any original issue
discount that was not amortized as of the date of any such bankruptcy filing
would constitute "unmatured interest." To the extent that the Bankruptcy Code
differs from the Internal Revenue Code in determining the method of
amortization of original issue discount, a holder of Senior Discount Notes may
realize taxable gain or loss on payment of such holder's claim in bankruptcy.
ABSENCE OF PUBLIC MARKET
There is no existing trading market for the Notes. The Issuers do not intend
to have the Notes listed for trading on any securities exchange or quoted on
any automated dealer quotation system. Although each Underwriter has advised
the Company that it presently intends to make a market in the Notes, it is not
obligated to do so and any such market-making may be discontinued at any time
without notice. Accordingly, there can be no assurance as to the prices or
liquidity of, or trading markets for, the Notes. The liquidity of any market
for the Notes will depend upon the number of holders of such Notes, the
interest of securities dealers in making a market in the Notes and other
factors. The absence of an active market for the Notes offered hereby could
adversely affect their market price and liquidity. The liquidity of, and
trading markets for, the Notes may also be negatively affected by general
declines in the market for noninvestment grade debt independent of the
financial performance of, or prospects for, the Company.
22
<PAGE>
THE COMPANY
Sprint Spectrum was formed in March 1995 as a Delaware limited partnership.
Sprint Spectrum currently has three limited partnership subsidiaries:
WirelessCo which was formed in 1994 in anticipation of the FCC auctions and
owns all of the Company's PCS licenses; RealtyCo which will own the cell site
leases and other real property; and EquipmentCo which will own the vendor-
provided network infrastructure equipment. See "Prospectus Summary--the
Company" and "Business." FinCo, a Delaware corporation and wholly-owned
subsidiary of Sprint Spectrum, was formed solely for the purpose of acting as
a co-obligor of the Notes. FinCo has only nominal assets, does not conduct any
operations and will receive none of the proceeds of the Offering. Accordingly,
investors in the Notes should look only to the cash flow and assets of Sprint
Spectrum for payment of the Notes. Holdings is the general partner of, and
owns a greater than 99% general partnership interest in, Sprint Spectrum.
Holdings was organized as a Delaware limited partnership on March 28, 1995 and
its primary business activity consists of its ownership of Sprint Spectrum and
other limited partnership interests in wireless affiliates, including APC and
Cox-California. Sprint Spectrum and FinCo will be the sole obligors of the
Notes.
The following is a chart of the ownership structure of Holdings and the
Company:
(MAC CHART)
Chart of ownership structure of Issuers including general partner,
subsidiaries, and partners of Holdings.
The principal executive offices of each registrant are located at 4717 Grand
Avenue, Fifth Floor, Kansas City, Missouri 64112, and each registrant's
telephone number is (816) 559-1000.
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<PAGE>
THE PARENTS
Sprint Corporation. Sprint, through its subsidiaries and affiliates,
provides domestic and international long distance and local exchange
telecommunications services as well as the wholesale distribution of
telecommunications products and the publishing and marketing of white and
yellow page telephone directories. Sprint's long distance division is the
nation's third largest long distance telephone company, operating a nationwide
all-digital long distance communications network utilizing state-of-the-art
fiber optic and electronic technology. The long distance division provides
domestic and international long distance voice, video and data communications
services to approximately 8.0 million customers. The local division is
comprised of local exchange carriers ("LECs") that service approximately 6.8
million access lines in 19 states. In addition to providing local exchange
services, the division provides intraLATA toll service and access by other
carriers to Sprint's local exchange facilities. Because FCC regulations
prohibit a single provider from holding both cellular and PCS licenses for the
same territory, in March 1996 Sprint divested its cellular unit (now known as
360(degrees) Communications Company) via a spin-off to shareholders.
Tele-Communications, Inc. TCI is principally engaged in the construction,
acquisition, ownership and operation of cable television systems and the
provision of satellite-delivered video entertainment, information and home
shopping programming services to various video distribution media, principally
cable television systems. TCI also has investments in cable and
telecommunications operations and television programming in certain
international markets as well as investments in companies and joint ventures
involved in developing and providing programming for new television and
telecommunications technologies. TCI is one of the largest cable television
operators in the United States in terms of the number of basic subscribers,
with consolidated systems serving approximately 13.0 million subscribers at
March 31, 1996. Through Liberty Media Corporation, TCI is involved in (i) the
production, acquisition and distribution of branded entertainment, educational
and informational programming and software, (ii) electronic retailing, direct
marketing, advertising sales related programming services, infomercials and
transaction processing and (iii) domestic programming businesses, including,
among others, Turner Broadcasting System, The Discovery Channel, Home Shopping
Network, Inc. and QVC, Inc.
Comcast Corporation. Comcast and its subsidiaries are principally engaged in
the development, management and operation of cable and cellular telephone
communications systems and the production and distribution of cable
programming. Comcast has approximately 3.5 million cable television
subscribers in the United States. In the United Kingdom, Comcast is
constructing a cable telecommunications network that will pass approximately
229,000 homes and holds investments in cable television and telecommunications
companies that have the potential to serve an additional 1.2 million homes.
Comcast also provides cellular telephone communications services in markets
with a population of over 7.9 million, including the area in and around
Philadelphia and parts of Delaware and New Jersey.
Cox Communications, Inc. Cox is a fully integrated, diversified media and
broadband communications company with operations and investments in four
related areas: (i) United States cable televisions systems (3.3 million
wholly-owned and affiliated subscribers); (ii) international cable television
systems; (iii) programming; and (iv) telecommunications and technology. Cox
has invested significantly in cable systems in the United Kingdom and in
Denmark. Cox also holds substantial investments in several cable television
networks, including The Discovery Channel, The Learning Channel, E!
Entertainment, UK Gold and Viewer's Choice. Cox has numerous investments in
the telecommunications and technology industries, including businesses
involved in residential and business telephony, on-screen programming guides,
computer software and interactive services.
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<PAGE>
USE OF PROCEEDS
The net proceeds to Sprint Spectrum from the sale of the Notes offered
hereby are estimated to be approximately $ , after deducting estimated
discounts, commissions and offering expenses. FinCo will not receive any
proceeds from the Offering. The Company intends to use the net proceeds from
the Offering to fund capital expenditures, including the buildout of a
nationwide PCS network, to fund working capital and debt service requirements,
to fund operating losses and for other partnership purposes. See "Prospectus
Summary--Network Buildout and Financing Plan."
CAPITALIZATION
The following tables set forth as of March 31, 1996 the actual
capitalization of the Company and the capitalization of the Company on a pro
forma basis to reflect the Reorganization and as adjusted for the Offering.
This information should be read in conjunction with the consolidated financial
statements of the Company and notes thereto appearing elsewhere in this
Prospectus. It is expected that the Company will incur substantial additional
indebtedness following the Offering, including up to $5.1 billion in aggregate
principal amount under the Secured Financing.
<TABLE>
<CAPTION>
MARCH 31, 1996
------------------------------
PRO FORMA FOR THE
REORGANIZATION
AND AS ADJUSTED
ACTUAL FOR THE OFFERING
---------- ------------------
(IN THOUSANDS)
<S> <C> <C>
Cash and cash equivalents...................... $ 16 $ 653,135 (1)
========== ==========
Long-term debt:
Note payable to affiliate.................... $ 5,000 $ 5,000
Senior Notes offered hereby.................. -- 150,000
Senior Discount Notes offered hereby......... -- 500,000 (2)
---------- ----------
Total long-term debt....................... 5,000 655,000 (1)
Limited partner interest in consolidated sub-
sidiary....................................... 5,000 10,000
Partners' capital and accumulated deficit:
Partners' capital............................ 2,337,543 2,188,303
Deficit accumulated during the development
stage....................................... (89,138) (98,723)
---------- ----------
Total partners' capital.................... 2,248,405 2,089,580
---------- ----------
Total capitalization..................... $2,258,405 $2,754,580
========== ==========
</TABLE>
- - --------
(1) Reflects gross proceeds of $650 million from the Offering before
underwriting discounts and commissions and expenses.
(2) Reflects gross proceeds from the issuance of the Senior Discount Notes.
25
<PAGE>
SELECTED HISTORICAL AND PRO FORMA FINANCIAL DATA
The following table presents selected historical consolidated financial data
for the Company as of the dates and for the periods indicated. The
consolidated financial data for the period from October 24, 1994 to December
31, 1994 and for the year ended December 31, 1995 were derived from the
audited consolidated financial statements of the Company. The consolidated
financial data for the quarters ended March 31, 1995 and March 31, 1996,
respectively, and for the cumulative period from October 24, 1994 to March 31,
1996 were derived from the unaudited financial statements of the Company. Due
to the development stage nature of the Company, period-to-period comparisons
of financial data are not indicative of results for subsequent periods or the
full year and should not be relied upon as an indication of the future
performance of the Company. The following data should be read in conjunction
with "Management's Discussion and Analysis of Financial Condition and Results
of Operations" and the Company's consolidated financial statements and the
notes thereto included elsewhere in this Prospectus.
The Company's historical consolidated financial information does not reflect
the Reorganization. To assist prospective investors, the pro forma and as
adjusted data set forth below reflect the historical financial information of
the Company as adjusted to give effect to (1) the Reorganization on a pro
forma basis as if it had occurred at the beginning of the periods presented or
as of the date presented and (2) the Reorganization and the Offering as if
they had occurred on March 31, 1996.
<TABLE>
<CAPTION>
FOR THE
FOR THE CUMULATIVE
PERIOD FROM PERIOD FROM PRO FORMA FOR THE
OCTOBER 24, OCTOBER 24, REORGANIZATION
1994 FOR THE THREE 1994 --------------------------
(DATE OF FOR THE MONTHS ENDED (DATE OF FOR THE FOR THE THREE
INCEPTION) TO YEAR ENDED MARCH 31, INCEPTION) TO YEAR ENDED MONTHS ENDED
DECEMBER 31, DECEMBER 31, ------------------- MARCH 31, DECEMBER 31, MARCH 31,
1994 1995 1995 1996 1996 1995 1996
------------- ------------ ------- -------- ------------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA
(IN THOUSANDS):
Operating expenses:
General and
administrative........ $ 1,371 $ 1,221 $ 1,273 $ -- $ 2,592 $ 37,460 $ 19,862
Professional and legal
fees.................. 1,923 2,310 2,335 -- 4,233 26,849 10,862
Depreciation........... 38 47 47 -- 85 211 254
------- -------- ------- -------- ---------- ---------- ----------
Total operating
expenses.............. 3,332 3,578 3,655 -- 6,910 64,520 30,978
Other income (expense):
Interest income........ 24 253 275 (67) 210 260 (358)
Other income........... -- -- -- -- -- 38 143
Equity in loss of
unconsolidated
partnership........... -- (46,206) (3,409) (36,232) (82,438) -- --
------- -------- ------- -------- ---------- ---------- ----------
Total other income
(expense)............. 24 (45,953) (3,134) (36,299) (82,228) 298 (215)
------- -------- ------- -------- ---------- ---------- ----------
Net loss................ $(3,308) $(49,531) $(6,789) $(36,299) $(89,138) $(64,222) $(31,193)
======= ======== ======= ======== ========== ========== ==========
RATIO OF EARNINGS TO
FIXED CHARGES(1) -- -- -- -- -- -- --
<CAPTION>
AT MARCH 31, 1996
----------------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
------------- ------------ -------------
BALANCE SHEET DATA (IN THOUSANDS):
<S> <C> <C> <C>
Assets:
Current assets...................................................... $ 1,298 $ 4,974 $ 654,974 (2)
Investment in PCS licenses.......................................... 2,124,594 2,124,594 2,124,594
Investment in unconsolidated partnership............................ 49,314 -- --
Note receivable--unconsolidated partnership......................... 83,655 -- --
Property, plant and equipment (net)................................. -- 76,129 76,129
---------- ---------- ----------
Total assets........................................................ $2,258,861 $2,205,697 $2,855,697
========== ========== ==========
Liabilities and partners' capital:
Current liabilities................................................. $ 456 $ 96,870 $ 96,870
Deferred compensation............................................... -- 4,247 4,247
Note payable to affiliate........................................... 5,000 5,000 5,000
Long-term debt...................................................... -- -- 650,000 (2)
Limited partner interest in consolidated subsidiary................. 5,000 10,000 10,000
Partners' capital................................................... 2,248,405 2,089,580 2,089,580
---------- ---------- ----------
Total liabilities and partners' capital............................. $2,258,861 $2,205,697 $2,855,697
========== ========== ==========
</TABLE>
- - -------
(1) For purposes of determining the ratio of earnings to fixed charges,
earnings (loss) is defined as losses from continuing operations excluding
equity in losses of unconsolidated partnerships. Losses as defined were
$3,308,000, $3,325,000 and $6,633,000 for the period October 24, 1994 to
December 31, 1994, the year ended December 31, 1995 and for the cumulative
period from October 24, 1994 to December 31, 1995, respectively. On a pro
forma basis after giving effect to the Reorganization, such losses would
have been $3,308,000, $64,222,000 and $67,530,000, respectively. Fixed
charges consist of interest expense on all indebtedness (including
amortization of deferred debt issuance (costs) and the portion of rental
expense that is representative of the interest factor. The Company had no
fixed charges as defined for any of the periods indicated.
(2) Reflects gross proceeds of $650 million from the Offering before
underwriting discounts and commissions and expenses.
26
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with the
Company's consolidated financial statements and notes thereto appearing
elsewhere in this Prospectus. The Company's consolidated financial information
does not reflect the transfer of all of Holdings' assets used in the Company's
PCS business to subsidiaries of Sprint Spectrum (which occurred on July 1,
1996) and the planned distribution of the Company's interest in APC to
Holdings (which is expected to occur following the Offering). To assist
prospective investors, pro forma and as adjusted information reflecting the
Reorganization and the Offering have been set forth in "Selected Historical
and Pro Forma Financial Data" and certain of the discussion below is presented
on a pro forma basis as though the Reorganization had occurred.
GENERAL
The Company is a development stage enterprise formed for the purpose of
establishing a nationwide PCS wireless telecommunications network. The Company
acquired 29 PCS licenses in the FCC's A Block and B Block PCS auction which
concluded in March 1995. The Company also has an affiliation agreement with
APC and expects to have affiliation agreements with Cox-California and
PhillieCo. In addition, Cox has agreed to contribute to the Company, upon FCC
approval, which is pending, a PCS license for the Omaha MTA. The Company has
four subsidiaries: WirelessCo, RealtyCo, EquipmentCo and FinCo.
To date, the Company has incurred expenditures in conjunction with PCS
license acquisitions, initial design and construction of the PCS network,
engineering, marketing, administrative and other start up related expenses.
The Company has not yet commenced commercial operations and, as a result, has
not yet generated operating revenue or earnings. The Company intends to
commence marketing efforts and launch commercial service in the fourth quarter
of 1996 and to continue to expand its coverage in its PCS markets to reach
approximately 70% of the Pops in its license areas in the aggregate by the end
of 1997. Thereafter, the Company will evaluate further coverage expansion on a
market-by-market basis, eventually targeting coverage of 80% of the Pops in
its license areas in the aggregate, thereby substantially completing its
planned network buildout. 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, license acquisitions, working capital, debt service requirements
and anticipated operating losses) for the period from inception through the
end of 1998 (assuming substantial completion of the Company's network buildout
to cover 80% of the Pops in its current license areas in the aggregate by the
end of 1998) will total approximately $7.9 billion (of which approximately
$2.2 billion had been expended as of March 31, 1996). The Company will also
require substantial additional capital after 1998 for coverage expansion and
volume-driven network capacity and other capital expenditures for existing and
new license areas (if any), new license acquisitions or affiliation
arrangements (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. Under the Procurement Contracts, the Company is required to purchase
minimum amounts of equipment and services from each Vendor. Actual amounts of
the funds required may vary materially from these estimates and additional
funds would be required
27
<PAGE>
in the event of significant departures from the current business plan,
unforeseen delays, cost overruns, unanticipated expenses, regulatory expenses,
engineering design changes and other technological risks.
The Company currently has no sources of revenue to meet its capital
requirements and has relied upon capital contributions and advances from
Holdings. Holdings also requires capital for its affiliate investments and
other partnership purposes. The Partners have agreed to contribute up to an
aggregate of $4.2 billion of equity to Holdings to the extent required by the
annual budgets of Holdings through fiscal 1999 as approved by the Partners. As
of March 31, 1996, approximately $2.4 billion had been contributed to Holdings
of which $2.2 billion had been contributed to the Company and the remaining
$0.2 billion had been contributed or advanced to APC. The Company currently
intends to obtain up to $1.4 billion of additional equity following March 31,
1996, resulting in $3.6 billion in aggregate invested equity capital in the
Company, although there can be no assurance that any additional capital will
be obtained in the form of equity from the Parents or otherwise. The Parents
presently expect to make available or cause Holdings to make available to the
Company up to $1.0 billion of such additional equity, to the extent required
by the Company. The Company's business plan and the financial covenants and
other terms of the Secured Financing are expected to require such additional
equity financing prior to the end of 1998, absent a new financing source. The
$0.8 billion balance (of the $4.2 billion) that may be available to Holdings
from the Partners may be used by Holdings to fund the Company's capital needs
and its other affiliate commitments or to make other wireless investments.
Amounts budgeted by the Partners in future years will determine the extent to
which the commitments will actually be utilized. See "Risk Factors--
Substantial Capital Requirements and Liquidity" and "The Partnership
Agreements--Holdings Partnership Agreement--Capital Contributions" for a
discussion of the equity capital commitments to Holdings.
The Company has obtained commitments from Nortel for $1.3 billion and from
Lucent for $1.8 billion of senior secured loans to finance purchases of PCS
equipment and related services and costs. The Nortel Financing requires, as a
condition to funding, the commitment of additional financing from third-
parties, including the Offering, the Bank Credit Facility or other debt
financing and equity financing. The Vendor Financing will contain certain
customary conditions which must be satisfied in order for the Company to
access funds. The Company will use the proceeds of the Vendor Financing to
fund the purchase of the equipment and software manufactured by the vendors as
well as substantially all of the construction and ancillary equipment (e.g.,
towers, antennae, cable) required to construct the Company's PCS network.
These facilities would serve as the primary financing mechanism for the
buildout of the network. See "Risk Factors--Substantial Capital Requirements
and Liquidity" and "Description of Vendor Contracts and Financing--Vendor
Financing." The Company has received a commitment from Chemical Bank to
provide a fully underwritten $2.0 billion Bank Credit Facility to finance
working capital, capital expenditures, operating losses and other partnership
purposes. The Company will have amortization obligations under the Secured
Financing and minimum purchase obligations under the Procurement Contracts.
These commitments are subject to, among other conditions, the execution and
delivery of definitive documentation for the Secured Financing.
Sources of funding for the Company's further financing requirements may
include additional vendor financing, public offerings or private placements of
equity and/or debt securities, commercial bank loans and/or capital
contributions from Holdings or the Partners. There can be no assurance that
the Secured Financing or any additional financing will be available to the
Company or, if available, that such financing can be obtained on a timely
basis and on terms acceptable to the Company and within limitations contained
in the Indentures, the agreements governing the Secured Financing and any new
financing arrangements. Failure to obtain any such financing could result in
the delay or abandonment of the Company's development and expansion plans and
expenditures or the failure to meet regulatory requirements. It also could
impair the Company's ability to meet its debt service requirements (including
its obligations with respect to the Notes) and could have a material adverse
effect on its business.
The Company's net cash used in 1994 totaled $118.4 million which consisted
primarily of deposits placed with the FCC in advance of the auction for the
PCS licenses. For the year ended December 31, 1995, the Company had a net cash
usage of $2.1 billion. Cash used in operations was $6.8 million which
consisted of the operating loss of $49.5 million (which includes the equity in
the loss at APC) and is offset, in part, by
28
<PAGE>
increased payables and other accruals. Cash used in investing activities
totaled $2.1 billion, consisting of a $2.0 billion purchase of PCS licenses
from the FCC and a $131.8 million investment in APC. For the quarter ended
March 31, 1996, total cash usage was $84.1 million. Cash used in operations
consisted of operating losses of $36.3 million offset, in part, by equity in
the loss of APC. Cash used in investing activities totaled $83.0 million and
was primarily for an advance to APC. Since the Company's inception, all of the
cash used in operations and for investing activities has been provided by the
Partners in the form of cash equity contributions which totalled $2.4 billion
at March 31, 1996.
Prior to the transfer of APC to Holdings, WirelessCo will have certain
obligations in respect of APC. During the initial five year build-out period
ending December 1999, American Personal Communications, Inc. ("APC, Inc."),
the 51% owner of APC, and WirelessCo are obligated as follows: (a) APC, Inc.
is obligated to make capital contributions in an amount equal to the aggregate
principal and interest payments to the FCC for APC's PCS license, provided
APC, Inc. has sufficient cash flow or can obtain financing from a third party;
(b) if APC, Inc. is unable to meet such obligation, WirelessCo is required to
contribute the shortfall; (c) WirelessCo is required to contribute to APC cash
necessary for operations up to an amount of approximately $98 million; and (d)
WirelessCo is obligated to fund the cash requirements of APC in excess of that
described in (a), (b), and (c) above, in the form of either loans or
additional capital up to an aggregate of $275 million. As of December 31,
1995, $98 million of equity had been contributed and $654,982 of partner
advances had been extended to APC. An additional $83 million of partner
advances was extended to APC during the quarter ended March 31, 1996.
Outstanding partner advances are non-recourse to the partners, bear interest
at an agreed-upon rate and will be payable at such time as APC has sufficient
funds to permit repayment. In addition, prior to the transfer of APC to
Holdings, WirelessCo will be subject to a put option pursuant to which,
annually during the initial five-year period and at various times thereafter,
APC, Inc. may require WirelessCo to purchase all or a portion of APC, Inc.'s
interest in APC (equal to 100% of its interest in the aggregate). Under
certain circumstances, APC, Inc. has the right and is obligated to exercise
its put rights to the extent necessary to fund its additional capital
contribution obligations.
RESULTS OF OPERATIONS
From the Date of Inception to December 31, 1994.
General and administrative costs associated with salary, benefits and
expenses of administrative personnel were $1.4 million. Professional and legal
fees associated with market research and consulting, contractor and legal cost
incurred in conjunction with participation in the PCS auction totaled $1.9
million. There was nominal depreciation expense in 1994. The Company had a
loss for the period from October 24, 1994 (date of inception) to December 31,
1994 of $3.3 million.
For the Year Ended December 31, 1995.
The PCS business activities of the Company were conducted by Holdings after
April 1995. APC continued as a subsidiary of the Company during 1995 and 1996.
The Company incurred $1.2 million ($37.5 million after giving effect to the
Reorganization) of general and administrative costs associated with the start-
up of operations. At year end, Holdings had 739 full-time employees, all of
whom are working on behalf of the Company. Professional and legal costs
associated with WirelessCo's participation in the PCS auction totaled $2.3
million ($26.8 million after giving effect to the Reorganization). The Company
incurred a loss of $46.2 million as its share of APC's losses associated with
commencement of operations. There was nominal depreciation and no amortization
recorded in 1995. The Company will commence amortization of its PCS license
investment upon launch of commercial operations and will amortize such
investment over a period of 40 years. The Company had a loss of $49.5 million
($64.2 million after giving effect to the Reorganization) for the year ended
December 31, 1995.
For the Quarter Ended March 31, 1996.
Other than APC, all PCS business activities of the Company were conducted
by Holdings from April 1995 through June 30, 1996. The Company incurred a loss
of $36.2 million as its share of APC's losses associated with customer
acquisition and operations. There was no amortization of licenses during the
period as PCS service had not been launched commercially. The Company had a
loss of $36.3 million ($31.2 million after giving effect to the
Reorganization) for the quarter ended March 31, 1996.
29
<PAGE>
BUSINESS
GENERAL
Sprint Spectrum intends to become a leading provider of wireless
communications products and services in the United States. The Company is the
largest broadband wireless PCS company in the United States in terms of total
licensed Pops, with licenses (including those owned by licensees that have
affiliated or have agreed to affiliate with the Company) to provide service in
33 MTAs covering 190.9 million Pops (73% of the total United States
population), including eight of the nation's ten largest MTAs. The Company
intends to commence marketing efforts and launch commercial service in certain
MTAs in the fourth quarter of 1996 and to continue to expand its coverage in
its PCS markets to reach approximately 70% of the Pops in its license areas in
the aggregate by the end of 1997. Thereafter, the Company will evaluate
further coverage expansion on a market-by-market basis, eventually targeting
coverage of 80% of the Pops in its license areas in the aggregate, thereby
substantially completing its planned network buildout.
The general partner of Sprint Spectrum is Holdings, a limited partnership
formed by Sprint Enterprises, L.P., which has a 40% partnership interest in
Holdings, TCI Telephony Services, Inc. which has a 30% partnership interest in
Holdings, and Comcast Telephony Services and Cox Telephony Partnership, each
of which has a 15% partnership interest in Holdings. The Partners are
subsidiaries of, respectively, Sprint, TCI, Comcast and Cox.
The Partners have agreed to contribute up to an aggregate of $4.2 billion of
equity to Holdings to the extent required by the annual budgets of Holdings
through fiscal 1999, as approved by the Partners. As of March 31, 1996,
approximately $2.4 billion had been contributed to Holdings, of which $2.2
billion had been contributed to the Company and the remaining $0.2 billion had
been contributed or advanced to APC. The Company currently intends to obtain
up to $1.4 billion of additional equity following March 31, 1996, resulting in
$3.6 billion in aggregate invested equity capital in the Company, although
there can be no assurance that any additional capital will be obtained in the
form of equity from the Parents or otherwise. The Parents presently expect to
make available or cause Holdings to make available to the Company up to $1.0
billion of such additional equity, to the extent required by the Company. The
Company's business plan and the financial covenants and other terms of the
Secured Financing will require such additional equity financing prior to the
end of 1998, absent a new financing source. The $0.8 billion balance (of the
$4.2 billion) that may be available to Holdings from the Partners may be used
by Holdings to fund the Company's capital needs and Holdings' other affiliate
commitments or to make other wireless investments. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations--
Liquidity and Capital Resources" and "The Partnership Agreements--Holdings
Partnership Agreement--Capital Contributions."
The Company believes that rapid growth in consumer and business demands for
wireless services, technological advances, increased customer expectations for
quality and convenience of use and deregulation are reshaping the
telecommunications market. In order to compete in this changing environment,
accelerate subscriber growth and increase customer retention, the Company
intends to offer customers integrated telecommunications packages and national
service offerings. The Parents and the Company expect to package the Company's
wireless services with other of the Parents' communications products and
services, including the local and long distance telecommunications services
and the cable-based entertainment services of Sprint and the Cable Parents.
The Company and the Parents will market PCS wireless products and services
nationally under the Sprint brand name through diverse distribution channels
including those of the Parents.
The Company believes it will be able to differentiate itself in the wireless
marketplace through the implementation of a state-of-the-art digital network,
featuring CDMA technology. The Company selected CDMA technology because the
Company believes it offers increased system capacity, better quality of
transmission and lower infrastructure and ongoing support costs. The Company's
CDMA technology will enable it to offer, when the necessary equipment is
available, high-speed data transmission to and from portable computers,
advanced paging services, facsimile services and Internet access.
30
<PAGE>
Broadband PCS systems differ from traditional analog cellular telephone
service principally in that PCS systems operate at a higher frequency band
(1850-1990 MHz radio spectrum), have more spectrum allotted and have different
license areas. PCS is expected to be the first all-digital wireless service
and will be able to provide enhanced integrated services not currently offered
by traditional analog cellular providers, including integrated voicemail and
short messaging.
The Company believes that these enhanced features and services, in
conjunction with increased competition within the industry, will contribute to
the acceleration of growth in the wireless telecommunications market. The
number of cellular telephone subscribers nationwide has grown from
approximately 680,000 in 1986 to an estimated 34 million as of December 31,
1995. PCIA estimates that the number of cellular and PCS wireless services
subscribers will be over 104 million by the year 2005 and that PCS
subscriptions will account for approximately 40 million of such subscriptions.
The Company was the successful bidder for 29 PCS licenses in the FCC's A
Block and B Block PCS auction which concluded in March 1995. The Company's 29
wholly-owned markets cover 150.3 million Pops and include, among others, the
New York, San Francisco, Detroit, Dallas/Fort Worth and Boston/Providence
MTAs. Additionally, Cox has agreed to contribute to the Company, upon FCC
approval which is pending, a PCS license for the Omaha MTA that it purchased
in the broadband PCS auction in March 1995.
In order to increase its Pop coverage, the Company has affiliated and
expects to continue to affiliate with other PCS providers, including those in
which Holdings or affiliates of its Partners have an interest. Pursuant to
affiliation agreements, each affiliated PCS service provider will be included
in the Company's national network and will use the Sprint brand name. Holdings
owns a 49% limited partnership interest in APC, which owns a PCS license for,
and operates a broadband PCS system in, the Washington D.C./Baltimore MTA. APC
has affiliated with Sprint Spectrum and is marketing its products and services
under the Sprint brand name. APC launched its PCS service in November 1995 and
is the nation's first commercially operational PCS system. As of May 15, 1996,
APC had approximately 80,000 subscribers. See "Business--Early PCS Industry
Experience." Holdings also expects to acquire a 49% limited partnership
interest in Cox-California, a partnership that will be formed to hold a PCS
license for the Los Angeles/San Diego MTA covering 21.5 million Pops. Cox,
which currently owns this license, will contribute the license to Cox-
California and will manage and control Cox-California. The Company expects to
sign an affiliation agreement with Cox-California. The Company also expects to
affiliate with, and provide various services to PhillieCo, a limited
partnership organized by and among subsidiaries of Sprint, TCI and Cox that
owns a PCS license for the Philadelphia MTA.
The table below presents the owned and affiliated Pops:
<TABLE>
<CAPTION>
1995 AVERAGE LICENSE
POPULATION PURCHASE PRICE
OWNED/AFFILIATED # OF MTAS IN MTA(S) PER 1990 POP(1)
---------------- --------- ---------- ---------------
(MILLION)
<S> <C> <C> <C>
Owned....................................... 29 150.3 $14.54
Omaha (to be contributed)................... 1 1.7 $ 3.06
Affiliated:
APC (Baltimore/Washington)(2)............. 1 8.3 $13.16
Cox-California (Los Angeles/San
Diego)(3)................................ 1 21.5 $13.16
PhillieCo (Philadelphia)(4)............... 1 9.1 $ 9.52
--- -----
Total................................... 33 190.9
=== =====
</TABLE>
- - --------
(1) Cost to winning bidder in FCC auction(s) or in connection with the award
of Pioneer's Preference license.
(2) Holdings owns a 49% limited partnership interest in APC, which has signed
an affiliation agreement with the Company.
(3) Holdings intends to acquire a 49% limited partnership interest in, and the
Company expects to sign an affiliation agreement with, Cox-California.
(4) Owned by subsidiaries of Sprint, TCI and Cox. The Company expects to sign
a services and affiliation agreement with PhillieCo.
31
<PAGE>
STRATEGY
The Company intends to achieve its objective of becoming a leading provider
of wireless communications products and services in the United States by
employing strategies for its network construction, service offering, branding
and marketing which utilize the Company's competitive advantages. These
competitive advantages are expected to include:
. State-of-the-art technology. The Company is implementing a state-of-the-
art PCS network using CDMA digital technology which, the Company
believes, provides benefits relative to current analog systems. The
Company believes that its digital technology will increase capacity in
the system by approximately 7 to 10 times, offer better call quality and
clarity and a wider variety of advanced features and applications.
. National network. Sprint Spectrum intends to offer wireless service on a
national basis with a single technology (CDMA) operating on a uniform
spectrum (1.9 GHz), thereby providing consistent functionality and high
quality service. The Company currently owns (including the Omaha license
to be contributed to the Company), or expects to have affiliation
relationships with PCS providers who own, PCS licenses covering 190.9
million Pops and intends to pursue additional coverage on a market-by-
market basis through license acquisitions and affiliation or resale
agreements with other CDMA-based PCS providers. Together, the Company and
other PCS licensees that have announced their intentions to implement
CDMA technology have licenses covering territories representing
approximately 89% of the United States population. The Company expects to
gain cost advantages in purchasing power, operations and marketing
because of the national scope and operating scale of its network. The
Company believes it will have the flexibility to utilize pricing and
promotional programs on a national basis to provide incentives for
customer subscription and increased usage.
. National brand. The Company will market and promote its wireless products
and services under the Sprint brand, which is one of the most widely
recognized and respected brands in the telecommunications market. The
Company expects that the use of the Sprint brand will build consumer
confidence and accelerate consumer acceptance of the Company's products
and services.
. Strong Parent sponsorship. The Company intends to capitalize on the
communications expertise of the Parents, including local exchange carrier
services, cable television services and long distance telephone services.
In addition, the size and breadth of the customer base of each Parent
provide a key advantage for the Company's distribution and marketing
efforts. Subject to certain exceptions, the Parents and the Company
intend to cross-market the Company's wireless services with the long
distance, local telephone and cable-based entertainment services of the
Parents in order to accelerate subscriber growth and increase retention
rates while improving overall customer satisfaction. Sprint has a
combined customer base of 14 million long distance and local telephone
subscribers and collectively the Cable Parents have 20 million cable
television customers. See "--Relationship with Partners and Parents."
MARKETING AND DISTRIBUTION
The Company's current marketing strategy is to differentiate itself through
its state-of-the-art network, use of the established and respected Sprint
brand name, customer-care systems, diverse distribution channels and sales and
packaging arrangements with the Parents. The Company will build on Sprint's
strong national identity, using regional and local marketing to tailor
programs to the demands of individual markets. Additionally, the Company
believes that its all-digital network will provide customers with consistency
of service and features on a national basis, improving customer satisfaction.
The Company has formed segmentation and distribution strategies targeted at
both consumer and business markets.
Consumer Market
Customer segmentation. The Company plans to use both mass-marketing and
specific customer segment marketing to focus its efforts on consumers who have
significant work or personal telecommunication demands.
32
<PAGE>
Mass-marketing efforts are expected to emphasize the quality of Sprint
Spectrum's network in comparison to traditional cellular service and will be
supported by the Sprint brand. For each targeted segment, the Company expects
to create a number of specific marketing programs including a service package,
tiered pricing plans, promotional strategies and distinctive distribution
channels. An important aspect of specific customer segment marketing is the
ability, subject to certain exceptions, to integrate the Company's wireless
services with the Parents' long distance and local telephone services and
cable-based entertainment services.
Distribution. The Company intends to use multiple methods of distribution in
each of its markets; and will continue to review and implement new
distribution channels in the future as it determines the most effective
combination of options. The Company believes that multiple distribution
channels in each of its markets will enable it to provide effective and
extensive marketing of products and services and to minimize its reliance on
any single distribution source. Traditional distribution sources such as
dealers and direct sales representatives may be important factors in achieving
the Company's objectives but alternatives, such as Company retail stores, may
also be an important part of the Company's distribution system.
Direct channels. The Company intends to build its direct distribution
channel over time. The core of this strategy is the introduction, currently
scheduled for the fourth quarter of 1996, of Sprint Spectrum Retail Stores
("Stores"). Based on APC's experience with its flagship stores, the Company
believes that the Stores will increase Sprint Spectrum's market presence
and build awareness for its services. In addition, the Stores should also
satisfy customer preferences to deal directly with the provider. Finally,
the Stores will ensure a venue where the Company can have complete control
of its image and selling message while providing the Company an opportunity
to display the full array of its products and services. The Company expects
to complement its Stores with other direct channels such as its direct
sales force and telemarketing.
Indirect and third-party channels. The Company believes its products and
services have significant mass market potential and believes that it will
have key advantages in using traditional retail distribution channels. The
Company believes that the following capabilities and features, which it
will introduce over time, will make it attractive to national and regional
retailers: (i) a national offering, which allows retailers to use one
service provider; (ii) single technology and frequency range, which
simplifies handset options and reduces accounting and inventory management
requirements; (iii) over-the-air activation, which simplifies training,
selling and marketing efforts; (iv) optional pre-paid billing, which
expands the potential customer base; (v) elimination of long-term customer
service contracts, which may increase the number of potential customers and
decrease customer dissatisfaction; (vi) providing for an equipment sales
margin versus selling commissions, which enables retailers to realize
profits at the time of sale; and (vii) the Sprint brand name.
Cross-selling and Parent channels. Subject to certain exceptions, the
Parents and the Company intend to cross-market the Company's wireless
services with the long distance, local telephone and cable-based
entertainment services of the Parents in order to increase customer
acquisition and retention. Sprint has a combined customer base of 14
million long distance and local telephone subscribers and collectively the
Cable Parents have 20 million cable television customers. See "The
Partnership Agreements." By using the Cable Parents' regular contacts with
their customers, including bill inserts and customer service contacts, the
Company intends to build market share of its wireless services efficiently.
The Company also expects to be able to build on Sprint's distribution
capabilities, through Sprint's long distance and local telephone divisions.
Business Market
Customer segmentation. The Company plans to initially target small to
medium-sized business customers with a locally-oriented wireless offering.
This segment includes satellite offices of larger organizations that purchase
wireless services on a decentralized basis. The Company expects to highlight
its all-digital network which it believes offers customers superior quality,
increased security and improved functionality as compared to traditional
analog cellular service. Customers in this segment are likely to have locally-
oriented communications needs and will be suitable targets for the Company's
initial product offering as the wireless
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network is being constructed and prior to its nationwide deployment. The
Company plans to offer flexible billing options that address cross-product
opportunities such as long distance services.
The Company also intends to approach large business customers with its
initial product offering. Many large business customers are regional or
national in scope and require consistent pricing, service functionality and
account support on a regional or national basis. In marketing its service to
this segment, the Company intends to emphasize the following competitive
advantages: (i) ability to offer nationwide wireless services contracts, (ii)
consistent quality derived from Sprint Spectrum's all-digital network, (iii)
feature consistency across the Company's national network, (iv) volume
purchase capabilities and (v) packaging of Sprint long distance and other
Parent services.
Distribution. The Company intends to emphasize the Parents' business-to-
business selling resources in order to develop a comprehensive distribution
capability quickly. The Parents may provide access to their salesforces which
are comprised of over 2,000 salespeople nationwide focused on the business
market. The Company expects to augment existing Parent channels with direct
channels to expand its presence. The Company's direct channels likely will
include the Stores to target very small businesses, account executives to
target small, medium and large businesses and national account managers to
target national accounts. As of May 31, 1996, Holdings had a distribution and
marketing staff of approximately 85 employees working on behalf of the
Company.
PRODUCTS AND SERVICES
With its all-digital national wireless network, the Company plans to
introduce a wide array of services and features that are designed to enhance
utility, provide consumers greater capabilities in call management and
increase usage for both outgoing and incoming calls.
Outgoing Calls
Features that encourage customers to make outgoing calls include: improved
call quality, advanced handsets, national consistency and customer-driven
local calling areas.
Improved call quality. The quality of the digital network continues to
approach that of wireline systems, which is expected to encourage increased
consumer usage.
Advanced handsets. The advanced, menu-driven handsets are designed to be
more user friendly and will be equipped for a variety of enhanced features and
applications.
National consistency. The consistency of product features across the
Company's network is expected to simplify use and ensure that handset
functions are similar in all markets.
Customer-driven local calling areas. The provision of customer-driven local
calling areas is designed for customers who frequently travel between multiple
regions.
Incoming Calls
Features that encourage customers to receive calls include: caller ID,
message management, including voicemail and integrated paging and improved
battery technology.
Caller ID. The Company's system is designed to enable the display of the
telephone number of the incoming caller on the customer's handset, allowing
the customer to decide to answer or decline the call or forward it to
voicemail.
Message management. Features like voicemail with call screening will allow
customers to listen while callers leave messages. The introduction of
integrated paging, expected by the end of 1997, will allow the handset to
signal receipt of an incoming message and provide text messaging via the
handset.
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Improved Battery Technology. With advances in battery technology, longer
lasting batteries will enable customers to leave their handsets on while not
in use, which will promote the receipt of incoming calls.
The Company believes that the market for wireless communications will shift
over time from today's traditional voice mobility applications which
supplement customers' wireline service to an environment in which wireless
begins to expand into the wireline market, both as a primary communications
device and as a means of providing advanced functionality. The Company intends
to develop products, services and features which will serve to increase
network utilization above historical cellular usage while simultaneously
containing costs.
EARLY PCS INDUSTRY EXPERIENCE
On November 15, 1995, APC launched the first commercial PCS operation in the
United States with the initiation of service in the Washington/Baltimore MTA.
Holdings owns a 49% limited partnership interest in APC, which currently
provides service coverage to an area containing approximately 5.9 million
Pops, or approximately 71% of the Pops in the MTA. APC currently provides
service to the metropolitan areas of Washington and Baltimore and the
connecting highways and roads to Annapolis and the Eastern Shore. APC plans to
continue to expand the range of its geographic and population coverage.
APC's service is marketed under the Sprint brand name and is positioned in
the market as having excellent call clarity, privacy and feature integration.
In its market, APC is providing unique product offerings which include: (i) no
requirement for long-term service contracts, which encourages customers to try
the service; (ii) no charge for the first minute of inbound calls, which
encourages customers to give out their PCS number and increases overall
minutes of use; (iii) over-the-air-activation, which, due to its simplicity,
encourages customers to acquire the service; (iv) off-the-shelf retail
distribution; and (v) 24-hour-a-day customer service. Under the current APC
marketing plan, customers are required to pay, on average, more to buy PCS
handsets than for cellular handsets utilized by traditional analog cellular
systems; however, monthly and per minute service charges are lower than those
of incumbent cellular providers. APC is also combining the Sprint trademark
with significant level of consumer advertising and tie-ins with Sprint long
distance telephone services.
While APC's operations are still in a preliminary stage, initial results
have been encouraging. As of May 15, 1996, APC had more than 80,000
subscribers. Customers appear willing to pay more for handsets in exchange for
higher quality service, lower airtime rates and no long-term service
contracts. In addition, customers are using the PCS service for more minutes
each month than traditional cellular services and usage patterns differ from
those of traditional analog cellular users. In particular, customers use their
PCS service throughout the day, rather than primarily at commuting hours.
Sprint Spectrum is also monitoring the incumbent cellular providers' response
which, to date, has been primarily focused on APC's geographic coverage.
Sprint Spectrum recognizes that there are limitations to translating APC's
experience to the Company's nationwide markets. First, APC currently has only
two competitors whereas Sprint Spectrum may compete with four or five wireless
competitors in each MTA. Second, while APC intends to add a CDMA protocol, it
is initially deploying GSM technology which is more mature than CDMA will be
at launch. Third, the quality of existing cellular service in the
Washington/Baltimore MTA is inconsistent. In addition, the limited period of
APC's operations is also not necessarily a reliable indicator of future
demand, revenue or the rate at which customers may return handsets or
deactivate their service ("churn").
CDMA TECHNOLOGY
Wireless digital signal transmission is accomplished through the use of
various frequency management technologies, or "protocols." The FCC has not
mandated a universal digital protocol for PCS systems. Currently, various
vendors have proposed three principal competing, incompatible protocols for
use in PCS systems: CDMA, GSM and TDMA (IS-136).
The GSM protocol is an updated, up-banded version of the TDMA-based protocol
now in use in Europe. TDMA (IS-136) is an up-banded version of the TDMA-based
digital cellular protocol now used by cellular
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operators in the United States. CDMA is a first-generation technology that is
just beginning to be commercially deployed in the United States. See "Risk
Factors--Technology Risks; Availability of Handsets." The Company believes
that the CDMA protocol will be the most widely adopted PCS protocol in the
United States. See "--The Wireless Telecommunications Industry."
The Company has selected CDMA technology rather than the other technologies
because it believes it will have increased subscriber capacity, higher quality
of transmission and lower infrastructure and ongoing support costs. The
Company believes that CDMA provides the following benefits:
Performance: Because of its allocation of voice channels, CDMA offers better
voice quality when compared to analog and other digital standards. Recently
completed tests indicate that CDMA systems' voice quality is almost as clear
as the typical home (wireline) telephone. CDMA systems are expected to have
more powerful error correction, less susceptibility to fading, reduced
interference and "soft" hand-offs resulting in fewer dropped calls. In a
"soft" hand-off, the mobile customer's handset establishes a connection with a
new cell before disconnecting with the current cell. As a result, fewer calls
are dropped compared to analog or TDMA/GSM networks that use a "hard" hand-off
(i.e., disconnecting the call from the current cell before connecting it in
the new cell).
Cost effectiveness: Cells using CDMA are expected to achieve a greater
radius of coverage and require fewer cells for a given geographical coverage
than newer TDMA/GSM systems for PCS. Fewer cells should result in significant
reductions in overall capital requirements, lower ongoing maintenance and
operating costs, fewer cell sites to be acquired and greater flexibility in
network design.
Functionality: CDMA offers Sprint Spectrum the capability to customize its
service offerings, enabling customers to select advanced features such as
simultaneous voice and data transmission and, eventually, high speed data
applications.
Security: CDMA technology is inherently more secure than analog technologies
because CDMA works by "digitizing" each call, which is then coded and
transmitted using spread spectrum across a 1.25 MHz channel. This constantly
changing coding scheme enhances security and privacy by decreasing the
opportunity for nonusers to break into the system.
Capacity: CDMA technology allows a greater number of calls by using the
entire frequency spectrum in each cell. The Company believes that CDMA has the
capability to increase subscriber capacity to as much as 7 to 10 times that of
a typical analog system. Additionally, CDMA technology has the ability to
tolerate greater amounts of interference than other digital protocols, which
will permit the system to temporarily increase call capacity in a particular
cell thereby reducing call blocking. The Company plans to offer advanced
features such as wireless data, paging and voice messaging while maintaining
the marketing flexibility to offer high volume packages without straining
system capacity.
Recent CDMA networks that have been completed or are in late stage
development include:
. Hong Kong: Hutchison Telecommunications Ltd. launched the world's first
commercial CDMA digital wireless network in Hong Kong on October 1, 1995
with 1,000 users. The company began active marketing of its CDMA service
in January 1996. By the end of May 1996, the company had more than 20,000
CDMA subscribers.
. South Korea: On January 1, 1996, Korea Mobile Telecommunications Corp.
launched CDMA commercial service in an area west of Seoul with 36 CDMA
cell sites. As of February 29, 1996, the company had approximately 640
CDMA subscribers. The company launched CDMA service in Seoul in April
1996. Shinsegi Telecommunications Inc. launched CDMA commercial service
in the Seoul and Taejon regions of South Korea on April 1, 1996 with 149
cell sites.
. United States: In the United States, PCS service providers that have
indicated their intention of introducing commercial CDMA service include,
Ameritech Corporation (1997 or later), Centennial
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Cellular Corp. (second half of 1996), GTE Mobilnet, Inc. (first quarter of
1997) and PCS PrimeCo L.P. (fourth quarter of 1996). These companies
together with Sprint Spectrum comprise 225.6 million Pops or 89.3% of the
United States population. In addition, several of the successful bidders
in the C Block auctions have announced their intention to adopt CDMA.
Winning bidders in the D, E and F Block auctions, which have yet to occur,
may also select CDMA. See "--Regulation--PCS Licensing."
In addition to these PCS networks, traditional cellular providers may use
CDMA-based systems as a digital overlay to their existing analog systems in
order to improve and expand the range of services they provide. In mid-May,
AirTouch Communications, Inc. ("AirTouch") became the first cellular provider
to deploy a CDMA-based digital overlay. AirTouch's CDMA-based service is
currently only available to selected high-usage customers in Los Angeles.
EQUIPMENT VENDORS
Sprint Spectrum has selected Lucent and Nortel, two of the leading
telecommunications equipment manufacturers, to construct the wireless network
because of their extensive experience in wireless technology and their
willingness to guarantee delivery against specifications developed by the
Company. In addition, the Company has obtained from Nortel and Lucent
financing to fund the purchase of their respective equipment and the
construction of their assigned portions of the network. To mitigate against a
substantial portion of the risks of completion delay and performance of the
network and to ensure the Company has received competitive terms and
conditions, the Procurement Contracts include, among other things, deferred
payment schedules, liquidated damages provisions, extended warranty periods
and "most favored customer" status. See "Description of Vendor Contracts and
Financing--Vendor Contracts."
Sprint Spectrum has entered into a three-year purchase and supply agreement
for CDMA handsets with Qualcomm Personal Electronics, which is a partnership
formed by QUALCOMM Incorporated ("Qualcomm") and Sony Electronics Inc. See
"Description of Vendor Contracts and Financing--Vendor Contracts--Handset
Agreement". Pursuant to the agreement, Qualcomm will manufacture CDMA handsets
for the Company. In addition, Qualcomm will provide training for the Company's
sales personnel and will work with the Company to develop new products for the
Company's PCS network. The Company also expects to source handsets from other
vendors in mid-1997 and is currently negotiating purchase and supply
agreements on a preliminary basis with such other vendors.
NETWORK BUILDOUT
The buildout of the Company's network involves systems design, acquisition
of cell sites, equipment procurement, relocation of existing microwave users,
interconnection with other communications providers, construction of cell
sites, installation of switches, and implementation of advanced management
information and billing systems. A planning and engineering team, comprised of
approximately 1,350 engineering and operations employees and thousands of
independent contractors and consultants, is designing and constructing the
Sprint Spectrum network based on the regional marketing and product
requirements to meet the Company's targets for consistency, uniformity and
reliability.
Rollout methodology. The Company's principal objective is to maximize
population coverage levels within targeted demographic segments and geographic
areas. Sprint Spectrum intends to offer commercial service in the fourth
quarter of 1996 and expand market coverage to reach approximately 70% of the
Pops in its license areas in the aggregate by the end of 1997. Thereafter, the
Company will evaluate further coverage expansion on a market-by-market basis,
eventually targeting coverage of 80% of the Pops in its license areas in the
aggregate, thereby substantially completing its planned network buildout. In
developing its PCS network Sprint Spectrum will consider, among other things,
population and traffic density, FCC coverage requirements and the ability to
cluster groups of markets.
RF design. The Vendors have completed and the Company has approved the RF
design for coverage of 60% of the Pops in the Company's license areas in the
aggregate. This process includes cell site design,
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frequency planning and network optimization for each of Sprint Spectrum's
markets. RF engineering also allocates voice channels and assigns frequencies
to cell sites taking into consideration both PCS and microwave interference
issues.
Property acquisition. The Company employs 32 MTA directors initially to
manage the buildout process and subsequently to have responsibility for
operating the network. Property acquisition managers are located within each
MTA and are responsible for identifying and obtaining the required property
for buildout of the PCS network.
The Company has hired property acquisition firms for each MTA to assist with
acquisition, zoning, permitting and appropriate surveying. The Company will
attempt to minimize property acquisition activity through utilization of the
Parents' assets and cable infrastructure, where possible. The cell site
selection process will require the lease or acquisition of approximately 5,700
sites in 31 MTAs prior to commencement of commercial operations of the
Company's PCS network, many of which are likely to require the Company to
obtain zoning variances or other local governmental or third-party approvals
or permits. As of June 14, 1996, the Company had signed leases or options for
2,705 sites, of which 477 were pending zoning and 245 were zoned and ready for
construction. There are currently 133 sites under construction.
Construction and installation. The equipment Vendors are overseeing the
deployment of the PCS network and are subcontracting the construction to
Bechtel National, Inc., Black & Veatch and MFS Communications Company, Inc.
These firms will act as general construction contractors and employ local
construction firms to build the cell sites.
Microwave relocation. To become operational, Sprint Spectrum must relocate
existing 2GHz commercial microwave service users within its MTAs in order to
clear its spectrum. The Company has contracted with national vendors to assist
in microwave relocation process. Recently, the FCC adopted a microwave
relocation cost-sharing plan that limits permissible relocation costs and
outlines new procedures for the sharing of relocation costs where the
relocation of private microwave facilities benefits multiple broadband PCS
licensees. However, the FCC did not shorten the period for mandatory
negotiations between broadband PCS licensees and affected private microwave
licensees. See "--Regulation."
Approximately 1,400 co-channel and adjacent-channel microwave paths which
may affect Sprint Spectrum's rollout need to be relocated by the Company, of
which approximately 600 are required for the service launch. As of June 14,
1996, 746 relocation agreements were under negotiation, 289 agreements had
been reached and 101 paths had been relocated. The Company has entered into
various cost-sharing arrangements that provide for sharing among affected PCS
license holders of expenses associated with microwave relocation. See "Risk
Factors--Network Buildout and System Implementation Risks."
Interconnection. Sprint Spectrum's network will connect to the Public
Switched Telephone Network. Such interconnection is required to facilitate
originating and terminating traffic between the Company's facilities and both
the incumbent local exchange and long distance carriers. The Company is
negotiating, or intends to negotiate, interconnection agreements with
telephone companies operating or providing service in the areas where the
Company is deploying its PCS network. The Company intends to use Sprint as its
interexchange carrier and the agreement for such service is covered under the
Holdings Partnership Agreement.
Roaming. Wireless service providers are able to offer service to subscribers
from other systems who are traveling in or through their service area.
Customers typically pay higher rates while "roaming" outside of their home
market. Roaming is made possible in today's analog cellular environment by
virtue of common frequency and signaling technology. PCS and analog cellular
systems operate on different frequencies and with different signaling
technologies.
Within its own network, the Company plans to offer "traveling" plans for
subscribers who use the Company's network outside of their home markets.
Features and services will operate identically across all of the Company's
markets. As a result, travelers will be encouraged to access the network
anytime and anywhere.
In areas where CDMA-based PCS service is not available, the Company may
offer a roaming option on the traditional analog cellular system via dual-
mode, dual-band handsets capable of transmitting over either cellular
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and PCS frequencies. Access to cellular coverage is dependent on availability
of dual-mode, dual-band handsets which the Company believes will become
available in the first half of 1997. The Company has not entered into any such
agreements with any cellular providers nor can there be any assurance that the
Company will enter into any agreements. Cellular roaming may not be a service
option the Company chooses to offer.
Information technology. The Company will require advanced and sophisticated
management information systems to handle customer care, billing, network
management and financial and administrative services. The Company has system
development plans directed at launch programs and long-term integrated system
solutions. The plans are focused on three primary areas: (i) customer care,
including billing systems and customer service and support systems, (ii)
network management, including service activation, traffic and usage
monitoring, trouble management and operational support systems and (iii)
business systems including financial, purchasing, human resources and other
administrative systems.
The Company has retained a number of consultants and contractors to evaluate
and implement management information systems to provide billing and customer
care. Trials of the billing and service software are expected to begin in the
second half of 1996 in anticipation of the fourth quarter of 1996 launch of
the Company's PCS services. The long-term vision for the Company's billing
system is to integrate all products and services of the Company and,
potentially, those of the Parents. Although the Company intends to offer
customized billing and may offer a variety of billing services, features and
delivery systems, these advanced features will not be available at launch.
There can be no assurance that the billing services and customer care services
currently planned for launch will be developed on a timely basis. Any delay in
the development of such features could cause the Company to alter its initial
pricing and promotional structures.
The Company, through its equipment vendors, plans to introduce sophisticated
network management and operations support systems which will facilitate
network fault detection, correction and management, performance and usage
monitoring and security. System capabilities are being developed which will
allow over-the-air activation of the handset and provision of services.
Information systems to support general business applications such as
accounting, payroll, accounts payable, and human resources are being obtained
or developed in time for the Company's initial launch. A number of financial
systems have been installed and are being tested.
RELATIONSHIP WITH PARTNERS AND PARENTS
The Company's relationship with the Partners and the Parents is an important
aspect of its strategy for achieving its objective of becoming a leading
provider of wireless communications products and services in the United
States. In order to capitalize on the rapid growth in business and consumer
demand for a single provider of telecommunications services, the Company
intends to use its own marketing efforts, the marketing services of the
Partners' affiliates, existing distribution channels and customer
relationships. The Company intends to capitalize on the communications
expertise of each Parent including local exchange carrier services, cable
services and long distance services. Subject to certain exceptions, the
Partners and the Parents have agreed to cooperate with the Company to cross-
market the Company's wireless services with the long distance, local telephone
and cable-based entertainment services of the Parents in order to accelerate
subscriber growth and increase retention rates while improving overall
customer satisfaction. The Company will promote its wireless services using
the Sprint brand among Sprint's 14 million long distance and local telephone
customers and the Cable Parents' 20 million cable television customers. See
"--Trademarks."
The Holdings Partnership Agreement governs the basic relationships between
the Partners and the Company and provides a structure for subsequent
agreements with the Partners and their affiliates, including the Parents. See
"The Partnership Agreements--Holdings Partnership Agreement." The Company
recently entered into an agreement with Sprint to sell the Company's paging
services. Sprint will serve as the Company's agent for selling traditional
paging services and will market these services through direct mail, direct
sales, employee
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programs, advertising and promotions. The foregoing agreement will not affect
the Company's ability to offer paging services as part of its integrated
wireless service package, once it is able to do so. With the exception of this
agreement, an agreement regarding use of the Sprint trademark (described
below) and certain immaterial leases, the Company has not yet entered into any
additional agreements with the Partners or the Parents. Pursuant to the
Holdings Partnership Agreement, each Partner, except Comcast in certain areas,
has agreed to provide certain services to the Company in connection with the
operation of the network, including antenna siting and installation, signal
transmission between cell sites and switching locations and provision of
primary power, standby power and maintenance. The pricing and details relating
to the provision of such services will be negotiated at the local level and
are not governed by the Holdings Partnership Agreement. Comcast is not
required to provide such services within the Philadelphia MTA and certain
surrounding areas in Pennsylvania, New Jersey, Delaware and Maryland (the
"Comcast Area") because it owns cellular licenses for such areas and the
provision of such services to the Company would violate FCC regulations. See
"The Partnership Agreements--Holdings Partnership Agreement."
Subject to certain conditions, the Company expects to enter into sales
agency agreements with the Partners for the co-marketing of wireless services,
local and long distance telephone services and the cable-based entertainment
services by Sprint and the Cable Parents. Sprint and the Cable Parents and
their respective subsidiaries (except for Comcast and its subsidiaries in the
Comcast Area) will be non-exclusive sales agents for the Company's wireless
services. The Company, in turn, will be a non-exclusive sales agent for those
services Sprint and the Cable Parents make available to the Company. The
Company has not entered into any such sales agency agreements with the
Parents.
THE WIRELESS TELECOMMUNICATIONS INDUSTRY
Overview. Wireless telecommunications networks use a variety of radio
frequencies to transmit voice and data in place of, or in addition to,
standard landline telephone networks. Wireless telecommunications technologies
include one-way radio applications, such as paging services, and two-way radio
applications, such as cellular telephone and specialized mobile radio ("SMR")
networks. Each application operates in a distinct radio frequency block.
Since its initial introduction in 1983, commercial cellular telephone
service has grown dramatically and now dominates the wireless
telecommunications market. Annual service revenues for the cellular telephone
industry set a record of over $19 billion during 1995 (an increase from
approximately $482 million in 1985). The number of cellular telephone
subscribers nationwide has grown from approximately 680,000 in 1986 to an
estimated 34 million at December 31, 1995. The number of cellular telephone
subscribers has grown at a compounded annual rate of 46.7% over the last three
years. PCIA estimates that the number of cellular and PCS wireless service
subscriptions will be over 104 million by the year 2005 and that PCS
subscriptions will account for approximately 40 million of such subscriptions.
Most cellular services currently transmit voice and data signals over
analog-based systems, which use one continuous electronic signal that varies
in amplitude or frequency over a single radio channel. Digital systems, on the
other hand, convert voice or data signals into a stream of digits that is
compressed before transmission, enabling a single radio channel to carry
multiple simultaneous signal transmissions. This enhanced capacity, along with
enhancements in digital protocols, allows digital-based wireless technologies
to offer new and enhanced services, such as greater call privacy, and more
robust data transmission features, such as "mobile office" applications
(including facsimile, electronic mail and connecting notebook computers with
computer/data networks).
While digital technology generally reduces the effect of transmission
interference relative to analog technology, capacity limitations in the 8 Kb
cellular digital handsets now deployed by most digital wireless operators also
cause a perceptible decline in voice quality. This gap in voice quality has
proven to be a significant barrier to cellular operators seeking to switch
their customers from analog to digital service. Enhanced 13 Kb digital
handsets are now being developed by vendors for both PCS and digital cellular
systems and are expected
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to be available by mid-1997. These new handsets are expected to offer digital
transmission quality comparable to, if not better than, current analog
cellular handsets.
PCS is expected to be the first all-digital wireless service and will be
able to provide enhanced integrated services not currently offered by
traditional analog cellular providers, a wider range of service options,
including integrated voicemail, enhanced custom-calling and short-messaging.
The Company expects to offer, when the necessary equipment is available, high-
speed data transmissions to and from computers, advanced paging services,
facsimile services and internet access service.
The Company believes that these enhanced features and increased services
will contribute to the acceleration of growth in the wireless
telecommunications market and that PCS providers will be the first direct
wireless competitors to cellular providers and the first to offer mass market
all-digital mobile networks.
The Company believes that the initial experience of service providers in
international markets where PCS has already been introduced provides support
for the forecasted rapid growth of PCS in the United States. For example, the
launch of PCS networks in the U.K. and Japan has initially increased
competition, stimulated demand and increased penetration rates in the entire
wireless market. In less than two years, the U.K.'s two PCS operators have
gained over 600,000 subscribers, representing approximately 15.5% market share
of the total wireless market and 40% of new wireless subscribers over the same
period. In Japan, the two new PCS licensees activated 87,000 new subscribers
in their first month of operations. The rate of new PCS subscriber activations
is now over one million per year.
PCS licenses differ from existing cellular and SMR licenses in three basic
ways: frequency assignment, amount of spectrum and geographic license areas.
PCS networks will operate in a higher-frequency band (1850-1990 MHz) compared
to the cellular and SMR frequency (800-900 MHz). PCS will also be comprised of
either 10 MHz of spectrum or 30 MHz of spectrum versus 25 MHz of spectrum for
cellular networks. As a result of the improved capacity of the infrastructure
and large allocation of spectrum, PCS will have more capacity for new wireless
services such as data and video transmission. Finally, the geographic areas
for PCS licenses are divided differently than for cellular licenses. PCS is
segmented among 51 MTAs or 493 Basic Trading Areas ("BTAs") as opposed to
cellular's 306 metropolitan statistical areas ("MSAs") and 428 rural service
areas ("RSAs"). An MTA license generally covers a much larger geographic area
than a BTA, MSA or RSA license. SMR service areas are defined by the United
States Department of Commerce Bureau of Economic Analysis Economic Areas
("EAs"). There are 175 EAs covering the continental United States and its
possessions. EAs are smaller than MTAs, but are larger than BTAs, MSAs and
RSAs.
Operation of wireless systems. Two-way wireless service areas are divided
into multiple regions called "cells," each of which contains a base station
consisting of a transmitter, a receiver and signaling equipment. The cells are
typically configured on a grid in a honeycomb-like pattern, although terrain
factors (including natural and man-made obstructions) and signal coverage
patterns may result in irregularly shaped cells and overlaps or gaps in
coverage. Cellular system cells generally have a radius ranging from two miles
to 25 miles. PCS system cells are expected to have a radius ranging from one-
quarter mile to 12 miles, depending on the PCS technology being used and the
terrain. The base station in each cell is connected by microwave, fiber optic
cable or telephone wires to a switching office, which uses computers to
control the operation of the wireless telephone system for its entire service
area. The switching office controls the transfer of calls from cell to cell as
a subscriber's handset travels, manages call delivery to handsets, allocates
calls among the cells within the system and connects calls to the local
landline telephone system or to a long distance telephone carrier. Wireless
service providers have entered into interconnection agreements with various
local exchange carriers and interexchange carriers, thereby integrating the
wireless telephone system with landline telecommunications systems. Once two-
way wireless systems are fully interconnected with landline telephone networks
and long distance networks, subscribers can receive and originate both local
and long distance calls from their wireless telephones.
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The signal strength of a transmission between handset and a base station
declines as the handset moves away from the base station, the switching office
and the base stations monitor the signal strength of calls in progress. When
the signal strength of a call declines to a predetermined level, the switching
office may "hand off" the call to another base station that can establish a
stronger signal with the handset. If a handset leaves the service area of the
wireless service provider, the call is disconnected unless an appropriate
technical interface is established to hand off the call to an adjacent system.
Operators of wireless systems frequently agree to provide service to
subscribers from other compatible systems who are temporarily located in or
traveling through the service area. Such subscribers are called "roamers."
Agreements among system operators allocate revenues received from roamers.
With automatic roaming, wireless subscribers are preregistered in certain
systems outside their service area and receive service automatically while
they are roaming, without having to notify the switching office. Other roaming
features permit calls to a subscriber to "follow" the subscriber into
different systems, so that the subscriber will continue to receive calls in a
different system just as if the subscriber were within his or her service
area.
While PCS and cellular networks utilize similar technologies and hardware,
they operate on different frequencies and use different signaling protocols.
As a result, it generally will not be possible for users of one type of
network to roam on a different type of network outside of their service area,
or to hand off calls from one type of network to another. Digital signal
transmission is accomplished through the use of frequency management
technologies, or protocols. These protocols manage the radio channel either by
dividing it into distinct time slots (TDMA) or by assigning specific coding
instructions to each packet of digitized data that comprises a signal (CDMA).
While the FCC has mandated that licensed cellular networks in the United
States must utilize compatible analog signaling protocols, the FCC has not
mandated a universal digital signaling protocol. Currently, three principal
competing, incompatible signaling protocols have been proposed by various
vendors for use in PCS networks: GSM, CDMA and TDMA. Because these protocols
are incompatible, a subscriber of a network that relies on GSM technology, for
example, will be unable to use his or her handset when traveling in an area
served only by CDMA or TDMA-based wireless operators, unless he carries a
dual-mode, dual-band handset that permits the subscriber to use the cellular
network in that area. Currently, such dual-mode, dual-band handsets are not
commercially available. For this reason, the success of each protocol will
depend both on its ability to offer enhanced wireless service and on the
extent to which its users will be able to use their handsets when roaming
outside their service area.
Wireless subscribers generally are charged separately for monthly access,
air time, long distance calls and custom calling features (although custom
calling features may be included in monthly access charges in certain pricing
plans). Wireless system operators pay fees to local exchange companies for
access to their networks and toll charges based on standard or negotiated
rates. When wireless operators provide service to roamers from other systems,
they generally charge roamer air time usage rates, which usually are higher
than standard air time usage rates for their own subscribers, and additionally
may charge daily access fees. Special, discounted rate roaming arrangements,
often between neighboring operators who wish to stimulate usage in their
respective territories, provide for reduced roaming fees and no daily access
fees.
COMPETITION
General. The wireless telecommunications industry is experiencing
significant technological change, as evidenced by the increasing pace of
improvements in the capacity and quality of digital technology, shorter cycles
for new products and enhancements and changes in consumer preferences and
expectations. Accordingly, the Company expects competition in the wireless
telecommunications business to be dynamic and intense as a result of the
entrance of new competitors and the development of new technologies, products
and services.
Each of the markets in which the Company competes will be served by other
two-way wireless service providers, including cellular and PCS operators and
resellers. Many of these competitors have been operating for a number of
years, currently serve a substantial subscriber base and have significantly
greater financial and technical resources than those available to the Company.
Certain of the Company's competitors are operating, or planning to operate,
through joint ventures and affiliation arrangements, wireless
telecommunications systems that encompass most of the United States.
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The Company also will face competition from other current or developing
technologies, such as paging, Enhanced Specialized Mobile Radio ("ESMR") and
satellite networks. In addition, as a result of advances in digital
technology, ESMR operators have begun to design and deploy digital mobile
networks that increase the channel capacity of ESMR systems to a level that
may be competitive with that of cellular systems. A limited number of ESMR
operators have recently begun offering short messaging, data services and
interconnected voice telephony services on a limited basis. Several ESMR
licensees have recently merged into one company and plan to build and operate
digital mobile networks in most major United States markets.
In addition, several entities have received and several others are seeking
FCC authorization to construct and operate global satellite networks to
provide domestic and international mobile communications services from
geostationary and low earth orbit ("LEO") satellites. While geostationary
orbiting satellites are subject to transmission delays inherent in high earth
orbit satellite communications, a mobile satellite system could reduce
transmission delays with LEO satellites and could augment or replace
communications with segments of land-based wireless systems. Based on current
technologies, however, satellite transmission services are not expected to be
competitively priced relative to the Company's product offering in its
markets. Sprint has an interest in a satellite-based mobile telecommunications
business entity.
Continuing technological advances in telecommunications and FCC policies
that encourage the development of new spectrum-based technologies make it
impossible to predict the extent of future competition. The FCC has adopted
rules that provide preferences, including discounted licenses, to companies
that develop new spectrum-based communications technologies without bidding in
FCC-sanctioned auctions. Such a preference may encourage the development of
new technologies that compete with cellular and PCS service. In addition, the
Omnibus Budget Reconciliation Act of 1993 (the "Budget Act") requires, among
other things, the allocation to commercial use of a portion of 200 MHz of the
spectrum currently reserved for government use. It is possible that some
portion of the spectrum that is reallocated will be used to create new land-
mobile services or to expand existing land-mobile services.
The Company expects to compete with other communications technologies that
now exist, such as conventional mobile telephone service, ESMR systems and
paging services and with cellular and PCS resellers. In the future, cellular
service and PCS will also compete more directly with traditional landline
telephone service providers and with cable operators who expand into the
offering of traditional communications services over their cable systems. In
addition, the Company may face competition from technologies that may be
introduced in the future.
The Company anticipates that market prices for two-way wireless services
generally will decline in the future based upon increased competition. The
Company will compete to attract and retain customers principally on the bases
of services and features, its customer service, the size and location of its
service areas and pricing. The Company's ability to compete successfully will
also depend, in part, on its ability to anticipate and respond to various
competitive factors affecting the industry, including new services that may be
introduced, changes in consumer preferences, demographic trends, economic
conditions and discount pricing strategies by competitors, which could
adversely affect the Company's operating margins.
The Company's PCS business will directly compete with several other PCS
providers in each of its PCS markets, including AT&T Wireless Services, Inc.,
BellSouth Telecommunications, Inc., Omnipoint Corporation, Pacific Bell Mobile
Services, Inc., PCS PrimeCo L.P. and Western Wireless Corporation. The Company
also expects that existing analog wireless service providers in the PCS
markets, some of which have been operational for a number of years and have
significantly greater financial and technical resources than those available
to the Company, will upgrade their systems to provide comparable services in
competition with its PCS system. These cellular competitors include AirTouch,
AT&T Wireless Services, Inc., BellSouth Mobility, Inc., Ameritech Mobile
Communications, Inc., Bell Atlantic NYNEX Mobile, Southwestern Bell Mobile
Systems, GTE Mobilnet, Inc. and U.S. Cellular Corp.
Handsets used for CDMA-based PCS systems will not be automatically
compatible with cellular systems, and vice versa. The Company expects dual-
mode, dual-band telephones to be commercially available in the first half of
1997 (although sufficient quantities may not be commercially available until
the third quarter of 1997). Once
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such handsets are available, if the Company decides to offer roaming services,
subscribers may be able to roam by using the existing cellular wireless system
in other markets. Until then, this lack of interoperability may impede the
Company's ability to attract current cellular subscribers or potential new
wireless communication subscribers that desire the ability to access different
service providers in the same market.
Initially, the cost to the Company of PCS handsets may not be competitive
with the cost to analog operators of analog cellular handsets. While the
Company believes that its PCS handsets will be competitively priced as
compared to digital cellular handsets of comparable size, weight and features,
cellular operators may subsidize the sale of digital handset units at prices
below those with which the Company can compete through the Company's handset
subsidies.
REGULATION
The FCC regulates the licensing, construction, operation, acquisition and
interconnection arrangements of wireless telecommunications systems in the
United States under the Communications Act of 1934, as amended by the
Telecommunications Act of 1996 (the "Communications Act"). Pursuant to the
Communications Act, the FCC has promulgated a series of rules, regulations and
policies to (i) grant or deny licenses for PCS frequencies, (ii) grant or deny
PCS license renewals, (iii) rule on assignments and/or transfers of control of
PCS licenses, (iv) govern the interconnection of PCS networks with other
wireless and wireline carriers, (v) impose fines and forfeitures for
violations of any of the FCC's rules and (vi) regulate the technical standards
of PCS networks.
PCS licensing. The FCC established service areas for PCS throughout the
United States and its possessions and territories based upon the Rand McNally
market definition of 51 MTAs and 493 smaller BTAs. At least two BTAs are
contained within each MTA.
The FCC has allocated 120 MHz of radio spectrum in the 1850 to 1990 MHz
band, divided into six separate spectrum blocks, for licensed broadband PCS
services. The A and B Blocks are 30 MHz each and are allocated to the 51 MTAs.
The FCC sponsored auctions for the A and B Blocks that ended in March 1995,
and the FCC granted the A and B Block licenses in June 1995. The A and B Block
auction raised a total of $7.74 billion representing an average price of
$14.81 per Pop. WirelessCo was granted licenses in 29 of 51 MTAs. PhillieCo,
which will become affiliated with Sprint Spectrum, was granted a license for
one MTA. The remaining blocks, C (30 MHz), D (10 MHz), E (10 MHz), and F (10
MHz), are allocated to the 493 BTAs. The C Block auctions ended on May 6,
1996. Eventually, a PCS license will be awarded for each block in every MTA or
BTA for a total of more than 2,000 licenses.
The FCC has adopted rules setting out three separate spectrum aggregation
limits that may affect PCS licensees. First, a single PCS licensee may not
hold multiple PCS licenses that are granted for more than 40 MHz of spectrum
in a single geographic area. Second, a cellular licensee may hold an
attributable interest in no more than one 10 MHz PCS license (i.e., ownership
of a 30 MHz PCS license is prohibited) for a PCS service area that
significantly overlaps with the cellular licensee's service area. However,
following a court remand, the FCC initiated a rulemaking to determine whether
to retain this cross-ownership restriction. Third, a single entity cannot have
a combined attributable interest (20% or greater interest in any license) in
broadband PCS, cellular and special mobile radio licenses totalling more than
45 MHz in a single market.
In compliance with FCC restrictions on common ownership of cellular and
broadband PCS interests in overlapping market areas, Sprint, with prior FCC
approval, in March 1996 undertook a tax-free spin-off of its cellular
interests to Sprint's shareholders. Sprint's former cellular interests are now
held by 360(degrees) Communications Company. Subsequent to the spin-off,
360(degrees) Communications Company operates as an independent entity.
Pioneer's preference program. Holdings has a non-controlling equity interest
in APC, one of three recipients of an FCC broadband PCS Pioneer's Preference
license ("Pioneer's Preference") which effectively reduces the cost of a
license by awarding it outside of the auction process. Holdings also expects
to have a non-controlling interest in Cox-California, which will hold a
broadband PCS Pioneer's Preference license awarded to
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Cox. Following several parties' unsuccessful legal challenges in the United
States Court of Appeals for the District of Columbia Circuit to the FCC's
awards of Pioneer's Preferences, the FCC in March 1996 ruled that the
Pioneer's Preference licensees must begin making installment payments on their
licenses. The FCC has determined that Cox and APC, who were not required to
participate in the PCS auctions, nonetheless must pay, respectively,
approximately $252 million, plus interest, for the Los Angeles-San Diego MTA
and approximately $102 million, plus interest, for the Washington-Baltimore
MTA over a five-year period.
Transfers and assignments of PCS licenses. Pursuant to the Communications
Act, the FCC must give prior approval to the assignment or transfer of control
of a PCS license. In addition, the FCC has established transfer disclosure
requirements that require licensees that assign or transfer control of a PCS
license within the first three years to file associated contracts for sale,
option agreements, management agreements or other documents disclosing the
total consideration that the applicant would receive in return for the
transfer or assignment of the license. Non-controlling interests in an entity
that holds a PCS license or PCS networks generally may be bought or sold
without prior FCC approval.
Foreign ownership restrictions. The Communications Act restricts foreign
investment in and ownership of certain FCC radio licensees, including PCS
licensees. Non-United States citizens or their representatives, foreign
governments or their representatives, or corporations organized under the laws
of a foreign country may not own more than 20% of a common carrier PCS
licensee directly or more than 25% of the parent of a common carrier PCS
licensee. If it would serve the public interest, the FCC has the authority to
permit the parent of the licensee to exceed the 25% limit. However, the FCC
lacks the authority to permit a licensee itself to exceed the 20% limit on
foreign ownership.
If an entity fails to comply with the foreign ownership requirements, the
FCC may order the entity to divest alien ownership to bring the entity into
compliance with the Communications Act. Other potential sanctions include
fines, a denial of renewal or revocation of the license. The Company has no
knowledge of any present foreign ownership in violation of the Communications
Act.
The Telecommunications Act of 1996 ("1996 Act") eliminates the existing
restrictions on the number of alien officers and directors of FCC licensee
companies and companies controlling FCC licensees.
Conditions on PCS licenses. All PCS licenses are granted for 10-year terms
conditioned upon timely compliance with the FCC's buildout requirements.
Pursuant to the FCC's buildout requirements, all 30 MHz broadband PCS
licensees must construct facilities that offer coverage to one-third of the
population of their service area(s) within five years of their initial license
grant(s) and to two-thirds of the population within 10 years. Licensees that
fail to meet the buildout requirements may be subject to license forfeiture.
The FCC intends to conduct random audits to ensure that licensees are in
compliance with the FCC's holding period and attribution rules. Rule
violations could result in license revocations, forfeitures or fines.
PCS license renewal. PCS licensees can renew their licenses for an
additional 10 years. PCS renewal applications are not subject to auctions.
However, under the FCC's rules, third parties may oppose renewal applications
and/or file competing applications. If one or more competing applications are
filed, a renewal application will be subject to a comparative renewal hearing.
The FCC's rules afford PCS renewal applicants involved in comparative renewal
hearings with a "renewal expectancy." The renewal expectancy is the most
important comparative factor in a comparative renewal hearing and is
applicable if the PCS renewal applicant has: (i) provided "substantial"
service during its license term; and (ii) substantially complied with all
applicable FCC rules and policies as well as the Communications Act. The FCC's
rules define "substantial" service as service that is sound, favorable and
substantially above the level of mediocre service that might minimally warrant
renewal.
FCC relocation requirements. The spectrum allocated by the FCC for PCS
services is now occupied by existing microwave facilities. PCS licensees must
relocate such incumbent microwave facilities operating on the same frequencies
to avoid interference problems. The FCC's rules require the PCS licensee to
provide the
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microwave licensee with comparable facilities at the PCS licensee's own
expense and to ensure the facilities are "equal to or superior to existing
facilities." In order to encourage parties to negotiate relocation agreements,
the FCC's rules require, for existing licensees other than public safety
agencies, a two-year voluntary negotiation period followed by a one-year
mandatory negotiation period if voluntary negotiations fail. Separate
negotiation periods are applicable to public safety agencies, which are
entities dedicating a majority of their communications systems for police,
fire or emergency medical services operations involving safety of life and
property. The FCC's rules require public safety agencies to undertake a three-
year voluntary negotiation period followed by a two-year mandatory negotiation
period, if necessary. If an agreement is not reached, the incumbent microwave
licensee may be involuntarily relocated provided that the PCS licensee pays
for comparable facilities. The FCC recently revised its microwave relocation
rules to clarify permissible relocation costs that must be assumed by PCS
licensees during the mandatory period and to implement new procedures for the
sharing of relocation costs where the relocation of private microwave
facilities benefits multiple broadband PCS licensees.
FCC interconnection requirements. The FCC regulates the terms of
interconnection between broadband PCS networks and the networks of wireline
and other wireless providers of interstate communications services. Pending
FCC proceedings address the various interconnection obligations that could
affect broadband PCS and other wireless service providers. In one proceeding,
the FCC is reviewing its policies regarding proper compensation arrangements
between interconnecting broadband PCS providers and LECs when the carriers
terminate each other's calls. The FCC is also examining whether to mandate
direct interconnections between wireless networks.
The 1996 Act contains specific provisions regarding the interconnection
obligations of telecommunications carriers. The FCC has initiated a rulemaking
to determine, among other things, the extent to which certain provisions of
the 1996 Act apply to PCS/LEC interconnection agreements. If these provisions
are applied to PCS, state public utility commissions will be required to
approve interconnection agreements between PCS providers and LECs.
Other FCC requirements. In June 1996, the FCC adopted rules that prohibit
broadband PCS providers from unreasonably restricting or disallowing resale of
their services or unreasonably discriminating against resellers. Resale
obligations will automatically expire five years after the FCC has concluded
its initial round of licensing of currently allocated broadband PCS spectrum.
The FCC is expected to conclude its initial licensing round by early 1997. The
FCC is considering whether wireless providers should be required to offer
unbundled communications capacity to resellers who intend to operate their own
switching facilities.
The FCC recently extended an existing rule to require broadband PCS and
other Commercial Mobile Radio Service ("CMRS") providers to provide "manual"
roaming service that allows customers of one wireless provider to obtain
service while roaming in another wireless provider's service area. Such
customers must first establish a service relationship with the host system,
by, for example, supplying a valid credit card number to the host system. In
addition, the FCC is considering whether broadband PCS and other CMRS
providers should be required also to offer "automatic" roaming agreements on a
nondiscriminatory basis that would allow customers to roam by simply turning
on their handsets in a host market.
The FCC recently adopted rules permitting broadband PCS networks and other
CMRS providers to provide wireless local loop and other fixed services that
would directly compete with the wireline services of LECs. In June 1996, the
FCC adopted rules requiring broadband PCS and other CMRS providers to
implement enhanced emergency 911 capabilities within 18 months after the
effective date of the FCC's rules.
The Company may use common carrier point-to-point microwave and traditional
landline facilities to connect cell sites and to link them to their respective
main switching offices. The FCC will license separately these microwave
facilities and regulates the technical parameters and service requirements of
these facilities.
Other federal regulations. Wireless systems must comply with certain FCC and
FAA regulations regarding the siting, lighting and construction of transmitter
towers and antennaes. In addition, certain FCC environmental regulations may
cause wireless networks to become subject to regulation under the National
Environmental Policy Act.
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Recent events: The Telecommunications Act of 1996. On February 8, 1996,
Congress enacted the 1996 Act. The 1996 Act is supposed to create a
procompetitive, deregulatory national policy to accelerate competitive
development of telecommunications offerings, expand the availability of
telecommunications services to all segments of the public and streamline
regulation of the telecommunications industry by removing regulatory burdens.
The FCC, state public utilities commissions and a federal-state joint board
are charged with implementing the 1996 Act. On February 12, 1996, the FCC
released its tentative schedule for implementation of the 1996 Act's mandates,
many of which will be implemented within six to 18 months. Some specific
provisions of the 1996 Act are expected to affect PCS service providers.
Expanded interconnection obligations. Under the 1996 Act, all
telecommunications carriers, likely including broadband PCS providers, must
interconnect with other carriers. The 1996 Act also imposes a detailed list of
"interconnect" obligations upon LECs including resale, number portability,
dialing parity, access to rights-of-way and reciprocal compensation.
Review of universal service requirements. Although the 1996 Act contemplates
that wireless providers will "make an equitable and non-discriminatory
contribution" to support the cost of providing universal service, the FCC is
authorized to exempt carriers if their contribution would be de minimis.
Public utility "telecommunications" services. The 1996 Act modifies the
Public Utilities Holding Company Act of 1935 to permit public utilities
subject to that act to engage in the provision of telecommunications and
information services.
BOC entry into in-region interLATA services. Before engaging in in-region
interLATA services, the 1996 Act requires Bell Operating Companies ("BOCs") to
provide access and interconnection to one or more unaffiliated competing
providers of telephone exchange service. BOCs must offer the following
interconnection services on a non-discriminatory basis: interconnection and
unbundled access; access to poles, ducts, conduits and rights-of-way owned or
controlled by BOCs; unbundled local loops; unbundled local transport;
unbundled local switching; access to emergency 911, directory assistance,
operator call completion and white pages; access to telephone numbers,
databases and signaling for call routing and completion; number portability;
local dialing parity; reciprocal compensation; and resale.
The 1996 Act permits BOCs immediately to provide "incidental" interLATA
services including the provision of CMRS. The FCC intends to open a proceeding
to assess under what conditions BOCs that provide CMRS, including PCS, can
provide long distance services over their CMRS networks.
BOC commercial mobile joint marketing. Under the 1996 Act, BOCs and any
other company may jointly market and sell commercial mobile services,
including cellular and PCS, together with telephone exchange service, exchange
access, intraLATA telecommunications service, interLATA telecommunications
service and information services. A BOC, however, may not jointly market
telephone exchange service and any long distance service until certain
conditions have been met.
Wireless facilities siting. Under the 1996 Act, states and localities cannot
regulate the placement of wireless facilities so as to "prohibit" the
provision of wireless services or to "discriminate" among providers of such
services. In addition, so long as a wireless system complies with the FCC's
rules, the 1996 Act prohibits states and localities from using environmental
effects as a basis to regulate the placement, construction or operation of
wireless facilities.
Equal access. Under the 1996 Act, wireless providers are not required to
provide equal access to common carriers for toll services. However, the FCC is
authorized to require unblocked access to toll carriers subject to certain
conditions.
Deregulation. The 1996 Act requires the FCC to forebear from applying any
statutory or regulatory provision if it is not necessary to keep
telecommunications rates and terms reasonable or to protect customers.
Correspondingly, a state may not apply a statutory or regulatory provision
that the FCC decides not to apply. In
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addition, the FCC must review its telecommunications regulations every two
years to determine if any can be eliminated or modified as no longer in the
public interest as a result of increased competition.
Elimination of alien officer/director restrictions. The 1996 Act eliminates
the existing restrictions on the number of alien officers and directors of FCC
licensee companies and companies controlling FCC licensees.
FACILITIES AND EMPLOYEES
As of March 31, 1996, the Company occupied approximately 47,000 square feet
of leased headquarters space in Kansas City, Missouri. The Company is planning
to relocate its headquarters to new leased space of approximately 156,000
square feet in Kansas City this summer. The Company believes that this new
facility should serve its needs adequately for the foreseeable future. The
Company currently has leased 33 MTA offices (approximately 486,000 square feet
in aggregate) and expects that additional facilities will be needed eventually
to house customer service and network monitoring personnel. Management
believes that the Company will be able to lease office space as needed on
acceptable terms. The Company is also leasing space for base station towers
and switch sites as it constructs its nationwide network. As of June 14, 1996,
the Company had leased or purchased 39 switch sites and had entered into
leases or options for a total of 2,705 cell sites. The Company anticipates
leasing, acquiring or otherwise obtaining up to a total of approximately 5,700
such sites in preparation for initial commercial launch.
At May 31, 1996, the Company had no employees; Holdings, however, employed
1,600 personnel, all of whom are working on behalf of the Company. Pursuant to
a services agreement, the Company reimburses Holdings for the payroll expense
and benefits associated with all 1,600 employees. None of Holdings employees
is represented by a labor union. Management believes that Holdings' employee
relations are good. The Company and Holdings are engaging independent
contractors to perform a variety of functions, including construction and
maintenance of the Company's network, research, advertising, accounting and
data processing.
TRADEMARKS
The Company does not currently own any trademarks or patents, though it
expects to apply for and develop trademarks, service marks and patents in the
ordinary course of business. Sprint is a registered trademark of Sprint
Communications Company, L.P. ("Sprint Communications") and is licensed to
Holdings on a royalty-free basis pursuant to a trademark license agreement
between Sprint Communications and Holdings. Sprint Communications may
terminate this agreement (i) upon the dissolution and winding up of the
Company, (ii) upon the bankruptcy of the Company, (iii) upon the failure of
the Company to perform in accordance with the material terms of the agreement
or for a breach of its representations and warranties or (iv) if the Company
challenges Sprint's rights to the Sprint trademark and the associated logo.
The Company may terminate the agreement (i) if Sprint Communications abandons
or fails to support its trademark and associated logo, (ii) upon the
bankruptcy of Sprint Communications, (iii) if Sprint conflicts with the
Company's rights to use the trademark and associated logo or (iv) if Sprint
Communications breaches its covenant to license the trademark and associated
logo to additional licensees in accordance with the terms of the agreement.
Subject to certain conditions, each of the Company and Sprint Communications
may terminate the agreement if a controlled affiliate of Sprint ceases to own
any equity interest in Holdings. Within thirty days of termination, or, in
certain circumstances on a specified termination date, the Company's rights to
use the trademark and associated logo will cease.
Pursuant to certain of its third party supplier contracts, Sprint Spectrum
has certain rights to use third party supplier trademarks in connection with
the buildout, marketing and operation of its network.
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
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February 13, 1996 creating a six-month moratorium (which may be extended) on
approval of permits for wireless communication facilities in the City of
Medina. The Company is seeking injunctive and declaratory relief against this
resolution under the 1996 Act. The Court denied the Company's motion for
preliminary injunctive relief in May 1996. Although the ultimate outcome of
this litigation is uncertain, the Company is confident that adjudication of
this matter will not delay the introduction of service in the Seattle,
Washington MTA. See "Business--Regulation."
The Company is involved in various legal proceedings incidental to the
conduct of its business. While it is not possible to determine the ultimate
disposition of each of these proceedings, the Company believes that the
outcome of such proceedings, individually and in the aggregate, will not have
a material adverse effect on the Company's financial condition or results of
operations.
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MANAGEMENT
EXECUTIVE OFFICERS OF THE ISSUERS AND HOLDINGS PARTNERSHIP BOARD
REPRESENTATIVES
The executive officers of the Issuers and their respective positions with
Sprint Spectrum and FinCo are set forth below. In addition, the
representatives of the Partnership Board of Holdings are set forth below.
Sprint Spectrum does not have a partnership board but is managed by Holdings
in its capacity as general partner. The Board of Directors of FinCo is
comprised of Ronald T. LeMay, Robert M. Neumeister, Jr. and Joseph M.
Gensheimer. The ages of the individuals set forth below are as of June 1,
1996.
<TABLE>
<CAPTION>
NAME AGE POSITIONS
---- --- ---------
<S> <C> <C>
Ronald T. LeMay*............... 50 Chief Executive Officer and President of
Sprint Spectrum; President of FinCo;
Chairman of the Partnership Board of
Holdings
Arthur A. Kurtze............... 51 Chief Technology Officer of Sprint Spectrum
Bernard A. Bianchino........... 47 Chief Business Development Officer of
Sprint Spectrum
Robert M. Neumeister, Jr....... 46 Chief Financial Officer of Sprint Spectrum;
Vice President and Treasurer of FinCo
F. Edward Mattix............... 43 Chief Public Relations Officer of Sprint
Spectrum
Joseph M. Gensheimer........... 44 General Counsel and Secretary of Sprint
Spectrum; Secretary of FinCo
William T. Esrey............... 56 Holdings Partnership Board Representative
Gary D. Forsee................. 46 Holdings Partnership Board Representative
Gerald W. Gaines............... 40 Holdings Partnership Board Representative
Arthur B. Krause............... 54 Holdings Partnership Board Representative
James O. Robbins............... 53 Holdings Partnership Board Representative
Lawrence S. Smith.............. 48 Holdings Partnership Board Representative
</TABLE>
- - --------
* Mr. LeMay has returned to Sprint as President and Chief Operating Officer,
although he is continuing to serve as Chief Executive Officer and President
until a successor is named.
RONALD T. LEMAY, CHIEF EXECUTIVE OFFICER AND PRESIDENT
Ronald T. LeMay is Chief Executive Officer and President of the Company and
President and Chief Operating Officer of Sprint. Mr. LeMay began his telephony
career with Southwestern Bell Telephone Company in 1972. In 1983, Mr. LeMay
was appointed Regional Vice President of External Affairs for AT&T
Communications in Kansas City and in February 1985, he was named Vice
President and Comptroller for AT&T Communications where he served until July
1985 when he joined United Telephone System, Inc. (a Sprint company) as Vice
President and General Counsel. In 1986, Mr. LeMay became Senior Vice President
of Operations for the United Telephone System. He became Executive Vice
President of Corporate Affairs for Sprint in 1987 and Executive Vice President
of Staff for the Long Distance Division in November 1988. In October of 1989,
Mr. LeMay was appointed President and Chief Operating Officer for the Long
Distance Division, a position he held until assuming responsibility for the
Company in March 1995. Mr. LeMay is the Vice Chairman of the Board of
Directors of Sprint and a director of the Mercantile Bank of Kansas City and
Yellow Corporation.
50
<PAGE>
ARTHUR A. KURTZE, CHIEF TECHNOLOGY OFFICER
Arthur A. Kurtze was appointed Chief Technology Officer of the Company in
June 1995. Prior to joining the Company, Mr. Kurtze was Senior Vice
President--Operations for Sprint's Local Telecommunications Division. Prior to
joining Sprint in March 1993, Mr. Kurtze was Executive Vice President in
charge of strategic planning and corporate development for Centel Corp.
Mr. Kurtze joined Centel in 1972 and served in various positions there,
including Vice President of Centel Communications Co., Vice President--Staff
of Centel Business Systems, Vice President--Market Planning for Centel Corp.,
Group Vice President of Centel Cable Television Co. and Senior Vice
President--Planning and Technology.
BERNARD A. BIANCHINO, CHIEF BUSINESS DEVELOPMENT OFFICER
Bernard A. Bianchino was appointed Chief Business Development Officer of the
Company in September 1995. Most recently, Mr. Bianchino was Executive Vice
President, General Counsel and External Affairs for Qwest Communications
Corporation. He served as Vice President--Law, General Business for Sprint
from 1992 to 1994 and as General Attorney; Vice President and Associate
General Counsel for US Sprint Communications Company from 1986 to 1992. From
1978 to 1986, Mr. Bianchino was counsel to a number of affiliates of Exxon
Corporation in its Enterprises Group, including Reliance Comm/Tec (now RELTEC)
and Exxon Office Systems. Prior to joining Exxon, he was an attorney with the
United States Department of Energy.
ROBERT M. NEUMEISTER, JR., CHIEF FINANCIAL OFFICER
Robert M. Neumeister, Jr. was named Chief Financial Officer of the Company
in September 1995. Prior to joining the Company, Mr. Neumeister served in
various capacities at Northern Telecom Ltd., which he joined in 1978. In June
1991, Mr. Neumeister was named Vice President of Finance and Information
Services for Northern Telecom--Canada. He continued with Northern Telecom as
Senior Vice President and Chief Financial Officer of Motorola Nortel
Communications Co., Vice President of Finance--Americas, Vice President--
Broadband Networks, Customer Network Solutions and Vice President of Finance.
F. EDWARD MATTIX, CHIEF PUBLIC RELATIONS OFFICER
F. Edward Mattix was named Chief Public Relations Officer of the Company in
April 1996. Prior to joining the Company, he was Vice President--Public
Relations for U S WEST Communications, Inc. Mr. Mattix served in various
management level positions relating to public relations or governmental
affairs since joining U S WEST, Inc. in 1976.
JOSEPH M. GENSHEIMER, GENERAL COUNSEL AND SECRETARY
Joseph M. Gensheimer was named General Counsel of the Company in October
1995. Mr. Gensheimer is responsible for all legal and regulatory functions.
Prior to joining the Company, he was Senior Counsel for IBM's mainframe and
supercomputer divisions. Prior to joining IBM in 1988, he was General Counsel
and Secretary of RealCom Communications Corporation, a telecommunications
services provider. From 1982 to 1984, Mr. Gensheimer was Senior Attorney and
Assistant Secretary for GTE Corporation. Prior to joining GTE, he was an
associate at Morgan, Lewis & Bockius and an attorney for the United States
Department of Justice.
WILLIAM T. ESREY, REPRESENTATIVE
William T. Esrey was appointed as a representative of the Partnership Board
in March 1995. He has been the Chairman of Sprint since 1990 and its Chief
Executive Officer since 1985. Mr. Esrey is also a director of Sprint,
Equitable Life Assurance Society of America, General Mills, Inc., PanEnergy
Corporation and Everen Capital Corporation. Mr. Esrey currently serves on the
compensation committee of each of PanEnergy Corporation and Everen Capital
Corporation.
51
<PAGE>
GARY D. FORSEE, REPRESENTATIVE
Gary D. Forsee was appointed as a representative of the Partnership Board in
March 1995. He has been the President--Long Distance Division of Sprint since
March 1995. Prior to such appointment, Mr. Forsee served for more than five
years in other capacities at Sprint, including President--Government Systems
Division, President--Business Services Group and Chief of Staff--Long Distance
Division.
GERALD W. GAINES, REPRESENTATIVE
Gerald W. Gaines was appointed as a representative of the Partnership Board
in March 1995. He has been the President of TCI Telephony Services, Inc. and
Senior Vice President of TCI Communications, Inc. since 1994. Prior to joining
TCI Communications, Mr. Gaines founded GCG, Inc. a management services firm
advising the telecommunications industry. From 1986 to 1991, Mr. Gaines served
as a senior-level executive of U S WEST, Inc. as President and Chief Executive
Officer for U S WEST Service Link. Mr. Gaines is a director of Teleport
Communications Group Inc.
ARTHUR B. KRAUSE, REPRESENTATIVE
Arthur B. Krause was appointed as a representative of the Partnership Board
in March 1995. He is the Executive Vice President and Chief Financial Officer
of Sprint, positions which he has held since 1988. Prior to such appointment,
Mr. Krause served in other management capacities at Sprint, including
President of United Telephone-Eastern Group.
JAMES O. ROBBINS, REPRESENTATIVE
James O. Robbins was appointed as a representative of the Partnership Board
in March 1995. He has served as President of Cox since September 1985, and as
Chief Executive Officer since May 1994. Mr. Robbins joined Cox in September
1983 and has served as Vice President, Cox Cable New York City and as Senior
Vice President, Operations of Cox. Prior to joining Cox, Mr. Robbins held
management and executive positions with Viacom Communications, Inc. and
Continental Cablevision. Mr. Robbins is a director of Telewest Plc, Teleport
Communications Group Inc. and Cox.
LAWRENCE S. SMITH, REPRESENTATIVE
Lawrence S. Smith was appointed as a representative of the Partnership Board
in March 1995. He has been Executive Vice President of Comcast since December
1995. Prior to that time, Mr. Smith served as Senior Vice President of Comcast
for more than five years. Mr. Smith is the Principal Accounting Officer of
Comcast. Mr. Smith is a Director of Comcast UK Cable Partners Limited.
COMMITTEES OF THE PARTNERSHIP BOARD; COMPENSATION; COMMITTEE INTERLOCKS
There are no standing committees of the Partnership Board. Representatives
receive no compensation for serving on the Partnership Board. There are no
compensation committee interlocks between Holdings and any affiliated entity.
52
<PAGE>
EXECUTIVE COMPENSATION
Summary Compensation of Executive Officers. The following table sets forth
certain information regarding the compensation of the Company's Chief
Executive Officer and the four most highly compensated executive officers
other than the Chief Executive Officer whose total salary and bonus exceeded
$100,000 during the year ended December 31, 1995 (the "Named Executives"). In
each case, Sprint paid each Named Executive and Holdings reimbursed Sprint for
such costs. The amounts set forth below are for only that portion of 1995 that
the Named Executives were employed by Holdings. See "--Executive Officers and
Partnership Board Representatives of the Issuers and Holdings" for the month
during which each Named Executive commenced employment with Holdings.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
-------------------------- LONG TERM
NAME AND PRINCIPAL POSITION SALARY BONUS OTHER COMPENSATION
--------------------------- -------- -------- -------- ------------
<S> <C> <C> <C> <C>
Ronald T. LeMay............... $408,333 $313,250 $ -- $514,383(1)(2)
Chief Executive Officer
Arthur A. Kurtze.............. 171,320 107,500 -- 40,769(1)(3)
Chief Technology Officer
Bernard Bianchino............. 58,741 68,300 17,718(4) --
Chief Business Development
Officer
Robert M. Neumeister, Jr. .... 79,023 35,950 34,822(5) --
Chief Financial Officer
Joseph M. Gensheimer.......... 78,161 31,150 233,381(6) --
General Counsel
</TABLE>
- - --------
(1) Messrs. LeMay and Kurtze were employed by Sprint Corporation immediately
prior to their employment by Holdings, and as former employees, they
participated in certain long-term incentive plans at Sprint Corporation not
available to the other executives listed in this table.
(2) Of the $514,383 shown as long-term compensation, $97,008 represents a cash
pay-out and $417,375 represents stock options granted with respect to Sprint
Corporation stock.
(3) Of the $40,769 shown as long-term compensation, $18,351 represents a cash
pay-out and $22,418 represents stock options granted with respect to Sprint
Corporation stock.
(4) Of the $17,718 shown as other compensation, $16,684 represents relocation
expenses paid on behalf of Mr. Bianchino.
(5) Of the $34,822 shown as other compensation, $31,818 represents relocation
expenses paid on behalf of Mr. Neumeister.
(6) Of the $233,381 shown as other compensation, $83,287 represents relocation
expenses paid on behalf of Mr. Gensheimer and $150,000 represents foregone
incentive compensation from his former employer.
LONG-TERM COMPENSATION PLAN
The Company intends to adopt a long-term compensation plan for the benefit
of specified employees.
SHORT-TERM INCENTIVE PLAN SUMMARY
The Partnership Board has adopted a Short-Term Incentive Compensation Plan
(the "Plan"). The Plan is administered by the Partnership Board, which is
authorized to interpret Plan provisions, determine membership, approve
incentive targets and payouts and otherwise manage the Plan. The Plan has no
specified termination date and may be amended or terminated without
constraint.
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<PAGE>
The Partnership Board selects eligible employees to participate in the Plan.
Eligibility is limited to employees within exempt salary bands. Participation
in the Plan precludes participation in any other short-term compensation
plans.
Payouts are granted based on pre-set targeted opportunities. Performance
periods are one year long and incentive targets ("Incentive Targets") are
approved by the Partnership Board for each performance period. An Incentive
Target is established for each position based on the Company's overall
compensation strategy. Incentive Targets contain unit objective, Company
objective, and personal components, which are approved by the Chief Executive
Officer, the Partnership Board and the Chief Officer of the relevant operating
unit, respectively. Maximum earnings for the Company objective and unit
objective components are determined by the Board for each performance period.
Participants may earn a maximum of 120% of the incentive opportunity allocated
to the personal objective component. However, a minimum level of performance
may be required to generate a payout for the personal objective component.
Payouts for employees selected to participate in the Plan after the start of
a performance period are prorated as are certain payouts for Plan participants
whose employment with the Company terminates prior to the end of a performance
period. Payouts for Plan participants who change positions during a
performance period will be prorated according to the opportunities applicable
to the positions which were held. Notwithstanding the above, employees may not
begin participation in the Plan within two calendar months prior to the
completion of a performance period.
The 1996 Incentive Targets are based on, among other things, the following
factors (i) markets launched by November 1, 1996, (ii) markets that are
launched or are positioned to launch during the period from November 1, 1996
through February 15, 1997, (iii) population covered by the markets launched
and (iv) expense control.
Participation in the Plan is terminated upon the transfer to a
nonparticipating position in the Company, employment by a Partner, death,
disability or separation from the Company for lack of work. Terminated
participants are eligible for a prorated payment based upon the time served
under the Plan. If a participant is terminated for any but the aforementioned
reasons, that participant's Plan payment is deemed forfeited. Participants who
complete a performance period will be eligible to receive a Plan payment
regardless of the reason for termination.
SAVINGS AND RETIREMENT PLAN
The Company maintains a savings and retirement program (the "Savings Plan")
for certain of its employees, which is qualified under Section 401(k) of the
Internal Revenue Code of 1986, as amended (the "Code"). Most permanent full-
time, and certain part-time, employees are eligible to become participants in
the plan. Participants make contributions to a basic before tax account and a
supplemental before tax account. The maximum contribution for any participant
for any year is 16% of such participant's compensation--up to six percent of
which may be contributed to the basic tax account--subject to maximum amounts
set by federal taxation law and certain additional limitations for Highly
Compensated Individuals (as defined in the Savings Plan). For each eligible
employee who elects to participate in the Savings Plan and makes a
contribution to the basic before tax account, the Company makes a matching
contribution equal to 50% of the amount of the basic before tax contribution
of each participant up to 6% of such employee's contribution. In addition, the
Company makes contributions to the Plan for each participant based on
compensation, attained age and number of completed years of the vesting
period, as well as certain additional qualified contributions for the accounts
of participants who are not Highly Compensated Employees. Contributions to the
Savings Plan are paid into a trust fund that is held in trust by the trustee
under the trust established pursuant to the Saving Plan. Contributions to the
Savings Plan are invested, at the participant's direction, in several
designated investment funds. Distributions from the Savings Plan generally
will be made only upon retirement or other termination of employment, unless
deferred by the participant.
54
<PAGE>
PROFIT SHARING PLAN (RETIREMENT COMPONENT)
Employees become eligible to participate in the Profit Sharing Plan after
completing 12 consecutive months of service. The Company's profit sharing
contribution will be based on eligible compensation (as defined by the plan).
A combination of age and years of service will determine the amount
contributed, which will range from two to ten percent of eligible
compensation. It will be deposited into individual accounts of the Company
sponsored 401(k) plan. Such accounts will be established for employees who do
not participate in the 401(k) plan. For employees that do participate in the
401(k) plan, the contribution will be subject to the applicable 401(k)
investment percentage criteria. The contribution vests after completion of
five years of service; once vested the plan is considered portable.
EMPLOYMENT AGREEMENTS
Holdings has entered into an employment agreement with Joseph M. Gensheimer.
In connection with the Reorganization, Holdings assigned such employment
agreement to Sprint Spectrum. The agreement provides for an annual base salary
of $300,000, as well as a short-term incentive opportunity of $125,000 per
annum. In addition, under the long-term incentive plan, which the Company
intends to adopt, Mr. Gensheimer will be entitled to an annualized long-term
target opportunity of $200,000. Mr. Gensheimer received a payment of $150,000
in 1995 and, subject to continued employment with the Company, will receive an
additional $150,000 from Sprint Spectrum on the first anniversary of
employment with Sprint Spectrum for foregone stock options and 1995 incentive
compensation related to his previous employer.
Sprint Spectrum may terminate Mr. Gensheimer's employment for any reason at
any time, provided, however, that if termination is other than for cause,
total disability or the voluntary resignation of Mr. Gensheimer, Sprint
Spectrum shall be required to pay special compensation which includes, among
other things, (i) bi-weekly compensation for a period of 18 months (the
"Severance Period"), (ii) subject to certain conditions, a bonus under any
short-term incentive plan maintained during the Severance Period, (iii) a
prorated award under any long-term incentive plan in which Mr. Gensheimer
participates, (iv) life, medical and retirement benefits throughout the
Severance Period and (v) outplacement counseling.
Pursuant to the terms of his employment agreement, Mr. Gensheimer has agreed
that for 18 months following termination of employment for any reason he will
not accept any position where, within any 90-day period, he dedicates his time
and efforts principally to the Wireless Business (as defined) anywhere in the
United States.
Sprint Spectrum expects to enter into employment agreements, on terms
substantially similar to those contained in Mr. Gensheimer's agreement, with
Messrs. Kurtze, Bianchino and Neumeister.
55
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The general partner of Sprint Spectrum is Holdings, which has a greater than
99% general partnership interest in Sprint Spectrum. There are four general
partners of Holdings, Sprint Enterprises, L.P., which has a 40% partnership
interest, TCI Telephony Services, Inc. which has a 30% partnership interest,
and Comcast Telephony Services and Cox Telephony Partnership, each of which
has a 15% partnership interest. Each of the Partners is a subsidiary of
Sprint, TCI, Cox or Comcast, as the case may be. See "Principal Security
Holders." Sprint is a leading provider of domestic and international long
distance and local exchange telecommunications services. In March 1996, Sprint
divested its cellular unit in a spin-off to its shareholders due to
overlapping cellular and PCS territories which is prohibited by the FCC. TCI
is one of the largest cable television operators in the United States in terms
of numbers of basic subscribers served, with consolidated systems serving
approximately 13.0 million basic subscribers as of March 31, 1996. Comcast is
engaged in the development, management and operation of cable and cellular
telephone communications systems and the production and distribution of cable
programming and has approximately 3.5 million subscribers in the United
States. Comcast also provides cellular telephone communications services in
markets with an aggregate population of over 7.9 million, including the area
in and around Philadelphia and parts of Delaware and New Jersey. Cox is a
fully integrated, diversified media and broadband communications company with
operations and investments in U.S. cable televisions systems (3.3 million
wholly-owned and affiliated subscribers), international cable television
systems, programming and telecommunications and technology.
The Company and Holdings expect to have extensive relationships with the
Partners and their affiliates, including the Parents. The Holdings Partnership
Agreement sets forth guidelines for business dealings between the Company
and/or Holdings and the Partners and their affiliates, including the Parents.
The Holdings Partnership Agreement permits Holdings and its subsidiaries,
including the Company, to enter into transactions with the Partners and their
affiliates in the normal course of their respective businesses; provided,
however, that the Partnership Board has determined that the price and terms of
such transaction are fair to Holdings and its subsidiaries, including the
Company, and that the price and terms of such transaction are no less
favorable than comparable transactions involving non-affiliates. Subject to
certain conditions, including, without limitation, unanimous approval of
appropriate procedures, the Partnership Board may elect from time to time to
provide rights of first opportunity to various Partners or their affiliates.
In addition, the Holdings Partnership Agreement contains other provisions
relating to transactions between Holdings and its subsidiaries, including the
Company, on the one hand, and the Partners and their affiliates, on the other
hand.
Holdings reimburses Sprint for certain accounting, data processing, and
other related services, and for certain cash payments made by Sprint on behalf
of Holdings and the Company. The costs of such services are allocated based on
direct usage. The aggregate amount of such expenses was approximately
$2,646,000 for 1995. No reimbursement was made through December 31, 1994.
PhillieCo and a Cox affiliate were formed by certain Partners, individually
and collectively, for the purposes of providing PCS wireless services in
Philadelphia and Los Angeles-San Diego, respectively. Holdings, having made
certain cash payments on behalf of PhillieCo and Cox's affiliate, will receive
reimbursements for direct costs incurred plus an amount for management
services provided to PhillieCo and Cox's affiliate. The aggregate amount of
such services provided as of December 31, 1995 was $183,225 and $156,528, due
from PhillieCo and Cox's affiliate, respectively.
Subject to certain exceptions, the Holdings Partnership Agreement restricts
any Partner and its controlled affiliates from bidding on, acquiring or,
directly or indirectly, owning, managing, operating, joining, controlling or
financing, or participating in the management, operation, control or financing
of, or being connected as a principal, agent, representative, consultant,
beneficial owner of an interest in any person or entity, or otherwise with, or
use or permit its name to be used in connection with, any business that
engages in the bidding for or acquisition of any Wireless Business license or
engages in any Wireless Business or provides, offers, promotes
56
<PAGE>
or brands services that are within Holdings' core business. Unless approved by
a unanimous vote of the Partners and subject to certain provisions, (i) as a
result of Comcast's ownership of a PCS license for the Philadelphia MTA,
Holdings and its subsidiaries (including the Company) are prohibited from
engaging in any of the activities listed in the preceding sentence, including
bidding for or acquiring any PCS license, in Philadelphia and (ii) no Partner
or controlling affiliate may bid in a PCS auction for any Wireless Business
license, and at no time may any Partner bid for or acquire a Wireless Business
if such bid or acquisition would violate or cause the Partnership or other
Partners to violate any rules of the FCC.
The Holdings Partnership Agreement provides that the marketing channels of
the Company will include each of the Partners and certain of their affiliates.
Each of the Partners will be non-exclusive sales agents for the Company's
services, and the Company will be a non-exclusive sales agent for those
services Sprint and the Cable Parents make available to the Company. No agency
agreements formalizing the specific terms of these arrangements between the
Company and the Partners have been signed. Any commissions payable as a result
of the sales agency relationships between and among the Company and the
Partners are required to be no less favorable to the agent than those for
comparable agency arrangements with third parties. The Company's services will
be offered, promoted and packaged solely under the Sprint trademark and the
logo used in connection therewith. Nothing in the Holdings Partnership
Agreement, however, precludes or prohibits the Partners and their affiliates
from marketing, selling or distributing their own products and services.
The Holdings Partnership Agreement provides that each Partner and its
controlled affiliates and Holdings, as a whole will cause their respective
agents to keep secret and maintain in confidence all confidential and
proprietary information and data of Holdings, the Partners and such
affiliates. Subject to such confidentiality restrictions, Holdings, and its
subsidiaries will grant each Partner and its controlled affiliates access to
technical information of Holdings and its subsidiaries.
Pursuant to the Holdings Partnership Agreement, each Partner has agreed to
provide certain services to the Company in connection with the operation of
the network, including antenna sites and/or strand mounting of RF and
transmission equipment, transmission facilities between cell sites and
designated switching locations and provision of primary power, standby power
and maintenance. The provisions of any such services by Comcast within the
Philadelphia MTA and certain surrounding areas in Pennsylvania, New Jersey,
Delaware and Maryland is not required.
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<PAGE>
PRINCIPAL SECURITY HOLDERS
The following table sets forth, as of March 31, 1996, the ownership of the
Issuers and Holdings. For a more detailed discussion of certain ownership
interests, see "Business" and "Certain Relationships and Related
Transactions."
<TABLE>
<CAPTION>
NAME AND ADDRESS PERCENTAGE
OF BENEFICIAL OWNER TYPE OF INTEREST INTEREST
------------------- ---------------- ----------
<S> <C> <C>
Sprint Spectrum Holding Company, L.P.
Sprint Enterprises, L.P.(1)................ Partnership(2) 40%
2330 Shawnee Mission Parkway
Westwood, Kansas 66205
TCI Telephony Services, Inc.(3)............ Partnership(2) 30%
5619 DTC Parkway
Englewood, Colorado 80111
Comcast Telephony Services(4).............. Partnership(2) 15%
1500 Market Street
Philadelphia, Pennsylvania 19102-2148
Cox Telephony Partnership(5)............... Partnership(2) 15%
1400 Lake Hearn Drive
Atlanta, Georgia 30319-1464
Sprint Spectrum L.P.
Sprint Spectrum Holding Company, L.P.(6)... General Partnership 99%
4717 Grand Avenue--Fifth Floor
Kansas City, Missouri 64112
MinorCo, L.P.(6)........................... Limited Partnership 1%
4717 Grand Avenue--Fifth Floor
Kansas City, Missouri 64112
Sprint Spectrum Finance Corporation
Sprint Spectrum L.P........................ Common Stock 100%
4717 Grand Avenue--Fifth Floor
Kansas City, Missouri 64112
</TABLE>
- - --------
(1) An indirect wholly-owned subsidiary of Sprint Corporation.
(2) Each Partner is both a general partner and a limited partner and holds 99%
of its partnership interest as a general partner and 1% as a limited
partner.
(3) A subsidiary of Tele-Communications, Inc. Interest was originally held by
TCI Network Services and subsequently transferred to TCI Telephony
Services, Inc.
(4) A wholly-owned subsidiary of Comcast Corporation.
(5) A wholly-owned subsidiary of Cox Communications, Inc.
(6) As of March 31, 1996, Holdings, the sole general partner of Sprint
Spectrum, owned a greater than 99.75% partnership interest in Sprint
Spectrum, and MinorCo, the sole limited partner, owned a partnership
interest equal to less than 0.25%. The interests held by each of Holdings
and MinorCo fluctuate based on the amount of equity contributed by
Holdings to Sprint Spectrum because MinorCo's limited partnership interest
is equal to the ratio of $5.0 million (its investment in Sprint Spectrum)
to the total contributed equity in Sprint Spectrum.
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<PAGE>
THE PARTNERSHIP AGREEMENTS
The following sets forth a summary of certain provisions of the Amended and
Restated Agreement of Limited Partnership of Holdings (the "Holdings
Partnership Agreement") and the Agreement of Limited Partnership of Sprint
Spectrum (the "Sprint Spectrum Partnership Agreement" and together with the
Holdings Partnership Agreement, the "Partnership Agreements"). The Partnership
Agreements are included as exhibits to the Registration Statement of which
this Prospectus constitutes a part. The following discussion is qualified in
its entirety by reference to the Partnership Agreements.
SPRINT SPECTRUM PARTNERSHIP AGREEMENT
Sprint Spectrum was formed as a limited partnership pursuant to the
provisions of the Delaware Revised Uniform Limited Partnership Act, as amended
(the "Partnership Act"). A certificate of limited partnership of Sprint
Spectrum was filed with the Secretary of State of the State of Delaware on
March 28, 1995. Sprint Spectrum will continue until its dissolution and
winding up in accordance with the terms of the Sprint Spectrum Partnership
Agreement. See "--Dissolution and Winding Up." The general partner (the
"General Partner") of Sprint Spectrum is Holdings, which holds a greater than
99% general partnership interest. The remaining limited partnership interest
is owned by MinorCo (the "Limited Partner"). See "Business--General".
The purposes of Sprint Spectrum are (i) to engage, through one or more
subsidiaries, in wireless communications services utilizing radio spectrum for
cellular, PCS, ESMR, paging, mobile communications and any other voice or data
wireless services (collectively, the "Wireless Business") and to provide
certain services related thereto; (ii) to act as the general partner for
WirelessCo; (iii) to make capital contributions to, and receive distributions
from, WirelessCo; and (iv) to perform such activities in furtherance of the
foregoing as may be determined to be necessary from time to time by the
General Partner. The General Partner appoints the senior management of Sprint
Spectrum.
The General Partner will conduct the business and affairs of Sprint
Spectrum, and all powers of Sprint Spectrum, except those specifically
reserved to the Limited Partner by the Partnership Act, have been granted to
and vested in the General Partner.
Limitation on Liability and Indemnification. The Sprint Spectrum Partnership
Agreement provides that any partner or former partner, or any affiliate
thereof, any partner, shareholder, director, officer, employee or agent of any
of the foregoing, or any officer or employee of Sprint Spectrum will not be
liable in damages for any act or failure to act in such person's capacity as a
partner or otherwise on behalf of Sprint Spectrum or any of its subsidiaries
unless such act or omission constituted bad faith, gross negligence, fraud or
willful misconduct of such person or a violation of the Sprint Spectrum
Partnership Agreement or any agreement between such person and Sprint Spectrum
or any of its subsidiaries. In addition, each partner or former partner, or
each affiliate thereof, each partner, shareholder, director, officer, employee
or agent or any of any of the foregoing, and each officer and employee of
Sprint Spectrum will be indemnified and held harmless by Sprint Spectrum from
and against any liability for damages and expenses, including reasonable
attorney's fees and disbursements and amounts paid in settlement, resulting
from any threatened, pending or completed action, suit or proceeding relating
to or arising out of such person's acts or omissions in such person's capacity
as a partner or otherwise involving such person's activities on behalf of
Sprint Spectrum or any of its subsidiaries, except to the extent that such
damages or expenses result from bad faith, gross negligence, fraud or willful
misconduct of such person or a violation of the Sprint Spectrum Partnership
Agreement or any agreement between such person and Sprint Spectrum or any of
its subsidiaries.
Dissolution and Winding Up. Sprint Spectrum will dissolve and commence
winding up and liquidation upon the first to occur of (i) the sale of all or
substantially all of its property; (ii) the sale of WirelessCo or all or
substantially all of its property and the distribution of the net proceeds
therefrom to Sprint Spectrum; (iii) the written consent of all of the partners
to dissolve, wind up and liquidate Sprint Spectrum; or (iv) subject to certain
conditions, the withdrawal of a general partner, the assignment by a general
partner of its entire partnership interest or any other event that causes a
general partner to cease to be a general partner under the Partnership
59
<PAGE>
Act. Upon the occurrence of any such event, the General Partner shall be
responsible for overseeing the dissolution and winding up of Sprint Spectrum.
HOLDINGS PARTNERSHIP AGREEMENT
Holdings was formed as a limited partnership by Sprint Enterprises, L.P.,
TCI Telephony Services, Inc., Comcast Telephony Services and Cox Telephony
Partnership (TCI Telephony Services, Inc., Comcast Telephony Services and Cox
Telephony Partnership are herein collectively referred to as the "Cable
Partners") pursuant to the provisions of the Partnership Act. Each Partner is
both a general partner (in such capacity a "General Partner") holding 99% of
its interest as a general partner and a limited partner (in such capacity, a
"Limited Partner") holding 1% of its interest as a limited partner.
A certificate of limited partnership of Holdings was filed with the
Secretary of State of the State of Delaware on March 28, 1995. Holdings will
continue until its winding up and liquidation in accordance with the terms of
the Holdings Partnership Agreement. See "--Dissolution and Winding Up."
The purposes of Holdings, as set forth in the Holdings Partnership
Agreement, are (i) to engage in the Wireless Business and to provide certain
services related thereto, either directly or through one or more subsidiaries,
and (ii) to perform any activities in the furtherance of such Wireless
Business and the provision of such related services as may be approved from
time to time by the Partnership Board.
Capital Contributions. Each of the Partners has made an initial capital
contribution ("Initial Capital Contribution") of both cash and property that
total $ 2.4 billion in the aggregate for all four Partners. The initial
percentage interest (the "Percentage Interest") of each of Sprint Enterprises,
L.P., TCI Telephony Services, Inc., Comcast Telephony Services and Cox
Telephony Partnership is 40%, 30%, 15% and 15%, respectively. Each Partner is
required, subject to the limitations described below, to make additional
capital contributions ("Additional Capital Contributions") in cash and, in the
case of Cox, the Omaha MTA PCS license and an undivided fractional interest in
the PCS license for the Los Angeles-San Diego MTA that ultimately will be held
by Cox-California (the "Licenses"), in an amount up to its initial Percentage
Interest times an amount equal to $4.2 billion plus the agreed upon value of
the Licenses (together, the "Total Mandatory Contributions").
The Partnership Board and, under certain circumstances, the Chief Executive
Officer, may request that the Partners make Additional Capital Contributions
of cash to fund the needs of Holdings for the ensuing six months or for such
shorter period as may be determined by the Partnership Board and as such needs
are reflected in the applicable annual budget. Such contributions, in the
aggregate, may not exceed the cumulative amount of Additional Capital
Contributions contemplated in the annual budget for the fiscal year, unless
otherwise approved by the Partnership Board. In addition, if such fiscal year
falls within the initial two-year period (January 1, 1996 to December 31,
1997), such Additional Capital Contribution shall not exceed (i) with respect
to the first fiscal year in the initial two-year period, the product of 150%
times the planned capital amount for such fiscal year as set forth in the
annual budget ($1,131 million for fiscal 1996), and (ii) with respect to the
second fiscal year in the initial two-year period, the product of 150% times
the planned capital amount for such fiscal year ($767 million for fiscal 1997)
(less any portion of such planned capital amount for which Additional Capital
Contributions were requested in the first fiscal year in the initial two-year
period) plus any portion of the planned capital amount for the first fiscal
year in the initial two-year period for which Additional Capital Contributions
were not requested, in each case unless otherwise approved by a unanimous vote
of the Partnership Board. The amount so requested from each Partner by the
Partnership Board or the Chief Executive Officer, as the case may be, shall be
equal to such Partner's pro rata share of such Additional Capital Contribution
based upon its initial Percentage Interest.
No Partner may decline a request to make an Additional Capital Contribution
at any time prior to December 31, 1999, except to the extent such Additional
Capital Contribution, when added to the aggregate amount of such Partner's
capital contributions prior to the time of such Additional Capital
Contribution, exceeds such Partner's share of the Total Mandatory
Contribution. After the earlier of (i) December 31, 1999 or (ii) such time as
the
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aggregate amount of Initial Capital Contributions and Additional Capital
Contributions made or requested to be made by the Partners first equals or
exceeds the Total Mandatory Contributions (the "Cut-Off Time"), such Partner
may decline a request for an Additional Capital Contribution during any fiscal
year provided that none of such Partner's Representatives (as defined below)
voted in favor of the fiscal year's budget calling for the Additional Capital
Contributions and none of such Representatives voted in favor of requesting
such Additional Capital Contributions. In the event of a shortfall due to a
partner declining (a "Declining Partner") to make such an Additional Capital
Contribution, however, the Chief Executive Officer will request that each
Partner that made its respective Additional Capital Contribution in full make
Additional Capital Contributions in an aggregate amount equal to the amount
not contributed by the Declining Partner. Each Partner that is willing to fund
the shortfall may do so up to 100% of such shortfall and if the amount
committed by all Partners agreeing to fund the shortfall exceeds 100%, except
as otherwise provided in the following sentence, each such Partner will be
entitled to contribute that amount equal to the same percentage of the
shortfall as such Partner's Percentage Interest. If the Declining Partner is a
Cable Partner, and no Cable Partner's Percentage Interest is equal to or
greater than Sprint's Percentage Interest, the shortfall first shall be
allocated among the Cable Partners that committed to fund the shortfall as if
Sprint had not so committed, until such time as at least one Cable Partner's
Percentage Interest is equal to Sprint's Percentage Interest, after which such
shortfall shall be allocated pro rata among all Partners that committed to
fund such shortfall in accordance with their respective Percentage Interests.
If any Partner declines a request for an Additional Capital Contribution
relating to the first $800 million of Additional Capital Contributions
requested after the Cut-Off Time (a "Second Tranche Call") and the Partnership
Board determines that the Partners' aggregate adjusted net equity in Holdings
is less than the aggregate amount of capital contributions previously made by
the Partners, the Partnership Board may elect to convert such Second Tranche
Call to a "Premium Call," pursuant to which the Partners, including the
Declining Partner, will be given another opportunity to make the Additional
Capital Contributions requested pursuant to such Second Tranche Call. If any
Partner then declines to make its Additional Capital Contribution, all amounts
contributed by the other Partners pursuant to such Second Tranche Call shall
be treated as "Premium Dollars," meaning that, for purposes of adjusting the
contributing Partners' Percentage Interests, each such dollar will be valued
on the basis of adjusted net equity divided by the sum of all previously made
Initial Capital Contributions and Additional Capital Contributions, thereby
increasing the dilutive impact on the Declining Partner's Percentage Interest.
In the event that any Partner fails to make all or any portion of an
Additional Capital Contribution (other than an Additional Capital Contribution
that such Partner is entitled to decline to make under the circumstances
described above), a penalty will accrue with respect to such unpaid amount at
the applicable floating rate from and including the date of the requested
Additional Capital Contribution until such unpaid amount and the penalty
imposed thereon are paid or until the period during which such Partner may
cure its failure to make such unpaid amount, and the penalty imposed thereon,
has expired. In the event such Partner fails to make the requested Additional
Capital Contribution and to pay the related penalty within ten days after the
date such Additional Capital Contribution was due, the Chief Executive Officer
will request that each Partner that made its respective Additional Capital
Contribution in full make loans to Holdings in an aggregate amount equal to
the amount of the Additional Capital Contribution that such delinquent Partner
failed to make. The amount of the loan that each such Partner shall be
entitled to make will be determined in the same manner as described above with
respect to the Additional Capital Contributions that the Partners are entitled
to make with respect to a shortfall caused by a Declining Partner. Any such
delinquent Partner may cure its default within 90 days from the date of the
above-referenced loans by transferring to an account of Holdings the amount of
the unpaid amount and the unpaid penalty. The failure of such delinquent
Partner to cure such default would constitute an Adverse Act (as defined),
which would permit the Partnership Board to elect (i) to commence procedures
to allow the other Partners to purchase such delinquent Partner's interest in
Holdings at a discount or (ii) to cause Holdings to seek to obtain specific
performance of such delinquent Partner's obligations or to sue for money
damages.
Each Partner also may contribute from time to time such additional cash or
property as the Partnership Board approves.
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The Percentage Interests of the Partners will be adjusted from time to time
to reflect the failure of any Partner to make an Additional Capital
Contribution. Percentage Interests will be adjusted as follows: (i) with
respect to Additional Capital Contributions requested prior to the time that
the aggregate amount of Initial Capital Contributions and Additional Capital
Contributions made or requested to be made exceeds the Total Mandatory
Contributions, Percentage Interests will be adjusted on a pro rata basis to
give effect to the aggregate Initial Capital Contribution and Additional
Capital Contributions made by each Partner, (ii) with respect to an Additional
Capital Contribution that is converted to a Premium Call, Percentage Interests
shall be adjusted based upon the Premium Dollars procedures described above,
and (iii) with respect to an Additional Capital Contribution requested after
the time that the aggregate amount of Initial Capital Contributions and
Additional Capital Contributions made or requested to be made exceeds $5
billion, Percentage Interests will be adjusted on a pro rata basis to give
effect to each Partner's adjusted net equity in its interest in Holdings
(taking into account the Additional Capital Contribution made by such Partner
with respect to the requested Additional Capital Contribution to which such
adjustment of Percentage Interests relates).
Management. The General Partners of Holdings conduct the business and
affairs of Holdings and have all the powers of Holdings except for those
specifically reserved to all of the general and limited partners by the
Partnership Act or the Holdings Partnership Agreement. The General Partners
conduct such business and exercise such powers through their representatives
on the Partnership Board (the "Representatives"). The Partnership Board
currently has six voting Representatives, three of whom are designated by
Sprint and one of whom is designated by each of the Cable Partners. The Chief
Executive Officer is a non-voting member of the Partnership Board. In the
event that the Percentage Interests change, the Holdings Partnership Agreement
provides for different allocations of Representatives among the Partners and,
in certain situations, a change in the size of the Partnership Board,
provided, however, that Sprint will be entitled to designate two
Representatives as long as its Percentage Interest is at least 20%.
If any Partner becomes an "Adverse Partner" through, among other things,
default, disposition of its Partnership Interest other than in accordance with
the Holdings Partnership Agreement or a material breach of a material covenant
(each, an "Adverse Act"), such Partner shall forfeit the right to designate a
member of the Partnership Board, and any existing Representatives of such
Partner shall cease to be members of the Partnership Board.
The Representative or Representatives designated by each General Partner
have voting power equal to the voting Percentage Interest of the Partner
appointing him or them. If a General Partner designates more than one
Representative such Representatives are required to vote the entire voting
power held by such General Partner as a single unit. Except for Partners that
are controlled affiliates of the same parent, none of the Partners may enter
into any agreements with any other Partner (or its controlled affiliates)
regarding the voting of their respective Representatives on the Partnership
Board.
Each Representative holds his or her office at the pleasure of the General
Partner that designated such Representative. Any General Partner may at any
time, and from time to time, remove any or all of its Representatives and
appoint substitute Representatives. Representatives are not entitled to
compensation from Holdings for serving in such capacity and the costs incurred
by each Representative are borne by the Partner designating such
Representative.
Except as set forth below, all actions required or permitted to be taken by
the Partnership Board must be approved by the affirmative vote of
Representatives having voting power of 75% or more of the Percentage Interests
entitled to vote on such action (other than those required to abstain pursuant
to the terms of the Holdings Partnership Agreement). The decision to convert a
Second Tranche Call to a Premium Call and certain related matters requires a
simple majority vote of more than 50% of the voting Percentage Interest of all
Partners whose Representatives are not required to abstain. The unanimous vote
of the Partnership Board is required for specified matters including, but not
limited to, admission of new Partners or equity holders, actions that would
result in voluntary bankruptcy or the dissolution of Holdings or any
subsidiary, approval of transactions which would subject Holdings to certain
restrictions relating to FCC regulatory oversight, actions relating to the
incurrence of
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indebtedness that is recourse to the Partners, certain acquisitions and
dispositions of assets and the approval of a request for withdrawal by a
General Partner.
The unanimous consent of all of the Partners (other than those required to
abstain pursuant to the terms of the Holdings Partnership Agreement) is
required for any amendment to, or material deviation from, the Initial
Business Plan (as defined in the Holdings Partnership Agreement) during the
fiscal year ending December 31, 1996, engagement by Holdings in businesses
outside those specified in the Holdings Partnership Agreement or the
conducting of business by Holdings or its subsidiaries in the Philadelphia
MTA, the loan or advancement by Holdings or any subsidiary of funds to, or the
guarantee of any obligations of, a Partner or any affiliate thereof, the
making of any non-pro rata cash or in-kind distributions to a Partner other
than in accordance with the terms of the Holdings Partnership Agreement, the
approval of, amendment, modification or supplement to, procedures relating to
the winding up of the affairs of Holdings and, subject to certain exceptions,
the incurrence of any debt for loans made by a Partner or affiliate thereof
and any amendment, modification or supplement to the Holdings Partnership
Agreement. If any such action is not so approved solely due to the failure of
one or more Partners who is not entitled to representation on the Partnership
Board to consent, the Holdings Partnership Agreement provides means by which
the consenting Partners may purchase all of such non-consenting Partner's
interest.
The Partnership Board is responsible for appointing the senior management of
Holdings and its subsidiaries and for establishing policies and guidelines for
the hiring of employees by Holdings and its subsidiaries. The Partnership
Board may delegate authority to officers, employees, agents and
representatives as it deems appropriate and each Representative may authorize
by proxy another person to vote for such Representative at a Partnership Board
meeting. The Partnership Board has delegated to the Chief Executive Officer
the responsibility for appointing the senior management of Holdings and its
subsidiaries.
The Chief Executive Officer shall submit annually to the Partnership Board,
within 90 days of the start of a fiscal year, both a proposed budget for the
upcoming fiscal year and a proposed business plan covering such fiscal year
and the succeeding four fiscal years. The day-to-day business and operations
of the Partnership and its subsidiaries shall be conducted in accordance with
the approved business plan and annual budget then in effect and the policies,
strategies and standards established by the Partnership Board.
Liability of Partners, Representatives and Partnership Employees. The
Holdings Partnership Agreement provides that no Partner or former Partner,
Representative or former Representative, no Affiliate (as defined in the
Holdings Partnership Agreement) of any thereof, no partner, shareholder,
director, officer, employee or agent of any of the foregoing, nor any officer
or employee of Holdings, will be liable in damages for any act or failure to
act in such person's capacity as a Partner or Representative or otherwise on
behalf of Holdings or any of its subsidiaries unless such act or omission
constituted bad faith, gross negligence, fraud or willful misconduct of such
person or a violation by such person of the Holdings Partnership Agreement or
an agreement between such person and Holdings or a subsidiary thereof. Subject
to certain conditions, each Partner, former Partner, Representative and former
Representative, each Affiliate of any thereof, each partner, shareholder,
director, officer, employee and agent of any of the foregoing, and each
officer and employee of Holdings, will be indemnified and held harmless by
Holdings, from and against any liability for damages and expenses, including
reasonable attorneys' fees and disbursements and amounts paid in settlement,
resulting from any threatened, pending or completed action, suit or proceeding
relating to or arising out of such person's acts or omissions in such person's
capacity as a Partner or Representative or otherwise involving such person's
activities on behalf of the partnership or any of its subsidiaries, except to
the extent that such damages or expenses result from the bad faith, gross
negligence, fraud or willful misconduct of such person or a violation by such
person of the Holdings Partnership Agreement or an agreement between such
person and Holdings or any of its subsidiaries. Any indemnity by Holdings will
be provided out of, and to the extent of partnership property only.
Conversion to Corporate Form. The Holdings Partnership Agreement provides
that in the event the Partnership Board determines that it is desirable for
the business of Holdings to be conducted in a corporate
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form, the Partnership Board shall incorporate Holdings in the state of
Delaware. In the event of such a conversion, Holdings and MinorCo shall be
consolidated, and the Partners will receive, in exchange for their respective
Holdings and MinorCo interests, shares of capital stock of such corporation in
the same relative economic interests--defined in terms of net equity--as such
Partners hold in Holdings. Upon conversion to corporate form, the corporate
successor shall grant to each of the Partners certain rights to require such
successor to register under the Securities Act the shares of capital stock
received by the Partners in exchange for their interests in Holdings. After
August 1, 2003, the Partners have certain rights either to cause Holdings to
convert to corporate form or to have their Partnership Interests purchased by
the other Partners.
Competition with Partners. Subject to certain exceptions, the Holdings
Partnership Agreement restricts any Partner and its controlled affiliates from
bidding on, acquiring or, directly or indirectly, owning, managing, operating,
joining, controlling or financing, or participating in the management,
operation, control or financing of, or being connected as a principal, agent,
representative, consultant, beneficial owner of an interest in any person or
entity, or otherwise with, or use or permit its name to be used in connection
with, any business that engages in the bidding for or acquisition of any
Wireless Business license or engages in any Wireless Business or provides,
offers, promotes or brands services that are within Holdings' core business.
Unless approved by a unanimous vote of the Partners and subject to certain
provisions, (i) within the Philadelphia MTA Holdings is prohibited from
engaging in any of the activities listed in the preceding sentence, including
bidding for or acquiring any PCS licenses and (ii) no Partner or its
controlled affiliate shall bid in a PCS auction for any Wireless Business
license, and at no time may any Partner bid for or acquire a Wireless Business
if such bid or acquisition would violate or cause the Partnership or other
Partners to violate any rules of the FCC.
The Holdings Partnership Agreement permits Holdings and its subsidiaries to
enter into transactions with the Partners and their affiliates in the normal
course of their respective businesses provided, however, that the Partnership
Board has determined that the price and terms of such transaction are fair to
Holdings and its subsidiaries and that the price and terms of such transaction
are no less favorable than comparable transactions involving non-affiliates.
Subject to certain conditions, including without limitation, unanimous
approval of appropriate procedures, the Partnership Board may elect from time
to time to provide rights of first opportunity to various Partners or their
affiliates. In addition, any transaction between Holdings and its subsidiaries
on the one hand and the Partners and their affiliates (including the Parents)
on the other hand shall be approved by the Partnership Board by the requisite
affirmative vote of the Representatives of the disinterested Partners.
Business Relationship with Partners. The Holdings Partnership Agreement
provides that the marketing channels of the Company will include each of the
Partners and certain of their affiliates. Each of the Partners will be non-
exclusive sales agents for the Company's services and the Company will be a
non-exclusive sales agent for those services Sprint and the Cable Parents make
available to the Company As of the date of this Prospectus, no agency
agreements formalizing the specific terms of these arrangements between the
Company and the Partners have been signed. Any commissions payable as a result
of the sales agency relationships between and among the Company and the
Partners are required to be no less favorable to the agent than those for
comparable agency arrangements with third parties. The Company's services will
be offered, promoted and packaged solely under the Sprint trademark and the
logo used in connection therewith. Nothing in the Holdings Partnership
Agreement, however, precludes or prohibits the Partners and their affiliates
from marketing, selling or distributing their own products and services.
The Holdings Partnership Agreement provides that each Partner and its
controlled affiliates and Holdings, as a whole shall cause their respective
agents to keep secret and maintain in confidence all confidential and
proprietary information and data of Holdings, the Partners and such
affiliates. Subject to such confidentiality restrictions, Holdings and its
subsidiaries shall grant each Partner and its controlled affiliates access to
technical information of Holdings and its subsidiaries.
Pursuant to the Holdings Partnership Agreement, each Partner has agreed to
provide certain services to the Company in connection with the operation of
the network, including antenna sites and/or strand mounting of RF
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and transmission equipment, transmission facilities between cell sites and
designated switching locations and provision of primary power, standby power
and maintenance. The provisions of any such services by Comcast within the
Philadelphia MTA and certain surrounding areas in Pennsylvania, New Jersey,
Delaware and Maryland is not required.
The Partnership Agreement also provides that the Partners and the Company
will coordinate, to the extent permitted by law and as is commercially
reasonably, their respective buying efforts from third party vendors.
Dispositions of Interests. Subject to certain restrictions, a Partner may at
any time transfer all or a portion of its interest (i) to any controlled
affiliate of such Partner, (ii) in connection with certain permitted
transactions involving such Partner, (iii) to the administrator or trustee of
such Partner to whom such interest is transferred in an involuntary
bankruptcy, (iv) pursuant to and in compliance with certain sections of the
Holdings Partnership Agreement, including sections relating to Adverse Acts,
rights of first refusal, tag-along rights, offer and registration rights and
rights of first offer and buy-sell arrangements and (v) with the prior written
consent of the other Partners.
After March 1, 2000, a Partner may transfer all or any portion of its
partnership interest to a person that is not a controlled affiliate of such
Partner (a "Purchaser") provided that such Partner first offers to sell such
partnership interest or portion thereof to the other Partners and provided
that such transfer would not result in the occurrence of an Adverse Act. If
such Purchaser after such transfer would own more than 55% of the Percentage
Interests, then the transfer will not be permitted unless such Purchaser
offers to purchase the entire interest of any other Partner wishing to sell
its interest.
Termination of Status as General Partner. A General Partner will cease to be
a General Partner upon (i) the permitted transfer of such Partner's entire
interest as a Partner, (ii) the unanimous vote of the Partnership Board
approving a request by such General Partner to withdraw, (iii) any Adverse Act
with respect to such Partner, (iv) such Partner's failure to satisfy an 8%
minimum ownership requirement or (v) in the case of Comcast only, the
occurrence of specified events that cause Comcast to become solely a limited
partner.
Dissolution and Winding Up. Holdings will be dissolved upon the earliest to
occur of (i) the sale of all or substantially all of the property of Holdings,
(ii) a unanimous vote of the Partnership Board to dissolve, wind up, and
liquidate Holdings in accordance with the terms of the Holdings Partnership
Agreement, (iii) the failure of the General Partners to resolve a "Deadlock
Event," which is deemed to occur if the Partnership Board fails to approve a
proposed annual budget or business plan for two consecutive fiscal years or if
the position of Chief Executive Officer remains vacant for 60 days after a
candidate has been proposed by at least two Partners with an aggregate of at
least 33% of the voting Percentage Interests and (iv) the withdrawal of a
General Partner, the assignment by a General Partner of its entire interest or
any other event that causes a General Partner to cease to be a general partner
under the Partnership Act; provided, that upon the occurrence of the events
set forth in clause (iv) above, Holdings will not be dissolved or required to
be wound up if (x) at the time of such event there is at least one remaining
General Partner, or (y) if there is not at least one remaining General
Partner, within 90 days after such event all remaining Partners agree in
writing to continue the business of Holdings and to the appointment, effective
as of the date of such event, of one or more additional General Partners.
Upon the occurrence of the events described in clauses (ii), (iii) and (iv)
above, and subject to the satisfaction of certain conditions, the Holdings
Partnership Agreement provides for buy/sell arrangements pursuant to which a
General Partner or a group of General Partners may purchase all of the
partnership interests thereby preventing the winding up and liquidation. In
the event such procedures fail to cause the sale of such partnership interests
in accordance with the buy/sell provisions, the Partnership Board shall be
responsible for overseeing the dissolution and winding up of Holdings, shall
cause the Holdings's property to be liquidated and shall apply and distribute
the proceeds therefrom in accordance with the terms of the Holdings
Partnership Agreement.
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DESCRIPTION OF VENDOR CONTRACTS AND FINANCING
VENDOR CONTRACTS
In connection with the construction of its PCS network and the preparation
for launch of commercial service, the Company has entered into numerous
contracts with various of its vendors. The most significant of these are
summarized below.
Procurement Contracts
In connection with the network buildout, Holdings has entered into
Procurement Contracts with each of Nortel and Lucent, pursuant to which each
of Nortel and Lucent will provide certain of the fundamental infrastructure
products and services required for the establishment of the Company's PCS
network. The Procurement Contracts are non-recourse to the Parents and the
Partners or any intermediary partnership and have been assigned to the Company
in connection with the Reorganization. The Vendors may select and retain
subcontractors for performance of their obligations provided that such
subcontractors meet the standards and requirements as set forth in the
Procurement Contracts.
The initial term of each of the Procurement Contracts is 10 years subject to
extension by annual renewals. The Procurement Contracts generally require
payment for construction on a current basis and, for equipment and software on
every PCS system, 15-25% on delivery, 58-65% upon substantial completion and
18-20% on final acceptance, in each case with payment due within 30-45 days
from invoice. The amount of such contract price will be reduced by all amounts
saved as a result of certain engineering changes suggested by the Company that
are incorporated into the specifications by the Vendors; provided that the
Vendors reasonably believe that such changes would not make it impossible or
impracticable for the Vendors to comply with their obligations under the
Procurement Contracts. If at any time a Vendor is in material breach of the
Procurement Contract with respect to any PCS system, the Company shall have no
obligation to make any payment for work done in addition to those amounts
previously paid until and unless such breach is cured or waived by the
Company.
The minimum purchase commitments for the initial term are $0.8 billion and
$1.0 billion for Lucent and Nortel, respectively, which include, but are not
limited to, all CDMA equipment required for the establishment and installation
of the Network.
The Procurement Contracts provide for warranties of generally one to three
years from the final acceptance of equipment, services and PCS systems
provided by the applicable Vendor and warranty damages for the breach thereof.
Each Vendor has agreed to provide substantial training at no extra cost and
"most favored customer" status is generally applicable to all terms including
pricing, availability and payment terms. Payment for a majority of the
infrastructure costs is delayed until the Vendors achieve substantial
completion and deliver a functional system within their allocated MTAs. These
substantially turnkey arrangements as well as the liquidated damages discussed
below place the impetus for timely, high-quality network completion on the
Vendors and reduce the Company's exposure to buildout delays and technology
concerns.
The Procurement Contracts provide for significant liquidated damages for
interim project milestone delays and PCS system completion delays. Liquidated
damages are triggered by non-performance, inadequate performance or late
performance of the Vendor's obligations. Damages are calculated as a specified
percentage of the contract value and are subject to certain caps. Damages may
be offset against amounts owed by the Company to such Vendor and the Vendors
have defined cure periods to reach the appropriate milestone or system
completion date to avoid damages being assessed.
The Procurement Contracts contain various termination provisions. Once the
Company has purchased the minimum amount of Vendor products and services that
it had committed to purchase, it may terminate the contracts at its sole
option at any time, without cause. the Company may terminate the Procurement
Contracts for cause, without penalty, if the Vendor defaults. Vendor defaults
include, but are not limited to, (i) events of bankruptcy or otherwise seeking
relief from creditors, (ii) violations of applicable laws or permits, (iii)
failure to
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keep PCS systems free of liens and encumbrances, (iv) failure to meet
construction and/or payment requirements, (v) material breaches of the
contract, (vi) failure to comply with the contract's change of control
provision or (vii) persistent material failure to correct defects and
deficiencies in a timely manner. The Vendor may cure any event of default
except bankruptcy within a defined cure period.
Upon the Company's termination of the Procurement Contract, the Vendor is
due only undisputed amounts due and payable. If the termination results from a
Vendor event of default, the Vendor must pay to the Company the costs of
completing the project above the contract price, notwithstanding any
liquidated damages owed by Vendor to the Company.
The Vendors may terminate the Procurement Contracts upon the Company's
default. The events of default applicable to the Company are (i) events of
bankruptcy or otherwise seeking relief from creditors, (ii) the Company's
failure to make undisputed payments that are more than 60 days overdue to the
Vendor after an appropriate period of notice, (iii) failure of the Company's
to meet its initial commitments within five years of January 31, 1996, where
such failure is not due to site acquisition difficulties, microwave
relocations, force majeure events or the Vendor's acts or omissions or (iv)
the Company's materially breaches the contract and the breach does not involve
site acquisition, microwave relocation and/or network interconnection.
The Procurement Contracts also include special termination provisions
implicated by a failure of buildout financing or changes in law. The Company
may terminate the Procurement Contracts if acceptable financing with the
Vendors for the initial phase of the national buildout has not been finalized
within 180 days of January 31, 1996. Nortel may terminate the agreement at any
time within the same 180 day period if Nortel reasonably believes that
financing for the national buildout will not be finalized within that 180 day
period. The Company may also terminate the contract, in whole or in part, if
there is a change in applicable law or the interpretation thereof, or there is
a decision by a judicial or administrative body, such that the Company
reasonably believes that operating a PCS system would be illegal or onerous.
Before terminating a Procurement Contract subject to this provision, the
Company must use its best efforts to ameliorate the effects of such a change.
Handset Agreement
Sprint Spectrum has entered into a three-year purchase and supply agreement
for CDMA handsets with Qualcomm Personal Electronics, which is a partnership
formed by Qualcomm and Sony Electronics Inc. (the "Handset Agreement"). Under
the Handset Agreement, Sprint Spectrum is entitled to resell the handsets
through its own retail outlets as well as other retail and direct sales
distribution channels. In addition, under the Handset Agreement Sprint
Spectrum receives most favored customer status. Sprint Spectrum is obligated
to make certain purchases during each year of the contract, provided that
Sprint Spectrum may buy-down its commitments if it should choose to do so.
Subject to certain conditions, the vendor will warrant the handsets for two
years from delivery to the Company and for one or two years (at Sprint
Spectrum's option) after the purchase of the handset by a consumer. In
addition, the vendor will provide sales training for the marketing and sales
personnel of the Company. In the event Sprint Spectrum fails to make the
minimum purchases, Sprint Spectrum will be liable for liquidated damages.
VENDOR FINANCING
The Company has obtained financing commitments from Nortel for $1.3 billion
and from Lucent for $1.8 billion of multiple drawdown term loan facilities.
The proceeds of such facilities will be used to finance the purchase price of
goods and services provided by the Vendors under the Procurement Contracts.
The Vendor Financing will be non-recourse to the Parents and the Partners.
Borrowings under the Vendor Financing will be secured by a perfected first
priority lien (the "Shared Lien") on (i) all of the partnership interests in
WirelessCo, RealtyCo and EquipmentCo, (ii) intangible property assets on which
a lien can be perfected by certain Uniform Commercial Code and/or federal
filings and (iii) any real property having a value greater than $15.0
million. The Shared Lien will secure equally and ratably the Bank
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Credit Facility, the Vendor Financing, other indebtedness of Sprint Spectrum
for borrowed money and interest rate swaps, indebtedness of Sprint Spectrum
not to exceed a designated basket at any time outstanding and any refinancing
of the foregoing (collectively, the "Secured Debt"). See "--Bank Credit
Facility." The Secured Debt will be unconditionally guaranteed by WirelessCo,
RealtyCo and EquipmentCo on a joint and several, pari passu basis.
Loans made under the Vendor Financing will amortize quarterly over a five-
year period commencing on the date which is 39 months after the end of the
one-year period during which such loans were made. Under the Vendor Financing,
subject to certain conditions, the Company will be required to make mandatory
prepayments of 100% of the net cash proceeds of any sale or disposition of
subsidiaries or any sale of material assets that are not reinvested in the
Company's wireless telecommunications business.
The Company will be able to elect that all or a portion of the borrowings
under the Vendor Financing bear interest at a rate per annum equal to either
(i) the ABR plus an applicable margin or (ii) the Eurodollar rate (LIBOR) plus
an applicable margin. The ABR is the higher of (x) the rate of interest
publicly announced by a commercial bank to be determined as its prime rate in
effect at its principal office in New York City and (y) the federal funds
effective rate plus 0.5%.
The Nortel Financing requires, as a condition to funding, the commitment of
additional financing from third-parties, including the Offering, the Bank
Credit Facility or other debt financing, and equity financing. The Vendor
Financing will contain customary conditions which must be satisfied in order
for the Company to access funds.
The Vendor Financing will contain a number of significant covenants that,
among other things, limit the ability of the Company to incur additional
indebtedness (beyond specified amounts), create liens and other encumbrances,
make guarantee obligations, make certain payments and investments, sell or
otherwise dispose of assets, make capital expenditures, make distributions to
partners and repurchases of equity, make acquisitions, investments, loans and
advances, merge or consolidate with another entity or engage in any business
other than the telecommunications business and related businesses as well as
restrictions on the ability of WirelessCo, RealtyCo and EquipmentCo to incur
liabilities or engage in non-designated activities. In addition, the Vendor
Financing will require the maintenance of certain specified financial and
operating covenants, including, without limitation, ratios of total debt to
total capitalization, total debt to EBITDA, EBITDA to interest expense and
capital expenditure limitations.
The Vendor Financing will contain representations, warrants, covenants,
conditions and events of default customary for such senior credit facilities
of similar size and nature, including without limitation, the delivery and
execution of definitive documentation relating thereto. In addition, the
Vendor Financing will contain change of control provisions regarding Sprint's
ownership of a direct or indirect interest in the Company. The loss of the
Company's right to use the Sprint trademark under the trademark license
agreement will constitute an event of default under the Vendor Financing.
BANK CREDIT FACILITY
Sprint Spectrum has received a commitment from Chemical Bank to provide a
fully underwritten senior credit facility in the amount of $2.0 billion. The
proceeds of the loans under the Bank Credit Facility will be used to finance
capital expenditures, operating losses, the working capital needs of the
Company and for partnership purposes.
The Bank Credit Facility will consist of three separate tranches of debt in
the amounts of $750 million, $750 million and $500 million.
Borrowings under the Bank Credit Facility will be unconditionally guaranteed
by WirelessCo, RealtyCo and EquipmentCo. In addition, borrowings under the
Bank Credit Facility will be secured by the Shared Lien. See "--Vendor
Financing." The Bank Credit Facility will be non-recourse to, and will not be
guaranteed by, the Parents or the Partners.
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Outstanding amounts under the Bank Credit Facility will reduce quarterly
commencing five years and three months following the closing date and ending
nine years after the closing date. Under the Bank Credit Facility, subject to
certain conditions, the Company will be required to make mandatory prepayments
of 100% of the net cash proceeds of any sale or disposition of subsidiaries or
any material assets that are not reinvested in the Wireless Business. In
addition, beginning in the fiscal year ended 2000, Sprint Spectrum will be
required to apply a portion of excess cash flow to ratably reduce commitments
under the Bank Credit Facility and prepay loans under the Vendor Financing.
The Company will be able to elect that all or a portion of the borrowings
under the Bank Credit Facility bear interest at a rate per annum equal to (i)
the ABR plus an applicable margin or (ii) the Eurodollar Rate (LIBOR) plus an
applicable margin. The ABR is the higher of (x) the rate of interest publicly
announced by the administrative agent as its prime rate in effect at its
principal office in New York City and (y) the federal funds effective rate
from time to time plus 0.5%.
In connection with the Bank Credit Facility, Sprint Spectrum will pay a
commitment fee on the average daily unused and available amounts under the
Bank Credit Facility which fee will be determined based on specified tests and
payable quarterly in arrears.
The Bank Credit Facility will contain a number of significant covenants
that, among other things, limit the ability of Sprint Spectrum to incur
additional indebtedness, create liens and other encumbrances, make guarantee
obligations, make certain payments and investments, sell or otherwise dispose
of assets, make capital expenditures, make distributions to partners and
repurchases of equity, make acquisitions, investments, loans and advances,
merge or consolidate with another entity or engage in any business other than
the telecommunications business and related businesses as well as restrictions
on the ability of WirelessCo, RealtyCo and EquipmentCo to incur liabilities or
engage in non-designated activities. In addition, the Bank Credit Facility is
expected to require the maintenance of certain specified financial and
operating covenants, including, without limitation, capital expenditure
limitations and ratios of total debt to total capitalization, total debt to
EBITDA and EBITDA to interest expense.
The Bank Credit Facility will contain representations, warranties,
covenants, conditions and events of default customary for senior credit
facilities of similar size and nature, including, without limitation, the
delivery and execution of definitive documentation relating thereto. The loss
of the Company's right to use the Sprint trademark under the trademark license
agreement will constitute an event of default under the Bank Credit Facility.
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DESCRIPTION OF THE NOTES
The Senior Notes will be issued under an Indenture (the "Senior Notes
Indenture") to be dated as of , 1996 among Sprint Spectrum L.P. ("Sprint
Spectrum") and Sprint Spectrum Finance Corporation ("FinCo" and, together with
Sprint Spectrum, the "Issuers"), as joint and several obligors, and The Bank
of New York, as trustee (the "Senior Notes Trustee"). The Senior Discount
Notes will be issued under an Indenture (the "Senior Discount Notes Indenture"
and, together with the Senior Notes Indenture, the "Indentures") to be dated
as of , 1996 among the Issuers, as joint and several obligors, and The Bank
of New York, as trustee (the "Senior Discount Notes Trustee" and, together
with the Senior Notes Trustee, the "Trustees"). The Senior Notes and the
Senior Discount Notes are referred to together herein as the "Notes." A copy
of the form of each Indenture has been filed as an exhibit to the Registration
Statement of which this Prospectus is a part. The following summary of certain
provisions of the Indentures does not purport to be complete and is subject
to, and is qualified in its entirety by reference to, the Trust Indenture Act
of 1939, as amended (the "Trust Indenture Act"), and to all of the provisions
of the Indentures, including the definitions of certain terms therein and
those terms made a part of the Indentures by reference to the Trust Indenture
Act, as in effect on the date of the Indentures. The definitions of certain
capitalized terms used in the following summary are set forth below under "--
Certain Definitions."
GENERAL
The Notes will be issued only in registered form, without coupons, in
denominations of $1,000 and integral multiples of $1,000. The Issuers will
appoint The Bank of New York to serve as registrar and paying agent under the
Indentures at its offices at 101 Barclay Street, New York, New York 10281. No
service charge will be made for any registration of transfer or exchange of
the Notes, except for any tax or other governmental charge that may be imposed
in connection therewith.
MATURITY, INTEREST AND PRINCIPAL OF THE SENIOR NOTES
The Senior Notes will be senior obligations of the Issuers, limited to
$150,000,000 aggregate principal amount, and will mature on , 2006. Cash
interest on the Senior Notes will accrue at a rate of % per annum and will be
payable semi-annually in arrears on each and , commencing , 1997, to
the holders of record of Senior Notes at the close of business on and ,
respectively, immediately preceding such interest payment date. Cash interest
will accrue from the most recent interest payment date to which interest has
been paid or, if no interest has been paid, from , 1996. Interest will be
computed on the basis of a 360-day year of twelve 30-day months. Interest on
overdue principal and on overdue installments of interest will accrue at the
rate of interest borne by the Senior Notes.
MATURITY, INTEREST AND PRINCIPAL OF THE SENIOR DISCOUNT NOTES
The Senior Discount Notes will be senior obligations of the Issuers, limited
to $ principal amount at maturity, and will mature on , 2006. The Senior
Discount Notes will be issued at a discount to their aggregate principal
amount at maturity and will generate gross proceeds to the Issuers of
approximately $500,000,000. Based on the issue price thereof, the yield to
maturity of the Senior Discount Notes is % (computed on a semi-annual bond
equivalent basis), calculated from , 1996. See "Certain Federal Income Tax
Consequences."
Cash interest will not accrue or be payable on the Senior Discount Notes
prior to , 2001. Thereafter, cash interest on the Senior Discount Notes
will accrue at a rate of % per annum and will be payable semi-annually in
arrears on each and , commencing on , 2002, to the holders of record
of the Senior Discount Notes at the close of business on the and ,
respectively, immediately preceding such interest payment date. Cash interest
will accrue from the most recent interest payment date to which interest has
been paid or, if no interest has been paid, from , 2001. Interest will be
computed on the basis of a 360-day year of twelve 30-day months. Interest on
overdue principal and on overdue installments of interest will accrue at the
rate of interest borne by the Senior Discount Notes.
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OPTIONAL REDEMPTION
Optional Redemption of Senior Notes. The Senior Notes will be redeemable at
the option of the Issuers, in whole or in part, at any time on or after ,
2001, at the redemption prices (expressed as a percentage of principal amount)
set forth below, plus accrued and unpaid interest, if any, to the redemption
date, if redeemed during the 12 month period beginning on of the years
indicated below:
<TABLE>
<CAPTION>
REDEMPTION
YEAR PRICE
---- ----------
<S> <C>
2001.............................. %
2002.............................. %
2003.............................. %
2004 and thereafter............... 100%
</TABLE>
In addition, prior to , 1999, the Issuers may redeem up to 35% of the
originally issued principal amount of Senior Notes at a redemption price equal
to % of the principal amount of the Senior Notes so redeemed, plus accrued
and unpaid interest, if any, to the redemption date with the net proceeds of
one or more Public Equity Offerings of Common Equity Interests of (i) Sprint
Spectrum, (ii) Holdings or (iii) a special purpose corporation (a "Special
Purpose Corporation") formed to own Common Equity Interests of Sprint Spectrum
or Holdings, in any such case, resulting in gross proceeds of at least $100
million in the aggregate; provided that at least 65% of the originally issued
principal amount of Senior Notes would remain outstanding immediately after
giving effect to such redemption.
Optional Redemption of Senior Discount Notes. The Senior Discount Notes will
be redeemable at the option of the Issuers, in whole or in part, at any time
on or after , 2001, at the redemption prices (expressed as a percentage of
principal amount) set forth below, plus accrued and unpaid interest, if any,
to the redemption date, if redeemed during the 12 month period beginning on
of the years indicated below:
<TABLE>
<CAPTION>
REDEMPTION
YEAR PRICE
---- ----------
<S> <C>
2001.............................. %
2002.............................. %
2003.............................. %
2004 and thereafter............... 100%
</TABLE>
In addition, prior to , 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 % of the Accreted Value at the redemption date of
the Senior Discount Notes so redeemed with the net proceeds of one or more
Public Equity Offerings (as defined) of Common Equity Interests of (i) Sprint
Spectrum, (ii) Holdings or (iii) a Special Purpose Corporation, in any such
case, resulting in gross proceeds of at least $100 million in the aggregate;
provided that at least 65% of the originally issued principal amount at
maturity of Senior Discount Notes would remain outstanding immediately after
giving effect to such redemption.
Selection and Notice of Redemption. In the event that less than all of the
Senior Notes or the Senior Discount Notes are to be redeemed at any time,
selection of such Notes for redemption will be made by the applicable Trustee
in compliance with the requirements of the principal national securities
exchange, if any, on which such Notes are listed or, if such Notes are not
then listed on a national securities exchange, on a pro rata basis, by lot or
by such method as the applicable Trustee shall deem fair and appropriate;
provided that no Notes of a principal amount or principal amount at maturity,
as the case may be, of $1,000 or less shall be redeemed in part; provided,
further, that if a partial redemption is made with the proceeds of an Initial
Public Offering, selection of the Notes or portions thereof for redemption
shall be made by the applicable Trustee only on a pro rata basis or on as
nearly a pro rata basis as is practicable (subject to the procedures of The
Depository Trust Company), unless such method is otherwise prohibited. Notice
of redemption shall be mailed by first-class mail at least 30 but not more
than 60 days before the redemption date to each holder of Senior Notes or
Senior Discount Notes, as the case may be, to be redeemed at its registered
address. If any Note is to be redeemed in part only, the notice of redemption
that relates to such Note shall state the portion of the principal amount or
principal amount at maturity, as the case may be, thereof to be redeemed. A
new Senior Note or Senior Discount
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Note, as the case may be, in a principal amount or principal amount at
maturity, as the case may be, equal to the unredeemed portion thereof will be
issued in the name of the holder thereof upon cancellation of the original
Note. On and after the redemption date, interest will cease to accrue on Notes
or portions thereof called for redemption as long as the Issuers have
deposited with the applicable paying agent for the Notes funds in satisfaction
of the applicable redemption price pursuant to the applicable Indenture.
CERTAIN COVENANTS
Set forth below are certain covenants that will be contained in the
Indentures.
Limitation on Additional Indebtedness. The Indentures will provide that
Sprint Spectrum will not, and will not permit any Restricted Subsidiary to,
create, incur, assume, issue, guarantee or in any other manner become directly
or indirectly liable, contingently or otherwise, for or with respect to (in
any such case, to "incur") any Indebtedness (including any Acquired
Indebtedness); provided that the Issuers and the Restricted Subsidiaries may
incur Indebtedness (including Acquired Indebtedness) if after giving pro forma
effect to such incurrence (including the application or use of the net
proceeds therefrom to repay Indebtedness or make any Restricted Payment),
either (a) the ratio of (x) Total Consolidated Indebtedness to (y) Annualized
Pro Forma Consolidated Operating Cash Flow would be less than (A) 7.0 to 1.0,
if the Indebtedness is to be incurred prior to July 1, 2002, or (B) 6.0 to
1.0, if the Indebtedness is to be incurred on or after July 1, 2002, or (b) in
the case of any incurrence of Indebtedness prior to July 1, 2002 only, Total
Consolidated Indebtedness would be equal to or less than 70% of Total Invested
Capital.
Notwithstanding the foregoing, the Issuers and, to the extent specified, the
Restricted Subsidiaries will be permitted to incur each and all of the
following (each of which shall be given independent effect):
(a) Indebtedness under the Notes and the Indentures;
(b) Indebtedness of the Issuers and the Restricted Subsidiaries
outstanding from time to time pursuant to any of the Vendor Credit
Facilities;
(c) Indebtedness of the Issuers and the Restricted Subsidiaries
outstanding from time to time pursuant to the Bank Credit Facility in an
aggregate principal amount at any one time outstanding not to exceed $2.0
billion;
(d) Indebtedness of an Issuer or a Restricted Subsidiary owed to and held
by an Issuer or another Restricted Subsidiary so long as any such
Indebtedness owing by an Issuer is unsecured and subordinated in right of
payment to the Notes, except that (x) any direct or indirect transfer of
such Indebtedness by an Issuer or a Restricted Subsidiary (other than to an
Issuer or a Restricted Subsidiary), as the case may be, or (y) any direct
or indirect sale, transfer or other disposition by an Issuer or a
Restricted Subsidiary of Equity Interests of a Restricted Subsidiary that
is owed Indebtedness of an Issuer or a Restricted Subsidiary such that it
ceases to be a Restricted Subsidiary shall, in each such event, be an
incurrence of Indebtedness by the Issuer or such Restricted Subsidiary, as
the case may be, subject to the other provisions of this covenant;
(e) Interest Rate Protection Obligations of an Issuer or a Restricted
Subsidiary relating to Indebtedness of an Issuer or a Restricted Subsidiary
otherwise permitted under the Indentures that are entered into for the
purpose of protecting against fluctuations in interest rates in respect of
such Indebtedness and not for speculative purposes;
(f) Indebtedness of an Issuer or a Restricted Subsidiary under Currency
Agreements; provided that (x) such Currency Agreements relate to
Indebtedness otherwise permitted under the Indentures or the purchase price
of goods purchased or sold by an Issuer or a Restricted Subsidiary in the
ordinary course of its business and (y) such Currency Agreements do not
increase the Indebtedness or other obligations of an Issuer or a Restricted
Subsidiary outstanding other than as a result of fluctuations in foreign
currency exchange rates or by reason of fees, indemnities and compensation
payable thereunder;
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(g) Indebtedness of an Issuer or a Restricted Subsidiary represented by
letters of credit for the account of an Issuer or a Restricted Subsidiary
in order to provide security for workers' compensation claims, payment
obligations in connection with self-insurance or similar requirements in
the ordinary course of business;
(h) other Indebtedness of the Issuers and the Restricted Subsidiaries in
an aggregate principal amount not to exceed $100 million at any one time
outstanding; and
(i) Refinancing Indebtedness.
Indebtedness of a person existing at the time such person becomes a
Restricted Subsidiary or which is secured by a Lien on an asset acquired by
Sprint Spectrum or a Restricted Subsidiary (whether or not such Indebtedness
is assumed by the acquiring person) shall be deemed incurred at the time the
person becomes a Restricted Subsidiary or at the time of the asset
acquisition, as the case may be.
Limitation on Restricted Payments. The Indentures will provide that Sprint
Spectrum will not, and will not permit any of the Restricted Subsidiaries to,
make, directly or indirectly, any Restricted Payment on or prior to December
31, 1999; and, thereafter, will not, and will not permit any of the Restricted
Subsidiaries to, make, directly or indirectly, any Restricted Payment unless:
(i) no Default shall have occurred and be continuing at the time of or
after giving effect to such Restricted Payment;
(ii) immediately after giving effect to such Restricted Payment, Sprint
Spectrum would be able to incur $1.00 of additional Indebtedness under
clause (a) of the proviso to the first paragraph of the covenant described
under "--Limitation on Additional Indebtedness"; and
(iii) immediately after giving effect to such Restricted Payment, the
aggregate amount of all Restricted Payments declared or made on or after
the Issue Date (including any Designation Amount) would not exceed an
amount equal to the sum of, without duplication, (1) the amount of (x) the
Available Operating Cash Flow of Sprint Spectrum after December 31, 1999
through the end of the latest full fiscal quarter for which consolidated
financial statements of Sprint Spectrum are available preceding the date of
such Restricted Payment (treated as a single accounting period) less (y)
150% of the cumulative Consolidated Interest Expense of Sprint Spectrum
after December 31, 1999 through the end of the latest full fiscal quarter
for which consolidated financial statements of Sprint Spectrum are
available preceding the date of such Restricted Payment (treated as a
single accounting period), plus (2) the aggregate net cash proceeds (other
than Excluded Cash Proceeds) received by Sprint Spectrum as a capital
contribution in respect of existing Equity Interests (other than
Disqualified Equity Interests) of Sprint Spectrum made after the Issue Date
or from the issue or sale (other than to a Restricted Subsidiary) by Sprint
Spectrum of its Equity Interests (other than Disqualified Equity Interests)
made after the Issue Date, plus (3) the aggregate net cash proceeds
received by Sprint Spectrum or any Restricted Subsidiary from the sale,
disposition or repayment (other than to Sprint Spectrum or a Restricted
Subsidiary) of any Investment (other than an Investment made pursuant to
clause (vi) of the following paragraph) made after the Issue Date and
constituting a Restricted Payment in an amount equal to the lesser of (x)
the return of capital with respect to such Investment and (y) the initial
amount of such Investment, in either case, less the cost of disposition of
such Investment, plus (4) an amount equal to the consolidated net
Investment on the date of Revocation made by Sprint Spectrum and/or any of
the Restricted Subsidiaries in any Subsidiary that has been designated as
an Unrestricted Subsidiary after the Issue Date upon its redesignation as a
Restricted Subsidiary in accordance with the covenant described under "--
Limitation on Designations of Unrestricted Subsidiaries." For purposes of
the preceding clause (2), the value of the aggregate net cash proceeds
received by Sprint Spectrum upon the issuance of Equity Interests either
upon the conversion of convertible Indebtedness or in exchange for
outstanding Indebtedness or upon the exercise of options, warrants or
rights will be the net cash proceeds received upon the issuance of such
Indebtedness, options, warrants or rights plus the incremental amount
received by Sprint Spectrum upon the conversion, exchange or exercise
thereof.
For purposes of determining the amount expended for Restricted Payments,
cash distributed shall be valued at the face amount thereof and property other
than cash shall be valued at its Fair Market Value.
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The provisions of this covenant shall not prohibit (i) the payment of any
dividend or distribution within 60 days after the date of declaration thereof,
if at such date of declaration such payment would comply with the provisions
of the applicable Indenture; (ii) so long as no Default shall have occurred
and be continuing, the purchase, redemption, retirement or other acquisition
of any Equity Interests of Sprint Spectrum out of the net cash proceeds of the
substantially concurrent capital contribution in respect of existing Equity
Interests (other than Disqualified Equity Interests) of Sprint Spectrum or
from the issue or sale (other than to a Restricted Subsidiary) of Equity
Interests (other than Disqualified Equity Interests) of Sprint Spectrum;
provided that any such net cash proceeds are excluded from clause (iii)(2) of
the second preceding paragraph; (iii) so long as no Default shall have
occurred and be continuing, the purchase, redemption, retirement, defeasance
or other acquisition of Subordinated Indebtedness of an Issuer made by
exchange for or conversion into, or out of the net cash proceeds of, a
concurrent issue and sale (other than to a Restricted Subsidiary) of (a)
Equity Interests (other than Disqualified Equity Interests) of Sprint Spectrum
(provided that any such net cash proceeds are excluded from clause (iii)(2) of
the second preceding paragraph) or (b) other Subordinated Indebtedness of an
Issuer that has an Average Life to Stated Maturity equal to or greater than
the Average Life to Stated Maturity of the Subordinated Indebtedness being
purchased, redeemed, retired, defeased or otherwise acquired; (iv) so long as
no Default shall have occurred and be continuing, the making of a direct or
indirect Investment constituting a Restricted Payment out of the proceeds of a
concurrent capital contribution in respect of existing Equity Interests (other
than Disqualified Equity Interests) of Sprint Spectrum or from the issue or
sale (other than to a Restricted Subsidiary) of Equity Interests (other than
Disqualified Equity Interests) of Sprint Spectrum; provided that any such net
cash proceeds are excluded from clause (iii)(2) of the second preceding
paragraph; (v) so long as no Default shall have occurred or be continuing and
provided Sprint Spectrum is then a partnership for federal income tax
purposes, distributions in respect of, and repurchases of, Equity Interests of
Sprint Spectrum owned by the Partners, to the extent necessary to pay current
tax liabilities payable in respect of income of Sprint Spectrum in an amount
not to exceed in any calendar year the product of (a) the ordinary income from
trade or business activities and giving effect to other items of income, loss
and deduction reported by Sprint Spectrum for the most recently ended tax year
for federal income tax purposes multiplied by (b) a percentage equal to the
sum of (x) the highest applicable federal corporate income tax rate for such
tax year (expressed as a percentage) plus (y) 5% multiplied by the excess of
100% over the highest applicable federal corporate income tax rate for such
tax year (expressed as a percentage); provided that nothing in this clause (v)
shall be deemed to permit any such distribution or repurchase to pay any tax
liabilities of Sprint Spectrum's partners resulting from the conversion of
Sprint Spectrum from partnership to corporate form; (vi) so long as no Default
shall have occurred and be continuing, any direct or indirect Investment
constituting a Restricted Payment by Sprint Spectrum or any Restricted
Subsidiary in any person (including any Unrestricted Subsidiary) whose
operations consist principally of, or has been formed principally to operate,
a Permitted Business in an amount not to exceed $100 million in the aggregate
at any time outstanding or (vii) any transfer of any Investment in APC held by
Sprint Spectrum or any Restricted Subsidiary to Holdings or any Wholly-Owned
Subsidiary of Holdings; provided APC has not been made a Restricted Subsidiary
under the covenant described under "--Limitation on Designations of
Unrestricted Subsidiaries."
Restricted Payments made pursuant to clause (i) of the immediately preceding
paragraph shall be included in making the determination of available amounts
under clause (iii) of the third preceding paragraph and Restricted Payments
made pursuant to clauses (ii), (iii), (iv), (v) and (vii) of the immediately
preceding paragraph shall not be included in making the determination of
available amounts under clause (iii) of the third preceding paragraph.
Limitation on Issuances of Certain Guarantees by, and Debt Securities of,
Restricted Subsidiaries. The Indentures will provide that Sprint Spectrum will
not permit (i) any Restricted Subsidiary to, directly or indirectly, guarantee
any Debt Securities of any of the Issuers or (ii) any Restricted Subsidiary to
issue any Debt Securities, unless, in either such case, such Restricted
Subsidiary simultaneously executes and delivers a guarantee (a "Subsidiary
Guarantee") of the Senior Notes and the Senior Discount Notes. Any such
Subsidiary Guarantee shall not be subordinate in right of payment to any
Indebtedness of the Restricted Subsidiary providing the Subsidiary Guarantee.
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Limitation on Liens Securing Certain Indebtedness. The Indentures will
provide that Sprint Spectrum will not, and will not permit any Restricted
Subsidiary to, create, incur, assume or suffer to exist any Liens upon any
property or assets of Sprint Spectrum or any Restricted Subsidiary securing
either (i) Subordinated Debt Securities unless the Notes and the Subsidiary
Guarantees, as applicable, are secured by a Lien on such property or assets
that is senior in priority to the Liens securing such Subordinated Debt
Securities or (ii) Pari Passu Debt Securities unless the Notes and the
Subsidiary Guarantees, as applicable, are equally and ratably secured with the
Liens securing such Pari Passu Debt Securities.
Limitation on Dividends and Other Payment Restrictions Affecting Restricted
Subsidiaries. The Indentures will provide that Sprint Spectrum will not, and
will not permit any Restricted Subsidiary to, directly or indirectly, create
or otherwise enter into or cause to become effective any consensual
encumbrance or restriction of any kind on the ability of any Restricted
Subsidiary to (i) pay dividends, in cash or otherwise, or make any
distributions on its Equity Interests or any other interest or participation
in, or measured by, its profits owned by Sprint Spectrum or any Restricted
Subsidiary, (ii) pay any Indebtedness owed to Sprint Spectrum or a Restricted
Subsidiary, (iii) make any Investment in Sprint Spectrum or any Restricted
Subsidiary or (iv) transfer any of its property or assets to Sprint Spectrum
or any Restricted Subsidiary, except for (a) any such customary encumbrance or
restriction contained in a security document creating a Lien permitted under
the Indentures to the extent relating to the property or asset subject to such
Lien (including, without limitation, customary restrictions relating to assets
securing any indebtedness under any of the Vendor Credit Facilities or the
Bank Credit Facility under the applicable security documents), (b) any such
encumbrance or restriction with respect to a Restricted Subsidiary that is not
a Restricted Subsidiary on the Issue Date which encumbrance or restriction is
in existence at the time such person becomes a Restricted Subsidiary but not
created in contemplation thereof and which encumbrance or restriction pertains
only to that Restricted Subsidiary and (c) any such encumbrance or restriction
imposed pursuant to an agreement that has been entered into for the sale or
disposition of all or substantially all of the Equity Interests or assets of
such Restricted Subsidiary.
Limitation on Ownership of Equity Interests of Restricted Subsidiaries. The
Indentures will provide that, notwithstanding any other provision of the
Indentures to the contrary, (i) each of WirelessCo, RealtyCo, EquipmentCo and
FinCo shall at all times remain a direct Wholly-Owned Restricted Subsidiary of
Sprint Spectrum (except that FinCo may be merged with and into Sprint Spectrum
or a Wholly-Owned Restricted Subsidiary if Sprint Spectrum or such Wholly-
Owned Restricted Subsidiary is then a corporation) and (ii) none of
WirelessCo, RealtyCo or EquipmentCo will, directly or indirectly, sell,
convey, transfer, lease or otherwise dispose of any assets or property used or
useful in the operation of the business of the Company and the Restricted
Subsidiaries in the geographic areas for which Sprint Spectrum or a Restricted
Subsidiary owns or holds a Federal Communications Commission license for the
transmission of wireless telecommunications services on the Issue Date other
than, in the case of this clause (ii), to a person not an Affiliate of Sprint
Spectrum or any of the Restricted Subsidiaries or to a Wholly-Owned Subsidiary
if all of the outstanding Equity Interests of such Wholly-Owned Subsidiary are
concurrently sold to a person that is not an Affiliate of Sprint Spectrum or
any of the Restricted Subsidiaries, in each case in compliance with the
covenant described under "--Disposition of Proceeds of Asset Sales."
Notwithstanding the foregoing, WirelessCo, RealtyCo, EquipmentCo and FinCo may
issue Disqualified Equity Interests that do not entitle the holders thereof to
participate in the earnings, profits or cash flow of such Restricted
Subsidiary pursuant to and in compliance with the covenant described under "--
Limitation on Additional Indebtedness."
Limitation on Transactions with Equityholders and Affiliates. The Indentures
will provide that Sprint Spectrum will not, and will not permit, cause, or
suffer any Restricted Subsidiary to, conduct any business or enter into, renew
or extend any transaction or series of related transactions (including,
without limitation, the purchase, sale, lease or exchange of property or
assets, or the rendering of any service) with or for the benefit of any of
their respective Affiliates or any beneficial holder of 5% or more of any
class of Equity Interests of Sprint Spectrum (each an "Affiliate
Transaction"), except on terms that are no less favorable to the Company or
such Restricted Subsidiary than those that could reasonably be obtained in a
comparable arm's-length transaction with a person that is not such a holder or
Affiliate. Each Affiliate Transaction involving aggregate payments or other
Fair Market Value in excess of $15.0 million shall be approved by (i) if
Sprint Spectrum is a Wholly-Owned Subsidiary of Holdings, either (a) if the
current provisions of Section 8.6 ("Interested Party Transactions")
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of the Holdings Partnership Agreement are in effect, members of the Holdings'
Partnership Board exercising votes representing at least a majority (or such
other percentage vote as required by the Holdings Partnership Agreement) of
votes entitled to be exercised by members of such Board selected by the
Partners not having any financial interest in any such Affiliate Transaction,
or (b) if the current provisions of Section 8.6 ("Interested Party
Transactions") of the Holdings Partnership Agreement are not in effect, a
majority of the Disinterested Directors of Holdings, in each case, as
evidenced by a Resolution of the Board of Holdings and (ii) if Sprint Spectrum
is not a Wholly-Owned Subsidiary of Holdings, a majority of the Disinterested
Directors of Sprint Spectrum as evidenced by a Resolution of Sprint Spectrum.
In the event Sprint Spectrum obtains a written opinion from an Independent
Financial Advisor stating that the terms of an Affiliate Transaction are fair
to Sprint Spectrum or a Restricted Subsidiary, as the case may be, from a
financial point of view, it will conclusively meet the requirements of the
first sentence of this paragraph and there shall be no need to comply with the
second sentence of this paragraph.
Notwithstanding the foregoing, the restrictions set forth in this covenant
shall not apply to (i) transactions between or among Sprint Spectrum and/or
any of the Restricted Subsidiaries, (ii) any dividend or distribution
permitted by the covenant described under "--Limitation on Restricted
Payments," (iii) directors' fees, indemnification and similar arrangements,
officers' indemnification, employee stock option or employee benefit plans and
employee salaries and bonuses paid or created in the ordinary course of
business, (iv) any Affiliate Transaction pursuant to the Services Agreements
or any other agreement in effect on the Issue Date, as the same shall be
amended from time to time; provided that any material amendment shall be
required to comply with the provisions of the preceding paragraph of this
covenant, (v) transactions involving the marketing of products and services of
Sprint Spectrum or any Restricted Subsidiary jointly with products and
services of an Affiliate of Sprint Spectrum or a beneficial holder of 5% or
more of any class of Equity Interests of Sprint Spectrum (such holder or
Affiliate being a "Related Party"); provided all payments made by Sprint
Spectrum or any Restricted Subsidiary to the Related Party are made to
reimburse the Related Party for its share of any expenses incurred by the
Related Party on behalf of Sprint Spectrum or any Restricted Subsidiary, (vi)
transactions involving the leasing or sharing or other use by Sprint Spectrum
or any Restricted Subsidiary of communications network facilities (including,
without limitation, cable or fiber lines, equipment or transmission capacity)
of a Related Party on terms that are no less favorable (when taken as a whole)
to Sprint Spectrum or such Restricted Subsidiary, as applicable, than those
available from such Related Party to unaffiliated third parties, (vii)
transactions involving the provision of telecommunication services by a
Related Party in the ordinary course of its business to Sprint Spectrum or any
Restricted Subsidiary, or by Sprint Spectrum or any Restricted Subsidiary to a
Related Party, on terms that are no less favorable (when taken as a whole) to
Sprint Spectrum or such Restricted Subsidiary, as applicable, than those
available from such Related Party to unaffiliated third parties, and (viii)
any sales agency agreements pursuant to which a Partner or any of its
Affiliates has the right to market any or all of the products or services of
Sprint Spectrum or any of the Restricted Subsidiaries on a "most favored
nation" basis (without regard to volume), as contemplated by the Holdings
Partnership Agreement as in effect on the Issue Date.
Limitation on Activities of the Issuers and the Restricted Subsidiaries. The
Indentures will provide that (i) Sprint Spectrum will not, and will not permit
any Restricted Subsidiary to, engage in any business other than a Permitted
Business and (ii) FinCo will not own any operating assets or other properties
or conduct any business other than to serve as an Issuer and obligor on the
Notes and other Indebtedness permitted under the Indentures.
Change of Control. The Indentures will provide that following the occurrence
of a Change of Control (the date of such occurrence being the "Change of
Control Date"), the Issuers shall notify the holders of the Notes, in the
manner prescribed by the Indentures, of such occurrence and shall make an
offer to purchase (a "Change of Control Offer"), on a business day (the
"Change of Control Payment Date") not later than 60 days following the Change
of Control Date, all Notes then outstanding at a purchase price equal to (i)
101% of the principal amount thereof, in the case of the Senior Notes, plus
accrued and unpaid interest, if any, thereon to any Change of Control Payment
Date and (ii) (a) 101% of the Accreted Value on the Change of Control Payment
Date, in the case of the Senior Discount Notes, if the Change of Control
Payment Date is on or before , 2001, and (b) 101% of the principal amount
at maturity of the Senior Discount Notes, plus accrued and unpaid interest, if
any, thereon to the Change of Control Payment Date, if such date is after ,
2001. Notice of a Change of
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Control Offer shall be given to holders of Notes not less than 30 days nor
more than 60 days before the Change of Control Payment Date. The Change of
Control Offer is required to remain open for at least 20 business days or such
longer period as may be required by law and until the close of business on the
Change of Control Payment Date. The Issuers' obligations may be satisfied if a
third party makes the Change of Control Offer in the manner, at the times and
otherwise in compliance with the requirements applicable to a Change of
Control Offer made by the Issuers and purchases all Notes validly tendered and
not withdrawn under such Change of Control Offer.
If a Change of Control Offer is made, there can be no assurance that the
Issuers will have available funds sufficient to pay for all of the Notes that
might be delivered by holders of Notes seeking to accept the Change of Control
Offer.
If the Issuers make a Change of Control Offer, the Issuers will comply with
all applicable tender offer laws and regulations, including, to the extent
applicable, Section 14(e) and Rule 14e-1 under the Exchange Act, and any other
applicable Federal or state securities laws and regulations and any applicable
requirements of any securities exchange on which the Notes are listed.
Disposition of Proceeds of Asset Sales. The Indentures will provide that
Sprint Spectrum will not, and will not permit any Restricted Subsidiary to,
make any Asset Sale unless (i) Sprint Spectrum or such Restricted Subsidiary,
as the case may be, receives consideration at the time of such Asset Sale at
least equal to the Fair Market Value of the assets sold or otherwise disposed
of and (ii) at least 80% of such consideration consists of cash or Cash
Equivalents; provided that the amount of any liabilities of the Company or
such Restricted Subsidiary that are assumed (and from which Sprint Spectrum or
such Restricted Subsidiary is unconditionally released) in connection with
such Asset Sale by the transferee or purchaser of such assets or on behalf of
such transferee or purchaser by a third party shall be deemed to be cash for
purposes of this clause (ii); provided, further, that up to $25.0 million of
consideration in the aggregate that is not in the form of cash or Cash
Equivalents may be received in excess of the amount permitted by the foregoing
provisions during the term of the Notes. Sprint Spectrum or the applicable
Restricted Subsidiary, as the case may be, may (i) apply such Net Cash
Proceeds within 365 days of receipt thereof to repay Indebtedness (other than
Subordinated Indebtedness of an Issuer or any Subsidiary Guarantor) of Sprint
Spectrum or a Restricted Subsidiary and elect to permanently reduce the
commitments thereunder by the amount of such Indebtedness so repaid or (ii)
apply such Net Cash Proceeds within 365 days of receipt thereof to an
investment in properties and assets that will be used in a Permitted Business
(or in Equity Interests of any person that will become a Restricted Subsidiary
as a result of such investment to the extent such person's operations consist
of Permitted Businesses) of Sprint Spectrum or any Restricted Subsidiary
("Replacement Assets"). Net Cash Proceeds from any Asset Sale that are neither
used to repay, and permanently reduce the commitments under, any Indebtedness
(other than Subordinated Indebtedness of an Issuer or any Subsidiary
Guarantor) of Sprint Spectrum or a Restricted Subsidiary nor invested in
Replacement Assets within such 365-day period shall constitute "Excess
Proceeds" subject to disposition as provided below.
When the aggregate amount of Excess Proceeds equals or exceeds $20.0
million, the Issuers shall make an offer to purchase Notes (an "Asset Sale
Offer"), from all holders of Notes, at a price in cash equal to (i) 100% of
the principal amount of Senior Notes, plus accrued and unpaid interest, if
any, to the purchase date and (ii) (a) 100% of the Accreted Value on the
purchase date in the case of the Senior Discount Notes, if such purchase date
is on or before , 2001, and (b) 100% of the principal amount of the Senior
Discount Notes, plus accrued and unpaid interest, if any, thereon to the
purchase date, if such date is after , 2001. Each Asset Sale Offer shall
remain open for a period of 20 business days or such longer period as may be
required by law. To the extent that the aggregate purchase price for the Notes
tendered pursuant to an Asset Sale Offer is less than the Excess Proceeds
available for such offer, Sprint Spectrum and the Restricted Subsidiaries may
use such deficiency for general corporate purposes. If the aggregate purchase
price for the Notes validly tendered and not withdrawn by holders thereof
exceeds the Excess Proceeds available for such offer, the Senior Notes and
Senior Discount Notes to be purchased will be selected on a pro rata basis
among the holders of Notes (based upon the principal amount of Senior Notes
and Accreted Value of Senior Discount Notes tendered by each holder); provided
that (i) the Senior Notes Pro Rata Share of any Excess Proceeds required to be
used to repurchase Notes
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pursuant to such Asset Sale Offer shall be applied to repurchase Senior Notes
tendered pursuant to such Asset Sale Offer prior to such Excess Proceeds being
used to repurchase Senior Discount Notes and (ii) the Senior Discount Notes
Pro Rata Share of any Excess Proceeds required to be used to repurchase Notes
pursuant to such Asset Sale Offer shall be applied to repurchase Senior
Discount Notes prior to such Excess Proceeds being used to repurchase Senior
Notes. Upon completion of such Asset Sale Offer, the amount of Excess Proceeds
shall be reset to zero.
Notwithstanding the two immediately preceding paragraphs, Sprint Spectrum
and the Restricted Subsidiaries will be permitted to consummate an Asset Sale
without complying with such paragraphs to the extent (i) at least 80% of the
consideration for such Asset Sale consists of cash, Cash Equivalents and/or
Permitted Assets and (ii) such consideration at the time of such Asset Sale is
at least equal to the Fair Market Value of the assets sold or otherwise
disposed of; provided that (x) any Net Cash Proceeds received by Sprint
Spectrum or any of the Restricted Subsidiaries in connection with any such
Asset Sale shall be subject to the provisions of the two immediately preceding
paragraphs and (y) if any of the assets disposed of are assets otherwise
required to be held by WirelessCo, RealtyCo or EquipmentCo under the covenant
described under""--Limitation on Ownership of Equity Interests of Restricted
Subsidiaries," the Permitted Assets received shall be held by, or promptly
transferred to, WirelessCo, RealtyCo or EquipmentCo.
If the Issuers are required to make an Asset Sale Offer, the Issuers will
comply with all applicable tender offer laws and regulations, including, to
the extent applicable, Section 14(e) and Rule 14e-1 under the Exchange Act,
and any other applicable Federal or state securities laws and regulations and
any applicable requirements of any securities exchange on which the Notes are
listed.
Reports. So long as any of the Notes are outstanding, Sprint Spectrum will
file with the Commission the annual reports, quarterly reports and other
documents that Sprint Spectrum would have been required to file with the
Commission pursuant to Sections 13(a) and 15(d) of the Exchange Act whether or
not Sprint Spectrum is then obligated to file reports pursuant to such
Sections, and Sprint Spectrum will promptly provide to all registered holders
of the Notes and file, within 30 days of filing with the Commission, with each
Trustee copies of such reports and documents.
Limitation on Designations of Unrestricted Subsidiaries. The Indentures will
provide that Sprint Spectrum may designate any Subsidiary of Sprint Spectrum
(other than FinCo, WirelessCo, RealtyCo and EquipmentCo) as an "Unrestricted
Subsidiary" under the Indentures (a "Designation") only if:
(i) no Default shall have occurred and be continuing at the time of or
after giving effect to such Designation; and
(ii) Sprint Spectrum would be permitted under the Indentures to make an
Investment at the time of Designation (assuming the effectiveness of such
Designation) in an amount (the "Designation Amount") equal to the Fair
Market Value of the aggregate amount of its Investments in such Subsidiary
on such date; and
(iii) except in the case of a Subsidiary in which an Investment is being
made pursuant to and as permitted by the third paragraph of the covenant
"Limitation on Restricted Payments," Sprint Spectrum would be permitted to
incur $1.00 of additional Indebtedness pursuant to clause (a) of the
proviso to the first paragraph of the covenant described under "--
Limitation on Additional Indebtedness" at the time of Designation (assuming
the effectiveness of such Designation).
In the event of any such Designation, Sprint Spectrum shall be deemed to
have made an Investment constituting a Restricted Payment pursuant to the
covenant described under "--Limitation on Restricted Payments" for all
purposes of the Indentures in the Designation Amount. The Indentures will
further provide that Sprint Spectrum shall not, and shall not permit any
Restricted Subsidiary to, at any time (x) provide direct or indirect credit
support for or a guarantee of any Indebtedness of any Unrestricted Subsidiary
(including of any undertaking, agreement or instrument evidencing such
Indebtedness), (y) be directly or indirectly liable for any Indebtedness of
any Unrestricted Subsidiary or (z) be directly or indirectly liable for any
Indebtedness which provides that the holder thereof may (upon notice, lapse of
time or both) declare a default thereon or cause the payment thereof to be
accelerated or payable prior to its final scheduled maturity upon the
occurrence of a default with respect to any Indebtedness of any Unrestricted
Subsidiary (including any right to take enforcement action
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against such Unrestricted Subsidiary), except, in the case of clause (x) or
(y), to the extent permitted under the covenant described under "--Limitation
on Restricted Payments."
Notwithstanding anything herein to the contrary, APC shall not, at any time,
be considered a Restricted Subsidiary absent a Revocation in compliance with
the following paragraph.
The Indentures will further provide that Sprint Spectrum may revoke any
Designation of a Subsidiary as an Unrestricted Subsidiary (a "Revocation"),
whereupon such Subsidiary shall then constitute a Restricted Subsidiary, if:
(a) no Default shall have occurred and be continuing at the time of and
after giving effect to such Revocation; and
(b) all Liens and Indebtedness of such Unrestricted Subsidiary
outstanding immediately following such Revocation would, if incurred at
such time, have been permitted to be incurred for all purposes of the
Indentures.
All Designations and Revocations must be evidenced by Resolutions of Sprint
Spectrum delivered to the Trustees certifying compliance with the foregoing
provisions.
CONSOLIDATION, MERGER, SALE OF ASSETS, ETC.
The Indentures will provide that Sprint Spectrum will not, in any
transaction or series of transactions, merge or consolidate with or into, or
sell, assign, convey, transfer, lease or otherwise dispose of all or
substantially all of its properties and assets as an entirety to, any person
or persons, and Sprint Spectrum will not permit any of the Restricted
Subsidiaries to enter into any such transaction or series of transactions if
such transaction or series of transactions, in the aggregate, would result in
a sale, assignment, conveyance, transfer, lease or other disposition of all or
substantially all of the properties and assets of Sprint Spectrum and the
Restricted Subsidiaries, taken as a whole, to any other person or persons,
unless at the time of and after giving effect thereto (i) either (a) if the
transaction or series of transactions is a merger or consolidation, Sprint
Spectrum shall be the surviving person of such merger or consolidation, or (b)
the person formed by any such consolidation or into which Sprint Spectrum or
such Restricted Subsidiary is merged or to which the properties and assets of
Sprint Spectrum and/or any Restricted Subsidiary, as the case may be, are
transferred (any such surviving person or transferee person being a "Surviving
Entity") shall be a partnership or corporation organized and existing under
the laws of the United States of America, any state thereof or the District of
Columbia and shall expressly assume by a supplemental indenture executed and
delivered to each of the Trustees, in form reasonably satisfactory to the
Trustees, all the obligations of Sprint Spectrum under the Notes and the
Indentures, and, in each case, the Indentures shall remain in full force and
effect; (ii) immediately before and immediately after giving effect to such
transaction or series of transactions on a pro forma basis (including, without
limitation, any Indebtedness incurred or anticipated to be incurred in
connection with or in respect of such transaction or series of transactions),
no Default shall have occurred and be continuing; and (iii) immediately after
giving effect to such transaction or series of transactions on a pro forma
basis (including, without limitation, any Indebtedness incurred or anticipated
to be incurred in connection with or in respect of such transaction or series
of transactions), Sprint Spectrum or the Surviving Entity, as the case may be,
could incur $1.00 of additional Indebtedness pursuant to the proviso to the
first paragraph of the covenant described under "--Certain Covenants--
Limitation on Additional Indebtedness"; provided that in the event of a
conversion of Sprint Spectrum from partnership to corporate form in a
transaction the primary purpose of which is to effect such conversion and in
which no additional Indebtedness is incurred or anticipated to be incurred by
Sprint Spectrum, the Surviving Entity or any Restricted Subsidiary, the
Surviving Entity shall not be required to be able to incur such $1.00 of
additional Indebtedness.
In connection with any consolidation, merger, transfer, lease, assignment or
other disposition contemplated hereby, Sprint Spectrum shall deliver, or cause
to be delivered, to the Trustees, in form and substance reasonably
satisfactory to the Trustees, an officers' certificate and an opinion of
counsel, each stating that such consolidation, merger, transfer, lease,
assignment or other disposition and the supplemental indentures in respect
thereof comply with the requirements under the Indentures.
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The Indentures will provide that for all purposes of the Indentures and the
Notes (including the provisions of this covenant and the covenants described
under "--Certain Covenants--Limitation on Additional Indebtedness," "--Certain
Covenants--Limitation on Restricted Payments" and "--Certain Covenants--
Limitation on Liens Securing Certain Indebtedness"), Subsidiaries of any
Surviving Entity will, upon such transaction or series of transactions, become
Restricted Subsidiaries or Unrestricted Subsidiaries as provided pursuant to
the covenant described under "--Certain Covenants--Limitation on Designations
of Unrestricted Subsidiaries" and all Indebtedness, and all Liens on property
or assets, of Sprint Spectrum and the Restricted Subsidiaries immediately
prior to such transaction or series of transactions will be deemed to have
been incurred upon such transaction or series of transactions; provided that
in the event of a conversion of Sprint Spectrum from partnership to corporate
form in a transaction the purpose of which is to effect such conversion and in
which no additional Indebtedness is incurred or anticipated to be incurred by
Sprint Spectrum, the Surviving Entity or any Restricted Subsidiary, no
Indebtedness of Sprint Spectrum and the Restricted Subsidiaries shall be
deemed to have been incurred upon such transaction or series of transactions.
The Indentures will provide that upon any consolidation, combination or
merger or any transfer of all or substantially all of the assets of a person
subject to, and in accordance with, the foregoing, the Surviving Entity shall
succeed to, and be substituted for, and may exercise every right and power of
Sprint Spectrum under the Indentures with the same effect as if such Surviving
Entity had been named as such; provided that, solely for purposes of computing
Available Operating Cash Flow for purposes of clause (iii) of the first
paragraph of the covenant described under "--Certain Covenants--Limitation on
Restricted Payments," the Available Operating Cash Flow of any persons other
than Sprint Spectrum and the Restricted Subsidiaries shall only be included
for periods subsequent to the effective time of such consolidation,
combination, merger or transfer of assets.
EVENTS OF DEFAULT
The following are "Events of Default" under each of the Indentures:
(i) default in the payment of the principal of, or premium, if any, on
the applicable Notes when due, at maturity, upon redemption or otherwise
(including pursuant to a Change of Control Offer or an Asset Sale Offer);
or
(ii) default in the payment of interest on the applicable Notes when it
becomes due and payable and continuance of such default for a period of 30
days; or
(iii) default in the performance, or breach, of any covenant described
under "--Consolidation, Merger, Sale of Assets, Etc."; or
(iv) default in the performance of or compliance with, or breach of, any
term, covenant, condition or provision of the applicable Notes or the
applicable Indenture (other than those specified in clause (i) or (ii)
above) and such default continues for a period of 30 days after written
notice to Sprint Spectrum thereof by the applicable Trustee or holders of
at least 25% of the aggregate principal amount of the Senior Notes or
holders of 25% of the aggregate principal amount at maturity of the Senior
Discount Notes, as the case may be, then outstanding; or
(v) either (a) one or more default or defaults in the payment of any
principal under one or more agreements, instruments, mortgages, bonds,
debentures or other evidences of Indebtedness (each, a "Debt Instrument")
under which Sprint Spectrum or one or more Restricted Subsidiaries or
Sprint Spectrum and one or more Restricted Subsidiaries then have
outstanding Indebtedness in excess of $50.0 million, individually or in the
aggregate, or (b) any other default or defaults under one or more Debt
Instruments under which Sprint Spectrum or one or more Restricted
Subsidiaries or Sprint Spectrum and one or more Restricted Subsidiaries
then have outstanding Indebtedness in excess of $50.0 million, individually
or in the aggregate, and, in the case of this clause (b), either (x) such
Indebtedness is already due and payable in full by its terms or (y) such
default or defaults have resulted in the acceleration of the maturity of
such Indebtedness; or
(vi) one or more judgments, orders or decrees of any court or regulatory
or administrative agency of competent jurisdiction for the payment of money
in excess of $50.0 million, either individually or in the aggregate, shall
be entered against Sprint Spectrum or any Restricted Subsidiary or any of
their respective properties and shall not be discharged or fully bonded and
there shall have been a period of 60 days after
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the date on which any period for appeal has expired and during which a stay
of enforcement of such judgment, order or decree shall not be in effect; or
(vii) any holder of at least $50.0 million in aggregate principal amount
of Indebtedness of Sprint Spectrum or any of the Restricted Subsidiaries,
or its trustee, agent or representative, shall commence (or have commenced
on its behalf) judicial proceedings to foreclose upon assets of Sprint
Spectrum or any of the Restricted Subsidiaries having an aggregate Fair
Market Value, individually or in the aggregate, in excess of $50.0 million
or shall have exercised any right under applicable law or applicable
security documents to take ownership of any such assets in lieu of
foreclosure; or
(viii) any Subsidiary Guarantee ceases to be in full force and effect or
is declared null and void or a Subsidiary Guarantor denies that it has any
further liability under its Subsidiary Guarantee or gives notice to such
effect; or
(ix) certain events of bankruptcy, dissolution, insolvency,
reorganization, administration, sequestration or similar proceedings
involving an Issuer or a Material Restricted Subsidiary.
If an Event of Default (other than an Event of Default specified in clause
(ix) with respect to an Issuer) occurs and is continuing, the applicable
Trustee or the holders of at least 25% in aggregate principal amount of the
outstanding Senior Notes or holders of at least 25% in aggregate principal
amount at maturity of the outstanding Senior Discount Notes, as the case may
be, may declare the principal of all the outstanding Senior Notes or the
Accreted Value of all the outstanding Senior Discount Notes, as the case may
be, to be due and payable immediately, together with all accrued and unpaid
interest and premium, if any, thereon. Upon any such declaration, such amount
shall become due and payable immediately. If an Event of Default specified in
clause (ix) with respect to an Issuer occurs and is continuing, then such
amount will ipso facto become and be immediately due and payable without any
declaration or other act on the part of the applicable Trustee or any holder
of Notes.
After a declaration of acceleration, the holders of a majority in aggregate
principal amount of outstanding Senior Notes or the holders of a majority in
aggregate principal amount at maturity of outstanding Senior Discount Notes,
as the case may be, may, by notice to the applicable Trustee, rescind such
declaration of acceleration if all existing Events of Default under the
applicable Indenture, other than nonpayment of the principal of or Accreted
Value of, and accrued and unpaid interest, if any, on, the applicable Notes
that has become due solely as a result of such acceleration, have been cured
or waived and if the rescission of acceleration would not conflict with any
judgment or decree. The holders of a majority in principal amount of the
outstanding Senior Notes or the holders of a majority in aggregate principal
amount at maturity of the outstanding Senior Discount Notes, as the case may
be, also have the right to waive past defaults under the applicable Indenture,
except a default in the payment of the principal of or Accreted Value of, or
any interest on, any outstanding applicable Note, or in respect of a covenant
or a provision that cannot be modified or amended without the consent of all
holders of the applicable Notes.
No holder of any of the Notes has any right to institute any proceeding with
respect to the applicable Indenture or any remedy thereunder, unless the
holders of at least 25% in principal amount of the outstanding Senior Notes or
the holders of at least 25% in principal amount at maturity of the outstanding
Senior Discount Notes, as the case may be, have made written request, and
offered reasonable indemnity, to the applicable Trustee to institute such
proceeding, and the applicable Trustee has failed to institute such proceeding
within 30 days after receipt of such notice and such Trustee has not within
such 30-day period received directions inconsistent with such written request
by holders of a majority in principal amount of the outstanding Senior Notes
or the holders of a majority in aggregate principal amount at maturity of the
outstanding Senior Discount Notes, as the case may be. Such limitations do not
apply, however, to a suit instituted by a holder of a Note for the enforcement
of the payment of the principal of, or any accrued and unpaid interest on,
such Note on or after the respective due dates expressed in such Note.
During the existence of an Event of Default under the applicable Indenture,
the applicable Trustee is required to exercise such rights and powers vested
in it under such Indenture and use the same degree of care
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and skill in its exercise thereof as a prudent person would exercise under the
circumstances in the conduct of such person's own affairs. Subject to the
provisions of the Indentures relating to the duties of the Trustees, if an
Event of Default under the applicable Indenture shall occur and be continuing,
the applicable Trustee is not under any obligation to exercise any of its
rights or powers under the applicable Indenture at the request or direction of
any of the holders of the applicable Notes unless such holders shall have
offered to such Trustee reasonable security or indemnity. Subject to certain
provisions concerning the rights of the Trustees, the holders of a majority in
principal amount of the outstanding Senior Notes or the holders of a majority
in principal amount at maturity of the outstanding Senior Discount Notes, as
the case may be, have the right to direct the time, method and place of
conducting any proceeding for any remedy available to the applicable Trustee,
or exercising any trust or power conferred on such Trustee.
Each of the Indentures provides that the applicable Trustee will, within 30
days after the occurrence of any Default under the applicable Indenture, give
to the holders of the applicable Notes notice of such Default known to it,
unless such Default shall have been cured or waived; provided that, except in
the case of a Default in payment of principal of or interest on any Note, the
applicable Trustee shall be protected in withholding such notice if it
determines in good faith that the withholding of such notice is in the
interest of such holders.
Sprint Spectrum is required to furnish to the Trustees annually a statement
as to compliance with all conditions and covenants under the Indentures.
DEFEASANCE OR COVENANT DEFEASANCE OF INDENTURES
The Issuers may, at their option and at any time, terminate the obligations
of the Issuers and any Subsidiary Guarantor with respect to the applicable
outstanding Notes and Subsidiary Guarantees ("defeasance"). Such defeasance
means that the Issuers shall be deemed to have paid and discharged the entire
Indebtedness represented by the applicable outstanding Notes, except for (a)
the rights of holders of such outstanding Notes to receive payment in respect
of the principal of, premium, if any, and interest on such Notes when such
payments are due, (b) the Issuers' obligations to issue temporary Notes,
register the transfer or exchange of any Notes, replace mutilated, destroyed,
lost or stolen Notes and maintain an office or agency for payments in respect
of the Notes, (c) the rights, powers, trusts, duties and immunities of the
applicable Trustee, and (d) the defeasance provisions of the applicable
Indenture. In addition, the Issuers may, at their option and at any time,
elect to terminate the obligations of the Issuers and any Subsidiary
Guarantors with respect to certain covenants that are set forth in the
applicable Indenture, some of which are described under "--Certain Covenants"
above and any subsequent failure to comply with such obligations shall not
constitute a Default or an Event of Default with respect to the applicable
Notes ("covenant defeasance").
In order to exercise either defeasance or covenant defeasance, (a) the
Issuers must irrevocably deposit with the applicable Trustee, in trust, for
the benefit of the holders of the applicable Notes, cash in United States
dollars, United States government obligations, or a combination thereof, in
such amounts as will be sufficient to pay the principal of, premium, if any,
and interest on the applicable outstanding Notes to redemption or maturity
(except lost, stolen or destroyed Notes which have been replaced or paid); (b)
the Issuers shall have delivered to the applicable Trustee an opinion of
counsel to the effect that the holders of the applicable outstanding Notes
will not recognize income, gain or loss for Federal income tax purposes as a
result of such defeasance or covenant defeasance and will be subject to
Federal income tax on the same amounts, in the same manner and at the same
times as would have been the case if such defeasance or covenant defeasance
had not occurred (in the case of defeasance, such opinion must refer to and be
based upon a ruling of the Internal Revenue Service or a change in applicable
Federal income tax laws); (c) no Default under the applicable Indenture shall
have occurred and be continuing on the date of such deposit; (d) such
defeasance or covenant defeasance shall not cause the applicable Trustee to
have a conflicting interest with respect to any securities of the Issuers; (e)
such defeasance or covenant defeasance shall not result in a breach or
violation of, or constitute a default under, any agreement or instrument to
which Sprint Spectrum or any of its Subsidiaries is a party or by which it is
bound; (f) the Issuers shall have delivered to the applicable Trustee an
opinion of counsel to the effect that after the 91st day following their
deposit, the trust funds will not be subject to the effect of any applicable
bankruptcy, insolvency,
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reorganization or similar laws affecting creditors' rights generally or to the
rights of any creditor of the Issuers or any Subsidiary Guarantor other than
those continuing rights of the applicable holders of Notes; and (g) the
Issuers shall have delivered to the applicable Trustee an officers'
certificate and an opinion of counsel, each stating that all conditions
precedent under the applicable Indenture to either defeasance or covenant
defeasance, as the case may be, have been complied with.
SATISFACTION AND DISCHARGE
The Senior Notes Indenture or the Senior Discount Notes Indenture, as the
case may be, will be discharged and will cease to be of further effect (except
as to surviving rights of registration of transfer or exchange of the
applicable Notes) as to all outstanding Senior Notes or Senior Discount Notes,
as the case may be, when either (i) all such Notes theretofore authenticated
and delivered (except lost, stolen or destroyed Notes that have been replaced
or paid and Notes for whose payment money has theretofore been deposited in
trust with the applicable Trustee and thereafter repaid to the Issuers or
discharged from such trust) have been delivered to the applicable Trustee for
cancellation; or (ii)(a) all such Notes not theretofore delivered to the
applicable Trustee for cancellation have become due and payable by their terms
and the Issuers have irrevocably deposited or caused to be deposited with the
applicable Trustee as trust funds an amount of money in U.S. dollars
sufficient to pay and discharge the entire Indebtedness on such Notes not
theretofore delivered to the applicable Trustee for cancellation, for the
principal amount, premium, if any, and accrued and unpaid interest to the date
of such deposit; (b) the Issuers have paid all other sums payable by them
under the applicable Indenture; and (c) the Issuers have delivered irrevocable
instructions to the applicable Trustee to apply the deposited money toward the
payment of such Notes at maturity or redemption, as the case may be. In
addition, the Issuers must deliver to the applicable Trustee an officers'
certificate and an opinion of counsel stating that all conditions precedent to
satisfaction and discharge have been complied with.
AMENDMENT AND WAIVERS
From time to time the Issuers and any Subsidiary Guarantor, when authorized
by Resolutions of their respective Boards, and the applicable Trustee, without
the consent of the holders of the Notes, may amend, waive or supplement the
Indentures, the Notes and any Subsidiary Guarantee for certain specified
purposes, including, among other things, curing ambiguities, defects or
inconsistencies, maintaining the qualification of an Indenture under the Trust
Indenture Act or making any change that does not adversely affect the rights
of any holder of Notes. Other amendments and modifications of the Indentures,
the Notes and any Subsidiary Guarantee may be made by the Issuers, any
Subsidiary Guarantor and the applicable Trustee with the consent of the
holders of not less than a majority of the aggregate principal amount of the
outstanding Senior Notes or holders of not less than a majority of the
aggregate principal amount at maturity of the outstanding Senior Discount
Notes, as the case may be; provided that no such modification or amendment
may, without the consent of the holder of each outstanding Note affected
thereby, (i) reduce the principal amount of or Accreted Value of, extend the
fixed maturity of, or alter the redemption provisions of, the Notes, (ii)
change the currency in which any Notes or any premium or the accrued interest
thereon is payable, (iii) reduce the percentage in principal amount of
outstanding Notes which must consent to an amendment, supplement or waiver or
consent to take any action under the Indentures, the Notes or any Subsidiary
Guarantees, (iv) impair the right to institute suit for the enforcement of any
payment on or with respect to the Notes, (v) waive a default in payment with
respect to the Notes, (vi) reduce the rate or extend the time for payment of
interest on the Notes or amend the rate of accretion on the Senior Discount
Notes or amend the definition of Accreted Value, (vii) alter the obligation to
purchase the Notes in accordance with the Indentures following the occurrence
of an Asset Sale or a Change of Control or waive any default in the
performance thereof, or (viii) adversely affect the ranking of the Notes or
any Subsidiary Guarantee.
REGARDING THE TRUSTEES
The Bank of New York will serve as the Senior Notes Trustee and the Senior
Discount Notes Trustee. The Indentures provide that, except during the
continuance of an Event of Default under the applicable Indenture, the
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Trustee thereunder will perform only such duties as are specifically set forth
in such Indenture. If an Event of Default has occurred and is continuing, the
Trustee will exercise such rights and powers vested in it under the applicable
Indenture and use the same degree of care and skill in its exercise as a
prudent person would exercise under the circumstances in the conduct of such
person's own affairs.
The Indentures and provisions of the Trust Indenture Act incorporated by
reference therein contain limitations on the rights of the Trustee thereunder,
should it become a creditor of an Issuer to obtain payment of claims in
certain cases or to realize on certain property received by it in respect of
any such claims, as security or otherwise. Each Trustee is permitted to engage
in other transactions; provided that if a Trustee acquires any conflicting
interest (as defined) it must eliminate such conflict or resign.
NON-RECOURSE TO HOLDINGS, PARTNERS OR THE PARENTS
The Senior Notes and the Senior Discount Notes are non-recourse to Holdings,
the Partners or the Parents.
CERTAIN DEFINITIONS
Set forth below are certain defined terms to be used in the Indentures.
"Accreted Value" as of any date (the "Specified Date") means, with respect
to each $1,000 principal amount at maturity of Senior Discount Notes:
(i) if the Specified Date is one of the following dates (each a "Semi-Annual
Accrual Date"), the amount set forth opposite such date below:
<TABLE>
<CAPTION>
SEMI-ANNUAL ACCRETED
ACCRUAL DATE VALUE
------------ ----------
<S> <C>
Issue Date........................ $
, 1997.........................
, 1997.........................
, 1998.........................
, 1998.........................
, 1999.........................
, 1999.........................
, 2000.........................
, 2000.........................
, 2001.........................
, 2001......................... $1,000.00;
</TABLE>
(ii) if the Specified Date occurs between two Semi-Annual Accrual Dates,
the sum of (a) the Accreted Value for the Semi-Annual Accrual Date
immediately preceding the Specified Date and (b) an amount equal to the
product of (x) the Accreted Value for the immediately following Semi-Annual
Accrual Date less the Accreted Value for the immediately preceding Semi-
Annual Accrual Date and (y) a fraction, the numerator of which is the
number of days actually elapsed from the immediately preceding Semi-Annual
Accrual Date to the Specified Date and the denominator of which is 180; and
(iii) if the Specified Date is after , 2001, $1,000.
"Acquired Indebtedness" means Indebtedness of a person existing at the time
such person becomes a Restricted Subsidiary or assumed in connection with an
Asset Acquisition by such person and not incurred in connection with, or in
anticipation of, such person becoming a Restricted Subsidiary or such Asset
Acquisition.
"Affiliate" of any specified person means any other person which, directly
or indirectly, controls, is controlled by or is under direct or indirect
common control with, such specified person. For the purposes of this
definition, (i) "control" when used with respect to any person means the power
to direct the management and policies of such person, directly or indirectly,
whether through the ownership of voting securities, by contract or otherwise,
and the terms "controlling" and "controlled" have meanings correlative to the
foregoing and (ii) each of the Partners shall be deemed an Affiliate of Sprint
Spectrum.
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"Affiliate Transaction" has the meaning set forth under "--Certain
Covenants--Limitation on Transactions with Equityholders and Affiliates."
"Annualized Pro Forma Consolidated Operating Cash Flow" means Consolidated
Operating Cash Flow for the latest two full fiscal quarters for which
consolidated financial statements of Sprint Spectrum are available multiplied
by two. For purposes of calculating "Consolidated Operating Cash Flow" for any
period for purposes of this definition only, (i) any Subsidiary of Sprint
Spectrum that is a Restricted Subsidiary on the date of the transaction giving
rise to the need to calculate "Annualized Pro Forma Consolidated Operating
Cash Flow" (the "Transaction Date") shall be deemed to have been a Restricted
Subsidiary at all times during such period and (ii) any Subsidiary of Sprint
Spectrum that is not a Restricted Subsidiary on the Transaction Date shall be
deemed not to have been a Restricted Subsidiary at any time during such
period. In addition to and without limitation of the foregoing, for purposes
of this definition only, "Consolidated Operating Cash Flow" shall be
calculated after giving effect on a pro forma basis for the applicable period
to, without duplication, any Asset Sales or Asset Acquisitions (including,
without limitation, any Asset Acquisition giving rise to the need to make such
calculation as a result of Sprint Spectrum or one of the Restricted
Subsidiaries (including any person who becomes a Restricted Subsidiary as a
result of the Asset Acquisition) incurring, assuming or otherwise being liable
for Acquired Indebtedness) occurring during the period commencing on the first
day of such two fiscal quarter period to and including the Transaction Date
(the "Reference Period"), as if such Asset Sale or Asset Acquisition occurred
on the first day of the Reference Period.
"Asset Acquisition" means (i) any purchase or other acquisition (by means of
transfer of cash or other property to others or payment for property or
services for the account or use of others, or otherwise) of Equity Interests
of any person by Sprint Spectrum or any Restricted Subsidiary, in either case,
pursuant to which such person shall become a Restricted Subsidiary or shall be
merged with or into Sprint Spectrum or any Restricted Subsidiary or (ii) any
acquisition by Sprint Spectrum or any Restricted Subsidiary of the assets of
any person which constitute substantially all of an operating unit or line of
business of such person.
"Asset Sale" means any direct or indirect sale, conveyance, transfer, lease
or other disposition to any person other than Sprint Spectrum or a Wholly-
Owned Restricted Subsidiary, in one transaction or a series of related
transactions, of (i) any Equity Interests of any Restricted Subsidiary, (ii)
any FCC license for the provision of wireless telecommunications services held
by Sprint Spectrum or any Restricted Subsidiary (whether by sale of Equity
Interests or otherwise) or (iii) any other property or asset of Sprint
Spectrum or any Restricted Subsidiary outside of the ordinary course of
business. For the purposes of this definition, the term "Asset Sale" shall not
include any disposition of properties or assets of Sprint Spectrum or one or
more of the Restricted Subsidiaries in a transaction that either (x) involves
aggregate consideration of $5.0 million or less or (y) is governed by and
complies with the covenant described under "--Consolidation, Merger, Sale of
Assets, Etc."
"Asset Sale Offer" has the meaning set forth under "--Certain Covenants--
Disposition of Proceeds of Asset Sales."
"Available Operating Cash Flow" means, for any period, the positive
cumulative Consolidated Operating Cash Flow realized during such period or, if
such cumulative Consolidated Operating Cash Flow for such period is negative,
the negative amount by which cumulative Consolidated Operating Cash Flow is
less than zero.
"Average Life to Stated Maturity" means, with respect to any Indebtedness,
as at any date of determination, the quotient obtained by dividing (i) the sum
of the products of (a) the number of years (or any fraction thereof) from such
date to the date or dates of each successive scheduled principal payment
(including, without limitation, any sinking fund requirements) of such
Indebtedness multiplied by (b) the amount of each such principal payment by
(ii) the sum of all such principal payments.
"Bank Credit Facility" means the credit facilities contemplated by the
Commitment Letter dated June 7, 1996 among Sprint Spectrum and Chase
Securities Inc. and Chemical Bank, as the same may be amended, modified,
renewed, refunded, replaced or refinanced from time to time.
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"Board" of any person means the board of directors, management committee or
other governing body of such person. For purposes of this definition, while
Sprint Spectrum is a partnership, "Board" shall mean, with respect to Sprint
Spectrum, the Partnership Board established under the Holdings Partnership
Agreement and any person to whom appropriate authority has been delegated by
such Partnership Board.
"Capitalized Lease Obligation" means any obligation to pay rent or other
amounts under a lease of (or other agreement conveying the right to use) any
property (whether real, personal or mixed) that is required to be classified
and accounted for as a capital lease obligation under GAAP and, for the
purpose of the Indentures, the amount of such obligation at any date shall be
the capitalized amount thereof at such date, determined in accordance with
GAAP.
"Cash Equivalents" means (i) any evidence of Indebtedness with a maturity of
365 days or less issued by or directly, fully and unconditionally guaranteed
or insured by the United States of America or any agency or instrumentality
thereof (provided that the full faith and credit of the United States of
America is pledged in support thereof); (ii) deposits, certificates of deposit
or acceptances with a maturity of 365 days or less of any institution that is
a member of the Federal Reserve System having combined capital and surplus and
undivided profits of not less than $500.0 million; (iii) commercial paper with
a maturity of 365 days or less issued by a corporation (other than an
Affiliate of Sprint Spectrum) incorporated or organized under the laws of the
United States or any state thereof or the District of Columbia and rated at
least "A-1" by S&P or "P-1" by Moody's; (iv) repurchase agreements and reverse
repurchase agreements relating to marketable direct obligations issued by or
directly, fully and unconditionally guaranteed or insured by the United States
of America or any agency or instrumentality thereof (provided that the full
faith and credit of the United States of America is pledged in support
thereof), in each case, maturing within 365 days from the date of acquisition
and (v) any "Cash Equivalents" as defined in the Bank Credit Facility as in
effect on the Issue Date.
"Change of Control" means the occurrence of any of the following events: (i)
any "person" or "group" (as such terms are used in Sections 13(d) and 14(d) of
the Exchange Act) other than a Permitted Holder or Permitted Holders or a
person or group controlled by a Permitted Holder or Permitted Holders is or
becomes the "beneficial owner" (as defined in Rules 13d-3 and 13d-5 under the
Exchange Act, except that a person shall be deemed to have "beneficial
ownership" of all securities that such person has the right to acquire,
whether such right is exercisable immediately or only after the passage of
time, upon the happening of an event or otherwise), directly or indirectly, of
more than 40% of the total Voting Equity Interests of Sprint Spectrum or
Holdings; provided a Permitted Holder or Permitted Holders or a group
controlled by a Permitted Holder or Permitted Holders does not own a greater
percentage of the total Voting Equity Interests of Sprint Spectrum or
Holdings; (ii) Sprint Spectrum or Holdings consolidates with, or merges with
or into, another person or sells, assigns, conveys, transfers, leases or
otherwise disposes of all or substantially all of its assets to any person, or
any person consolidates with, or merges with or into, Sprint Spectrum or
Holdings, in any such event pursuant to a transaction in which the outstanding
Voting Equity Interests of Sprint Spectrum or Holdings are converted into or
exchanged for cash, securities or other property, and immediately after such
transaction a "person" or "group" (as such terms are used in Sections 13(d)
and 14(d) of the Exchange Act) other than a Permitted Holder or Permitted
Holders or a person or group controlled by a Permitted Holder or Permitted
Holders is the "beneficial owner" (as defined in Rules 13d-3 and 13d-5 under
the Exchange Act, except that a person shall be deemed to have "beneficial
ownership" of all securities that such person has the right to acquire,
whether such right is exercisable immediately or only after the passage of
time, upon the happening of an event or otherwise), directly or indirectly, of
more than 40% of the total Voting Equity Interests of the surviving or
transferee person; provided a Permitted Holder or Permitted Holders or a
person or group controlled by a Permitted Holder or Permitted Holders does not
own a greater percentage of the total Voting Equity Interests of such person;
and (iii) the approval by the holders of Equity Interests of Sprint Spectrum
or Holdings of any plan or proposal for the liquidation or dissolution of
Sprint Spectrum or Holdings.
"Change of Control Date" has the meaning set forth under "--Certain
Covenants--Change of Control."
"Change of Control Offer" has the meaning set forth under "--Certain
Covenants--Change of Control."
"Change of Control Payment Date" has the meaning set forth under "--Certain
Covenants--Change of Control."
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"Commission" means the Securities and Exchange Commission.
"Common Equity Interests" means (i) with respect to a person which is a
corporation, any and all shares, interests or other participations in, and
other equivalents (however designated and whether voting or nonvoting) of,
such person's common stock and includes, without limitation, all series and
classes of such common stock and (ii) with respect to a person which is not a
corporation, Equity Interests which have characteristics similar in all
material respects to those of common stock of a corporation.
"Consolidated Income Tax Expense" means, with respect to any period, the
provision for Federal, state, local, foreign and other income taxes of Sprint
Spectrum and the Restricted Subsidiaries for such period as determined on a
consolidated basis in accordance with GAAP.
"Consolidated Interest Expense" means, with respect to any period, without
duplication, the sum of (i) the interest expense of Sprint Spectrum and the
Restricted Subsidiaries for such period as determined on a consolidated basis
in accordance with GAAP and shall, in any event, include, without limitation,
(a) any amortization of debt discount, (b) the net cost or net benefit, as the
case may be, under any Currency Agreements and Interest Rate Protection
Obligations (including any amortization of discounts), (c) the interest
portion of any deferred payment obligation, (d) all commissions, discounts and
other fees and charges owed with respect to letters of credit, bills of
exchange, promissory notes and bankers' acceptance financing and (e) all
accrued interest, (ii) all but the principal component of Capitalized Lease
Obligations paid, accrued and/or scheduled to be paid or accrued by Sprint
Spectrum and the Restricted Subsidiaries during such period as determined on a
consolidated basis in accordance with GAAP and (iii) the aggregate amount of
dividends and distributions paid or accrued during such period in respect of
Preferred Equity Interests of Sprint Spectrum and the Restricted Subsidiaries
(other than such dividends or distributions paid or accrued on or with respect
to Preferred Equity Interests owned by Sprint Spectrum or a Wholly-Owned
Restricted Subsidiary) determined on a consolidated basis in accordance with
GAAP.
"Consolidated Net Income" means, with respect to any period, the net income
(loss) of Sprint Spectrum and the Restricted Subsidiaries for such period as
determined on a consolidated basis in accordance with GAAP, adjusted, to the
extent included in calculating such net income, by excluding, without
duplication, (i) all extraordinary gains or losses, (ii) the portion of net
income (but not losses) of Sprint Spectrum allocable to minority interests in
unconsolidated persons, except to the extent that cash dividends or
distributions have actually been received by Sprint Spectrum or any Restricted
Subsidiary, (iii) net income (or loss) of any person combined with Sprint
Spectrum or a Restricted Subsidiary on a "pooling of interests" basis
attributable to any period prior to the date of combination, (iv) gains in
respect of any Asset Sales, (v) the net income of any Unrestricted Subsidiary,
except to the extent that cash dividends or distributions have actually been
received by Sprint Spectrum or a Restricted Subsidiary, (vi) the portion of
net income (but not losses of Sprint Spectrum allocable to minority interests
in Restricted Subsidiaries (other than a Subsidiary Guarantor) of such person
and (vii) the net income of any Restricted Subsidiary (other than a Subsidiary
Guarantor) for such period to the extent the declaration of dividends or
similar distributions by that Restricted Subsidiary is not at the time
permitted, directly or indirectly, by the terms of its charter or any
agreement, instrument, judgment, decree, order, statute, rule or regulation
applicable to that Restricted Subsidiary.
"Consolidated Operating Cash Flow" means, with respect to any period, the
Consolidated Net Income of Sprint Spectrum and the Restricted Subsidiaries for
such period (i) increased by (to the extent included in computing Consolidated
Net Income) the sum of (a) Consolidated Income Tax Expense for such period;
(b) Consolidated Interest Expense for such period; (c) depreciation of Sprint
Spectrum and the Restricted Subsidiaries for such period, determined on a
consolidated basis in accordance with GAAP; (d) amortization of Sprint
Spectrum and the Restricted Subsidiaries for such period, including, without
limitation and without duplication, amortization of any Consolidated Interest
Expense, amortization of capitalized debt issuance costs for such period, all
determined on a consolidated basis in accordance with GAAP; and (e) any other
non-cash charges that were deducted in computing Consolidated Net Income
(excluding any non-cash charge which requires an accrual or reserve for cash
charges for any future period) of Sprint Spectrum and the Restricted
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Subsidiaries for such period in accordance with GAAP and (ii) decreased by any
non-cash gains that were included in computing Consolidated Net Income.
"covenant defeasance" has the meaning set forth under "--Defeasance or
Covenant Defeasance of Indentures."
"Currency Agreement" means any foreign exchange contract, currency swap
agreement or other similar agreement or arrangement designed to protect
against fluctuations in currency values.
"Debt Instrument" has the meaning set forth under "--Events of Default."
"Debt Securities" means any debt securities (including any guarantee of such
securities) issued by any Issuer and/or any Restricted Subsidiary in
connection with a public offering (whether or not underwritten) or a private
placement (provided such private placement is underwritten for resale pursuant
to Rule 144A, Regulation S or otherwise under the Securities Act or sold on an
agency basis by a broker-dealer or one of its affiliates to 10 or more
beneficial holders); it being understood that the term "Debt Securities" shall
not include any evidence of indebtedness under any of the Vendor Credit
Facilities or the Bank Credit Facility or any other commercial bank borrowings
or similar borrowings, recourse transfers of financial assets, capital leases
or other types of borrowings incurred in a manner not customarily viewed as a
"securities offering."
"Default" means any event that is, or after notice or passage of time or
both would be, an Event of Default as set forth under "--Events of Default."
"defeasance" has the meaning set forth under "--Defeasance or Covenant
Defeasance of Indentures."
"Designation" has the meaning set forth under "--Certain Covenants--
Limitation on Designations of Unrestricted Subsidiaries."
"Designation Amount" has the meaning set forth under "--Certain Covenants--
Limitation on Designations of Unrestricted Subsidiaries."
"Disinterested Director" means, with respect to any transaction or series of
transactions, a member of the Board of Sprint Spectrum or Holdings, as the
case may be, other than any such Board member who has any material direct or
indirect financial interest in or with respect to such transaction or series
of transactions.
"Disqualified Equity Interest" means, with respect to any person, any Equity
Interest that, by its terms (or by the terms of any security into which it is
convertible or for which it is mandatorily exchangeable), or upon the
happening of any event, matures or is mandatorily redeemable, pursuant to a
sinking fund obligation or otherwise, or is exchangeable for Indebtedness at
the option of the holder thereof, or is redeemable at the option of the holder
thereof, in whole or in part, on or prior to the final maturity date of the
Notes.
"EquipmentCo" means Sprint Spectrum Equipment Company, L.P., a Delaware
limited partnership.
"Equity Interest" in any person means any and all shares, interests, rights
to purchase, warrants, options, participations or other equivalents of or
interests in (however designated) corporate stock or other equity
participations, including partnership interests, whether general or limited,
in such person.
"Excess Proceeds" has the meaning set forth under "--Certain Covenants--
Disposition of Proceeds of Asset Sales."
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Excluded Cash Proceeds" means (i) any net cash proceeds used to make a
concurrent Investment constituting a Restricted Payment pursuant to clause
(iv) of the third paragraph of the covenant described under
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"--Certain Covenants--Limitation on Restricted Payments" and (ii) the first
$1.4 billion of net cash proceeds received by Sprint Spectrum after December
31, 1995 from capital contributions in respect of existing Equity Interests
(other than Disqualified Equity Interests) of Sprint Spectrum or from the
issue or sale (other than to a Restricted Subsidiary) of Equity Interests
(other than Disqualified Equity Interests) of Sprint Spectrum; provided that
(A) net cash proceeds referred to in the immediately preceding clause (i), (B)
net cash proceeds used to make an Investment in APC or (C) net cash proceeds
used to make an investment pursuant to clauses (ii) or (iii)(a) of the third
paragraph of the covenant described under "--Certain Covenants--Limitation on
Restricted Payments" shall not be included as part of the first $1.4 billion
referred to in this clause (ii).
"Fair Market Value" means, with respect to any asset or property, the price
that could be negotiated in an arms'-length free market transaction, for cash,
between a willing seller and a willing buyer, neither of whom is under
pressure or compulsion to complete the transaction. Unless otherwise specified
in the applicable Indenture, Fair Market Value shall be determined by the
Board of Sprint Spectrum acting in good faith.
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as may be approved by a significant segment of the accounting
profession of the United States of America, which are applicable on the Issue
Date.
"guarantee" means, as applied to any obligation, (i) a guarantee (other than
by endorsement of negotiable instruments for collection in the ordinary course
of business), directly or indirectly, in any manner, of any part or all of
such obligation and (ii) an agreement, direct or indirect, contingent or
otherwise, the effect of which is to assure in any way the payment or
performance (or payment of damages in the event of non-performance) of all or
any part of such obligation (other than agreement to make a capital
contribution that otherwise is permitted by the covenant described under "--
Certain Covenants--Limitation on Restricted Payments"), including, without
limiting the foregoing, the payment of amounts drawn down under letters of
credit.
"Holdings" means Sprint Spectrum Holding Company, L.P., a Delaware limited
partnership.
"Holdings Partnership Agreement" means the Amended and Restated Agreement of
Limited Partnership of Holdings dated as of January 31, 1996.
"incur" has the meaning set forth under "--Certain Covenants--Limitation on
Additional Indebtedness."
"Indebtedness" means, with respect to any person, without duplication, (i)
any liability, contingent or otherwise, of such person (a) for borrowed money
(whether or not the recourse of the lender is to the whole of the assets of
such person or only to a portion thereof), whether as a cash advance, bill,
overdraft or money market facility loan, or (b) evidenced by a note, debenture
or similar instrument or letters of credit (including a purchase money
obligation) or by any book-entry mechanism or (c) for the payment of money
relating to a Capitalized Lease Obligation or other obligation relating to the
deferred purchase price of property or (d) in respect of any Interest Rate
Protection Obligation or any Currency Agreement; (ii) any liability of others
of the kind described in the preceding clause (i) which the person has
guaranteed or which is otherwise its legal liability; (iii) any obligation
secured by a Lien to which the property or assets of such person are subject,
whether or not the obligations secured thereby shall have been assumed by or
shall otherwise be such person's legal liability; and (iv) the greater of the
maximum repurchase or redemption price or liquidation preference of any
Disqualified Equity Interests of such person or, with respect to any
Restricted Subsidiary of such person, of any Equity Interests (other than
Common Equity Interests) of such Restricted Subsidiary. In no event shall
"Indebtedness" include trade payables incurred in the ordinary course of
business. For purposes of the covenant described under "--Certain Covenants--
Limitation on Additional Indebtedness" and for purposes of "--Events of
Default," in determining the principal amount of any Indebtedness (l) to be
incurred by Sprint Spectrum or a Restricted Subsidiary or which is outstanding
at any date, (x) the principal amount of any Indebtedness which provides that
an amount less than the principal amount thereof shall be due upon any
declaration of acceleration thereof shall
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be the accreted value thereof at the date of determination and (y) effect
shall be given to the impact of any Currency Agreements with respect to such
Indebtedness and (2) outstanding at any time under any Currency Agreement of
Sprint Spectrum or any Restricted Subsidiary, the principal amount shall be
the net payment obligation under such Currency Agreement at such time.
"Independent Financial Advisor" means an investment banking firm of national
standing in the United States which, in the good faith judgment of the Board
of Sprint Spectrum, is independent with respect to Sprint Spectrum and its
Affiliates and qualified to perform the task for which it is to be engaged.
"Interest Rate Protection Obligation" means the obligation of any person
pursuant to any arrangement with any other person whereby, directly or
indirectly, such person is entitled to receive from time to time periodic
payments calculated by applying either a floating or a fixed rate of interest
on a stated notional amount in exchange for periodic payments made by such
person calculated by applying a fixed or a floating rate of interest on the
same notional amount and shall include without limitation, interest rate
swaps, caps, floors, collars, forward interest rate agreements and similar
agreements.
"Investment" means, with respect to any person, any advance, loan or other
extension of credit (including, without limitation, by means of any guarantee)
or any capital contribution to (by means of transfer of property to others,
payment for property or services for the account or use of others, or
otherwise), or any purchase or other acquisition of any Equity Interests,
bonds, notes, debentures or other securities of, any other person. In
addition, any foreign exchange contract, currency swap agreement or other
similar agreement made or entered into by any person shall constitute an
Investment by such person.
"Issue Date" means the original date of issuance of the Notes.
"Lien" means any mortgage, charge, pledge, lien (statutory or other),
security interest, hypothecation or assignment for security.
"Lucent Credit Facility" means the credit facility contemplated by the
commitment letter dated June 21, 1996 between Sprint Spectrum and Lucent
Technologies, Inc., as the same may be amended, modified, renewed, refunded,
replaced or refinanced from time to time.
"Material Restricted Subsidiary" means any Restricted Subsidiary which, at
any date of determination, is (i) a "Significant Subsidiary" (as that term is
defined in Regulation S-X, as in effect on the Issue Date, issued under the
Securities Act) and/or (ii) holds any FCC license for the transmission of
wireless telecommunications services and/or (iii) any of WirelessCo, RealtyCo
or EquipmentCo.
"Moody's" means Moody's Investors Service, Inc.
"Net Cash Proceeds" means, with respect to any Asset Sale, the proceeds
therefrom in the form of cash or Cash Equivalents, including payments in
respect of deferred payment obligations when received in the form of cash or
Cash Equivalents, net of (i) brokerage commissions and other fees and expenses
(including fees and expenses of legal counsel and investment bankers) related
to such Asset Sale, (ii) provisions for all taxes payable as a result of such
Asset Sale, (iii) amounts required to be paid to any person (other than Sprint
Spectrum or any Restricted Subsidiary) owning a beneficial interest in or
having a Lien on the assets subject to the Asset Sale and (iv) appropriate
amounts to be provided by Sprint Spectrum or any Restricted Subsidiary, as the
case may be, as a reserve required in accordance with GAAP against any
liabilities associated with such Asset Sale and retained by Sprint Spectrum or
any Restricted Subsidiary, as the case may be, after such Asset Sale,
including, without limitation, pension and other post-employment benefit
liabilities and liabilities under any indemnification obligations associated
with such Asset Sale.
"Nortel Credit Facility" means the credit facility contemplated by the
commitment letter dated June 11, 1996 between Sprint Spectrum and Northern
Telecom Inc., as the same may be amended, modified, renewed, refunded,
replaced or refinanced from time to time.
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"Pari Passu Debt Securities" means any Debt Securities (and any guarantee of
any Debt Security) which would not constitute Subordinated Indebtedness.
"Partners" means, collectively, Sprint Enterprises, L.P., TCI Telephony
Services, Inc. Comcast Telephony Services and Cox Telephony Partnership, to
the extent they are Partners in Holdings, and any permitted transferee of such
Partner's interest pursuant to the Holdings Partnership Agreement.
"Permitted Assets" means property or assets that will be used in a Permitted
Business referred to in clause (i) of the definition of "Permitted Business"
(or Equity Interests of any person that will become a Restricted Subsidiary as
a result of the applicable Asset Sale to the extent such person's operations
consist of such a Permitted Business).
"Permitted Business" means (i) the delivery or distribution of
telecommunications, voice, data or video services, (ii) any business or
activity reasonably related thereto, including, without limitation, any
business conducted by Sprint Spectrum or any Restricted Subsidiary on the
Issue Date and the acquisition, holding or exploitation of any license
relating to the delivery of the services described in clause (i) of this
definition or(iii) any other business or activity in which Sprint Spectrum and
the Restricted Subsidiaries are expressly contemplated to be engaged in
pursuant to the provisions of the Holdings Partnership Agreement as in effect
on the Issue Date.
"Permitted Holder" means (i) each of Sprint Corporation, Tele-
Communications, Inc., Comcast Corporation and Cox Communications, Inc. and the
respective successors (by merger, consolidation, transfer or otherwise) to all
or substantially all of the respective businesses and assets of any of the
foregoing, (ii) any transferee of the assets resulting from a Permitted
Transaction and (iii) each person controlled by one or more persons identified
in clause (i) or (ii) of this definition.
"Permitted Investments" means any of the following: (i) Investments in any
Restricted Subsidiary (including any person that pursuant to such Investment
becomes a Restricted Subsidiary) and any person that is merged or consolidated
with or into, or transfers or conveys all or substantially all of its assets
to, Sprint Spectrum or any Restricted Subsidiary at the time such Investment
is made; (ii) Investments in Cash Equivalents;(iii) Investments in Currency
Agreements and Interest Rate Protection Agreements permitted by the covenant
described under "--Certain Covenants--Limitation on Additional Indebtedness";
(iv) loans or advances to officers or employees of Sprint Spectrum and the
Restricted Subsidiaries in the ordinary course of business for bona fide
business purposes of Sprint Spectrum and the Restricted Subsidiaries
(including travel and moving expenses) not in excess of $5.0 million in the
aggregate at any one time outstanding, (v) Investments in evidences of
Indebtedness, securities or other property received from another person by
Sprint Spectrum or any of the Restricted Subsidiaries in connection with any
bankruptcy proceeding or by reason of a composition or readjustment of debt or
a reorganization of such person or as a result of foreclosure, perfection or
enforcement of any Lien in exchange for evidences of Indebtedness, securities
or other property of such person held by Sprint Spectrum or any of the
Restricted Subsidiaries, or for other liabilities or obligations of such other
person to Sprint Spectrum or any of the Restricted Subsidiaries that were
created in accordance with the terms of the Indentures; and (vi) Investments
made by Sprint Spectrum and the Restricted Subsidiaries as a result of
consideration received in connection with an Asset Sale made in compliance
with the covenant described under "--Certain Covenants--Disposition of
Proceeds of Asset Sales."
"Permitted Transaction" with respect to a Partner means a transaction or
series of related transactions in which (i) such Partner ceases to be a
Subsidiary of its Parent or such Partner Transfers its Interest to a Person
that is not a Controlled Affiliate of such Partner and (ii) the new Parent of
such Partner (or such Partner if it is its own Parent) or the Parent of the
transferee of the Interest after giving effect to such transaction, or the
last transaction in a series of related transactions, owns, directly and
indirectly through its Controlled Affiliates, all or a Substantial Portion of
the cable television system assets (in the case of a Cable Partner) or long
distance telecommunications business assets (in the case of Sprint) owned by
the Parent of such Partner, directly and indirectly through its Controlled
Affiliates, immediately prior to the commencement of such transaction or
series of transactions. As used herein, "Substantial Portion" means (x) in the
case of a Cable Partner, cable television
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systems serving 75% or more of the aggregate number of basic subscribers
served by cable television systems in the United States of America (including
its territories and possessions other than Puerto Rico) owned by the Parent of
such Cable Partner, directly and indirectly through its Controlled Affiliates,
and (y) in the case of Sprint, long distance telecommunications business
assets serving 75% or more of the aggregate number of customers served by the
long distance telecommunications business in the United States of America
(including its territories and possessions other than Puerto Rico) owned by
the Parent of Sprint, directly and indirectly through its Controlled
Affiliates. All capitalized terms used in this definition shall have the
meanings ascribed to them in the Holdings Partnership Agreement as in effect
on the Issue Date.
"Public Equity Offering" means an underwritten public offering of Common
Equity Interests made on a primary basis by Sprint Spectrum, Holdings or a
Special Purpose Corporation pursuant to a registration statement filed with,
and declared effective by, the Commission in accordance with the Securities
Act; provided that Holdings or the Special Purpose Corporation, as the case
may be, will be required to contribute as equity to, or purchase Common Equity
Interests in, Sprint Spectrum with proceeds from the Initial Public Offering
of not less than the greater of (x) $100.0 million or (y) the amount required
to effect any redemption pursuant to the second paragraphs under "--Optional
Redemption--Optional Redemption of Senior Notes" and "--Optional Redemption of
Senior Discount Notes."
"RealtyCo" means Sprint Spectrum Realty Company, L.P., a Delaware limited
partnership.
"Refinancing Indebtedness" means (i) Indebtedness of Sprint Spectrum to the
extent the proceeds thereof are used solely to refinance (whether by
amendment, renewal, extension or refunding) Indebtedness of Sprint Spectrum or
any of the Restricted Subsidiaries and (ii) Indebtedness of any Restricted
Subsidiary to the extent the proceeds thereof are used solely to refinance
(whether by amendment, renewal, extension or refunding) Indebtedness of such
Restricted Subsidiary, in each such event, incurred under the first paragraph
of the covenant described under--Certain Covenants--Limitation on Additional
Indebtedness" or clause (a) of the second paragraph of such covenant; provided
that (a) the principal amount of Refinancing Indebtedness incurred pursuant to
this definition (or, if such Refinancing Indebtedness provides for an amount
less than the principal amount thereof to be due and payable upon a
declaration of acceleration of the maturity thereof, the accreted value of
such Indebtedness) shall not exceed the principal amount or accreted value, as
the case may be, of the Indebtedness refinanced, plus the amount of any
premium required to be paid in connection with such refinancing pursuant to
the terms of such Indebtedness or the amount of any premium reasonably
determined by the Board of Sprint Spectrum as necessary to accomplish such
refinancing by means of a tender offer or privately negotiated purchase, plus
the amount of reasonable expenses in connection therewith and (b) in the case
of Refinancing Indebtedness incurred by an Issuer or a Subsidiary Guarantor,
such Indebtedness has an Average Life to Stated Maturity greater than or equal
to either (A) the Average Life to Stated Maturity of the Indebtedness
refinanced or (B) the remaining Average Life to Stated Maturity of the Notes
and (iii) if the Indebtedness to be refinanced is Subordinated Indebtedness of
an Issuer or a Subsidiary Guarantor, the Indebtedness to be incurred pursuant
to this definition shall also be Subordinated Indebtedness of the Issuer or
the Subsidiary Guarantor, as applicable, whose Indebtedness is to be
refinanced.
"Replacement Assets" has the meaning set forth under "--Certain Covenants--
Disposition of Proceeds of Asset Sales."
"Resolution" means, with respect to any person, a copy of a resolution
certified by the Secretary or Assistant Secretary of such person to have been
duly adopted by its Board and to be in full force and effect on the date of
such certification, and delivered to the applicable Trustee.
"Restricted Payment" means any of the following: (i) the declaration or
payment of any dividend or distribution on Equity Interests of Sprint Spectrum
or any Restricted Subsidiary or any payment made to the direct or indirect
holders (in their capacities as such), including any Special Purpose
Corporation, of Equity Interests of Sprint Spectrum or any Restricted
Subsidiary (other than dividends or distributions (a) payable solely in Equity
Interests (other than Disqualified Equity Interests) of Sprint Spectrum or in
options, warrants or other rights to purchase Equity Interests (other than
Disqualified Equity Interests) of Sprint Spectrum, (b) paid to Sprint Spectrum
or a Wholly-Owned Restricted Subsidiary or (c) paid in respect of Equity
Interests of a Restricted
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Subsidiary to persons other than Sprint Spectrum or Wholly-Owned Restricted
Subsidiaries on not more favorable than a pro rata basis with dividends or
distributions then being paid in respect of Equity Interests held by Sprint
Spectrum or a Wholly-Owned Restricted Subsidiary); (ii) the purchase,
redemption or other acquisition or retirement for value of any Equity
Interests of Sprint Spectrum or a Restricted Subsidiary (other than any such
Equity Interests owned by Sprint Spectrum or a Wholly-Owned Restricted
Subsidiary); (iii) the making of any principal payment on, or the purchase,
redemption, defeasance or other acquisition or retirement for value, prior to
any scheduled maturity, scheduled repayment or scheduled sinking fund payment,
of any Subordinated Indebtedness of an Issuer or any Subsidiary Guarantor
(other than any such Subordinated Indebtedness owned by Sprint Spectrum or a
Restricted Subsidiary); or (iv) the making of any Investment (other than a
Permitted Investment) in any person (other than an Investment by a Restricted
Subsidiary in Sprint Spectrum or an Investment by Sprint Spectrum or a
Restricted Subsidiary in either (x) a Restricted Subsidiary or (y) a person
that becomes a Restricted Subsidiary as a result of such Investment).
"Restricted Subsidiary" means any Subsidiary of Sprint Spectrum that has not
been designated by the Board of the Company, by a Resolution delivered to the
applicable Trustee, as an Unrestricted Subsidiary pursuant to and in
compliance with the covenant described under "--Certain Covenants--Limitation
on Designations of Unrestricted Subsidiaries." Any such Designation may be
revoked by a Resolution of Sprint Spectrum delivered to the applicable
Trustee, subject to the provisions of such covenant.
"Revocation" has the meaning set forth under "--Certain Covenants--
Limitation on Designations of Unrestricted Subsidiaries."
"S&P" means Standard & Poor's Corporation.
"Securities Act" means the Securities Act of 1933, as amended.
"Senior Discount Notes Pro Rata Share" means the amount of the applicable
Excess Proceeds obtained by multiplying the amount of such Excess Proceeds by
a fraction, (i) the numerator of which is the aggregate Accreted Value of all
Senior Discount Notes outstanding at the time of the applicable Asset Sale
Offer and (ii) the denominator of which is the sum of (a) the aggregate
Accreted Value of all Senior Discount Notes outstanding at the time of the
applicable Asset Sale Offer, (b) the aggregate principal amount of all Senior
Notes outstanding at the time of the applicable Asset Sale Offer and (c) the
aggregate principal amount or the aggregate accreted value, as the case may
be, of all other Indebtedness (other than Subordinated Indebtedness of an
Issuer or a Subsidiary Guarantor) outstanding at the time of the applicable
Asset Sale Offer with respect to which an Issuer or a Restricted Subsidiary,
as the case may be, is required to use the applicable Excess Proceeds to offer
to repay or make an offer to purchase.
"Senior Notes Pro Rata Share" means the amount of the applicable Excess
Proceeds obtained by multiplying the amount of such Excess Proceeds by a
fraction, (i) the numerator of which is the aggregate principal amount of all
Senior Notes outstanding at the time of the applicable Asset Sale Offer and
(ii) the denominator of which is the sum of (a) the aggregate principal amount
of all Senior Notes outstanding at the time of the applicable Asset Sale
Offer, (b) the aggregate Accreted Value of all Senior Discount Notes
outstanding at the time of the applicable Asset Sale Offer and (c) the
aggregate principal amount or the aggregate accreted value, as the case may
be, of all other Indebtedness (other than Subordinated Indebtedness of an
Issuer or a Subsidiary Guarantor) outstanding at the time of the applicable
Asset Sale Offer with respect to which an Issuer or a Restricted Subsidiary,
as the case may be, is required to use the applicable Excess Proceeds to offer
to repay or make an offer to purchase.
"Subordinated Debt Securities" means any Debt Securities (and any guarantee
of any Debt Security) that would constitute Subordinated Indebtedness.
"Subordinated Indebtedness" of any person means any Indebtedness of such
person that is expressly subordinated in right of payment to any other
Indebtedness of such person.
"Subsidiary" means, with respect to any person, (i) any corporation of which
the outstanding Equity Interests having at least a majority of the votes
entitled to be cast in the election of directors shall at the time be
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owned, directly or indirectly, by such person, or (ii) any other person of
which at least a majority in value of Equity Interests or Voting Equity
Interests are at the time, directly or indirectly, owned by such person.
"Subsidiary Guarantor" means a Restricted Subsidiary that issues a
Subsidiary Guarantee pursuant to the covenant described under "--Certain
Covenants--Limitation on Issuance of Certain Guarantees by, and Debt
Securities of, Restricted Subsidiaries."
"Subsidiary Guarantee" has the meaning set forth under "--Certain
Covenants--Limitation on Issuances of Certain Guarantees by, and Debt
Securities of, Restricted Subsidiaries."
"Surviving Entity" has the meaning set forth under "--Consolidation, Merger,
Sale of Assets, Etc."
"Total Consolidated Indebtedness" means, at any date of determination, an
amount equal the aggregate principal amount of all Indebtedness of Sprint
Spectrum and the Restricted Subsidiaries outstanding as of the date of
determination.
"Total Invested Capital" means, at any time of determination, the sum of,
without duplication, (i) the total amount of equity contributed to Sprint
Spectrum as of the Issue Date (as set forth on the March 31, 1996 consolidated
balance sheet of Sprint Spectrum), plus (ii) the aggregate net cash proceeds
received by Sprint Spectrum from capital contributions or the issuance or sale
of Equity Interests (other than Disqualified Equity Interests but including
Equity Interests issued upon the conversion of convertible Indebtedness or
from the exercise of options, warrants or rights to purchase Equity Interests
(other than Disqualified Equity Interests)) subsequent to the Issue Date,
other than to a Restricted Subsidiary, plus (iii) the aggregate net cash
proceeds received by Sprint Spectrum or any Restricted Subsidiary from the
sale, disposition or repayment of any Investment made after the Issue Date and
constituting a Restricted Payment in an amount equal to the lesser of (a) the
return of capital with respect to such Investment and (b) the initial amount
of such Investment, in either case, less the cost of the disposition of such
Investment, plus (iv) an amount equal to the consolidated net Investment on
the date of Revocation made by Sprint Spectrum and/or any of the Restricted
Subsidiaries in any Subsidiary that has been designated as an Unrestricted
Subsidiary after the Issue Date upon its redesignation as a Restricted
Subsidiary in accordance with the covenant described under "--Certain
Covenants--Limitation on Designations of Unrestricted Subsidiaries," plus (v)
Total Consolidated Indebtedness minus (vi) the aggregate amount of all
Restricted Payments (including any Designation Amount, but other than a
Restricted Payment of the type referred to in clause (iii)(b) of the second
paragraph of the covenant described under "--Certain Covenants--Limitation on
Restricted Payments") declared or made from and after the Issue Date.
"Unrestricted Subsidiary" means any Subsidiary of Sprint Spectrum (other
than FinCo, WirelessCo, RealtyCo and EquipmentCo) designated after the Issue
Date as such pursuant to and in compliance with the covenant described under
"--Certain Covenants--Limitation on Designations of Unrestricted
Subsidiaries." Any such designation may be revoked by a Resolution of Sprint
Spectrum delivered to the applicable Trustee, subject to the provisions of
such covenant.
"Vendor Credit Facilities" means, collectively, (i) the Lucent Credit
Facility; (ii) the Nortel Credit Facility; and (iii) any other credit facility
entered into with any vendor or supplier (or any financial institution acting
on behalf of such a vendor or supplier); provided that, in the case of each of
clauses (i), (ii) and (iii), the Indebtedness thereunder is incurred solely
for the purpose of financing the cost (including the cost of design,
development, site acquisition, construction, integration, handset manufacture
or acquisition or microwave relocation) of wireless telecommunications
networks or systems or for which Sprint Spectrum or any Restricted Subsidiary
has obtained the applicable licenses or authorizations to utilize the radio
frequencies necessary for the operation of such systems or networks.
"Voting Equity Interests" means, with respect to any person, Equity
Interests of any class or kind ordinarily having the power to vote for the
election of directors, managers or other voting members of the governing body
of such person.
"Wholly-Owned Restricted Subsidiary" means any Restricted Subsidiary of
which 100% of the outstanding Equity Interests is owned by Sprint Spectrum or
another Wholly-Owned Restricted Subsidiary. For purposes of
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this definition, (i) any directors' qualifying shares or investments by
foreign nationals mandated by applicable law and (ii) Equity Interests of a
person not to exceed 1% of the total voting power of all outstanding Equity
Interests of such person and representing a right to receive not greater than
1% of the profits of such partnership shall be disregarded in determining the
ownership of a Restricted Subsidiary.
"Wholly-Owned Subsidiary" means, with respect to any person, any other
person 100% of whose outstanding Equity Interests are owned by such person or
another Wholly-Owned Restricted Subsidiary of such person. For purposes of
this definition, (i) any directors' qualifying shares or investments by
foreign nationals mandated by applicable law and (ii) Equity Interests of a
person not to exceed 1% of the total voting power of all outstanding Equity
Interests of such person and representing a right to receive not greater than
1% of the profits of such partnership shall be disregarded in determining the
ownership of a Subsidiary.
"WirelessCo" means WirelessCo, L.P., a Delaware limited partnership.
BOOK-ENTRY; DELIVERY AND FORM
The Notes will be issued in the form of one or more fully registered global
certificates (the "Global Certificates"). The Global Certificates will be
deposited with, or on behalf of, The Depository Trust Company, New York, New
York (the "Depositary") and registered in the name of the Depositary's
nominee. The Depositary will maintain the Notes in denominations of $1,000 and
integral multiples thereof through its book-entry facilities.
Except as set forth below, the Global Certificates may be transferred, in
whole and not in part, only to another nominee of the Depositary or to a
successor of the Depositary or its nominee.
The Depositary has advised the Issuers and the Underwriters as follows: It
is a limited-purpose trust company organized under the Banking Law of the
State of New York, a member of the Federal Reserve System, a "clearing
corporation" within the meaning of the New York Uniform Commercial Code, and a
"clearing agency" registered pursuant to the provisions of Section 17A of the
Exchange Act. The Depositary was created to hold securities for its
participating organizations (the "Participants") and to facilitate the
clearance and settlement of transactions in such securities between
Participants through electronic book-entry changes in accounts of its
Participants. Participants include securities brokers and dealers (including
the Underwriters), banks, trust companies, clearing corporations and certain
other organizations, some of whom (and/or their representatives) own the
Depositary. Access to the Depositary's book-entry system is also available to
others, such as banks, brokers, dealers and trust companies that clear through
or maintain a custodial relationship with a Participant, either directly or
indirectly ("indirect participants"). Persons who are not Participants may
beneficially own securities held by the Depositary only through Participants
or indirect participants.
The Depositary has also advised that pursuant to procedures established by
it (i) upon the issuance by the Issuers, of the Notes, the Depositary will
credit the accounts of Participants designated by the Underwriters with the
principal amount of the Senior Notes or principal amount at maturity of the
Senior Discount Notes, as the case may be, purchased by the Underwriters, and
(ii) ownership of beneficial interests in the Global Certificates will be
shown on, and the transfer of that ownership will be effected only through,
records maintained by the Depositary (with respect to Participants'
interests), the Participants and the indirect participants. A beneficial owner
is the person who has the right to sell, transfer or otherwise dispose of an
interest in the Notes and the right to receive the proceeds therefrom, as well
as principal, premium (if any) and interest payable in respect of the Notes.
The beneficial owner must rely on the foregoing arrangements to evidence its
interest in the Notes. Beneficial ownership of the Notes may be transferred
only by complying with the procedures of a beneficial owner's Participant
(e.g., a brokerage firm) and the Depositary. The laws of some states require
that certain persons take physical delivery in definitive form of securities
which they own. Consequently, the ability to transfer beneficial interests in
the Global Certificates is limited to such extent.
So long as a nominee of the Depositary is the registered owner of the Global
Certificates, such nominee will be considered the sole owner or holder of the
Notes for all purposes under the Indentures and any applicable laws. Except as
provided below, owners of beneficial interests in the Global Certificates will
not be entitled to
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have Notes registered in their names, will not receive or be entitled to
receive physical delivery of Notes in definitive form and will not be
considered the owners or holders thereof under the Indentures.
All rights of ownership must be exercised through the Depositary and the
book-entry system, and notices that are to be given to registered owners by
the Issuers or the Trustees will be given only to the Depositary. It is
expected that the Depositary will forward notices to the Participants who will
in turn forward notices to the beneficial owners. Neither the Issuers, the
Trustees, the paying agents nor the Notes registrars will have any
responsibility or obligation to assure that any notices are forwarded by the
Depositary to any Participant or by any Participant to the beneficial owners.
Neither the Issuers, the Trustees, the paying agents nor the Notes registrars
will have any responsibility or liability for any aspect of the records
relating to or payments made on account of beneficial ownership interests in
the Global Certificates, or for maintaining, supervising or reviewing any
records relating to such beneficial ownership interests.
Principal and interest payments on the Global Certificates registered in the
name of the Depositary's nominee will be made by the Issuers, either directly
or through a paying agent, to the Depositary's nominee as the registered owner
of the Global Certificates. Under the terms of the Indentures, the Issuers and
the Trustees will treat the persons in whose names the Notes are registered as
the owners of such Notes for the purpose of receiving payments of principal
and interest on such Notes and for all other purposes whatsoever. Therefore,
neither the Issuers, the Trustees nor any paying agent has any direct
responsibility or liability for the payment of principal or interest on the
Notes to owners of beneficial interests in the Global Certificates. The
Depositary has advised the Issuers and the Trustees that its present practice
upon receipt of any payment of principal or interest is to credit immediately
the accounts of the Participants with payment in amounts proportionate to
their respective holdings in principal amount of beneficial interests in the
Global Certificates as shown on the records of the Depositary. Payments by
Participants and indirect participants to owners of beneficial interests in
the Global Certificates will be governed by standing instructions and
customary practices as is now the case with securities held for the accounts
of customers in bearer form or registered in "street name" and will be the
responsibility of such Participants or indirect participants.
As long as the Notes are represented by the Global Certificates, the
Depositary's nominee will be the holder of the Notes and therefore will be the
only entity that can exercise a right to repayment or repurchase of the Notes.
See "--Certain Covenants--Change of Control" and "Certain Covenants--
Disposition of Proceeds of Asset Sales." Notice by Participants or indirect
participants or by owners of beneficial interests in the Global Certificates
held through such Participants or indirect participants of the exercise of the
option to elect repayment of beneficial interests in Notes represented by the
Global Certificates must be transmitted to the Depositary in accordance with
its procedures on a form required by the Depositary and provided to
Participants. In order to ensure that the Depositary's nominee will timely
exercise a right to repayment with respect to a particular Note, the
beneficial owner of such Note must instruct the broker or other Participant or
indirect participant through which it holds an interest in such Note to notify
the Depositary of its desire to exercise a right to repayment. Different firms
have deadlines for accepting instructions from their customers and,
accordingly, each beneficial owner should consult the broker or other
Participant or indirect participant through which it holds an interest in a
Note in order to ascertain the deadline by which such an instruction must be
given in order for timely notice to be delivered to the Depositary. The
Issuers will not be liable for any delay in delivery of notices of the
exercise of the option to elect repayment.
The Issuers will issue Notes in definitive form in exchange for the Global
Certificates if, and only if, either (i) the Depositary is at any time
unwilling or unable to continue as depositary and a successor depositary is
not appointed by the Issuers within 90 days, or (2) an Event of Default has
occurred and is continuing and the applicable Notes registrar has received a
request from the Depositary to issue Notes in definitive form in lieu of all
or a portion of the Global Certificates. In either instance, an owner of a
beneficial interest in the Global Certificates will be entitled to have the
applicable Notes equal in principal amount or principal amount at maturity, as
the case may be, to such beneficial interest registered in its name and will
be entitled to physical delivery of such Notes in definitive form. Notes so
issued in definitive form will be issued in denominations of $1,000 and
integral multiples thereof and will be issued in registered form only, without
coupons.
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CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following summary describes certain United States federal income tax
consequences of the purchase, ownership and disposition of Notes as of the
date hereof. It is intended only as a summary and does not purport to be a
complete analysis or listing of all potential tax considerations that may be
relevant and is generally limited to those persons who are original purchasers
of Notes and who hold Notes as capital assets ("Holders"). The discussion does
not include special rules that may apply to certain Holders (including
insurance companies, tax-exempt organizations, financial institutions or
broker-dealers, foreign persons and persons in special situations such as
those who hold Notes as part of a straddle, hedge or conversion transaction).
In addition, the discussion does not consider the effect of any applicable
foreign, state, local or other tax laws or estate or gift tax considerations.
The discussion is based upon currently existing provisions of the Code,
existing and proposed Treasury regulations promulgated thereunder and current
administrative rulings and court decisions. All of the foregoing are subject
to change and any such change could affect the continuing validity of this
discussion. The Company has not sought and will not seek any rulings from the
IRS with respect to the positions of the Company discussed below and there can
be no assurance that the IRS will not take positions concerning the tax
consequences of the purchase, ownership or disposition of Notes which are
different from those discussed herein.
THE FOLLOWING SUMMARY DOES NOT DISCUSS ALL ASPECTS OF FEDERAL INCOME
TAXATION THAT MAY BE RELEVANT TO A PARTICULAR HOLDER IN LIGHT OF SUCH HOLDER'S
PARTICULAR CIRCUMSTANCES AND INCOME TAX SITUATION. EACH HOLDER SHOULD CONSULT
SUCH HOLDER'S TAX ADVISOR AS TO THE SPECIFIC TAX CONSEQUENCES TO SUCH HOLDER
OF THE OWNERSHIP AND DISPOSITION OF NOTES, INCLUDING THE APPLICATION AND
EFFECT OF STATE, LOCAL, FOREIGN AND OTHER TAX LAWS.
STATED INTEREST ON SENIOR NOTES
A Holder of a Senior Note will be required for federal income tax purposes
to report stated interest on the Senior Notes as ordinary income in accordance
with the Holder's method of accounting for tax purposes.
STATED INTEREST ON SENIOR DISCOUNT NOTES
Stated interest on Senior Discount Notes is discussed below in "Amount of
Original Issue Discount on Senior Discount Notes" and "Taxation of Original
Issue Discount on Senior Discount Notes."
AMOUNT OF ORIGINAL ISSUE DISCOUNT ON SENIOR DISCOUNT NOTES
The Senior Discount Notes will be issued with original issue discount for
federal income tax purposes. The amount of original issue discount ("OID") on
a Senior Discount Note is the excess of its "stated redemption price at
maturity" (the sum of all payments to be made on the Senior Discount Note,
whether denominated as interest or principal) over its "issue price." The
"issue price" of each Senior Discount Note will be the initial offering price
at which a substantial amount of the Senior Discount Notes are sold (not
including sales to bond houses, brokers or similar persons or organizations
acting in the capacity of underwriters or wholesalers).
TAXATION OF ORIGINAL ISSUE DISCOUNT ON SENIOR DISCOUNT NOTES
Each Holder (whether a cash or accrual method taxpayer) will be required to
include in income OID as it accrues, in advance of the receipt of some or all
of the related cash payments.
The amount of OID includable in income by a Holder is the sum of the "daily
portions" of OID with respect to the Senior Discount Note for each day during
the taxable year or portion of the taxable year on which such Holder held such
Senior Discount Note ("accrued OID"). The daily portion is determined by
allocating to each day in any "accrual period" a pro rata portion of the OID
allocable to that accrual period. The accrual
97
<PAGE>
periods for a Senior Discount Note will be periods that are selected by the
Holder that are no longer than one year, provided that each scheduled payment
occurs either on the final day or on the first day of an accrual period. The
amount of OID allocable to any accrual period other than the initial short
accrual period (if any) and the final accrual period is an amount equal to the
product of the Senior Discount Note's "adjusted issue price" at the beginning
of such accrual period and its yield to maturity (determined on the basis of
compounding at the close of each accrual period and properly adjusted for the
length of the accrual period). The amount of OID allocable to the final
accrual period is the difference between the amount payable at maturity and
the adjusted issue price of the Senior Discount Note at the beginning of the
final accrual period. The amount of OID allocable to any initial short accrual
period may be computed under any reasonable method. The yield to maturity is
the discount rate that, when used in computing the present value of all
principal and interest payments to be made on a Senior Discount Note, produces
an amount equal to its issue price. The adjusted issue price of a Senior
Discount Note at the start of any accrual period is equal to its issue price
increased by the accrued OID for each prior accrual period determined without
regard to the amortization of any acquisition or bond premium, as described
below, and reduced by any prior payments and any payment on the first day of
the current accrual period with respect to such Senior Discount Note. The
Company is required to report the amount of OID accrued on Senior Discount
Notes held of record by persons other than corporations and other exempt
Holders, which may be based on accrual periods other than those chosen by the
Holder.
MARKET DISCOUNT
If a Note is acquired at a "market discount," some or all of any gain
realized upon a disposition (including a sale or a taxable exchange) or
payment at maturity of such Note may be treated as ordinary income. "Market
discount" with respect to a Note is, subject to a de minimis exception, the
excess of (1) the adjusted issue price of the Note over (2) such Holder's tax
basis in the Note immediately after its acquisition. The amount of market
discount treated as having accrued will be determined either on a straight-
line basis, or, if the Holder so elects, on a constant interest method. Upon
any subsequent disposition (including a gift or payment at maturity) of such
Note (other than in connection with certain nonrecognition transactions), the
lesser of any gain on such disposition (or appreciation, in the case of a
gift) or the portion of the market discount that accrued while the Note was
held by such Holder will be treated as ordinary interest income. In lieu of
including accrued market discount in income at the time of disposition, a
Holder may elect to include market discount in income currently. Unless a
Holder makes such an election, such Holder may be required to defer a portion
of any interest expense that may otherwise be deductible on any indebtedness
incurred or maintained to purchase or carry such Note until the Holder
disposes of the Note.
ACQUISITION PREMIUM
If a Holder's purchase price for a Note exceeds the adjusted issue price at
the time of acquisition but is equal to or less than the sum of all amounts
payable on the Note after its purchase by the Holder, the excess (referred to
as "acquisition premium") is offset ratably against the amount of OID
otherwise includable in such Holder's taxable income.
BOND PREMIUM
A Senior Note is purchased with bond premium if its adjusted basis,
immediately after its purchase by the Holder, exceeds its face amount. A
Senior Discount Note is purchased with bond premium if its adjusted basis,
immediately after its purchase by the Holder exceeds the sum of all amounts
payable on the Senior Discount Note after its purchase by the Holder. A Holder
who purchases a Note with bond premium is not required to include any OID in
gross income and may elect to amortize such premium, using a constant yield-
to-maturity method, over the remaining term of the Note or the period to an
earlier call date, if it results in a smaller allowance. Such bond premium
generally is deemed to be an offset to interest otherwise includable in income
in respect of a Note. Any election to amortize bond premium applies to all
debt instruments (other than debt instruments the interest on which is
excludable from gross income) held by the Holder at the beginning of the first
taxable year to which the election applies or thereafter acquired by the
Holder, and is irrevocable without
98
<PAGE>
the consent of the IRS. Amortizable bond premium on a Note held by a Holder
that does not make such an election will decrease the gain or increase the
loss otherwise recognized on disposition of the Note. See "--Election to Treat
All Interest as OID."
ELECTION TO TREAT ALL INTEREST AS OID
Holders may elect to treat all interest on any Note as OID and calculate the
amount includable in gross income under the constant yield method described
above. For the purposes of this election, interest includes stated interest,
acquisition discount, OID, de minimis OID, market discount, de minimis market
discount and unstated interest, as adjusted by any amortizable bond premium or
acquisition premium. The election is to be made for the taxable year in which
the United States Holder acquired the Note, and may not be revoked without the
consent of the Internal Revenue Service (the "IRS"). HOLDERS SHOULD CONSULT
WITH THEIR OWN TAX ADVISORS ABOUT THIS ELECTION.
SALE, EXCHANGE, REDEMPTION OR OTHER TAXABLE DISPOSITION
In general, a Holder will recognize gain or loss upon the sale, exchange,
redemption, retirement or other taxable disposition of a Note measured by the
difference between (a) the amount of cash and fair market value of property
received (except, with respect to a Senior Note, to the extent attributable to
the payment of accrued interest) in exchange therefor and (b) the Holder's
adjusted tax basis in such Note. Any amount attributable to accrued interest
on a Senior Note would be treated as ordinary interest income rather than an
amount received in exchange for the Note if such amount has not previously
been included in income.
A Holder's initial tax basis in a Note will equal the price paid by such
Holder for such Note. The Holder's adjusted tax basis in a Senior Discount
Note will be such Holder's initial tax basis increased from time to time by
the portion of OID included in gross income to the date of disposition and
decreased from time to time by amortized premium or any payments received on
such Senior Discount Note. A Holder's tax basis in a Note would also be
increased by any market discount the Holder elected to include in income
currently.
Any gain or loss on the sale, exchange, redemption, retirement, or other
taxable disposition of a Note will be capital gain or loss (except for any
amount treated as ordinary income under the market discount rules discussed
above). Any capital gain or loss will be long-term capital gain or loss if the
Note had been held for more than one year and otherwise will be short-term
capital gain or loss. Under current law, net capital gains of individuals are,
under certain circumstances, taxed at lower rates than items of ordinary
income. The deductibility of capital losses is subject to limitations.
BACKUP WITHHOLDING
The backup withholding rules require a payor to deduct and withhold a tax if
(a) the payee fails to furnish a taxpayer identification number ("TIN") to the
payor in the manner required or otherwise qualify for an exemption, (b) the
IRS notifies the payor that the TIN furnished by the payee is incorrect, (c)
the payee has failed to report properly the receipt of "reportable payments"
and the IRS has notified the payor that withholding is required or (d) there
has been a failure of the payee to certify under penalties of perjury that a
payee is not subject to withholding under Section 3406 of the Code. As a
result, if any one of the events discussed above occurs, the Company, its
paying agent or other withholding agent will be required to withhold a tax
equal to 31% of any "reportable payment" made in connection with the Notes. A
"reportable payment" includes, among other things, interest actually paid,
original issue discount and amounts paid through brokers in retirement of
Notes. Any amounts withheld from a payment to a Holder under the backup
withholding rules will be allowed as a refund or credit against such Holder's
federal income tax, provided that the required information is furnished to the
IRS. Certain Holders (including, among others, corporations and certain tax
exempt organizations) generally are not subject to the backup withholding and
information reporting requirements.
99
<PAGE>
UNDERWRITING
Subject to the terms and conditions set forth in a purchase agreement (the
"Underwriting Agreement") among the Issuers and each of the underwriters named
below (collectively, the "Underwriters"), the Issuers have agreed to sell to
the Underwriters, and each of the Underwriters has severally agreed to
purchase from the Issuers, the entire principal amount of the Senior Notes and
principal amount at maturity of the Senior Discount Notes set forth opposite
its name below. The Underwriters are committed to purchase all of the Senior
Notes and the Senior Discount Notes if any are purchased.
The Underwriting Agreement provides that the obligations of the Underwriters
to pay for and accept delivery of the Senior Notes and the Senior Discount
Notes are subject to the approval of certain legal matters by counsel and to
various other conditions.
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT AT
PRINCIPAL MATURITY OF
AMOUNT OF SENIOR
SENIOR DISCOUNT
UNDERWRITERS NOTES NOTES
------------ --------- -----------
<S> <C> <C>
Merrill Lynch, Pierce, Fenner & Smith
Incorporated................................. $ $
Lehman Brothers Inc. .................................
Chase Securities Inc. ................................
Donaldson, Lufkin & Jenrette Securities Corporation...
Salomon Brothers Inc .................................
---- ----
Total............................................ $ $
==== ====
</TABLE>
The Underwriters propose to offer the Senior Notes directly to the public at
the public offering price set forth on the cover page hereof, and to certain
dealers at such price less a concession not in excess of % of the principal
amount of Senior Notes. The Underwriters may allow, and such dealers may
reallow, a discount not in excess of % of the principal amount of the Senior
Notes. After the initial public offering of the Senior Notes, the public
offering price and such concession may be changed.
The Underwriters propose to offer the Senior Discount Notes directly to the
public at the public offering price set forth on the cover page hereof, and to
certain dealers at such price less a concession not in excess of % of the
principal amount at maturity of the Senior Discount Notes. The Underwriters
may allow, and such dealers may reallow, a discount not in excess of % of
the principal amount at maturity of the Senior Discount Notes. After the
initial public offering of the Senior Discount Notes, the public offering
price and such concession may be changed.
The Issuers do not intend to apply for listing of either issue of the Notes
on a national securities exchange, but have been advised by the Underwriters
that they presently intend to make a market in the Notes, as permitted by
applicable laws and regulations. The Underwriters are not obligated, however,
to make a market in the Notes, and any such market making may be discontinued
at any time at the sole discretion of the Underwriters. Accordingly, no
assurance can be given as to the liquidity of, or trading markets for, the
Notes.
The Issuers have agreed, jointly and severally, to indemnify the
Underwriters against certain liabilities, including civil liabilities under
the Securities Act, or to contribute to payments the Underwriters may be
required to make in respect thereof.
Lehman Brothers Inc. ("Lehman") and Merrill Lynch & Co. ("Merrill Lynch")
have entered into agreements with the Company pursuant to which Lehman and
Merrill Lynch have provided general financial advisory services to the Company
and have assisted and represented the Company in arranging, structuring and
negotiating the Vendor Financings. In connection with such services, the
Company paid customary fees to each
100
<PAGE>
of Lehman and Merrill Lynch. Merrill Lynch Trust Company, an affiliate of
Merrill Lynch, is the trustee under a retirement plan of the Company. Chase
Securities Inc. is an affiliate of Chemical Bank, which has provided a
commitment for the Bank Credit Facility. In addition, each of the Underwriters
has provided, and may continue in the future to provide, investment and/or
commercial banking and other services to the Parents and their respective
affiliates.
LEGAL MATTERS
Certain legal matters relating to the Offering will be passed upon for the
Issuers by their counsel Simpson Thacher & Bartlett, New York, New York (a
partnership which includes professional corporations) and by their regulatory
counsel, Morrison & Foerster, Washington D.C. Certain legal matters with
respect to the Notes offered hereby will be passed upon for the Underwriters
by their counsel Cahill Gordon & Reindel (a partnership which includes a
professional corporation), New York, New York.
EXPERTS
The financial statements as of December 31, 1994 and 1995, for the period
October 24, 1994 to December 31, 1994, for the year ended December 31, 1995
and for the cumulative period from October 24, 1994 to December 31, 1995
included in this Prospectus and elsewhere in the Registration Statement have
been audited by Deloitte & Touche LLP, independent auditors, as stated in
their report appearing herein and elsewhere in the Registration Statement
(which report expresses an unqualified opinion and includes an explanatory
paragraph referring to the development stage of Sprint Spectrum L.P. and
subsidiary), and have been so included in reliance upon the report of such
firm given upon their authority as experts in accounting and auditing.
The financial statements of American PCS, L.P. as of December 31, 1994 and
1995 and for the years then ended included in this Prospectus have been so
included in reliance on the report of Price Waterhouse LLP, independent
accountants, given on the authority of said firm as experts in auditing and
accounting.
AVAILABLE INFORMATION
The Issuers have filed with the Commission, a Registration Statement on Form
S-1 under the Securities Act of 1933, as amended (the "Securities Act"), with
respect to the Notes offered hereby. This Prospectus does not contain all of
the information set forth in the Registration Statement and the exhibits and
schedules thereto. Certain items are omitted in accordance with the rules and
regulations of the Commission. For further information with respect to the
Company and the Notes offered hereby, reference is made to the Registration
Statement and to the exhibits and schedules filed as part thereof. Statements
contained in this Prospectus as to the contents of any contract or other
document referred to are not necessarily complete, and, in each instance,
reference is made to the copy of such contract or document filed as an exhibit
to the Registration Statement, each such statement being qualified in all
respects by such reference. The Registration Statement, including the exhibits
and schedules thereto, may be inspected without charge at the principal office
of the Commission in Washington, D.C. and copies may be obtained from the
Public Reference Section at the Commission's principal office, 450 Fifth
Street, N.W., Room 1024, Washington, D.C. 20549, and at the Commission's
regional offices at Seven World Trade Center, New York, New York 10048 and 500
West Madison Street, Suite 1400, Chicago, Illinois 60661, upon payment of the
fees prescribed by the Commission.
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<PAGE>
GLOSSARY OF SELECTED TERMS
AIN: Advanced Intelligent Network. A term adopted by most telecommunications
companies to indicate the architecture of a company's communications network.
Although each company's AIN differs, it generally has three components: (1)
Signal Control Points (SCPs) which are computers that hold databases in which
customer-specific information used to route calls is stored; (ii) Signal
Switching Points (SSPs) which are digital telephone switches which talk to
SCPs in order to obtain customer-specific instructions as to how a call should
be completed; and (ii) Signal Transfer Points (STPs) which are packet switches
that shuttle messages between SSPs and SCPs.
ANALOG: A method of transmission where the wave form of the output signal is
analogous to the wave form of the input signal.
BTA: Basic Trading Area.
CDMA: Code Division Multiple Access. A digital spread-spectrum wireless
technology which allows a large number of users to access a single frequency
band that assigns a code to all speech bits, sends a scrambled transmission of
the encoded speech over the air and reassembles the speech to its original
format.
CMRS: Commercial Mobile Radio Service.
CHURN RATE: Expressed as a rate for a given measurement period, equal to the
number of subscriber units disconnected divided by the number of subscribers
at the beginning of the measurement period.
CTIA: The Cellular Telecommunications Industry Association. An industry
group in North America comprised primarily of cellular telephone service
companies and recently some PCS license holders.
DRT: Design Review Team.
DIGITAL PROTOCOLS: Technologies such as CDMA and TDMA which manage the
communication for digital signal transmission.
ESMR: Enhanced Specialized Mobile Radio. A radio communications system that
employs digital technology with a multi-site configuration that permits
frequency reuse but used in the SMR frequencies, offering enhanced dispatch
services to traditional analog SMR users.
FCC: Federal Communications Commission.
FREQUENCY: The number of cycles per second, expressed in hertz, of a
periodic oscillation or wave in radio propagation.
GSM: Global System for Mobile Communications. The standard digital cellular
telephone service in Europe and Japan, guided by a set of standards specifying
the infrastructure for digital cellular service, including the radio interface
(900 MHz), switching, signaling, and intelligent network.
HAND-OFF: The act of transferring communication with a mobile unit from one
base station to another. A hand-off transfers a call from the current base
station to the new base station. A "soft" hand-off establishes communications
with a new cell before terminating communications with the old cell.
LATA: Local access and transport area. One of 161 local telephone exchange
areas in the United States. InterLATA service refers to the service between
two LATAs and intraLATA service refers to the provision of service within a
LATA. The 1996 Act limits the ability of the Bell operating companies to
engage in interLATA service. See "Business--Regulation."
LEC: Local Exchange Carrier.
102
<PAGE>
LEO SATELLITE: Low Earth Orbit Satellite. A LEO satellite moves a few
hundred miles in orbit around the Earth. The primary advantage of LEOs is that
the terrestrial-based transmitting terminal does not have to be very powerful
because the LEO satellite is closer to the Earth than traditional
geostationary satellites which are placed in geosynchronous orbit (22,300
miles) directly over the earth's equator.
MICROWAVE RELOCATION: The transferral of the businesses and public safety
agencies which currently utilize radio spectrum within or adjacent to the
spectrum allocated to PCS licensees by the FCC.
MSA: Metropolitan Statistical Area.
MTA: Major Trading Area.
PCS: Personal Communications Services.
POPS: A short hand abbreviation for the population covered by a license or
group of licenses. Unless otherwise noted, as used herein Pops means the
Donnelley Marketing Service estimate of the December 31, 1995 population of a
geographic area.
PCIA: The Personal Communications Industry Association is a North American
trade association whose members either have PCS or paging licenses.
PSTN: Public Switched Telephony Network.
RF: Radio Frequency.
RSA: Rural Statistical Area.
ROAMING: A service offered by mobile communications carriers which allows
subscribers to use their handset while in the service area of another carrier.
Roaming agreements are negotiated between carriers.
SMR: Specialized Mobile Radio. A two-way analog mobile radio telephone
system typically used for dispatch services such as truck and taxi fleets.
TDMA: Time Division Multiple Access. A digital spread-spectrum technology
which allocates a discrete amount of frequency bandwidth to each user in order
to permit more than one simultaneous conversation on a single RF channel.
103
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
SPRINT SPECTRUM L.P. AND SUBSIDIARY
Independent Auditors' Report.............................................. F-2
Consolidated Balance Sheets at December 31, 1994 and 1995 and at March 31,
1996..................................................................... F-3
Consolidated Statements of Operations for the period from October 24, 1994
to December 31, 1994, the year ended December 31, 1995, the cumulative
period from October 24, 1994 to December 31, 1995, the three months ended
March 31, 1995 and 1996, and the cumulative period from October 24, 1994
to March 31, 1996........................................................ F-4
Consolidated Statements of Changes in Partners' Capital for the period
from October 24, 1994 to December 31, 1994, the year ended December 31,
1995, the cumulative period from October 24, 1994 to December 31, 1995,
the three months ended March 31, 1995 and 1996, and the cumulative period
from October 24, 1994 to March 31, 1996 ................................. F-5
Consolidated Statements of Cash Flows for the period from October 24, 1994
to December 31, 1994, the year ended December 31, 1995, the cumulative
period from October 24, 1994 to December 31, 1995, the three months ended
March 31, 1995 and 1996, and the cumulative period from October 24, 1994
to March 31, 1996........................................................ F-6
Notes to Consolidated Financial Statements................................ F-7
AMERICAN PCS, L.P.
Report of Independent Accountants......................................... F-13
Balance Sheets at December 31, 1994 and 1995 and at March 31, 1996........ F-14
Statements of Loss for the year ended December 31, 1994 and 1995 and for
the three months ended March 31, 1995 and 1996 .......................... F-15
Statements of Cash Flows for the year ended December 31, 1994 and 1995 and
for the three months ended March 31, 1995 and 1996...................... F-16
Statements of Changes in Partners' Capital as of December 31, 1994 and
1995 and
as of March 31, 1996..................................................... F-17
Notes to Financial Statements............................................. F-18
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
Partners of Sprint Spectrum L.P.
Kansas City, Missouri
We have audited the accompanying consolidated balance sheets of Sprint
Spectrum L.P. (formerly known as MajorCo Sub, L.P.) and subsidiary (the
"Partnership"), a development stage enterprise, as of December 31, 1995 and
1994, and the related consolidated statements of operations, changes in
partners' capital and cash flows for the year ended December 31, 1995, for the
period from October 24, 1994 (date of inception) to December 31, 1994, and for
the cumulative period from October 24, 1994 (date of inception) to December
31, 1995. These consolidated financial statements are the responsibility of
the Partnership's management. Our responsibility is to express an opinion on
these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the consolidated financial
statements are free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the
consolidated financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as
well as evaluating the overall consolidated financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the consolidated financial position of Sprint Spectrum L.P.
and subsidiary at December 31, 1995 and 1994, and the results of their
operations and their cash flows for the year ended December 31, 1995, for the
period from October 24, 1994 (date of inception) to December 31, 1994, and for
the cumulative period from October 24, 1994 (date of inception) to December
31, 1995, in conformity with generally accepted accounting principles.
As discussed in Note 1 to the consolidated financial statements, Sprint
Spectrum L.P. and its subsidiary are in the development stage as of December
31, 1995.
DELOITTE & TOUCHE LLP
Kansas City, Missouri
March 29, 1996
(July 8, 1996 as to Note 4)
F-2
<PAGE>
SPRINT SPECTRUM L.P. AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED BALANCE SHEETS
(IN 000'S)
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
-------------------- ----------------
1994 1995 1996
-------- ---------- -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents............ $ 5,014 $ 1,123 $ 16
Prepaid expenses and other assets.... 10 -- 1,282
-------- ---------- ----------
Total current assets............... 5,024 1,123 1,298
INVESTMENT IN PCS LICENSES............. 118,438 2,124,594 2,124,594
INVESTMENT IN UNCONSOLIDATED
PARTNERSHIP........................... -- 85,546 49,314
NOTE RECEIVABLE--UNCONSOLIDATED
PARTNERSHIP........................... -- 655 83,655
PROPERTY, PLANT AND EQUIPMENT, Net..... 413 -- --
-------- ---------- ----------
TOTAL ASSETS........................... $123,875 $2,211,918 $2,258,861
======== ========== ==========
LIABILITIES AND PARTNERS' CAPITAL
CURRENT LIABILITIES:
Accounts payable..................... $ 3,745 $ -- $ 160
Accrued interest--affiliate.......... -- 214 296
-------- ---------- ----------
Total current liabilities.......... 3,745 214 456
-------- ---------- ----------
NOTE PAYABLE--AFFILIATE................ -- 5,000 5,000
LIMITED PARTNER INTEREST IN
CONSOLIDATED SUBSIDIARY............... -- 5,000 5,000
COMMITMENTS AND CONTINGENCIES
PARTNERS' CAPITAL AND ACCUMULATED
DEFICIT:
Partners' capital.................... 123,438 2,254,543 2,337,543
Deficit accumulated during the
development stage................... (3,308) (52,839) (89,138)
-------- ---------- ----------
Total partners' capital............ 120,130 2,201,704 2,248,405
-------- ---------- ----------
TOTAL LIABILITIES AND PARTNERS'
CAPITAL............................... $123,875 $2,211,918 $2,258,861
======== ========== ==========
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE>
SPRINT SPECTRUM L.P. AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN 000'S)
<TABLE>
<CAPTION>
CUMULATIVE CUMULATIVE
PERIOD FROM PERIOD FROM THREE MONTHS PERIOD FROM
OCTOBER 24, 1994 OCTOBER 24, 1994 ENDED OCTOBER 24, 1994
(DATE OF INCEPTION) YEAR ENDED (DATE OF INCEPTION) MARCH 31, (DATE OF INCEPTION)
TO DECEMBER 31, DECEMBER 31, TO DECEMBER 31, ----------------- TO MARCH 31,
1994 1995 1995 1995 1996 1996
------------------- ------------ ------------------- ------- -------- -------------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
OPERATING EXPENSES:
General
and administrative..... $ 1,371 $ 1,221 $ 2,592 $ 1,273 $ -- $ 2,592
Professional and
legal fees............. 1,923 2,310 4,233 2,335 -- 4,233
Depreciation............ 38 47 85 47 -- 85
------- -------- -------- ------- -------- --------
Total operating
expenses............. 3,332 3,578 6,910 3,655 -- 6,910
------- -------- -------- ------- -------- --------
OTHER INCOME (EXPENSE):
Interest income
(expense).............. 24 253 277 275 (67) 210
Equity in loss of
unconsolidated
partnership............ -- (46,206) (46,206) (3,409) (36,232) (82,438)
------- -------- -------- ------- -------- --------
Total other income
(expense)............ 24 (45,953) (45,929) (3,134) (36,299) (82,228)
------- -------- -------- ------- -------- --------
NET LOSS................ $(3,308) $(49,531) $(52,839) $(6,789) $(36,299) $(89,138)
======= ======== ======== ======= ======== ========
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE>
SPRINT SPECTRUM L.P. AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
(IN 000'S)
<TABLE>
<CAPTION>
CUMULATIVE CUMULATIVE
PERIOD FROM PERIOD FROM PERIOD FROM
OCTOBER 24, 1994 OCTOBER 24, 1994 THREE MONTHS ENDED OCTOBER 24, 1994
(DATE OF INCEPTION) YEAR ENDED (DATE OF INCEPTION) MARCH 31, (DATE OF INCEPTION)
TO DECEMBER 31, DECEMBER 31, TO DECEMBER 31, -------------------- TO MARCH 31,
1994 1995 1995 1995 1996 1996
------------------- ------------ ------------------- -------- ---------- -------------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
PARTNERS' CAPITAL:
Balance at beginning of
period................. $ -- $ 123,438 $ -- $123,438 $2,254,543 $ --
Contributions of
capital................ 123,438 2,131,105 2,254,543 390,999 83,000 2,337,543
Receivable for capital
contributions.......... -- -- -- (3,462) -- --
-------- ---------- ---------- -------- ---------- ----------
Balance at end of
period................. 123,438 2,254,543 2,254,543 510,975 2,337,543 2,337,543
DEFICIT ACCUMULATED
DURING THE DEVELOPMENT
STAGE:
Balance at beginning of
period................. -- (3,308) -- (3,308) (52,839) --
Net loss................ (3,308) (49,531) (52,839) (6,789) (36,299) (89,138)
-------- ---------- ---------- -------- ---------- ----------
Balance at end of
period................. (3,308) (52,839) (52,839) (10,097) (89,138) (89,138)
-------- ---------- ---------- -------- ---------- ----------
TOTAL PARTNERS'
CAPITAL................ $120,130 $2,201,704 $2,201,704 $500,878 $2,248,405 $2,248,405
======== ========== ========== ======== ========== ==========
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE>
SPRINT SPECTRUM L.P. AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN 000'S)
<TABLE>
<CAPTION>
CUMULATIVE CUMULATIVE
PERIOD FROM PERIOD FROM PERIOD FROM
OCTOBER 24, 1994 OCTOBER 24, 1994 THREE MONTHS OCTOBER 24, 1994
(DATE OF (DATE OF ENDED (DATE OF
INCEPTION) TO YEAR ENDED INCEPTION) TO MARCH 31, INCEPTION) TO
DECEMBER 31, DECEMBER 31, DECEMBER 31, ------------------- MARCH 31,
1994 1995 1995 1995 1996 1996
---------------- ------------ ---------------- --------- -------- ----------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
CASH FLOWS FROM
OPERATING ACTIVITIES:
Net loss.............. $ (3,308) $ (49,531) $ (52,839) $ (6,789) $(36,299) $ (89,138)
Adjustments to
reconcile net loss to
net cash provided
(used) by operating
activities:
Equity in loss of
unconsolidated
partnership.......... -- 46,206 46,206 3,409 36,232 82,438
Depreciation.......... 38 47 85 47 -- 85
Changes in assets and
liabilities:
Prepaid expenses and
other assets........ (10) 10 -- (343) (1,282) (1,282)
Accounts payable..... 3,745 (3,745) -- 287 160 160
Accrued interest
payable to
affiliate........... -- 214 214 -- 82 296
--------- ----------- ----------- --------- -------- -----------
Net cash provided
(used) by operating
activities......... 465 (6,799) (6,334) (3,389) (1,107) (7,441)
CASH FLOWS FROM
INVESTING ACTIVITIES:
Capital expenditures.. (451) 366 (85) (190) -- (85)
Purchase of PCS
licenses............. (118,438) (2,006,156) (2,124,594) (318,092) -- (2,124,594)
Loan to unconsolidated
partnership.......... -- (655) (655) -- (83,000) (83,655)
Investment in
unconsolidated
partnership.......... -- (131,752) (131,752) (47,946) -- (131,752)
--------- ----------- ----------- --------- -------- -----------
Net cash used by
investing
activities......... (118,889) (2,138,197) (2,257,086) (366,228) (83,000) (2,340,086)
CASH FLOWS FROM
FINANCING ACTIVITIES:
Limited partner
interest in
consolidated
subsidiary........... -- 5,000 5,000 5,000 -- 5,000
Partner capital
contributions........ 123,438 2,131,105 2,254,543 382,537 83,000 2,337,543
Borrowings from
affiliates........... -- 5,000 5,000 -- -- 5,000
--------- ----------- ----------- --------- -------- -----------
Net cash provided by
financing
activities......... 123,438 2,141,105 2,264,543 387,537 83,000 2,347,543
--------- ----------- ----------- --------- -------- -----------
INCREASE (DECREASE) IN
CASH AND CASH
EQUIVALENTS........... 5,014 (3,891) 1,123 17,920 (1,107) 16
CASH AND CASH
EQUIVALENTS, Beginning
of period............. -- 5,014 -- 5,014 1,123 --
--------- ----------- ----------- --------- -------- -----------
CASH AND CASH
EQUIVALENTS, End of
period................ $ 5,014 $ 1,123 $ 1,123 $ 22,934 $ 16 $ 16
========= =========== =========== ========= ======== ===========
</TABLE>
See notes to consolidated financial statements.
F-6
<PAGE>
SPRINT SPECTRUM L.P. AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION
Sprint Spectrum L.P. (the "Partnership") is a limited partnership formed in
Delaware on March 28, 1995, by Sprint Spectrum Holding Company, L.P.
("Holdings") and MinorCo, L.P. (collectively, the "Partners") which were
formed by Sprint Enterprises, L.P. ("Sprint"), TCI Telephony Services, Inc.
("TCI"), Cox Telephony Partnership ("Cox") and Comcast Telephony Services
("Comcast"). The Partnership was formed pursuant to a reorganization of the
operations of an existing partnership, WirelessCo, L.P., which transferred
certain operating functions to Holdings. The Partnership and certain other
affiliated partnerships are doing business as Sprint Spectrum.
The Partnership is consolidated with its subsidiary, WirelessCo, L.P. These
entities are development stage enterprises. The Partners of Sprint Spectrum
L.P. have the following ownership interests as of December 31, 1995:
<TABLE>
<S> <C>
Sprint Spectrum Holding Company, L.P. (general partner)................ 99%
MinorCo, L.P. (limited partner)........................................ 1%
</TABLE>
On February 29, 1996, the Partnership's name was changed from MajorCo Sub,
L.P. to Sprint Spectrum L.P.
Venture Formation and Structure--A Joint Venture Formation Agreement ( the
"Formation Agreement"), dated as of October 24, 1994, and subsequently amended
as of March 28, 1995, and January 31, 1996, was entered into by Sprint
Corporation, Tele-Communications, Inc., Cox Communications, Inc., and Comcast
Corporation (collectively, the "Parents"), pursuant to which the parties
agreed to form certain entities to (i) provide national wireless
telecommunications services, including acquisition and development of personal
communications services ("PCS") licenses, (ii) develop a PCS wireless system
in the Los Angeles--San Diego Major Trading Area ("MTA") and (iii) take
certain other actions.
On October 24, 1994, WirelessCo, L.P. was formed and on March 28, 1995,
additional partnerships were formed consisting of Holdings, MinorCo, L.P.,
NewTelco, L.P. and Sprint Spectrum L.P. As of December 31, 1995, Holdings held
ownership interests in NewTelco, L.P. and Sprint Spectrum L.P. (which holds a
99% general partner interest in WirelessCo, L.P.). MinorCo, L.P. held the
remaining ownership interests in NewTelco, L.P., Sprint Spectrum L.P. and
WirelessCo, L.P. at December 31, 1995. An additional partnership, Cox-
California PCS, L.P., is proposed to be formed by Holdings and another entity
affiliated with Cox Communications, Inc. for the purpose of holding and
developing a PCS system using the LA--San Diego Pioneer's Preference License.
The Parents have agreed to contribute up to an aggregate of $4.2 billion of
equity to Holdings to the extent required by the annual budget of Holdings, as
approved by the Parents. As of March 31, 1996, approximately $2.4 billion had
been contributed to Holdings, of which approximately $2.2 billion had been
contributed to Sprint Spectrum L.P. and its subsidiary and the remaining $0.2
billion had been contributed or advanced to an unconsolidated partnership
investee (see Note 3).
Partnership Agreement--The Amended and Restated Agreement of Limited
Partnership of MajorCo Sub, L.P., (the "MajorCo Sub Agreement"), dated as of
March 28, 1995, among Holdings and MinorCo, L.P. provides that the purpose of
the Partnership is to engage in wireless communications services. The MajorCo
Sub Agreement provides for the governance and administration of partnership
business, allocation of profits and losses (including provisions for special
and curative allocations), tax allocations, transactions with partners,
disposition of partnership interests and other matters.
F-7
<PAGE>
SPRINT SPECTRUM L.P. AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The MajorCo Sub Agreement provides for capital to be contributed by the
Partners, pursuant to circumstances defined in the MajorCo Sub Agreement,
equal to Holdings' interest in WirelessCo, L.P. and cash in the amount of
$5,000,000 for MinorCo, L.P.'s interest.
The MajorCo Sub Agreement generally provides for the allocation of profits
and losses first to the general partner (Holdings) and second to the limited
partner (MinorCo, L.P.), after giving effect to special allocations. After
special allocations, profits are allocated first to the general partner to the
extent of cumulative net losses previously allocated. Subsequently, the
limited partner is allocated profits to the extent of cumulative net losses
previously allocated and then up to the cumulative Preferred Return, as
defined. Finally, the general partner is allocated all remaining profits.
Losses are allocated, after considering special allocations, to the general
partner until its capital account is zero and then to the limited partner to
the extent of its capital account balance. Any remaining losses are allocated
to the general partner.
Parent Undertaking--In addition to the MajorCo Sub Agreement, each Parent
has entered into an agreement which provides for certain undertakings by each
Parent in favor of other Partners and which addresses certain obligations of
the Parent pertaining to items including provision of services,
confidentiality, foreign ownership, purchasing, restrictions on disposition
and certain other matters.
Development Stage Enterprises--The Partnership and its subsidiary are
development stage enterprises. The success of their development is dependent
on a number of business factors, including securing financing to complete
network construction and fund initial operations, successfully deploying the
PCS network and attaining profitable levels of market demand for Partnership
products and services. The Partnership has not yet generated operating
revenues. Substantially all operating expenses, exclusive of the Partnership's
equity in loss of unconsolidated partnership, were borne by Holdings for the
year ended December 31, 1995 and through March 31, 1996.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation--The financial statements have been prepared from the
date of inception, October 24, 1994 for WirelessCo, L.P., and March 28, 1995,
for Sprint Spectrum L.P., through December 31, 1995. The assets, liabilities,
results of operations and cash flows in which the Partnerships have a
controlling interest have been consolidated.
The financial information as of March 31, 1996, and for the three month
periods ended March 31, 1996 and 1995 is unaudited. The Partnership believes
such information includes all adjustments (consisting only of normal recurring
adjustments) necessary to present fairly the consolidated financial position,
results of operations and cash flows.
The limited partnership interest of MinorCo, L.P. in WirelessCo, L.P. is
reflected as a minority interest. Pursuant to the Amended and Restated
Agreement of Limited Partnership of WirelessCo, L.P. ("WirelessCo,
Agreement"), MinorCo, L.P. has not been allocated any losses incurred by
WirelessCo, L.P. The WirelessCo Agreement stipulates that all losses are to be
allocated to Sprint Spectrum L.P., the general partner, until the general
partner's capital account is depleted. All significant intercompany accounts
and transactions have been eliminated.
Cash and Cash Equivalents--The Partnership considers all highly liquid
instruments with original maturities of three months or less to be cash
equivalents.
Property, Plant and Equipment--Property, plant and equipment are stated at
cost. Property, plant and equipment are depreciated using the straight-line
method based on estimated useful lives of the assets. Depreciable lives range
from 3 to 20 years. At December 31, 1994, property, plant and equipment
consisted of office furniture and fixtures with a cost of $450,910 and related
accumulated depreciation of $37,716.
F-8
<PAGE>
SPRINT SPECTRUM L.P. AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Investment in PCS Licenses--During 1994 and 1995, the Federal Communications
Commission ("FCC") auctioned PCS licenses in specific geographic service
areas. The FCC grants licenses for terms of up to ten years, and generally
grants renewals if the licensee has complied with its license obligations. The
Partnership believes it has met and will continue to meet all requirements
necessary to secure renewal of its PCS licenses. Amortization of PCS licenses
will commence as each service area becomes operational, over estimated useful
lives of 40 years. No amortization expense was recorded in 1995 or in the
period from October 24, 1994 (date of inception) to December 31, 1994.
The ongoing value and remaining useful life of intangible assets are subject
to periodic evaluation. The Partnership currently expects the carrying amounts
to be fully recoverable. Impairments of intangibles and long-lived assets are
assessed based on an undiscounted cash flow methodology.
Income Taxes--The Partnership has not provided for federal or state income
taxes since such taxes are the responsibility of the individual Partners.
Financial Instruments--All of the Partnership's financial instruments,
including cash and cash equivalents and accounts payable, are short-term in
nature. Accordingly, the balance sheet amounts approximate the fair value of
the Partnership's financial instruments.
Use of Estimates--The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
3. INVESTMENT IN UNCONSOLIDATED PARTNERSHIP
On January 9, 1995, WirelessCo, L.P. acquired a 49% limited partnership in
American PCS, L.P. ("APC"). American Personal Communications, Inc. ("APC,
Inc.") is the general partner. The investment in APC is accounted for under
the equity method. Summarized financial information of APC as of and for the
year ended December 31, 1995, is as follows:
<TABLE>
<S> <C>
Total assets................................................... $ 237,325,784
Total liabilities.............................................. 171,179,908
Total revenues................................................. 5,153,469
Net loss....................................................... 51,551,446
</TABLE>
The following table summarizes the status and results of WirelessCo, L.P.'s
investment in APC as of December 31, 1995:
<TABLE>
<S> <C>
Beginning investment........................................... $ 23,422,000
Payment for call option........................................ 10,000,000
Capital contribution........................................... 98,330,068
Equity in losses............................................... (46,206,097)
------------
Ending investment.............................................. $ 85,545,971
============
</TABLE>
The unamortized excess of WirelessCo, L.P.'s investment over its equity in
the underlying net assets of APC at the date of acquisition was $10,139,459.
The excess investment amount is amortized on a straight-line basis over an
estimated useful life of 40 years. Amortization expense included in equity in
loss of unconsolidated partnership was $236,727 for the year ended December
31, 1995.
F-9
<PAGE>
SPRINT SPECTRUM L.P. AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
WirelessCo, L.P. receives an affiliation fee of 3% of gross revenues from
APC for APC's affiliation with the Sprint Spectrum business.
The call option in APC, acquired on January 9, 1995, provides WirelessCo,
L.P. the right to purchase an additional interest in APC from APC, Inc. in
annual increments beginning five years after the initial PCS network build-out
is completed. The first increment, an additional 20% of the APC, Inc.
ownership interest, can be acquired in each of the fifth through seventh years
with the remaining interest available for purchase in the eighth through tenth
year. APC, Inc. also has the right to put a portion of its ownership interest
to WirelessCo, L.P. on an annual basis in an amount representing the greater
of (i) one-fifth of APC, Inc.'s initial percentage interest of 51% in APC or
(ii) the portion of APC, Inc.'s interest equal to APC, Inc.'s obligation for
annual FCC payments to be made by APC, beginning one year after the completion
of the initial PCS network build-out, through the fifth anniversary date. The
exercise price of the call and put options are based on the Fair Value, as
defined, of APC at the date of exercise.
During the initial five year build-out period, which began in December 1994,
APC, Inc. and WirelessCo, L.P. are obligated as follows: (a) APC, Inc. is
obligated to make capital contributions in an amount equal to the aggregate
principal and interest payments to the FCC, provided APC, Inc. has sufficient
cash flows or can obtain financing from a third party; (b) if APC, Inc. is
unable to meet such obligation, WirelessCo, L.P. is required to contribute the
shortfall, upon ten days prior notice; (c) WirelessCo, L.P. is required to
contribute equity to APC necessary for operations up to an amount of
approximately $98 million; and (d) WirelessCo, L.P. is obligated to fund the
cash requirements of APC in excess of that described in (a), (b), and (c)
above, in the form of either loans or additional capital up to a total of $275
million (including the amount in (c) above). Contributions in excess of $275
million, however, require approval of WirelessCo, L.P. and may be made in the
form of additional equity or loans. Under certain circumstances, APC, Inc. has
the right and is obligated to exercise its put right to the extent necessary
to fund additional capital contributions. As of December 31, 1995, $98 million
of equity had been contributed and $654,982 of partner advances had been
extended. Outstanding partner advances will be non-recourse and bear interest
at an agreed upon rate and will be payable at such time when APC has
sufficient funds to permit repayment. Subsequent to December 31, 1995 and
through March 29, 1996, $83 million of additional advances were extended to
APC.
The partnership agreement between WirelessCo, L.P. and APC, Inc. specifies
that losses are allocated based on capital contributions and certain other
factors. Under the equity method, WirelessCo, L. P. has recognized the
majority of the partnership losses to date in its financial statements based
on its capital contributions and commitments to provide initial funding. Loss
allocations in the future may vary depending on additional contributions of
APC, Inc.
4. COMMITMENTS, CONTINGENCIES AND SUBSEQUENT EVENTS
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, was also formed
to be a co-obligor of certain proposed debt financing.
Procurement Contracts--On January 31, 1996, Holdings entered into
procurement and services contracts (the "Procurement Contracts") with AT&T
Corp. (subsequently assigned to Lucent Technologies, Inc., "Lucent") and
Northern Telecom, Inc. ("Nortel" and together with Lucent, the "Vendors") for
the engineering and construction of a PCS network. The Procurement Contracts
were assigned to Sprint Spectrum L.P. and then to EquipmentCo by Holdings on
June 21, 1996 for the Lucent contract and June 26, 1996 for the Nortel
contract.
F-10
<PAGE>
SPRINT SPECTRUM L.P. AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Each contract provides for an initial term of ten years with renewals for
additional one-year periods. The Vendors must achieve substantial completion
of the PCS network within an established time frame and in accordance with
criteria specified in the Procurement Contracts. Pricing for the initial
equipment, software and engineering services has been established in the
Procurement Contracts. The Procurement Contracts provide for payment terms
based on delivery dates, substantial completion dates and final acceptance
dates. In the event of delay in the completion of the PCS network, the
Procurement Contracts provide for certain amounts to be paid to Holdings by
the Vendors. The minimum commitments for the initial term are $0.8 billion and
$1.0 billion from Lucent and Nortel, respectively, which include, but are not
limited to, all equipment required for the establishment and installation of
the PCS network.
Purchase Commitments--Holdings has also entered into agreements to acquire
various cell and switch sites. Commitments to site acquisition vendors are
approximately $152 million and commitments for construction contracts and
purchases of equipment, handsets and other services are approximately $469
million. Such agreements have been executed by, or assigned to, Sprint
Spectrum L.P. or its subsidiaries on or before July 1, 1996.
Vendor Financing--Sprint Spectrum L.P. has obtained financing commitments
from Nortel dated June 11, 1996 for $1.3 billion and from Lucent dated June
21, 1996 for $1.8 billion of multiple drawdown term loan facilities (the
"Vendor Financing"). The proceeds of such facilities would be used to finance
the purchase of goods and services provided by the Vendors under the
Procurement Contracts. The Vendor Financing would be non-recourse to, and will
not be guaranteed by, the Parents and the Partners.
Borrowings under the Vendor Financing will be collateralized by a first
priority lien (the "Shared Lien") on (i) all of the partnership interests in
WirelessCo, L.P., RealtyCo and EquipmentCo, (ii) certain intangible property
assets and (iii) any real property having a value greater than $15 million.
The Shared Lien would serve as collateral for the Vendor Financing and certain
other financing from banks or other parties, not to exceed a specified level.
Such financing will be unconditionally guaranteed by WirelessCo, L.P.,
RealtyCo and EquipmentCo.
Loans under the Vendor Financing would amortize quarterly over a five year
period commencing on the date that is 39 months after the end of the one-year
period during which such loans were made.
Under the Vendor Financing, subject to certain conditions, the Partnership
would be required to make mandatory prepayments of 100% of the net cash
proceeds of any sale or disposition of subsidiaries or any sale of material
assets that are not reinvested in the wireless telecommunications businesses.
Sprint Spectrum L.P. would be able to elect that all or any portion of the
borrowings under the Vendor Financing bear interest at a rate per annum equal
to either (i) the ABR plus an applicable margin or (ii) the Eurodollar rate
(LIBOR) plus an applicable margin. The ABR is the higher of (x) the rate of
interest publicly announced by a commercial bank to be determined as its prime
rate in effect at its principal office in New York City and (y) the federal
funds effective rate plus 0.5%.
The Nortel portion of the Vendor Financing requires, as a condition to
funding, the commitment of certain additional financing from third parties.
Bank Credit Facility--Sprint Spectrum L.P. has received a commitment from
Chemical Bank to provide a fully underwritten senior credit facility (the
"Bank Credit Facility") in the amount of $2.0 billion. The proceeds of the
loans under the Bank Credit Facility would be used to finance capital
expenditures, operating losses, the working capital needs of the Company and
for partnership purposes.
F-11
<PAGE>
SPRINT SPECTRUM L.P. AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Borrowings under the Bank Credit Facility would be unconditionally
guaranteed by WirelessCo, L.P., RealtyCo and EquipmentCo. In addition,
borrowings under the Bank Credit Facility would be collateralized by the
Shared Lien. The Bank Credit Facility would be non-recourse to, and would not
be guaranteed by, the Parents or the Partners.
The Bank Credit Facility is expected to automatically reduce quarterly
commencing five years and three months following the closing date of such
facility and ending nine years after the closing date. Subject to certain
conditions, Sprint Spectrum L.P. will be required to make mandatory
prepayments or apply a portion of its excess cash flow to ratably reduce
commitments under the Bank Credit Facility and prepay loans under the Vendor
Financing.
Sprint Spectrum L.P. would be able to elect that all or any portion of the
borrowings under the Bank Credit Facility bear interest at a rate per annum
equal to (i) the ABR plus an applicable margin or (ii) the Eurodollar rate
(LIBOR) plus an applicable margin. The ABR is the higher of (x) the rate of
interest publicly announced by the administrative agent as its prime rate in
effect at its principal office in New York City and (y) the federal funds
effective rate from time to time plus 0.5%.
The Bank Credit Facility and the Vendor Financing would contain a number of
financial and operating covenants that, among other things, limit the ability
of Sprint Spectrum L.P. to incur additional indebtedness, create liens and
other encumbrances, make guarantee obligations, make distributions to partners
and repurchases of equity, make acquisitions, investments, loans and advances,
merge or consolidate with another entity or engage in any business other than
the telecommunications business and related businesses as well as restrictions
on the ability of WirelessCo, L.P., RealtyCo and EquipmentCo to incur
liabilities or engage in non-designated activities.
5. RELATED PARTY TRANSACTIONS
The Partnership reimburses Sprint Corporation for certain accounting, data
processing, employee benefits and other related services and for certain cash
payments made by Sprint Corporation on behalf of the Partnership. The
Partnership is allocated the costs of such services based upon direct usage.
As of December 31, 1995, the Partnership had a note payable of $5,000,000,
bearing interest at 6.5%, and interest payable of $213,556 due to an
affiliated entity, NewTelco, L.P.
F-12
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Partners
of American PCS, L.P.
In our opinion, the accompanying balance sheets and the related statements
of loss, of cash flows and of changes in partners' capital present fairly, in
all material respects, the financial position of American PCS, L.P. at
December 31, 1994 and 1995, and the results of its operations and its cash
flows for the years then ended, in conformity with generally accepted
accounting principles. These financial statements are the responsibility of
the Partnership's management; our responsibility is to express an opinion on
these financial statements based on our audits. We conducted our audits of
these statements in accordance with generally accepted auditing standards
which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management,
and evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
Washington, D.C.
June 19, 1996
F-13
<PAGE>
AMERICAN PCS, L.P.
(A DELAWARE LIMITED PARTNERSHIP)
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
------------------------- ------------
1994 1995 1996
------------ ------------ ------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents......... $ 1,671,728 $ 7,637,436 $ 12,711,657
Accounts receivable, less
allowance of $250,000 and
$1,225,000 at December 31, 1995
and March 31, 1996,
respectively..................... -- 3,909,169 9,444,464
Inventory......................... -- 5,186,190 10,406,230
Receivable from limited partner... 122,781 -- --
Prepaid expenses.................. 248,218 1,049,003 1,169,605
------------ ------------ ------------
Total current assets............ 2,042,727 17,781,798 33,731,956
Property and equipment, net......... 9,625,926 116,547,158 125,148,817
License, net of accumulated
amortization of $320,567 at
December 31, 1995 and $961,701 at
March 31, 1996..................... 92,876,203 102,260,322 101,619,188
Other assets........................ 765,749 736,506 671,909
------------ ------------ ------------
Total assets.................... $105,310,605 $237,325,784 $261,171,870
============ ============ ============
LIABILITIES AND PARTNERS' CAPITAL
Current liabilities:
Accounts payable and accrued
expenses......................... $ 2,325,016 $ 71,323,125 $ 45,616,778
Accrued interest.................. -- 6,509,983 8,320,769
Due to related parties............ 141,435 2,151,323 89,472,501
Accrued payroll and related
expenses......................... 677,444 2,397,947 1,169,879
Current portion of long-term
debt............................. 1,326,625 2,532,219 2,559,901
------------ ------------ ------------
Total current liabilities....... 4,470,520 84,914,597 147,139,828
Long-term debt...................... 81,472,831 86,265,311 86,980,016
------------ ------------ ------------
Total liabilities............... 85,943,351 171,179,908 234,119,844
Commitments (Note 8)
Partners' capital................... 19,367,254 66,145,876 27,052,026
------------ ------------ ------------
Total liabilities and partners'
capital........................ $105,310,605 $237,325,784 $261,171,870
============ ============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-14
<PAGE>
AMERICAN PCS, L.P.
(A DELAWARE LIMITED PARTNERSHIP)
STATEMENTS OF LOSS
<TABLE>
<CAPTION>
FOR THE YEAR ENDED THREE MONTHS ENDED
DECEMBER 31, MARCH 31,
------------------------- -------------------------
1994 1995 1995 1996
----------- ------------ ----------- ------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Revenues:
Airtime and access
charges............... $ -- $ 598,768 $ -- $ 5,488,846
Handset sales.......... -- 4,406,383 -- 6,102,444
Other.................. -- 148,318 1,700 7,051
----------- ------------ ----------- ------------
-- 5,153,469 1,700 11,598,341
----------- ------------ ----------- ------------
Cost and expenses:
Cost of handset sales.. -- 13,621,834 -- 18,681,368
Operating expenses..... -- 3,792,048 -- 7,213,114
Selling, general and
administrative........ 7,413,659 35,767,479 3,784,545 16,722,629
Depreciation and amor-
tization.............. 491,447 2,751,841 137,959 4,536,881
----------- ------------ ----------- ------------
7,905,106 55,933,202 3,922,504 47,153,992
----------- ------------ ----------- ------------
Operating loss......... (7,905,106) (50,779,733) (3,920,804) (35,555,651)
Other (income) expense:
Interest income........ (27,448) (1,201,461) (23,631) (314,787)
Interest expense....... 566 1,976,856 141,147 4,839,774
Other, net............. 5,929 (3,682) 15 13,212
----------- ------------ ----------- ------------
Net loss................. $(7,884,153) $(51,551,446) $(4,038,335) $(40,093,850)
=========== ============ =========== ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-15
<PAGE>
AMERICAN PCS, L.P.
(A DELAWARE LIMITED PARTNERSHIP)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE THREE
FOR THE YEAR ENDED MONTHS ENDED
DECEMBER 31, MARCH 31,
-------------------------- -------------------------
1994 1995 1995 1996
------------ ------------ ----------- ------------
(UNAUDITED)
<S> <C> <C> <C> <C>
CASH FLOWS FROM
OPERATING ACTIVITIES:
Net loss................ $ (7,884,153) $(51,551,446) $(4,038,335) $(40,093,850)
Adjustments to reconcile
net loss to net cash
(used in) provided by
operating activities:
Depreciation and
amortization......... 491,447 2,751,841 137,958 4,536,881
Provision for
allowance............ -- 250,000 -- 975,000
Accretion of debt
discount............. -- -- -- 999,094
Gain on sale of
assets............... 5,125 3,682 -- --
Change in assets and
liabilities:
Increase in accounts
receivable......... -- (4,159,169) -- (6,510,295)
Increase in
inventory.......... -- (5,186,190) -- (5,220,040)
Increase in prepaid
expenses........... (195,410) (800,785) (90,420) (120,602)
(Increase) decrease
in other
receivables........ (21,921) 122,781 122,781 --
Increase in other
assets............. (188,517) (274,506) (29,190) (12,392)
Increase (decrease)
in accounts payable
and accrued
expenses........... 1,190,590 68,998,109 1,156,271 (25,706,347)
Increase in accrued
interest........... -- 1,312,828 -- 1,810,786
Increase (decrease)
in due to related
parties............ 141,435 1,354,907 70,277 4,321,178
Increase (decrease)
in accrued payroll
and related
expenses........... 677,444 1,720,503 (400,571) (1,228,068)
------------ ------------ ----------- ------------
Net cash (used in)
provided by
operating
activities......... (5,783,960) 14,542,555 (3,071,229) (66,248,655)
------------ ------------ ----------- ------------
CASH FLOWS FROM
INVESTING ACTIVITIES:
Capital expenditures,
net.................. (8,773,442) (105,439,229) (8,859,884) (12,420,417)
License costs......... (3,069,740) (515,366) (140,663) --
------------ ------------ ----------- ------------
Net cash used in
investing
activities......... (11,843,182) (105,954,595) (9,000,547) (12,420,417)
------------ ------------ ----------- ------------
CASH FLOWS FROM
FINANCING ACTIVITIES:
Partners' capital
contributions........ 19,100,000 98,330,068 14,524,000 1,000,000
Repayment of notes
payable.............. -- (1,326,625) -- --
Principal payments
under capital lease
obligations.......... -- (280,676) -- (256,707)
Advances from related
party................ -- 654,981 -- 83,000,000
------------ ------------ ----------- ------------
Net cash provided by
financing
activities......... 19,100,000 97,377,748 14,524,000 83,743,293
------------ ------------ ----------- ------------
Net increase in cash and
cash equivalents....... 1,472,858 5,965,708 2,452,224 5,074,221
Beginning cash and cash
equivalents............ 198,870 1,671,728 1,671,728 7,637,436
------------ ------------ ----------- ------------
Ending cash and cash
equivalents............ $ 1,671,728 $ 7,637,436 $ 4,123,952 $ 12,711,657
============ ============ =========== ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-16
<PAGE>
AMERICAN PCS, L.P.
(A DELAWARE LIMITED PARTNERSHIP)
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
<TABLE>
<CAPTION>
AMERICAN
PERSONAL THE WASHINGTON
COMMUNICATIONS, INC. WIRELESSCO, L.P. POST COMPANY TOTAL
-------------------- ---------------- -------------- ------------
<S> <C> <C> <C> <C>
Balance, December 31,
1993 (unaudited)....... $ -- $ -- $ 8,151,407 $ 8,151,407
Capital
contributions........ -- -- 19,100,000 19,100,000
Allocation of net
loss................. -- -- (7,884,153) (7,884,153)
----------- ----------- ------------ ------------
Balance, December 31,
1994................... -- -- 19,367,254 19,367,254
----------- ----------- ------------ ------------
Allocation of net loss
for the period
January 1, 1995 to
January 9, 1995...... -- -- (392,195) (392,195)
Allocation of net loss
for the period
January 10, 1995 to
December 31, 1995.... (5,001,957) (45,908,065) (249,229) (51,159,251)
----------- ----------- ------------ ------------
1995 net loss...... (5,001,957) (45,908,065) (641,424) (51,551,446)
----------- ----------- ------------ ------------
Change in ownership
interest............. 5,285,910 13,282,541 (18,568,451) --
----------- ----------- ------------ ------------
Capital
contributions........ -- 98,330,068 -- 98,330,068
----------- ----------- ------------ ------------
Balance, December 31,
1995................... 283,953 65,704,544 157,379 66,145,876
----------- ----------- ------------ ------------
Capital contribution.. 1,000,000 -- -- 1,000,000
Allocation of net loss
(unaudited).......... (3,708,873) (36,227,598) (157,379) (40,093,850)
----------- ----------- ------------ ------------
Balance, March 31, 1996
(unaudited)............ $(2,424,920) $29,476,946 $ -- $ 27,052,026
=========== =========== ============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-17
<PAGE>
AMERICAN PCS, L.P.
(A DELAWARE LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
NOTE 1--ORGANIZATION AND BUSINESS
General
American PCS, L.P. (the Partnership) is a Delaware limited partnership
operating a personal communications services (PCS) system in the greater
Washington, D.C./Baltimore area. Development stage activities during the
period from September 20, 1990 (inception) through November 14, 1995 consisted
principally of forming the partnership, obtaining experimental and commercial
licenses from the Federal Communications Commission (FCC), and designing and
constructing a communications system. At November 15, 1995, the Partnership
had finished the design and the construction of a significant portion of the
communications system, and had commenced operations. Accordingly, as of
November 1995, the Partnership was no longer considered a development stage
enterprise for financial reporting purposes.
In 1990, the Partnership was awarded an experimental license by the FCC and
subsequently operated an experimental PCS system in the Washington,
D.C./Baltimore area. In December 1993, the Partnership was awarded a pioneer's
preference by the FCC, which guaranteed the Partnership receipt of one of two
30 MHZ PCS commercial licenses for the intended area. In December 1994, the
Partnership obtained the commercial license and began construction of a
communication system shortly thereafter.
Partnership Agreement
The Partnership was formed on September 20, 1990 in accordance with a
limited partnership agreement between American Personal Communications, Inc.
(APC) and The Washington Post Company (the Post). In January 1995, the Post
sold substantially all of its interest in the Partnership to two parties: APC
and WirelessCo, L.P. (WirelessCo) a subsidiary of Sprint Spectrum L.P. In
March 1996, the Post sold its remaining interest to APC. As a result of these
transactions, APC's interest is 51% and WirelessCo's interest is 49%. APC is
the General Partner and WirelessCo is the Limited Partner with no voting
rights or management control.
During the initial five year buildout period, which began in December 1994,
APC and WirelessCo are obligated as follows: (a) APC is obligated to make
capital contributions in an amount equal to the aggregate principal and
interest payments to the FCC, provided APC has sufficient cash flows or can
obtain financing from a third party; (b) if APC is unable to meet such
obligations, WirelessCo is required to contribute the shortfall, upon ten days
prior notice; (c) WirelessCo is required to contribute equity to the
Partnership necessary for operations up to an amount of approximately $98
million; and (d) WirelessCo is obligated to fund the cash requirements of the
Partnership in excess of that described in (a), (b) and (c) above, in the form
of either loans or additional capital up to a total of $275 million (including
the amount in (c) above). Contributions in excess of the $275 million,
however, require approval of WirelessCo and may be made in the form of
additional equity or loans.
Profit and losses will be allocated to the partners in accordance with
certain special allocations and formulas set forth in the partnership
agreement. These formulas are based on amounts which include, among others,
capital contributions, prior year losses and distributions of property and
cash to the partners. Once these provisions are satisfied, profit and losses
will be allocated in proportion to the partners' percentage interests.
NOTE 2--SIGNIFICANT ACCOUNTING POLICIES
Basis of presentation
The Partnership prepares its financial statements on the accrual basis of
accounting in accordance with generally accepted accounting principles. The
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the amounts reported in the financial statements. Actual results
may differ from those estimates.
F-18
<PAGE>
AMERICAN PCS, L.P.
(A DELAWARE LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Revenue recognition
Airtime and access charges are recorded as revenue based on the amount of
communications services rendered as measured principally by traffic processed
after deducting an estimate of the traffic that will neither be billed nor
collected. Revenue from the sale of handsets and related accessories is
recognized upon shipment or point-of-sale.
Cash and cash equivalents
All highly liquid investments with an original maturity of three months or
less at the date of acquisition are considered cash equivalents.
Inventory
Inventory, consisting of handsets and related accessories, is stated at the
lower of cost or replacement value. Costs are based on the first-in, first-out
method.
Property and equipment
Property and equipment are stated at cost. Depreciation is calculated using
the straight-line method over the related assets' estimated useful lives
ranging from five to forty years. Leasehold improvements are amortized over
the shorter of the term of the related lease or the estimated useful lives of
the assets.
Equipment under capital leases
The Partnership leases certain of its office and other equipment under
capital lease agreements. The assets and liabilities under capital leases are
recorded at the lesser of the present value of aggregate future minimum lease
payments, including estimated bargain purchase options, or the fair value of
the assets under lease. Assets under these capital leases are depreciated over
their estimated useful lives of five to seven years, which are generally
longer than the terms of the leases.
License
The PCS license includes FCC, legal and consulting fees and capitalized
interest. The FCC license fee has been recorded at its fair value on the basis
of the payment terms to the FCC and the partnership's estimated incremental
borrowing rate for similar debt at the date of award. The license expires in
December 2004; however, FCC rules provide for renewal expectancy provisions.
The Partnership expects to exercise the renewal provisions, and accordingly
the license is being amortized using the straight-line method over a period of
40 years. Amortization of these amounts commenced upon launch of the system in
November 1995.
Amortization of the license cost was $320,567 for the year ended December
31, 1995. Additionally, interest capitalized during 1995 as part of the
license cost was $9,193,528.
The ongoing value and remaining useful life of intangible assets are subject
to periodic evaluation. The Partnership currently expects the carrying amounts
to be fully recoverable. Impairments of intangible assets are assessed based
on an undiscounted cash flow methodology.
Organizational costs
Certain costs, totaling $1,539,780, were incurred during the formation of
the Partnership and have been deferred and included in other assets. These
costs are being amortized on a straight-line basis over a period of five
years. Accumulated amortization at December 31, 1994 and 1995 was $975,194 and
$1,283,151, respectively.
Preoperating costs
Prior to commencement of operations, preoperating costs, such as salaries,
marketing, recruiting and administrative costs, were expensed as incurred.
Preoperating costs, totaling $7,905,106 and $28,805,236 for the years ended
December 31, 1994 and 1995, respectively, are classified as selling, general
and administrative expenses and depreciation and amortization expenses in the
Statements of Loss.
F-19
<PAGE>
AMERICAN PCS, L.P.
(A DELAWARE LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Income taxes
No provision has been made for Federal and state income taxes since such
taxes, if any, are the responsibility of the individual partners.
Concentration of credit risk
The Partnership's subscribers are dispersed throughout the Washington,
D.C./Baltimore area. No single subscriber accounted for a significant amount
of the Partnership's revenue. A significant portion of handset sales revenue
is earned through certain retailers. Sales to one retailer accounted for 25%
of total handset sales revenue for the year ended December 31, 1995. The
Partnership reviews the credit histories of potential subscribers and
retailers prior to extending credit and maintains allowances for potential
credit losses. The Partnership maintains cash and cash equivalents in high
credit financial institutions. The Partnership believes that its risk from
concentration of credit is limited.
Interim financial statements
The interim financial data is unaudited. However, in the opinion of the
Partnership, the interim financial data includes all adjustments, consisting
only of normal recurring adjustments, necessary for a fair statement of the
results for the interim periods.
NOTE 3--PROPERTY AND EQUIPMENT
Property and equipment at December 31, 1994 and 1995 and at March 31, 1996
(unaudited) consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
------------------------ ------------
1994 1995 1996
---------- ------------ ------------
(UNAUDITED)
<S> <C> <C> <C>
Communications system.................. $ -- $106,225,628 $114,304,350
Office and other equipment............. 830,297 913,290 954,520
Leasehold improvements................. 77,894 1,959,463 2,032,897
---------- ------------ ------------
908,191 109,098,381 117,291,767
Less accumulated depreciation and
amortization........................ (304,778) (2,144,822) (5,789,103)
---------- ------------ ------------
603,413 106,953,559 111,502,664
---------- ------------ ------------
Leased office and other equipment...... -- 3,609,002 3,609,002
Less accumulated depreciation........ -- (279,576) (454,053)
---------- ------------ ------------
-- 3,329,426 3,154,949
---------- ------------ ------------
Communications system construction in
progress.............................. 9,022,513 6,264,173 10,491,204
---------- ------------ ------------
Net property and equipment............. $9,625,926 $116,547,158 $125,148,817
========== ============ ============
</TABLE>
Depreciation and amortization expense for the years ended December 31, 1994
and 1995 was $183,490 and $2,123,317, respectively.
F-20
<PAGE>
AMERICAN PCS, L.P.
(A DELAWARE LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
NOTE 4--LONG-TERM DEBT
Long-term debt at December 31, 1994 and 1995 consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1994 1995
----------- -----------
<S> <C> <C>
Due to FCC less unamortized discount of $23,978,236
and $19,981,863.................................... $78,365,303 $82,361,676
Note payable, less unamortized discount of
$1,010,360 and $522,146............................ 4,434,153 3,107,528
Capital lease obligations at interest rates ranging
from 8.33% to 10.94%............................... -- 3,328,326
----------- -----------
82,799,456 88,797,530
Less current portion.............................. (1,326,625) (2,532,219)
----------- -----------
Total long-term debt................................ $81,472,831 $86,265,311
=========== ===========
</TABLE>
The Partnership became obligated to the FCC for $102,343,539 upon receipt
of the commercial PCS license. In March 1996, the FCC determined that interest
on the amount due will begin to accrue on March 8, 1996 (at an interest rate
of 7.75%). Beginning with the first payment due in April 1996, the FCC has
granted two years of interest-only payments followed by three years of
principal and interest payments. Principal payments total $23,420,619,
$33,400,477, $36,065,221 and $9,457,222 in 1998, 1999, 2000 and 2001,
respectively. Based on the interest and payment provisions determined by the
FCC and the Partnerships' incremental borrowing rate for similar debt, the
Partnership has accrued interest beginning upon receipt of the license at an
effective rate of 13%. The unamortized discount is reflected as a reduction to
the cost of the license.
The note payable was issued in exchange for services received in obtaining
the license. The non-interest bearing note requires three equal payments of
$1,814,837, the first of which was paid on October 13, 1995, and the remaining
two payments are to be made on August 13, 1996 and June 13, 1997. The
unamortized discount was calculated using an interest rate of prime plus 2%,
or 10.5% at the time the debt was issued, which approximated the Partnership's
incremental borrowing rate for similar debt.
The estimated fair value of the Company's debt approximated its carrying
value at December 31, 1995.
Interest paid was $1,000 and $664,000 for the years ended December 31, 1994
and 1995, respectively.
NOTE 5--LEASES
The Partnership has various non-cancellable operating leases for office
space and communications system sites. Rental expense related to operating
leases was $695,482 and $1,681,276 in 1994 and 1995, respectively.
During 1995, the Partnership incurred capital lease obligations of
$3,609,002. The capital lease obligations are generally repayable in 36-60
monthly installments from the dates of purchase.
F-21
<PAGE>
AMERICAN PCS, L.P.
(A DELAWARE LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Future minimum lease payments required under capital leases and non-
cancellable operating leases are as follows:
<TABLE>
<CAPTION>
EAR ENDINGY CAPITAL OPERATING
DCEMBER 31,E LEASES LEASES
- - ------------ ---------- -----------
<S> <C> <C>
1996.................................................. $1,350,413 $ 8,084,075
1997.................................................. 1,351,320 8,139,879
1998.................................................. 998,978 8,201,039
1999.................................................. 96,271 8,080,698
2000.................................................. 65,477 6,449,123
Thereafter............................................ -- 15,358,639
---------- -----------
3,862,459 $54,313,453
---------- ===========
Less amounts representing interest.................... (534,133)
----------
Present value of minimum lease payments............... $3,328,326
==========
</TABLE>
NOTE 6--RETIREMENT SAVINGS PLAN
The Partnership has an employee savings plan that qualifies as a deferred
salary arrangement under Section 401(k) of the Internal Revenue code. All
employees completing one year of service are eligible and may contribute up to
15% of their pretax earnings. The Partnership matches 100% of the first 3% of
the employee's contribution. Employees are immediately fully vested in the
Partnership's contributions. In addition, the Partnership makes discretionary
contributions on behalf of eligible participants in the amount of 2% of
employee's compensation. The Company's expenses relating to the employee
savings plan were $38,000 and $109,000 for the years ended December 31, 1994
and 1995, respectively.
NOTE 7--RELATED PARTY TRANSACTIONS
Certain contributions from WirelessCo aggregating $654,981, exceeded amounts
required under the partnership agreement as capital contributions. As of March
31, 1996, such amounts aggregated $86,254,346 (unaudited) including $2,599,365
(unaudited) of accrued interest. Such amounts are not evidenced by a note
agreement and accordingly, have been classified as due to related parties.
The Partnership is a party to an affiliation agreement with WirelessCo under
which the Partnership agrees to conform to certain standards established by
WirelessCo and receives the right to use the "Sprint" brand in connection with
its offering of wireless products and services. The Partnership is obligated
as part of this agreement to pay a fee of 3% of its service revenue and to
reimburse WirelessCo for a certain portion of national expenses that are
deemed to benefit all WirelessCo markets, including the Partnership's markets.
During 1995, the Partnership was not allocated any national expenses by
WirelessCo. Total fees incurred and owed to WirelessCo for 1995 are $25,500.
The Partnership has a Sales Agency and Billing Collection agreement with
Sprint Communications Company, L.P. ("Sprint") under which the Partnership
acts as an agent to sell, bill and collect for Sprint long distance service
provided to its customers. Additionally, the Partnership purchases various
communications services from Sprint in support of its network infrastructure
and general business and obtains supplemental customer service support from
Sprint. The net cost of services received from Sprint in 1995 was $882,306.
Amounts outstanding at December 31, 1995 totaled $711,517.
A company that is partially owned by the chairman of the General Partner
performed consulting services for the Partnership related to the determination
and acquisition of base station sites for the communications system. Amounts
capitalized for these services totaled $1,468,994 and $2,407,400 for the year
ended December 31, 1994 and 1995, respectively. At December 31, 1994 and 1995,
the Partnership owed the company approximately $141,435 and $759,325,
respectively.
F-22
<PAGE>
AMERICAN PCS, L.P.
(A DELAWARE LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
In May, 1995, APC granted to certain executives of the Partnership stock
appreciation rights (SARs). The estimated liability related to the SARs, based
on the value of APC's common stock, was approximately $10 million and $22
million (unaudited) at December 31, 1995 and March 31, 1996, respectively, and
is being amortized over a period of approximately six years.
The Partnership leased office space during 1995 from a limited partnership
owned by officers of APC. Lease payments of $65,215 were paid to the limited
partnership during 1995.
A corporation owned by the chairman of the General Partner provided certain
consulting services in 1994, and in return, the Partnership made payments of
approximately $357,000. In addition, the Partnership paid the owner of the
corporation $100,000 in 1994 for consulting fees.
NOTE 8--COMMITMENTS
In February 1995, the Partnership selected Ericsson, Inc. and Northern
Telecom as the companies to supply the infrastructure equipment for the
communications network. Ericsson supplies switching and base station radio
equipment for the Washington-Baltimore corridor, while Northern Telecom
provides base stations for Maryland's Eastern Shore and western portions of
the Partnership's major trading area.
The contract with Ericsson is a five year acquisition agreement for certain
network hardware, software, handsets and documentation. Although the agreement
is for five years, the initial purchase commitment relates only to the initial
network configuration, which was substantially completed in December 1995 at a
contract price of approximately $47 million. Subsequent to December 31, 1995,
the Partnership has agreed to acquire additional equipment totaling $33.5
million. At June 19, 1996 the Partnership had approximately a $20.7 million
commitment remaining under the agreement.
The Northern Telecom agreement is for 2 1/2 years and provides for the
purchase of network hardware, software and documentation as well as the
installation of the equipment. During the agreement period, the Partnership is
required to purchase at least $12 million in communication equipment. At June
19, 1996, the Partnership had approximately a $2.9 million commitment
remaining under the agreement.
The Partnership has handset supply agreements with various vendors extending
over the next 12 to 18 months. At June 19, 1996, the Partnership had
approximately a $51.8 million commitment remaining under these agreements.
F-23
<PAGE>
- - -------------------------------------------------------------------------------
- - -------------------------------------------------------------------------------
NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR MAKE ANY REPRESENTATIONS, OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS. IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE
RELIED UPON AS HAVING BEEN AUTHORIZED BY THE ISSUERS OR THE UNDERWRITERS. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER
TO BUY, THE NOTES IN ANY JURISDICTION WHERE, OR TO ANY PERSON TO WHOM, IT IS
UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PRO-
SPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE AN
IMPLICATION THAT THERE HAS NOT BEEN ANY CHANGE IN THE FACTS SET FORTH IN THIS
PROSPECTUS OR IN THE AFFAIRS OF THE ISSUERS SINCE THE DATE HEREOF.
---------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary....................................................... 4
Risk Factors............................................................. 13
The Company.............................................................. 23
Use of Proceeds.......................................................... 25
Capitalization........................................................... 25
Selected Historical and Pro Forma Financial Data......................... 26
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 27
Business................................................................. 30
Management............................................................... 50
Certain Relationships and Related Transactions........................... 56
Principal Security Holders............................................... 58
The Partnership Agreements............................................... 59
Description of Vendor Contracts and Financing............................ 66
Description of the Notes................................................. 70
Certain Federal Income Tax Consequences.................................. 97
Underwriting............................................................. 100
Legal Matters............................................................ 101
Experts.................................................................. 101
Available Information.................................................... 101
Glossary of Selected Terms............................................... 102
Index to Financial Statements............................................ F-1
</TABLE>
---------------
UNTIL , 1996 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS) ALL DEALERS
EFFECTING TRANSACTIONS IN THE NOTES, WHETHER OR NOT PARTICIPATING IN THIS
DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS DELIVERY
REQUIREMENT IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A
PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD
ALLOTMENTS OR SUBSCRIPTIONS.
- - -------------------------------------------------------------------------------
- - -------------------------------------------------------------------------------
- - -------------------------------------------------------------------------------
- - -------------------------------------------------------------------------------
$650,000,000 GROSS PROCEEDS
[LOGO]
SPRINT SPECTRUM L.P.
SPRINT SPECTRUM FINANCE CORPORATION
$150,000,000 % SENIOR NOTES
DUE 2006
$ % SENIOR DISCOUNT NOTES
DUE 2006
---------------
PROSPECTUS
---------------
LEHMAN BROTHERS
MERRILL LYNCH & CO.
CHASE SECURITIES INC.
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
SALOMON BROTHERS INC
, 1996
- - -------------------------------------------------------------------------------
- - -------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the various expenses in connection with the
sale and distribution of the securities being registered which, except as
otherwise indicated, will be paid solely by the Registrants. All the amounts
shown are estimates, except the Securities and Exchange Commission
("Commission") registration fee and the NASD filing fee:
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee................ $224,138
NASD filing fee.................................................... $ 30,500
Accountants' fees and expenses .................................... $ *
Printing expenses.................................................. $ *
Legal fees and expenses............................................ $ *
Blue Sky fees and expenses......................................... $ 35,000
Trustees' fees and expenses........................................ $ *
Miscellaneous fees and expenses.................................... $ *
Other.............................................................. $ *
--------
Total............................................................ $
========
</TABLE>
--------
* To be determined.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Subject to any terms, conditions or restrictions set forth in the
Partnership Agreement of Sprint Spectrum L.P. ("Sprint Spectrum"), Section 17-
108 of the Delaware Uniform Revised Limited Partnership Act empowers a
Delaware limited partnership to indemnify and hold harmless any partner or
other person from and against all claims and demands whatsoever. The
Partnership Agreement of Sprint Spectrum provides that no Partner, former
Partner or Representative or former Representative, no affiliate of any
thereof, no partner, shareholder, director, officer, employee or agent of any
of the foregoing, nor any officer or employee of Sprint Spectrum will be
liable in damages for any act or failure to act in such person's capacity as a
Partner or Representative or otherwise on behalf of Sprint Spectrum or any of
its subsidiaries unless such act or omission constituted bad faith, gross
negligence, fraud or willful misconduct of such person or a violation by such
person of the Partnership Agreement of Sprint Spectrum or an agreement between
such person and Sprint Spectrum or a subsidiary thereof. Subject to certain
conditions, each Partner, former Partner, Representative and former
Representative, each Affiliate of any thereof, each partner, shareholder,
director, officer, employee and agent of any of the foregoing, and each
officer and employee of Sprint Spectrum, will be indemnified and held harmless
by Sprint Spectrum from and against any liability for damages and expenses,
including reasonable attorneys' fees and disbursements and amounts paid in
settlement, resulting from any threatened, pending or completed action, suit
or proceeding relating to or arising out of such person's acts or omissions in
such person's capacity as a Partner or Representative or otherwise involving
such person's activities on behalf of Sprint Spectrum or any of its
subsidiaries, except to the extent that such damages or expenses result from
the bad faith, gross negligence, fraud or willful misconduct of such person or
a violation by such person of the Partnership Agreement of Sprint Spectrum, or
an agreement between such person and Sprint Spectrum or any of its
subsidiaries.
Under Section 145 of the Delaware General Corporation Law (the "Delaware
Law"), a corporation may indemnify its directors, officers, employees and
agents and its former directors, officers, employees and agents and those who
serve, at the corporation's request, in such capacity with another enterprise,
against expenses (including attorney's fees), as well as judgments, fines and
settlements in nonderivative lawsuits, actually and reasonably incurred in
connection with the defense of any action, suit or proceeding in which they or
any of
II-1
<PAGE>
them were or are made parties or are threatened to be made parties by reason
of their serving or having served in such capacity. The Delaware Law provides,
however, that such person must have acted in good faith and in a manner such
person reasonably believed to be in (or not opposed to) the best interests of
the corporation and, in the right of the corporation, where such person has
been adjudged liable to the corporation, unless, and only to the extent that a
court determines that such person fairly and reasonably is entitled to
indemnity for costs the court deems proper in light of liability adjudication.
Indemnity is mandatory to the extent a claim, issue or matter has been
successfully defended.
Sprint Spectrum Finance Corporation's Certificate of Incorporation and By-
Laws provide for mandatory indemnification of directors and officers on
generally the same terms as permitted by the Delaware Law. Under the By-Laws,
the Company is required to advance expenses incurred by an officer or director
in defending any such action if the director or officer undertakes to repay
such amount if it is determined that the director or officer is not entitled
to indemnification.
Reference is made to the form of Underwriting Agreement, filed as Exhibit
1.1 to this Registration Statement, which provides for the indemnification of
the partnership board representatives and officers of each of the Registrants
signing this Registration Statement and certain controlling persons of each of
the Registrants against certain liabilities (including those arising under the
Securities Act), in certain instances by the Underwriters.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
There have been no sales of securities of either of the Registrants.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<C> <S>
1.1* Form of Underwriting Agreement, dated as of [ ], 1996 among the
Underwriters and the Registrants with respect to the Notes
3.1** [Intentionally omitted]
3.2** Certificate of Limited Partnership of Sprint Spectrum L.P.
3.3** Certificate of Incorporation of Sprint Spectrum Finance Corporation
3.4** By-laws of Sprint Spectrum Finance Corporation
3.5** 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 Telephony Services and Cox Telephony
Partnership
3.6** 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.
4.1* Form of Senior Note Indenture between the Registrants and The Bank of
New York, as Trustee
4.2* Form of Senior Note
4.3* Form of Senior Discount Note Indenture between the Registrants and The
Bank of New York, as Trustee
4.4* Form of Senior Discount Note
5.1* Opinion of Simpson Thacher & Bartlett regarding the legality of the
Notes being registered
10.1* Procurement and Services Contract, dated as of January 31, 1996,
between MajorCo, L.P. and Northern Telecom, Inc. [Schedules omitted]
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<C> <S>
10.2* Procurement and Services Contract, dated as of January 31, 1996,
between MajorCo, L.P. and AT&T Corp. [Schedules omitted]
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.
10.4* Paging Sales Agency Agreement, dated as of January 17, 1996, between
MajorCo, L.P. and Sprint Communications Company, L.P. [Schedules
omitted]
10.5* Wirelessco Affiliation Agreement, dated as of January 9, 1995 between
American PCS, L.P. and WirelessCo, L.P.
10.6* Second Amended and Restated Limited Partnership Agreement of American
PCS, L.P., dated as of January 9, 1995, among American Personal
Communications, Inc., WirelessCo, L.P. and The Washington Post Company
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. [Schedules omitted]
10.8* Commitment Letter of Northern Telecom Inc. to Sprint Spectrum L.P.
dated as of June 11, 1996
10.9* Commitment Letter of Chase Securities Inc. and Chemical Bank to Sprint
Spectrum L.P. dated June 7, 1996
10.10* Commitment Letter of Lucent Technologies, Inc. to Sprint Spectrum L.P.
dated June 21, 1996
10.11* Employment Agreement, dated as of September 29, 1995, by and among
MajorCo, L.P. and
Joseph M. Gensheimer
12.1 Not applicable
21.1 Subsidiaries of the Registrants
23.1* Consent of Simpson Thacher & Bartlett (included in Exhibit 5)
23.2 Consent of Deloitte & Touche LLP
23.3 Consent of Price Waterhouse LLP
24.1** Powers of Attorney (included on signature pages to Registration
Statement)
25.1* Statement of Eligibility under the Trust Indenture Act of 1939, as
amended, on Form T-1 of The Bank of New York, as Trustee under the
Senior Note Indenture
25.2* Statement of Eligibility under the Trust Indenture Act of 1939, as
amended, on Form T-1 of The Bank of New York, as Trustee under the
Senior Discount Note Indenture
</TABLE>
- - --------
* To be filed by subsequent amendment.
** Previously filed.
(b) Financial Statement Schedules
Schedules are omitted for the reason that they are not required or are not
applicable.
ITEM 17. UNDERTAKINGS
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
registrants pursuant to the provisions described under Item 14 above, or
otherwise, the registrants have been advised that in the opinion of the
Commission such indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by any
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrants in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrants will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
The Registrants hereby undertake:
(1) For purposes of determining any liability under the Securities Act,
the information omitted from the form of prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained
II-3
<PAGE>
in the form of prospectus filed by the Registrant pursuant to Rule
424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be
part of this Registration Statement as of the time it was declared
effective.
(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
II-4
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, SPRINT SPECTRUM
L.P. HAS DULY CAUSED THIS AMENDMENT TO THE REGISTRATION STATEMENT TO BE SIGNED
ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF
KANSAS CITY, MISSOURI, ON JULY 8, 1996.
Sprint Spectrum L.P.
By: Sprint Spectrum Holding Company,
L.P., its General Partner
/s/ Ronald T. LeMay
By: _________________________________
Chief Executive Officer and
President
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS REGISTRATION
STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE CAPACITIES AND ON THE
DATES INDICATED.
SIGNATURES TITLE DATE
Chief Executive
/s/ Ronald T. LeMay Officer and July 8, 1996
- - ------------------------------------- President
RONALD T. LEMAY
/s/ Arthur A. Kurtze Chief Technology
- - ------------------------------------- Officer July 8, 1996
ARTHUR A. KURTZE
Chief Business
* Development Officer July 8, 1996
- - -------------------------------------
BERNARD A. BIANCHINO
II-5
<PAGE>
SIGNATURES TITLE DATE
Chief Financial
* Officer July 8, 1996
- - -------------------------------------
ROBERT M. NEUMEISTER, JR.
General Counsel and
* Secretary July 8, 1996
- - -------------------------------------
JOSEPH M. GENSHEIMER
Partnership Board
* Representative July 8, 1996
- - -------------------------------------
WILLIAM T. ESREY
Partnership Board
* Representative July 8, 1996
- - -------------------------------------
GARY D. FORSEE
Partnership Board
* Representative July 8, 1996
- - -------------------------------------
GERALD W. GAINES
Partnership Board
* Representative July 8, 1996
- - -------------------------------------
ARTHUR B. KRAUSE
Partnership Board
* Representative July 8, 1996
- - -------------------------------------
JAMES O. ROBBINS
Partnership Board
* Representative July 8, 1996
- - -------------------------------------
LAWRENCE S. SMITH
/s/ Robert M. Neumeister, Jr.
*By_____________________________
ROBERT M. NEUMEISTER, JR.
ATTORNEY-IN-FACT
II-6
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, SPRINT SPECTRUM
FINANCE CORPORATION HAS DULY CAUSED THIS AMENDMENT TO THE REGISTRATION
STATEMENT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY
AUTHORIZED, IN THE CITY OF KANSAS CITY, MISSOURI, ON JULY 8, 1996.
Sprint Spectrum Finance Corporation
/s/ Ronald T. LeMay
By: _________________________________
PRESIDENT
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED.
SIGNATURES TITLE DATE
President and
/s/ Ronald T. LeMay Director July 8, 1996
- - -------------------------------------
RONALD T. LEMAY
Vice President,
* Treasurer July 8, 1996
- - ------------------------------------- (Principal
ROBERT M. NEUMEISTER, JR. Financial and
Accounting
Officer), and
Director
Secretary and
* Director July 8, 1996
- - -------------------------------------
JOSEPH M. GENSHEIMER
/s/ ROBERT M. NEUMEISTER, JR.
*By_____________________________
ROBERT M. NEUMEISTER, JR.
ATTORNEY-IN-FACT
II-7
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION OF EXHIBIT PAGE
------- ---------------------- ------------
<C> <S> <C>
1.1* Form of Underwriting Agreement, dated as of [ ],
1996 among the Underwriters and the Registrants with
respect to the Notes
3.1** [Intentionally omitted]
3.2** Certificate of Limited Partnership of Sprint Spectrum
L.P.
3.3** Certificate of Incorporation of Sprint Spectrum Finance
Corporation
3.4** By-laws of Sprint Spectrum Finance Corporation
3.5** 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 Telephony Services and Cox
Telephony Partnership
3.6** 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.
4.1* Form of Senior Note Indenture between the Registrants
and The Bank of New York, as Trustee
4.2* Form of Senior Note
4.3* Form of Senior Discount Note Indenture between the
Registrants and The Bank of New York, as Trustee
4.4* Form of Senior Discount Note
5.1* Opinion of Simpson Thacher & Bartlett regarding the
legality of the Notes being registered
10.1* Procurement and Services Contract, dated as of January
31, 1996, between MajorCo, L.P. and Northern Telecom,
Inc. [Schedules omitted]
10.2* Procurement and Services Contract, dated as of January
31, 1996, between MajorCo, L.P. and AT&T Corp.
[Schedules omitted]
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.
10.4* Paging Sales Agency Agreement, dated as of January 17,
1996, between MajorCo, L.P. and Sprint Communications
Company, L.P. [Schedules omitted]
10.5* Wirelessco Affiliation Agreement, dated as of January
9, 1995 between American PCS, L.P. and WirelessCo, L.P.
10.6* Second Amended and Restated Limited Partnership
Agreement of American PCS, L.P., dated as of January 9,
1995, among American Personal Communications, Inc.,
WirelessCo, L.P. and The Washington Post Company
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. [Schedules Omitted]
10.8* Commitment Letter of Northern Telecom Inc. to Sprint
Spectrum L.P. dated June 11, 1996.
10.9* Commitment Letter of Chase Securities Inc. and Chemical
Bank to Sprint Spectrum L.P. dated June 7, 1996
10.10* Commitment Letter from Lucent Technologies, Inc. to
Sprint Spectrum L.P. dated June 21, 1996.
10.11* Employment Agreement, dated as of September 29, 1995,
by and among MajorCo, L.P. and Joseph M. Gensheimer.
12.1 Not applicable.
21.1 Subsidiaries of the Registrants
23.1* Consent of Simpson Thacher & Bartlett (included in
Exhibit 5)
23.2 Consent of Deloitte & Touche LLP
23.3 Consent of Price Waterhouse LLP
24.1** Powers of Attorney (included on signature pages to
Registration Statement)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION OF EXHIBIT PAGE
------- ---------------------- ------------
<C> <S> <C>
25.1* Statement of Eligibility under the Trust Indenture Act
of 1939, as amended, on Form T-1 of The Bank of New
York, as Trustee under the Senior Note Indenture
25.2* Statement of Eligibility under the Trust Indenture Act
of 1939, as amended, on Form T-1 of The Bank of New
York, as Trustee under the Senior Discount Note
Indenture
</TABLE>
- - -------
* To be filed by subsequent amendment.
** Previously filed.
<PAGE>
EXHIBIT 21.1
Subsidiaries of the Registrants
Sprint Spectrum L.P.
1. Wireless Co, L.P.
2. Sprint Spectrum Equipment Company, L.P.
3. Sprint Spectrum Realty Company, L.P.
4. Sprint Spectrum Finance Corporation
Sprint Spectrum Finance Corporation
None
<PAGE>
EXHIBIT 23.2
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Amendment No. 1 to Registration Statement on Form
S-1 of Sprint Spectrum L.P. and subsidiary of our report dated March 29, 1996
(July 8, 1996 as to Note 4), (which report expresses an unqualified opinion and
includes an explanatory paragraph referring to the development stage of Sprint
Spectrum L.P. and subsidiary) appearing in the Prospectus, which is part of this
Registration Statement.
We also consent to the reference to us under the headings "Experts" in such
Prospectus.
DELOITTE & TOUCHE LLP
Kansas City, Missouri
July 8, 1996
<PAGE>
Exhibit 23.3
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Form S-1 of our report dated June 19, 1996 relating to
the financial statements of American PCS, L.P., which appears in such
Prospectus. We also consent to the reference to us under the heading "Experts"
in such Prospectus.
PRICE WATERHOUSE LLP
Washington, DC
July 8, 1996
